Cases for Suretyship

GARCIA VS CA
It is the stand of Garcia that he is not liable as surety to SBTC for the EXPORT loan
because the Indemnity Agreement and Continuing Suretyship he executed covered
only the SWAP loan, which, however, were later replaced and extinguished by the
chattel mortgage executed by Dynetics in favor of SBTC.
On the other hand, SBTC contends that Garcia is liable for both the EXPORT loan and
SWAP loan transactions by virtue of the comprehensive provisions of the Indemnity
Agreement (Exh. NN) and the Continuing Suretyship (Exh. OO, OO-1) he signed and
executed jointly and severally with Dynetics in favor of SBTC.
After a painstaking study of the records before us, we find for petitioner Garcia. We
hold that he is not liable for the EXPORT loan. Stated differently, Garcias liability as
surety for the SWAP loan under the Indemnity Agreement and the Continuing
Surety, if any at all, does not extend to the EXPORT loan.
The EXPORT loan transaction and SWAP loan transaction are totally alien to each
other. Noteworthy is the fact that the EXPORT loan, its renewal of credit line
containing the trust receipts and hold-out provisos were extended to Dynetics and
the only participation of Garcia was to sign in his capacity as President of Dynetics.
The promissory notes were signed by the Vice-President for Treasury and Finance
Luvina Maglaya for Dynetics. On the other hand, the SWAP loanwas applied for and
extended to Dynetics as principal, with Garcia as surety under the Indemnity
Agreement. While Garcia is a party in both transactions, he acted in different
capacities.
Clearly, the two loan transactions involved two sets of parties. The Indemnity
Agreement signed by Garcia is a distinct contract and can not in anyway be related
to the EXPORT loan.
Even if we momentarily disregard the foregoing circumstances, and confine
ourselves to the provisions of the Indemnity Agreement, still the conclusion can not
be escaped that the same does not cover the EXPORT loan. To say otherwise would
be to make the provision too comprehensive and all-encompassing as to amount to
absurdity.
The phrase such other obligations in the Indemnity Agreement is vague,
equivocal, and patently ambiguous. It raises doubt as to its real meaning. It is,
therefore, subject to interpretation. If the parties intended the 1982 SWAP loan to
apply to and cover the 1980 EXPORT loan transaction, SBTC should have clearly and
categorically stated so in the said Indemnity Agreement. Respondent bank failed in
this regard.
GOVERNMENT VS TIZON
The issue at this instance is whether an appeal by one of the parties sentenced to
pay solidarily a sum of money, inures to the benefit of the other who did not appeal.
Solution of the question posed in this appeal hinges on the nature of the obligation
assumed by the Surety under its bond. As Article 1222 of the new Civil Code
provides:
A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal
to him, or pertain to his own share. With respect to those which personally belong to

the others, he may avail himself thereof only as regards that part of the debt for
which the latter are responsible.
True, it is that the Surety did not appeal the decision of the inferior court to the
Court of First Instance, and on account of its failure to appeal, it lost its personality
to appear in the latter court or to file an answer therein. However this may be, it is
not certain at this stage of the proceeding that the Surety's liability unto plaintiff
has attached. The principal debtor has asserted on appeal that it has no liability
whatsoever to the plaintiff, and, if this assertion be proven and sustained, the
reversal of the judgment of the inferior court would operate as a reversal on the
Surety, even though it did not appeal, in view of the dependency of its obligation
upon the liability of the principal debtor. The principal debtor might succeed in his
appeal; in such eventuality, the judgment of the inferior court could not continue in
force against the Surety. Consequently, it is premature at this juncture to execute
said judgment against the Surety.
PALMARES VS. CA
(288 SCRA 422)Facts:
Private respondent M.B. Lending Corporation extended a loan to the spouses
Osmea andMerlyn Azarraga, together with petitioner Estrella Palmares, in the
amount of P30,000.00 payable on orbefore May 12, 1990, with compounded interest
at the rate of 6% per annum to be computed every 30days from the date thereof. 1
On four occasions after the execution of the promissory note and evenafter the loan
matured, petitioner and the Azarraga spouses were able to pay a total of
P16,300.00,thereby leaving a balance of P13,700.00. No payments were made after
the last payment onSeptember 26, 1991. 2Consequently, on the basis of petitioner's
solidary liability under the promissory note, respondentcorporation filed a complaint
3 against petitioner Palmares as the lone party-defendant, to theexclusion of the
principal debtors, allegedly by reason of the insolvency of the latter.Issue: WON
Palmares is liableHeld:
If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter3, Title I of this Book shall be observed. In such case the contract
is called a suretyship. It is a cardinalrule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt uponthe intention of the
contracting parties, the literal meaning of its stipulation shall control. 13 In thecase
at bar, petitioner expressly bound herself to be jointly and severally or solidarily
liable with theprincipal maker of the note. The terms of the contract are clear,
explicit and unequivocal thatpetitioner's liability is that of a surety
ESCAO V. ORTIGAS, JR.526 SCRA 26 (JUNE 29, 2007)
Facts:
On April 28, 1980, Private Development Corporation of the Philippines (PDCP)
entered into a loanagreement with Falcon Minerals, Inc. (Falcon) amounting to
$320,000.00 subject to terms and conditions.[
Nagpautang ang PDCP sa Falcon ng $320K
]On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey,
and George T. Scholeyexecuted an Assumption of Solidary Liability to assume in
[their] individual capacity, solidary liability with[Falcon] for due and punctual
payment of the loan contracted by Falcon with PDCP. Two (2) separate guaranties

were executed to guarantee payment of the same loan by other stockholdersand

officers of Falcon, acting in their personal and individual capacities. One guaranty
was executed byEscao, Silos, Silverio, Inductivo and Rodriguez. Two years later, an
agreement developed to cede control of Falcon to Escao, Silos and Matti.
Contractswere executed whereby Ortigas, George A. Scholey, Inductivo and the
heirs of then already deceasedGeorge T. Scholey assigned their shares of stock in
Falcon to Escao, Silos and Matti. An Undertakingdated June 11, 1982 was executed
by the concerned parties, namely: with Escao, Silos and Matti asSURETIES and
Ortigas, Inductivo and Scholeys as OBLIGORSFalcon eventually availed of the sum
of $178,655.59 from the credit line extended by PDCP. It would alsoexecute a Deed
of Chattel Mortgage over its personal properties to further secure the loan.
However,Falcon subsequently defaulted in its payments. After PDCP foreclosed on
the chattel mortgage, thereremained a subsisting deficiency of Php 5,031,004.07
which falcon did not satisfy despite demand.
Issue:
Whether the obligation to repay is solidary, as contended by respondent and the
lower courts, ormerely joint as argued by petitioners.
Held/Ruling:
In case, there is a concurrence of two or more creditors or of two or more debtors in
one and thesame obligation, Article 1207 of the Civil Code states that among them,
[t]here is a solidary liability onlywhen the obligation expressly so states, or when
the law or the nature of the obligation requiressolidarity. Article 1210 supplies
further caution against the broad interpretation of solidarity by providing:The
indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility. These Civil Code provisions establish that in
case of concurrence of two or morecreditors or of two or more debtors in one and
the same obligation, and in the absence of express andindubitable terms
characterizing the obligation as solidary, the presumption is that the obligation is
only joint. It thus becomes incumbent upon the party alleging that the obligation is
indeed solidary in characterto prove such fact with a preponderance of
evidence.Note that Article 2047 itself specifically calls for the application of the
provisions on joint andsolidary obligations to suretyship contracts. Article 1217 of
the Civil Code thus comes into play,recognizing the right of reimbursement from a
co-debtor (the principal debtor, in case of suretyship) infavor of the one who paid (
i.e.
, the surety).
[
However, a significant distinction still lies between a joint andseveral debtor, on one
hand, and a surety on the other. Solidarity signifies that the creditor can compelany
one of the joint and several debtors or the surety alone to answer for the entirety of
the principal debt. The difference lies in the respective faculties of the joint and
several debtor and the surety to seekreimbursement for the sums they paid out to
the creditor. In the case of joint and several debtors, Article1217 makes plain that
the solidary debtor who effected the payment to the creditor may claim from hiscodebtors
only the share which corresponds to each,
with the interest for the payment alreadymade. Such solidary debtor will not be
able to recover from the co-debtors the full amount already paid tothe creditor,
because the right to recovery extends only to the proportional share of the other codebtors,and not as to the particular proportional share of the solidary debtor who

already paid. In contrast, even asthe surety is solidarily bound with the principal
debtor to the creditor, the surety who does pay the creditorhas the right to recover
the full amount paid, and not just any proportional share, from the principal
debtoror debtors. Such right to full reimbursement falls within the other rights,
actions and benefits which pertainto the surety by reason of the subsidiary
obligation assumed by the surety.
*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of P1.3M; Legal
interest of 12% per annum on P 1.3M computed from March 14, 1994. Assailed
rulings are affirmed. Costsagainst petitioners