SOUTHERN MOTORS VS ELISEO BARBOSA
Tanglao but a
FACTS: Plaintiff Southern Motors brought an action against defendant Barbosa to
foreclose a real estate mortgage constituted by the latter in favor of the former, as
security for the payment of a sum extended by plaintiff to one Alfredo Brillantes,
because the latter failed to settle his obligation in accordance with the terms and
conditions corresponding with the deed of mortgage.
Defendant filed an answer admitting the allegations of the complaint and alleging by
way of special and affirmative defense that he executed the deed of mortgage for
the sole purpose of guaranteeing the above mentioned debt of Brillantes and that
therefore plaintiff cannot foreclose the mortgage property without a prior exhaustion
of the principals properties
After the case transferred from one judge to another, the trial court rendered
judgment on the pleadings in favor of plaintiff that prompted respondent to appeal
before the C&A who certified the case to the SC in view of the fact that the appeal
raises purely questions of law.
ISSUE: WON plaintiff is required to exhaust debtor-principals property before he
can proceed to foreclose the mortgage.
HELD: No. Defendants invocation of article 2058 of the Civil Code is misplaced
because the right of the guarantors to demand exhaustion of the property of the
principal debtor under said provision exists only when a pledge or mortgage has not
been given as special security for the payment of the principal obligation.
Under the given facts of the case, a mortgage was executed as security for
brillantes debt, hence, defendants reliance upon the aforementioned provision
cannot be sustained, for what governs in this case are the provisions under title XVI
of the Civil Code concerning pledge and mortgages.
WISE & CO. VS. TANGLAO
Facts: Atty. Dionisio Tanglao (Cornelio Davids atty) by power of attorney
mortgaged two real properties belonging to him to secure the payment of a
judgment credit of P640 obtained by Wise & Co. against Cornelio David (agent of
W&C). As Cornelio David paid only a part of the indebtedness, Wise & Co. filed an
action against Atty. Tanglao to recover the unpaid balance.
Issue: WON atty. Dionisio Tanglao is liable for the balance?
Held: No, Nothing is stated in the compromise agreement to the effect that Atty.
Tanglao become Davids surety for the payment of the judgment debt.
(1) Tanglao did not contract any personal responsibility for the payment of the sum
of P640. The only obligation which he contracted was that resulting from the
mortgage. However, a foreclosure suit was not instituted against Atty.
purely personal action for the recovery of the amount still owned by Atty. Tanglao.
(2) Even granting that Atty. Tanglao may be considered a surety (or guarantor), the
action does not lie against him on the ground that all the legal remedies against him
have not previously been asked for and David has property sufficient to pay the
balance of the debt the payment of which is sought of Tanglao in his alleged
capacity as surety. A guaranty or surety must be expressed and cannot be
presumed. Art 2058 the guarantor cannot be compelled to pay the creditor unless
the latter has exhausted all the property of the debtor, and has resorted to all legal
remedies against the debtor.
PRUDENTIAL BANK vs. INTERMEDIATE APPELLATE COURT, ET AL
FACTS: Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of
Japan for the importation of textile machineries under a five-year deferred payment
plan. To effect payment for said machineries, Philippine Rayon Mills opened a
commercial letter of credit with the Prudential Bank and Trust Company in favor of
Nissho. Against this letter of credit, drafts were drawn and issued by Nissho, which
were all paid by the Prudential Bank through its correspondent in Japan. Two of
these drafts were accepted by Philippine Rayon Mills while the others were not.
Petitioner instituted an action for the recovery of the sum of money it paid to Nissho
as Philippine Rayon Mills was not able to pay its obligations arising from the letter of
credit. Respondent court ruled that with regard to the ten drafts which were not
presented and accepted, no valid demand for payment can be made. Petitioner
however claims that the drafts were sight drafts which did not require presentment
for acceptance to Philippine Rayon.
ISSUE: Whether presentment for acceptance of the drafts was indispensable to
make Philippine Rayon liable thereon.
RULING: In the case at bar, the drawee was necessarily the herein petitioner. It
was to the latter that the drafts were presented for payment. There was in fact no
need for acceptance as the issued drafts are sight drafts. Presentment for
acceptance is necessary only in the cases expressly provided for in Section 143 of
the Negotiable Instruments Law (NIL). The said section provides that presentment
for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or place of
business of the drawee.
In no other case is presentment for acceptance necessary in order to render any
party to the bill liable. Obviously then, sight drafts do not require presentment for
acceptance.
The Imperial Insurance, Inc. vs. De Los Angeles
FACTS: Felicisimo Reyes failed to pay his creditors Rosa, Pedro and Consolacion
Reyes. The creditors obtained a writ of preliminary attachment and levied upon all
the properties of Felicisimo. Imperial Insurance and Felicisimo posted a defendants
bond for dissolution of attachment in the amount of 100K. RTC favored the
creditors. Writ of execution was issued but was returned unsatisfied, thus the
creditors files a motion for recovery on the surety bonds. Creditors sent a letter of
demand to Imperial to pay the amount of the counter bond, which the latter
opposed. Respondent j\judge rendered judgement against the counter bonds.
ISSUE: WON the creditors can go after the surety in the counter bond without
exhausting the properties of Felicisimo.
IMPERIAL: The contract is a guaranty, thus, the creditors should exhaust all the
properties of F. Reyes before going after the surety in the counter bond.
CREDITORS: They can go directly after the surety without prior exhaustion of
Felicisimos properties.
HELD: The creditors can go after the surety in the counter bond even without
exhausting the properties of Felicisimo. Although the counter bond contemplated in
the afore quoted Sec. 17, Rules 57, of the Rules of Court is an ordinary guaranty
where the sureties assume a subsidiary liability, the rule cannot apply to a counter
bond where the surety bound itself "jointly and severally" (in solidum) with the
defendant as in the present case.
Imperial Insurance is primarily liable to pay the counter bond. Imperial Insurance,
Inc. had bound itself solidarily with the principal, the deceased defendant Felicisimo
V. Reyes. In accordance with Article 2059, par. 2, excussion shall not take place if
the guarantor has bound himself solidarily with the debtor. Section 17, Rule 57 of
the Rules of Court cannot be construed that an execution against the debtor be first
returned unsatisfied even if the bond were a solidary one, for a procedural rule may
not amend the substantive law expressed in the Civil Code, and further would nullify
the express stipulation of the parties that the surety's obligation should be solidary
with that of the defendant.
Arroyo vs Jungsay
Plaintiff is Jose Arroyo, guardian of Tito Jocsing, an imbecile.
Defendant is Florentino Jungsay and his bondsmen. Florentino was the former
guardian of Jocsing. The defendants absconded with Jocsings funds.A judgement
was made by the lower court against the defendants for P6,000, together with
interest and costs, the bondsmen appealed.
Issue: W/N the defendants should be credited with P4,400, the alleged value of
certain property but is in the exclusive possession of third parties under claim of
ownership.
Held: No. Defendants invoke the benefit of excussionin Article 1834 of the (old) Civil
Code. Excussiongives to the surety the benefit of a levy (excusion), even when a
judgment is rendered against both the surety and the principal.The effect of this is to
stay proceedings against the surety until judgment has been obtained against the
principal debtor, and execution against his property has proved insufficient.
The court however held that before the surety is entitled to this benefit, he must
point out to the creditor property of the principal debtor which can be sold and which
is sufficient to cover the amount of the debt. (Article 1832 OCC, read Art 2060
NCC).
According to Manresa, the claim for the benefit of excussion have several elements:
1.) It must be claimed in a timely manner
2.) Surety must designate property of the debtor where the debt is to be satisfied
and importantly,
3.) Such property must be realizable and that it be situated in Spanish territory.
The same requisites were cited in Hill &Co,
1.) The surety who wants to claim the benefit of excussion must demand it in
limine (on the institution of the proceedings)
2.) He must point out creditor property of the principal debtor
3.) The property must not be incumbered, subject to seizure; and must furnish a
sufficient sum to have the discussion carried into effect
The purpose of a bond is to secure performance and the attachment of a property
situated a great distance away or a property that is not readily realizable would be a
lengthy and extremely difficult proceeding.
The surety is tasked with designating the property because he the one to be
benefitted by such task and the one most interested in avoiding difficulties in its
execution.
In this case, the property the defendants want credited to them is not sufficient to
pay the indebtedness; it is not salable; it is so incumbered that third parties have,
full possession under claim of ownership.In all these respects the sureties have
failed to meet the requirements of article 1832 of the Civil Code.
Where a guardian absconds or is beyond the jurisdiction of the court, the proper
method, under article 1834 of the Civil Code and section 577 of the Code of Civil
Procedure, in order to ascertain whether such guardian is liable and to what extent,
in order to bind the sureties on his official bond, is by a proceeding in the nature of a
civil action wherein the sureties are made parties and given an opportunity to be
heard. All this was done in the instant case
Disposition: Lower court affirmed.
Mira Hermanos, Inc. vs. Manila Tobaconists, Inc.
Facts: To secure the obligation of Manila Tobaconists up to the sum of 3,000under
contract with Mira Hermanos who agreed to deliver to Manila Tobacconists
merchandise for sale on consignment under certain specified terms, Provident
Insurance Co. executed a bond of 3,000. Since the value of merchandise exceeded
3,000 Manila Compania de Seguros executed a bond of 2,000 with the same terms
and conditions that the bonds would respond for the obligation of Manila
Tobacconists. Mira Hermanos sued the 2 insurance companies for the amount of
2,500
Issue: WON Provident Insurance Co. is entitled to the benefit of division.
Held: No, The benefit of division is applicable only where there are several
guarantors or sureties of only one debtor for the same debt. In the instant case,
although the 2 bonds on their face appear to guarantee the same debt co-
extensively up to 2K that Provident Insurance Co. alone extending beyond the
sum up to 3K in reality said bonds do not guarantee the same debt.
Art. 2065 should there be several guarantors of only one debtor and for the same
debt, the obligation to answer for the same is divided among all. The creditor cannot
claim from the guarantors except shares which they are respectively bound to pay,
unless solidarily has been expressly stipulated. The benefit of division against the
co-guarantors ceased in the same cases and for the same reasons as the benefit of
excussion against the principal debtor.
JN DEVELOPMENT CORPORATION vs. PHILIPPINE EXPORT AND
FOREIGN LOAN GUARANTEE CORPORATION
FACTS: Petitioner JN Development Corporation and Traders Royal Bank entered
into an agreement that the latter would extend to JN an Export Packing Credit Line
for Two Million Pesos. The loan was covered by several securities, including a real
estate mortgage and a letter of guarantee from respondent Philippine Export and
Foreign Loan Guarantee Corporation, covering seventy percent (70%) of the credit
line. With PhilGuarantee issuing a guarantee in favor of TRB. For failure of
petitioner JN to pay upon maturity, PhilGuarantee was made to pay. When JN failed
to reimburse the latter, respondent PhilGuarantee filed a Complaint for collection of
money and damages against herein petitioners.
The RTC dismissed PhilGuarantees Complaint as well as the counterclaim of
petitioners. It ruled that petitioners are not liable to reimburse PhilGuarantee what it
had paid to TRB since the latter was able to foreclose the real estate mortgage
executed by JN, thus extinguishing petitioners obligation. According to the RTC,
the failure of TRB to sue JN for the recovery of the loan precludes PhilGuarantee
from seeking recoupment from what it paid to TRB. Thus, PhilGuarantees payment
to TRB amounts to a waiver of its right under Art. 2058 of the Civil Code.
ISSUE: WON petitioner is still liable to indemnify the guarantor despite the latter
seemingly waiving its right to excussion?
HELD: Yes. The Court held that PhilGuarantees waiver of the right of excussion
cannot prevent it from demanding reimbursement from petitioners. The law clearly
requires the debtor to indemnify the guarantor what the latter has paid. Under a
contract of guarantee, the guarantor binds himself to the creditor to fulfil the
obligation of the principal debtor in case the latter should fail to do so. The guarantor
who pays for a debtor, in turn, must be indemnified by the latter. However, the
guarantor cannot be compelled to pay the creditor unless the latter has exhausted
all the property of the debtor and resorted to all the legal remedies against the
debtor. This is what is otherwise known as the benefit of excussion
Bitanga vs. Pyramid
FACTS: Pyramid filed with the RTC a Complaint for specific performance and
damages with application for the issuance of a writ of preliminary attachment
against the petitioner and wife Marilyn.
Respondent alleged in its Complaint that, it entered into an agreement with
Macrogen Realty, of which Bitanga is the President, to construct for the latter the
Shoppers Gold Building located in Paraaque City. Respondent commenced civil,
structural, and architectural works on the construction project. However, Macrogen
failed to settle respondents progress billings. Petitioner, through his representatives
and agents, assured respondent that the outstanding account of Macrogen would
be paid and relying on the assurances made by petitioner, respondent continued the
construction project.
Later, respondent suspended work on the construction project since the conditions
that it imposed for the continuation thereof, including payment of unsettled
accounts, had not been complied with by Macrogen. Respondent instituted with the
Construction Industry Arbitration Commission (CIAC) a case for arbitration against
Macrogen Realty seeking payment by the latter of its unpaid billings and project
costs. Before the arbitration case could be set for trial, Pyramid and Macrogen
entered into a Compromise Agreement, with petitioner acting as signatory for and in
behalf of Macrogen Realty.
Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the
total amount of P6,000,000.00 by installments. Petitioner guaranteed the obligations
of Macrogen Realty under the Compromise Agreement by executing a Contract of
Guaranty in favor of respondent, by virtue of which he irrevocably and
unconditionally guaranteed the full and complete payment of the principal amount of
liability of Macrogen. Upon joint motion of respondent and Macrogen Realty, the
CIAC approved the Compromise Agreement.
Macrogen Realty failed and refused to pay all the monthly installments agreed upon
in the Compromise Agreement. Hence respondent moved for the issuance of a writ
of execution against Macrogen, which CIAC granted.
The sheriff filed a return stating that he was unable to locate any property of
Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank,
Buendia Branch.
Respondent then made, a written demand on petitioner, as guarantor of Macrogen
to pay the liability or to point out available properties of the Macrogen within the
Philippines sufficient to cover the obligation guaranteed. It also made verbal
demands on petitioner. Yet, respondents demands were left unheeded.
Petitioner filed with the RTC his Answer to respondents Complaint. As a special
and affirmative defense, petitioner argued that the benefit of excussion was still
available to him as a guarantor since he had set it up prior to any judgment against
him. According to petitioner, respondent failed to exhaust all legal remedies to
collect from Macrogen the amount due under the Compromise Agreement,
considering that Macrogen Realty still had uncollected credits which were more than
enough to pay for the same. Given these premise, petitioner could not be held liable
as guarantor.
We find untenable the claim that the Bitanga cannot be compelled to pay Pyramid
because the Macrogen Realty has allegedly sufficient assets. Reason: The said
[petitioner] had not genuinely controverted the return made by Sheriff Bisnar, who
affirmed that, after exerting diligent efforts, he was not able to locate any property
belonging to the Macrogen Realty, except for a bank deposit with the Planters Bank
at Buendia, in the amount of P20,242.23. It is axiomatic that the liability of the
guarantor arises when the insolvency or inability of the debtor to pay the amount of
debt is proven by the return of the writ of execution that had not been unsatisfied

ISSUE: WON petitioner cam avail of the benefit of excussion

HELD: petition denied for lack of merit; CA affirmed; Bitanga (alone; not including
his wife who is not a party to the compromise agreement) is liable as per
Compromise Agreement or the contract of guaranty.

NO

Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so. The
guarantor who pays for a debtor, in turn, must be indemnified by the latter.
However, the guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor and resorted to all the legal remedies
against the debtor. This is what is otherwise known as the benefit of excussion

Article 2060 of the Civil Code reads:

Art. 2060. In order that the guarantor may make use of the benefit of excussion, he
must set it up against the creditor upon the latters demand for payment from him,
and point out to the creditor available property of the debtor within Philippine
territory, sufficient to cover the amount of the debt

It must be stressed that despite having been served a demand letter at his office,
petitioner still failed to point out to the respondent properties of Macrogen Realty
sufficient to cover its debt as required under Article 2060 of the Civil Code. Such
failure on petitioners part forecloses his right to set up the defense of excussion.

Worthy of note as well is the Sheriffs return stating that the only property of
Macrogen Realty which he found was its deposit of P20,242.23 with the Planters
Bank.

Article 2059(5) of the Civil Code thus finds application and precludes petitioner from
interposing the defense of excussion. We quote:

Art. 2059. This excussion shall not take place:

xxxx

(5) If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation.

As the Court of Appeals correctly ruled: