Guaranty and Surety

(VP-SL-PET-EEP) (Velasquez - PNB - Southern Motors - Luzon Steel Corp – Palmares - Export and Foreign
Loan Guarantee Corp. - Tupaz IV - Eastern Shipping Lines - Escano- Philippine Blooming Mills)

1. Velasquez v. Solidbank (Dried sea cucumber)

 Petitioner cannot be both the primary debtor and the guarantor of his own debt. This is
inconsistent with the very purpose of a guarantee which is for the creditor to proceed
against a third person if the debtor defaults in his obligation.
2. PNB v. Macapanga Producers (Sugar mill)
 As the principal debtor’s obligation is valid and has not been satisfied by his estate, and
Plaridel Surety bound itself solidarily, then the creditor may sue any of the solidary
debtors or all of them simultaneously.
 An action instituted against one shall not be a bar to those which may be subsequently
brought against the others, as long as the debt is not yet satisfied.
3. Southern Motors v. Barbosa
 Defendant’s invocation of Art. 2058 is misplaced; the right of the guarantors to demand
exhaustion of the property of the principal of the debtor exists only when a pledge or
mortgage has not been given as special security for the payment of the principal
obligation.
4. Luzon Steel Corp. v. Sia
 Counterbonds are posted to lift the writ of attachment due to these bonds being
security of any judgement that the attaching party may obtain; they are mere
replacements of the property formerly attached. It was therefore an error on the part of
the court to have ordered the surety cancelled on the theory.
5. Palmares v. CA (Promissory note)
 A suretyship is an undertaking that the debt shall be paid; a guaranty is an undertaking
that the debtor shall pay. Stated otherwise, a surety promises to pay the principal’s debt
if the principal will not pay, while a guarantor agrees that the creditor may proceed
against the guarantor if the principal is unable to pay. A surety binds himself to perform
if the principal does not, without regard to his ability to do so. On the other hand, a
guarantor does not contract that the principal will pay, but simply that he is unable to
do so.
6. Export and Foreign Loan Guarantee Corp. v. VP Eusebio
 The petitioner guarantor should have waited for the natural course of guaranty: the
debtor VPECI should have, in the first place, defaulted in its obligation and that the
creditor SOB should have first made a demand from the principal debtor. It is only when
the debtor does not or cannot pay, in whole or in part, that the guarantor should pay.
7. Tupaz IV v CA
 A corporate representative signing as a solidary guarantee as corporate representative
did not undertake to guarantee personally the payment of the corporation’s debts.
  As an exception, directors or officers are personally liable for the corporation’s debts
only if they so contractually agree or stipulate. And the trust receipt shows that he
intends to do so, stipulating that the liability of this guarantee is DIRECT AND
IMMEDIATE.
 Excussion is not a prerequisite to secure judgment against a guarantor; The benefit of
excussion may be waived. In including “liability x x x DIRECT without need to take any
steps or exhaust its legal remedies” It is a clear indication that he intends himself to be
liable without the benefit of excussion.
8. Eastern Shipping Lines v. CA
 CB Circular 416: the rate of interest for loan or forbearance of money, goods, or credit,
in the absence of express contract as to the rate of interest, the rate shall be 12% per
annum; When there is an express stipulation on the interest rate, then the stipulation
shall be binding between the parties;
 An obligation not constituting a loan or forbearance of money is breached, an interest in
the amount of damages may be imposed at the discretion of the court at the rate of 6%
per annum.
 When the judgement of the court awarding a sum of money becomes final and
executory, the rate of legal interest, on both cases, shall be 12% per annum, the interim
period being deemed a forbearance of credit.
9. Escano v. Ortigas
 Petitioners are not solidarily liable to respondent Ortigas. In case there is a concurrence
of two or more creditors or of two or more debtors in one and the same obligation,
Article 1207 of the Civil Code states that among them, there is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.”
 Article 1210 supplies further that the indivisibility of an obligation does not necessarily
give rise to solidarity. Nor does solidarity of itself imply indivisibility. Thus, the
presumption is that the obligation is only joint.
10. Philippine Blooming Mills, Inc. v. CA
 The law expressly allows a suretyship for "future debts". Article 2053 of the Civil Code
provides: A guaranty may also be given as security for future debts, the amount of
which is not yet known; there can be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be secure.
Pledge and Mortgage

(DBOL-MY-C) (DBP - Bustamante - Spouses Ong - Litton - Manila Banking Corp. - Yau Chu - Citibank)

1. DBP v. CA
 It is obvious that DBP exceeded its authority, and that DBP had appropriated and taken
ownership of Cuba’s leasehold rights merely on the strength of the deed of assignment.
 DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of
appropriating the leasehold rights.
 At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article
2088 of the Civil Code, which forbids a creditor from appropriating, or disposing of, the
thing given as security for the payment of a debt.
 The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did
not estop her from questioning DBP's act of appropriation. Estoppel does not lie against
act prohibited by law or public policy.
2. Bustamante v. Rosel
 Pactum Commissorium elements: 1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and 2) there should be a stipulation
automatic appropriation by the creditor of the thing mortgaged in case of nonpayment
of the principal obligation within the stipulated period.
 In this case, the intent to appropriate the property given as collateral in favor of the
creditor appears to be evident, for the debtor is obliged to dispose of the collateral at
the preagreed consideration amounting to practically the same amount as the loan. In
effect, the creditor acquires the collateral in the event of non-payment of the loan.
3. Spouses Ong v. Roban Lending Corporation
 As regards the argument that a dacion en pago is a special form of payment, it must be
noted that the true dacion en pago extinguishes the monetary debt upon assignment of
property. In the case at bar, the alienation of the properties was by way of security, not
of satisfying the debt per se; the obligation is not extinguished.
4. Litton v. Mendoza and CA
 Although the pledgee or the assignee, Litton, Sr. did not ipso facto become the creditor
of private respondent Mendoza, the pledge being valid, the incorporeal right assigned
by Tan in favor of the former can only be alienated by the latter with due notice to and
consent of Litton, Sr. or his duly authorized representative.
5. Manila Banking Corp v. Teodoro
 The deed of assignment was intended as collateral security for the bank loans of
appellants, as a continuing guaranty for whatever sums would be owing by defendants
to plaintiff. In case of doubt as to whether a transaction is a pledge or a dation in
payment, the presumption is in favor of pledge, the latter being the lesser transmission
of rights and interests.
6. Yau Chu v. CA
 The Court of Appeals found that the deeds of assignment were contracts of pledge, but,
as the collateral was also money or an exchange of "peso for peso," the provision in
Article 2112 of the Civil Code for the sale of the thing pledged at public auction to
convert it into money to satisfy the pledgor's obligation, did not have to be followed. All
that had to be done to convert the pledgor's time deposit certificates into cash was to
present them to the bank for encashment after due notice to the debtor.
7. Citibank v. Sabeniano
 Although the pertinent documents were entitled Deeds of Assignment, they were, in
reality, more of a pledge by respondent to petitioner Citibank of her credit due from
petitioner FNCB Finance by virtue of her money market placements with the latter.
 Art. 2118 provides, “If a credit has been pledged becomes due before it is redeemed,
the pledgee may collect and receive the amount due. He shall apply the same to the
payment of his claim, and deliver the surplus, should there be any, to the pledgor.”
Chattel Mortgage

(PAD-RS-PM) (PCI Leasing - ACME Shoe Rubber - Dy - Rizal Commercial Banking - Servicewide Specialist -
Pamela Wood - Makati Leasing)

1. PCI Leasing v. Trojan Metal Industries

 In a true financial leasing, whether under RA 5980 or RA 8556, a finance company
purchases on behalf of a cash-strapped lessee the equipment the latter wants to buy
but, due to financial limitations, is incapable of doing so. The finance company then
leases the equipment to the lessee in exchange for the latter's periodic payment of a
fixed amount of rental.
 In this case, however, TMI already owned the subject equipment before it transacted
with PCILF. Therefore, the transaction between the parties in this case cannot be
deemed to be in the nature of a financial leasing as defined by law.
2. ACME Shoe Rubber v. CA
 While a pledge, real estate mortgage, or antichresis may exceptionally secure after
incurred obligations so long as these future debts are accurately described, a chattel
mortgage, however, can only cover obligations existing at the time the mortgage is
constituted.
3. Dy v. CA (Tractor)
 The mortgagor who gave the property as security under a chattel mortgage did not part
with the ownership over the same. He had the right to sell it although he was under the
obligation to secure the written consent of the mortgagee. Wilfredo, who do not part
with the ownership, can well sell the subject tractor; and that it is not disputed that the
consent of Libra was obtained upon sale.
4. Rizal Commercial Banking v. Royal Cargo
 Section 13 of the Chattel Mortgage Law allows the would-be redemptioner thereunder
to redeem the mortgaged property only before its sale. Unmistakably, the redemption
cited in Section 13 partakes of an equity of redemption, which is the right of the
mortgagor to redeem the mortgaged property after his default in the performance of
the conditions of the mortgage but before the sale of the property.
5. Servicewide Specialist v. CA
 Only notice to the debtor of the assignment of credit is required. His consent is not
required.
 In contrast, consent of the creditor-mortgagee to the alienation of the mortgaged
property is necessary in order to bind said creditor.
6. Pamela Wood v. CA
 Sec. 14 of the Chattel Mortgage Law, states: “x x x the proceeds of such sale shall be
applied to the payment, first, of the costs and expenses of keeping and sale, and then to
the payment of the demand or obligation secured by such mortgage, and the residue
shall be paid to persons holding subsequent mortgages in their order, and the balance,
 after paying the mortgage, shall be paid to the mortgagor or persons holding under him
on demand”
7. Makati Leasing v. Wearever Textile
 If a house of strong materials, may be considered as personal property for purposes of
executing a chattel mortgage thereon as long as the parties to the contract so agree and
no innocent third party will be prejudiced thereby (Tumalad v. Vicencio) , there is
absolutely no reason why a machinery, which is movable in its nature and becomes
immobilized only by destination or purpose, may not be likewise treated as such. This is
really because one who has so agreed is estopped from denying the existence of the
chattel mortgage.