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CASE FACTS ISSUE/S RULING

LOANS

1) REPUBLIC VS FACTS: WON the contract was RULING:


BAGTAS Jose Bagtas borrowed from the Bureau of Animal Industry three commodatum;thus, Bagtas A contract of commodatum is essentially gratuitous. Supreme
[G.R. No. L-17474 bulls for a period of one year for breeding purposes subject to a be held liable for its loss due Court held that Bagtas was liable for the loss of the bull even
October 25, 1962] government charge of breeding fee of 10% of the book value of the to force majeure. though it was caused by a fortuitous event.
books. If the contract was one of lease, then the 10% breeding
Upon the expiration of the contract, Bagtas asked for a renewal for charge is compensation (rent) for the use of the bull and
another one year, however, the Secretary of Agriculture and Natural Bagtas, as lessee, is subject to the responsibilities of a
Resources approved only the renewal for one bull and other two possessor. He is also in bad faith because he continued to
bulls be returned. possess the bull even though the term of the contract has
Bagtas then wrote a letter to the Director of Animal Industry that he already expired.
would pay the value of the three bulls with a deduction of yearly If the contract was one of commodatum, he is still liable
depreciation. The Director advised him that the value cannot be because: (1) he kept the bull longer than the period stipulated;
depreciated and asked Bagtas to either return the bulls or pay their and (2) the thing loaned has been delivered with appraisal of
book value. its value (10%). No stipulation that in case of loss of the bull
Bagtas neither paid nor returned the bulls. The Republic then due to fortuitous event the late husband of the appellant
commenced an action against Bagtas ordering him to return the would be exempt from liability.
bulls or pay their book value. The original period of the loan was from 8 May 1948 to 7 May
After hearing, the trial Court ruled in favor of the Republic, as such, 1949. The loan of one bull was renewed for another period of
the Republic moved ex parte for a writ of execution which the court one year to end on 8 May 1950. But the appellant kept and
granted. used the bull until November 1953 when during a Huk raid it
Felicidad Bagtas, the surviving spouse and administrator of Bagtas’ was killed by stray bullets.
estate, returned the two bulls and filed a motion to quash the writ of Furthermore, when lent and delivered to the deceased
execution since one bull cannot be returned for it was killed by husband of the appellant the bulls had each an appraised
gunshot during a Huk raid. The Court denied her motion hence, this book value, to with: the Sindhi, at P1,176.46, the Bhagnari at
appeal certified by the Court of Appeals because only questions of P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
law are raised. that in case of loss of the bull due to fortuitous event the late
husband of the appellant would be exempt from liability.

2) Pajuyo v. CA Pajuyo entrusted a house to Guevara for the latter's use provided he Is the contractual No.
GR No. 14a6364 June 3, should return the same upon demand and with the condition that relationship of Pajuyo and The Court of Appeals’ theory that the Kasunduan is one of
2004 Guevara should be responsible of the maintenance of the property. Guevara that of a commodatum is devoid of merit. In a contract of
Upon demand Guevara refused to return the property to Pajuyo. The commodatum? commodatum, one of the parties delivers to another
petitioner then filed an ejectment case against Guevara with the something not consumable so that the latter may use the
MTC who ruled in favor of the petitioner. On appeal with the CA, the same for a certain time and return it. An essential feature of
appellate court reversed the judgment of the lower court on the commodatum is that it is gratuitous. Another feature of
ground that both parties are illegal settlers on the property thus have commodatum is that the use of the thing belonging to another

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no legal right so that the Court should leave the present situation is for a certain period. Thus, the bailor cannot demand the
with respect to possession of the property as it is, and ruling further return of the thing loaned until after expiration of the period
that the contractual relationship of Pajuyo and Guevara was that of a stipulated, or after accomplishment of the use for which the
commodatum. commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary
use. If the use of the thing is merely tolerated by the bailor, he
can demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil
Code, precarium is a kind of commodatum. The Kasunduan
reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition. The imposition
of this obligation makes the Kasunduan a contract different
from a commodatum. The effects of the Kasunduan are also
different from that of a commodatum. Case law on ejectment
has treated relationship based on tolerance as one that is
akin to a landlord-tenant relationship where the withdrawal of
permission would result in the termination of the lease. The
tenant’s withholding of the property would then be unlawful.

3) De La Paz vs L & J Out of trust and confidence, Rolando dela Paz lent a sum of money Whether or not the unwritten No.
Development, Co. worth Php 350,000 to L & J Development Corporation, a property 6% interest agreement The Supreme Court held that, as provided under the Civil
developer represented by Atty. Esteban Salonga as its president and should be honored. Code, an agreement regarding loan interests should be
general manager. stipulated in writing. Even if the 6% monthly rate was done in
writing, it will still be void for being unconscionable and
contrary to morals and public policy – for at this time, an
The loan was executed without any security and no maturity date. It interest rate of 3% and higher is considered excessive and
was however agreed between the parties that the loan will have a exorbitant.
6% monthly interest (amounting to Php 21,000). So far, L&J paid a
total of Php 576,000 already – including interest charges from Furthermore, the lack of maturity date puts the total interest to
December 2000 to August 2003. a whooping 72% per annum which the Supreme Court
considered to be “definitely outrageous and inordinate.” The
Supreme Court affirmed CA’s ruling, but as to Rolando’s
L&J later failed to make payments due to financial difficulties in the
obligation to pay the excess Php 226,000, the interest rate
business. Rolando then filed a collection case with the MTC and
was reduced from 12% to 6% per annum.
alleged as of January 2005, L&J still owes him Php 772,000
inclusive of monthly interests.

L&J (represented by Atty. Salonga) did not deny that they did

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incurred a debt from Rolando, and admitted that they failed to pay
due to a fortuitous event (financial difficulties). They also contended
that the 6% monthly interest is unconscionable and that their total
payment of Php 576,000 should be applied to the principal loan
which only amounts to Php 350,000.

Rolando also contends that Atty. Salonga tricked him to execute the
said loan plus interest without reducing the agreement in writing. He
also said that the 6% interest rate was at the suggestion and
insistence of L&J.

The MTC rendered judgment in favor of Rolando and upheld the 6%


interest rate as valid since L&J complied to it as evidenced by the
payment they made from December 2000 to August 2003. L&J is
now estopped to impugn said interest rate.

The MTC also reduced the legal interest rate to 12% per annum on
the remaining loan for reasons of equity. They did not grant the
prayer of moral damages to Rolando since there was no bad faith on
the part of L&J.

L&J appealed the decision to the RTC – contending once again that
the 6% interest rate is unconscionable, and that their previous
payment which totaled Php 576,000 should be used to set off the
principal loan of Php 350,000. RTC however affirmed the decision of
the MTC. L&J appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was
not reduced in a written agreement and hence, it should not be
considered due. CA ruled that the loan was already paid, and that
Rolando should return the excess Php 226,000 with interest of 12%
per annum. The case has now reached the Supreme Court.

4) PNB vs Heirs of Alonday In 1974, the Sps. Alonday obtained an agricultural loan by Whether the dragnet clause The dragnet clause contained in the first contract executed
mortgaging their property in Davao covered by OCT No. P-3599. in the first mortgage contract between the parties for security of the first loan could not
Lateer, the Sps. Alonday obtained a commercial loan by mortgaging for the security of the first authorize the foreclosure of the property under the mortgage

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their residential lot covered by TCT No. T-66139. Notably, the loan could authorize the to secure the second loan.
mortgage contracts both contained a dragnet clause, which state foreclosure of the property
that the “mortgage shall also stand as security for said obligations under the mortgage to In order for the all-embracing or dragnet clause to secure
and any and all other obligations of the Mortgagor to the Mortgagee secure a second loan future and other loans, the loans thereby secured must be
of whatever kind and nature, whether such obligations have been despite the full payment of sufficiently described in the mortgage contract. Considering
contracted before, during or after the constitution of this mortgage. the second loan. that the agricultural loan had been pre-existing when the
mortgage was constituted on the property covered by TCT
The second loan was fully paid. The first loan, however, was not. No. T-66139, it would have been easy for the petitioner to
Hence, petitioner foreclosed the property mortgaged as a security for have expressly incorporated the reference to such agricultural
the first loan. But since the proceeds of the sale were not sufficient loan in the mortgage contract covering the commercial loan.
to cover the balance of the first loan, petitioner also foreclosed the But the petitioner did not. Being the party that had prepared
property mortgaged to secure the second loan. the contract of mortgage, its failure to do so should be
The Sps. Alonday filed a complaint against petitioner to recover construed that it did not at all contemplate the earlier loan
damages and attorneys fees, averring that the foreclosure was when it entered into the subsequent mortgage.
illegal. The RTC and CA ruled in favor of the Sps Alonday.
Moreover, the mortgage contracts executed by the Sps.
Alonday were contracts of adhesion exclusively prepared by
the petitioner. A contract of adhesion, albeit valid, becomes
objectionable only when it takes undue advantage of one of
the parties, the weaker party having just to adhere to the
terms of the contract. Hence, the mortgage contracts in this
case should be construed strictly against the petitioner as the
party who had drafted the same.

5) Spouses Abella vs. Salvador and Alma filed a complaint for sum of money and damages 1. Whether interest 1. As noted by the Court of Appeals and the Regional
Spouses Abella with prayer for preliminary attachment against Romeo and Annie accrued on Trial Court, respondents entered into a simple loan or
before the RTC in Kalibo, Aklan. In their complaint, Salvador and respondents’ loan mutuum, rather than a joint venture, with petitioners.
Alma alleged that Romeo and Annie obtained a loan from them in from petitioners. If Although we have settled the nature of the contractual relation
the amount P 500,000. The said loan was evidenced by an so, what rate? between petitioners and respondents, controversy persists
acknowledgement receipt was payable within one year. Salvador 2. Whether petitioners over respondents’ duty to pay conventional interest, i.e.,
and Alma said that Romeo and Annie paid 100k in two separate are liable to interest as the cost of borrowing money. Article 1956 of the
occasions (in total 200k) – leaving an unpaid balance of 300k. reimburse Civil Code spells out the basic rule that “[n]o interest shall be
Romeo and Annie answers that the amount involved did not pertain respondents for the due unless it has been expressly stipulated in writing.” On the
to a loan but was part of the capital for a joint venture involving the latter’s supposed matter of interest, the text of the acknowledgment receipt is
lending money. Romeo and Annie said that they were actually excess payments simple, plain, and unequivocal.
approached by Salvador and Alma that if they were to undertake the and for interest. It attests to the contracting parties’ intent to subject to interest
management of whatever money Salvador and Alma would give WHEREFORE, the assailed the loan extended by petitioners to respondents. The
them, Salvador and Alma would get 2.5% a month with a 2.5% September 30, 2010 controversy, however, stems from the acknowledgment
service fee to Romeo and Annie. The 2.5% that each party would be Decision and the January 4, receipt’s failure to state the exact rate of interest.

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receiving represented their sharing of the 5% interest that the joint 2011 Resolution of the Court It is a basic precept in legal interpretation and construction
venture was supposedly going to charge against its debtors. Romeo of Appeals Nineteenth that a rule or provision that treats a subject with specificity
and Annie further alleged that one year averred by Salvador and Division in C.A.-G.R. CV No. prevails over a rule or provision that treats a subject in
Alma was not a deadline for payment but the term within which they 01388 are SET ASIDE. general terms. The rule spelled out in Security Bank and Trust
were to return the money placed by Salvador and Alma should the Petitioners Spouses Company v. Regional Trial Court of Makati, Branch 61, 263
join venture prove to be not lucrative. Salvador and Alma Abella SCRA 483 (1996), and Spouses Toring v. Spouses Olan, 568
RTC ruled in favor of Salvador and Alma. It held that the are DIRECTED to jointly and SCRA 376 (2008), is anchored on Article 1956 of the Civil
acknowledgement receipt clearly showed that there is a debt, that it severally reimburse Code and specifically governs simple loans or mutuum.
must be paid in one year and it was subject to interest. The trial respondents Spouses Mutuum is a type of nominate contract that is specifically
court, concluded that respondents obtained a simple loan, although Romeo and Annie Abella the recognized by the Civil Code and for which the Civil Code
they later invested its proceeds in the lending enterprise. Romeo and amount of P3,379.17, which provides a specific set of governing rules: Articles 1953 to
Annie moved for a reconsideration, denied by the RTC. respondents have overpaid. 1961. In contrast, Article 1371 is among the Civil Code
Romeo and Annie filed an appeal. The CA ruled that while Romeo A legal interest of 6% per provisions generally dealing with contracts. As this case
and Annie had indeed entered into a simple loan with Salvador and annum shall likewise be particularly involves a simple loan, the specific rule spelled
Alma, Romeo and Annie were no longer liable to pay the outstanding imposed on the total out in Security Bank and Spouses Toring finds preferential
amount of 300k. It reasoned that the loan could not have earned judgment award from the application as against Article 1371.
interest, whether as contractually stipulated interest or as interest in finality of this Decision until
the concept of actual or compensatory damages. Since the loan was its full satisfaction. SO 2. The imposition of an unconscionable interest rate is
not having earned stipulated interest, CA based its ruling on Art ORDERED. void ab initio for being “contrary to morals, and the law.”
1956 of the NCC, which requires interest to be stipulated in writing In determining whether the rate of interest is
for it to be due. The acknowledgement receipt showed that there is unconscionable, the mechanical application of
no particular interest rate was specified. Thus, when the Romeo and preestablished floors would be wanting. The lowest rates
Annie was making interest payment these payments were invalid for that have previously been considered unconscionable
not being stipulated by the parties. Since Salvador and Alma;s need not be an impenetrable minimum. What is more
charging of interest was invalid, CA reasoned that all payments crucial is a consideration of the parties’ contexts.
should be deemed payments for the principal amount. CA held that Moreover, interest rates must be appreciated in light of
after computing there is an overpayment, since Romeo and Annie’s the fundamental nature of interest as compensation to
total payment is P 648,500, so there is an overpayment of P148,500. the creditor for money lent to another, which he or she
Applying the principle of solutio indebiti, the CA concluded that could otherwise have used for his or her own purposes at
Salvador and Alma is liable to Romeo and Annie. MR denied. the time it was lent. It is not the default vehicle for
Hence, this appeal. predatory gain. As such, interest need only be
reasonable. It ought not be a supine mechanism for the
creditor’s unjust enrichment at the expense of another.
Apart from respondents’ liability for conventional interest at
the rate of twelve percent (12%) per annum, outstanding
conventional interest — if any is due from respondents —

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shall itself earn legal interest from the time judicial demand
was made by petitioners.
As respondents had already fully paid the principal and all
conventional interest that had accrued, they were no longer
obliged to make further payments. Any further payment they
made was only because of a mistaken impression that they
were still due. Accordingly, petitioners are now bound by a
quasicontractual obligation to return any and all excess
payments delivered by respondents. Nacar provides that
“[w]hen an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum.” This applies to obligations arising
from quasi-contracts such as solutio indebiti.

6) Spouses Jonsay vs. Momarco, controlled and owned by the Spouses Jonsay, is an WON CA erred in reversing On the question of the petitioners’ failed proposal to
Solidbank Corp importer, manufacturer and distributor of animal health and feedmill its decision. extinguish their loan obligations by way of dacion en pago, no
products catering to cattle, hog and poultry producers. Momarco bad faith can be imputed to Solidbank for refusing the offered
obtained loans of P40,000,000.00 and P20,000,000.00, respectively, WHEREFORE, premises settlement as to render itself liable for moral and exemplary
from Solidbank for which the Spouses Jonsay executed a blanket considered, the Amended damages after opting to
mortgage over three parcels of land they owned in Calamba City, Decision dated November extrajudicially foreclose on the mortgage. In Tecnogas
Laguna. The loans were consolidated under one promissory note for 26, 2012 of the Court of Philippines Manufacturing Corporation v. Philippine National
the combined amount of P60,000,000.00, signed by Florante as Appeals in C.A.-G.R. CV No. Bank, 551 SCRA 183 (2008), the Court held: Dacion en pago
President of Momarco, with his wife Luz viminda also signing as 94012 is AFFIRMED with is a special mode of payment whereby the debtor offers
comaker. The stipulated rate of interest was 18.75% per annum, MODIFICATION in that the another thing to the creditor who accepts it as equivalent of
along with an escalation clause tied to increases in pertinent Central stipulated interest rate on payment of an outstanding obligation. The undertaking is
Bank-declared interest rates, by which Solidbank was eventually the loan obligation of really one of sale, that is, the creditor is really buying the thing
able to unilaterally increase the interest charges up to 30% per 18.75% shall be applied, or property of the debtor, payment for which is to be charged
annum. resulting in P67,551,216.78 against the debtor’s debt. As such, the essential elements of
Momarco religiously paid the monthly interests charged by Solidbank as the amount due from the a contract of sale, namely, consent, object certain, and cause
from November 1995 until January 1998, when it paid Spouses Florante E. Jonsay or consideration must be present. It is only when the thing
P1,370,321.09. Claiming business reverses brought on by the 1997 and Luzviminda L. Jonsay offered as an equivalent is accepted by the creditor that
Asian financial crisis, Momarco tried unsuccessfully to negotiate a and Momarco Import Co., novation takes place, thereby, totally extinguishing the debt.
moratorium or suspension in its interest payments. Due to persistent Inc. to Solidbank In Equitable PCI Bank v. Ng Sheung Ngor, 541 SCRA 223
demands by Solidbank, Momarco made its next, and its last, monthly Corporation (now (2007), the Court annulled the escalation clause and imposed
interest payment in April 1998 in the amount of P1,000,000.00. Metropolitan Bank and Trust the original stipulated rate of interest on the loan, until
Solidbank applied the said payment to Momarco’s accrued interest Company). In addition, the maturity, and thereafter, the legal interest of 12% per annum
for February 1998. Momarco sought a loan from Landbank of the Spouses Florante E. Jonsay was imposed on the outstanding loans. Thus, the Court

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Philippines to pay off its aforesaid debt but its application fell and Luzviminda L. Jonsay ordered the borrower to pay Equitable the stipulated interest
through. The anticipated expropriation by the Department of Public and Momarco Import Co., rate of 12.66% per annum for the dollar denominated loans,
Works and Highways of the mortgaged lots for the extension of the Inc. are ORDERED to PAY and the stipulated 20% per annum for the peso denominated
South Luzon Expressway (SLEX) also did not materialize. attorney’s fees in the amount loans, up to maturity, and afterwards Equitable was to collect
Solidbank proceeded to extrajudicially foreclose on the mortgage, of P675,512.17, which is one legal interest of 12% per annum on all loans due. Incidentally,
and at the auction sale held on March 5, 1999, it submitted the percent (1%) of the loan under Monetary Board Circular No. 799, the rate of interest
winning bid of P82,327,249.54,12 representing Momarco’s obligation. for the loan or forbearance of money, in the absence of
outstanding loans, interests and penalties, plus attorney’s fees of Thus, Solidbank Corporation stipulation, shall now be 6% per annum starting July 1, 2013.
P3,600,000.00. But Momarco now claims that on the date of the (now Metropolitan Bank and
auction the fair market value of their mortgaged lots had increased Trust Company) is
sevenfold to P441,750,000.00. the sheriff issued a certificate of sale ORDERED to PAY to the
to Solidbank. petitioners the amount of
On March 9, 2000, a month before the expiration of the period to P14,100,271.05,
redeem the lots, the petitioners filed a Complaint15 against representing the excess of
Solidbank, Sheriff Perocho and the Register of Deeds of Calamba, its auction bid over the total
Laguna, docketed as Civil Case No. 2912-2000-C, for Annulment of loan obligation due from the
the Extrajudicial Foreclosure of Mortgage, Injunction, Accounting petitioners, plus interest at
and Damages with Prayer for the Immediate Issuance of a Writ of six percent (6%) per annum
Preliminary Prohibitory Injunction. computed from the date of
The RTC ruled that the mortgage contract and the promissory notes filing of the complaint or
prepared by Solidbank, which the Spouses Jonsay signed in blank, March 15, 2000 up to finality;
were contracts of adhesion; that Solidbank failed to take into account and thereafter, both the
Momarco’s payments in the two years preceding 1998 totaling excess of the auction
P24,277,293.22 (this amount was not disputed by Solidbank); that proceeds and the cumulative
the interest rates, ranging from 19% to 30%, as well as the penalties, interest shall earn six
charges and attorney’s fees imposed by Solidbank, were excessive, percent (6%) per annum
unconscionable and immoral, and that Solidbank has no carte until fully paid. SO
blanche authority under the Usury Law to unilaterally raise the ORDERED.
interest rates to levels as to enslave the borrower and hemorrhage
its assetss; that Solidbank’s verification in its application for
foreclosure of mortgage was defective because it was signed not by
its President but only by a vice president; that the Morning Chronicle,
in which the notice of auction was published, was not a newspaper
of general circulation because it had no bona fide list of paying
subscribers; that Solidbank manipulated the foreclosure sale through
a defective publication of the notice of auction and by submitting an
unconscionably low bid of P82,327,000.00, whereas the value of the
lots had risen sevenfold since the rehabilitation of the SLEX.
On April 27, 2012, the CA rendered judgment affirming the RTC in
toto. It agreed that Solidbank did not comply with the publication
requirements under Section 3, Act No. 3135.

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Upon MR to the CA decision, it amended its previous decision ruling


that; the CA now not only found the parties’ mortgage contract valid,
but also declared that Solidbank’s extrajudicial foreclosure of the
mortgage enjoyed the presumption of regularity. The CA stressed
that since the selection of Morning Chronicle to publish the notice
was through a courtsupervised raffle, Solidbank was fully justified in
relying on the regularity of the publication of its notice in the
aforesaid newspaper, in the choice of which it had no hand
whatsoever. The CA further held that no malice can be imputed on
Solidbank’s refusal to accept the petitioners’ offer of dacion en pago,
since it was duly authorized under the parties’ mortgage contract to
extrajudicially foreclose on the mortgage in the event that Momarco
defaulted in its interest payments. Hence this petition.

7) Vitug v. Abuda, GR Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug. As Whether or not the Court of The Court of Appeals correctly found that the interest rates of
201264, January 11, 2016 security for the loan, Vitug mortgaged to Abuda his property. Vitug Appeals erred in finding the 5% or 10% per month imposed on petitioner’s loan were
failed to pay his obligation within the stipulated six-month period. As interest rates imposed as unconscionable. Parties are free to stipulate interest rates in
a result of this failure, the parties then executed a restructured unconscionable their loan contracts in view of the suspension of the
mortgage contract on the property to secure the amount of implementation of the Usury Law ceiling on interest effective
P600,000.00 representing the original P250,000.00 loan, additional January 1, 1983. However, in stipulating interest rates,
loans, and subsequent credit accommodations given by Abuda to parties must ensure that the rates are neither iniquitous nor
Vitug with an interest of five (5) percent per month. Spouses Vitug unconscionable. Iniquitous or unconscionable interest rates
failed to pay their loans despite Abuda's demands and a Complaint are illegal and, therefore, void for being against public morals.
for Foreclosure of Property before the Regional Trial Court of Manila The lifting of the ceiling on interest rates may not be read as
was filed. RTC ordered the defendant to pay the principal sum of “granting lenders carte blanche [authority] to raise interest
P600,000.00 with interest at 5% per month from May 31, 2002 to rates to levels which will either enslave their borrowers or lead
actual date of payment. On appeal, CA found that the interest rates to a hemorrhaging of their assets. Even if the parties
imposed on Vitug's loan were "iniquitous, unconscionable and voluntarily agree to an interest rate, courts are given the
exorbitant." It instead ruled that a legal interest of 1% per month or discretionary power to equitably reduce it if it is later found to
12% per annum should apply from the judicial demand on November be iniquitous or unconscionable.
21, 2003.

DEPOSIT

1) CA Agro-industrial VS CA Petitioner and the spouses Ramon and Paula Pugao entered into an Is the contractual relation The contract for the rent of the safety deposit box is not an
agreement whereby the former purchased from the latter two (2) between a commercial bank ordinary contract of lease as defined in Article 1643 of the
GR# 90027 parcels of land. Among the terms and conditions of the agreement and another party in a Civil Code. However, We do not fully subscribe to its view that
March 3, 1993 were that the titles to the lots shall be transferred to the petitioner contract of rent of a safety the same is a contract of deposit that is to be strictly governed

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upon full payment of the purchase price and that the owner's copies deposit box with respect to by the provisions in the Civil Code on deposit; the contract in
of the certificates of titles thereto, and that title shall be deposited its contents placed by the the case at bar is a special kind of deposit. It cannot be
shall be deposited in a safety deposit box of any bank. Petitioner and latter one of bailor and characterized as an ordinary contract of lease under Article
the Pugaos then rented Safety Deposit Box of private respondent bailee or one of lessor and 1643 because the full and absolute possession and control of
Security Bank and Trust Company. lessee? the safety deposit box was not given to the joint renters — the
petitioner and the Pugaos. The guard key of the box remained
Thereafter, a certain Mrs. Margarita Ramos offered to buy from the with the respondent Bank; without this key, neither of the
petitioner the two (2) lots. Mrs. Ramos demanded the execution of a renters could open the box. On the other hand, the
deed of sale which necessarily entailed the production of the respondent Bank could not likewise open the box without the
certificates of title. In view thereof, Aguirre, accompanied by the renter's key. In this case, the said key had a duplicate which
Pugaos, then proceeded to the respondent Bank to open the safety was made so that both renters could have access to the box.
deposit box and get the certificates of title. However, when opened
in the presence of the Bank's representative, the box yielded no
such certificates.

2) Sia Vs CA Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Whether or not the Bank is Contract of the use of a safety deposit box of a bank is not a
Trust Co. (Security Bank) at its Binondo Branch wherein he placed liable for negligence. deposit but a lease. Section 72 of the General Banking Act
his collection of stamps. The said safety deposit box leased by the [R.A. 337, as amended] pertinently provides: In addition to the
plaintiff was at the bottom or at the lowest level of the safety deposit operations specifically authorized elsewhere in this Act,
boxes of the defendant bank. During the floods that took place in banking institutions other than building and loan associations
1985 and 1986, floodwater entered into the defendant bank’s may perform the following services (a) Receive in custody
premises, seeped into the safety deposit box leased by the plaintiff funds, documents, and valuable objects, and rent safety
and caused, according damage to his stamps collection. Security deposit boxes for the safequarding of such effects.
Bank rejected the plaintiff’s claim for compensation for his damaged
stamps collection. As correctly held by the trial court, Security Bank was guilty of
negligence. The bank’s negligence aggravated the injury or
damage to the stamp collection. SBTC was aware of the
floods of 1985 and 1986; it also knew that the floodwaters
Sia, thereafter, instituted an action for damages against the inundated the room where the safe deposit box was located.
defendant bank. Security Bank contended that its contract with the In view thereof, it should have lost no time in notifying the
Sia over safety deposit box was one of lease and not of deposit and, petitioner in order that the box could have been opened to
therefore, governed by the lease agreement which should be the retrieve the stamps, thus saving the same from further
applicable law; the destruction of the plaintiff’s stamps collection was deterioration and loss. In this respect, it failed to exercise the
due to a calamity beyond obligation on its part to notify the plaintiff reasonable care and prudence expected of a good father of a
about the floodwaters that inundated its premises at Binondo branch family, thereby becoming a party to the aggravation of the
which allegedly seeped into the safety deposit box leased to the injury or loss. Accordingly, the aforementioned fourth
plaintiff. The trial court rendered in favor of plaintiff Sia and ordered characteristic of a fortuitous event is absent. Article 1170 of
Sia to pay damages. the Civil Code, which reads “Those who in the performance of
their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are
liable for damages” is applicable. Hence, the petition was

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granted.

The provisions contended by Security Bank in the lease


agreement which are meant to exempt SBTC from any liability
for damage, loss or destruction of the contents of the safety
deposit box which may arise from its own agents’ fraud,
negligence or delay must be stricken down for being contrary
to law and public policy.

3) - On 22 July 2003, Pioneer Insurance and Surety Corp, by right - Whether there exist a Yes. There was a contract of necessary deposit.
Durban Apartment vs. of subrogation, filed with the RTC of Makati a Complaint for contract of deposit.
Pioneer Insurance, Recovery of Damages against Durban Apartments Corp. (or - Whether petitioner is - Article 1962, in relation to Article 1998, of the Civil Code
City Garden Hotel) and defendant before the RTC, Vicente liable for the loss of defines a contract of deposit and a necessary deposit
G.R. NO. 179419, 12 Jan Justimbaste. See’s vehicle made by persons in hotels or inns:
2011 - Pioneer (respondent) averred that it is the insurer for loss and
damage of Jeffrey S. See’s 2001 Suzuki Grand Vitara in the - Art. 1962. A deposit is constituted from the moment a
amount of P1,175,000.00. person receives a thing belonging to another, with the
- On 30 April 2002, See arrived and checked in at the City obligation of safely keeping it and returning the same. If
Garden Hotel before midnight, and its parking attendant, the safekeeping of the thing delivered is not the principal
Justimbaste got the key to said Vitara from See to park it. purpose of the contract, there is no deposit but some
Thereafter, See received a phone call where the Hotel Chief other contract.
Security Officer informed him that his Vitara was carnapped
while it was parked unattended at the parking area of Equitable - Art. 1998. The deposit of effects made by travelers in
PCI Bank hotels or inns shall also be regarded as necessary. The
- See went to see the Security Officer, thereafter reported the keepers of hotels or inns shall be responsible for them
incident to the Operations Division of the Makati City Police as depositaries, provided that notice was given to them,
Anti-Carnapping Unit, and a flash alarm was issued. The police or to their employees, of the effects brought by the
investigated Hotel Security Officer, Ernesto T. Horlador, Jr. and guests and that, on the part of the latter, they take the
Justimbaste. See gave his Sinumpaang Salaysay to the police precautions which said hotel-keepers or their substitutes
investigator, and filed a Complaint Sheet with the PNP Traffic advised relative to the care and vigilance of their effects.
Management Group in Camp Crame, it paid the P1,163,250.00
money claim of See and mortgagee ABN AMRO Savings - Plainly, from the facts found by the lower courts, the
Bank, Inc. as indemnity for the loss of the Vitara. insured See deposited his vehicle for safekeeping with
- The Vitara was lost due to the negligence of Durban petitioner, through the latter’s employee, Justimbaste. In
Apartments and Justimbaste because it was discovered during turn, Justimbaste issued a claim stub to See. Thus, the
the investigation that this was the second time that a similar contract of deposit was perfected from See’s delivery,
incident of carnapping happened in the valet parking service when he handed over to Justimbaste the keys to his
and no necessary precautions were taken to prevent its vehicle, which Justimbaste received with the obligation
repetition. Durban Apartments was wanting in due diligence in of safely keeping and returning it. Ultimately, petitioner
the selection and supervision of its employees particularly is liable for the loss of See’s vehicle.
defendant Justimbaste. Both failed and refused to pay its valid, -

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just, and lawful claim despite written demands.

4) - Mary Jo-Anne De Asis dined at petitioner's Kamayan - Whether or not - Yes. In a contract of deposit, a person receives an
Triple-V Food Services vs. Restaurant at Quezon City. De Asis was using a Mitsubishi petitioner Triple-V object belonging to another with the obligation of safely
Filipino Merchants, G.R. Galant Super Saloon Model 1995, assigned to her by her Food Services, Inc. is keeping it and returning the same. A deposit may be
NO. 160544, 21 Feb 2005 employer Crispa Textile Inc. (Crispa). Thereafter, De Asis liable for the loss. constituted even without any consideration. It is not
availed of the valet parking service of petitioner and entrusted necessary that the depositary receives a fee before it
her car key to petitioner's valet counter. A corresponding becomes obligated to keep the item entrusted for
parking ticket was issued as receipt for the car. The car was safekeeping and to return it later to the depositor.
then parked by petitioner's valet attendant, a certain - When De Asis entrusted the car in question to
Madridano, at the designated parking area. petitioners valet attendant while eating at petitioner's
- Few minutes later, Madridano noticed that the car was not in Kamayan Restaurant, the former expected the car's
its parking slot and its key no longer in the box where valet safe return at the end of her meal. Thus, petitioner was
attendants usually keep the keys of cars entrusted to them. constituted as a depositary of the same car. Petitioner
The car was never recovered. Thereafter, Crispa filed a claim cannot evade liability by arguing that neither a contract
against its insurer, herein respondent Filipino Merchants of deposit nor that of insurance, guaranty or surety for
Insurance Company, Inc. (FMICI). Having indemnified Crispa the loss of the car was constituted when De Asis availed
for the loss of the subject vehicle, FMICI, as subrogee to of its free valet parking service.
Crispa's rights, filed with the RTC at Makati City an action for - In a contract of deposit, a person receives an object
damages against petitioner Triple-V Food Services, Inc. belonging to another with the obligation of safely
- In its answer, petitioner argued that the complaint failed to aver keeping it and returning the same. A deposit may be
facts to support the allegations of recklessness and negligence constituted even without any consideration. It is not
committed in the safekeeping and custody of the subject necessary that the depositary receives a fee before it
vehicle, claiming that it and its employees wasted no time in becomes obligated to keep the item entrusted for
ascertaining the loss of the car and in informing De Asis of the safekeeping and to return it later to the depositor.
discovery of the loss. - The parking claim stub embodying the terms and
- Petitioner further argued that in accepting the complimentary conditions of the parking, including that of relieving
valet parking service, De Asis received a parking ticket which petitioner from any loss or damage to the car, is
contained a waiver of petitioner’s liability in case of loss, she essentially a contract of adhesion, drafted and prepared
had thereby waived her rights; and that De Asis knowingly as it is by the petitioner alone with no participation
assumed the risk of loss when she allowed petitioner to park whatsoever on the part of the customers, like De Asis,
her vehicle, adding that its valet parking service did not include who merely adheres to the printed stipulations therein
extending a contract of insurance or warranty for the loss of the appearing. While contracts of adhesion are not void in
vehicle. themselves, yet this Court will not hesitate to rule out
- The RTC issued its judgment in favor of the FMICI and against blind adherence thereto if they prove to be one-sided
the defendant Triple V . under the attendant facts and circumstances.
- On appeal, petitioner contended that it was not a depositary of - Hence, and as aptly pointed out by the Court of
the subject car and that it exercised due diligence and Appeals, petitioner must not be allowed to use its
prudence in the safe keeping of the vehicle, in handling the parking claim stub's exclusionary stipulation as a shield
carnapping incident and in the supervision of its employees. It from any responsibility for any loss or damage to

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further argued that there was no valid subrogation of rights vehicles or to the valuables contained therein. Here, it is
between Crispa and respondent FMICI. The Court of Appeals evident that De Asis deposited the car in question with
dismissed petitioner's appeal and affirmed the appealed the petitioner as part of the latter's enticement for
decision of the trial court. customers by providing them a safe parking space
within the vicinity of its restaurant. In a very real sense,
a safe parking space is an added attraction to
petitioner's restaurant business because customers are
thereby somehow assured that their vehicle are safely
kept, rather than parking them elsewhere at their own
risk. Having entrusted the subject car to petitioner's
valet attendant, customer De Asis, like all of petitioner's
customers, fully expects the security of her car while at
petitioner's premises/designated parking areas and its
safe return at the end of her visit at petitioner's
restaurant.

GUARANTY &
SURETYSHIP

1) E. Zobel Inc v. CA Respondent spouses loaned 2.875M from respondent Consolidated WON E Zobel Inc obligated Surety is distinguished from a guaranty in that a guarantor is
Bank (solidbank) to buy 2 maritime barges and 1 tugboat for their itself as surety or guaranty? the insurer of the solvency of the debtor and thus binds
molasses business. The condition was that the 3 vessels would be himself to pay if the principal is unable to pay while a surety is
subject to chattel mortgage and that E. Zobel Inc would execute the insurer of the debt, and he obligates himself to pay if the
continuing guarantee in favor to SOLIDBANK. The spouses principal does not pay.
defaulted and SOLIDBANK filed case against petitioner and Based on the aforementioned definitions, it appears that the
respondent spouses for sum of money. Petitioner moved that the file contract executed by petitioner in favor of SOLIDBANK, albeit
be dismissed pursuant to Art. 2080 of Civil Code. denominated as a "Continuing Guaranty," is a contract of
surety.
The use of the term "guarantee" does not ipso facto mean
that the contract is one of guaranty. Authorities recognize that
the word "guarantee" is frequently employed in business
transactions to describe not the security of the debt but an
intention to be bound by a primary or independent obligation.
As aptly observed by the trial court, the interpretation of a
contract is not limited to the title alone but to the contents and
intention of the parties.
Having thus established that petitioner is a surety, Article
2080 of the Civil Code, relied upon by petitioner, finds no
application to the case at bar.

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2) Palmares v. CA Private respondent M.B Lending Corporation extended a loan to the WON petitioner Palmares is Yes. The SC ruled that Palmares is a surety. Settled is the
spouses Osmeña and Merlyn Azarraga solidarily liable. rule that a surety is bound equally and absolutely
together with petitioner Estrella Palmares in the amount of with the principal,and as such is deemed an original promisor
P30,000.00, with compounded interest at the rate of 6% and debtor from the beginning. This is because in
per annum. On four occasions after the execution of the promissory suretyship there is but one contract, and the surety is bound
note and even after the loan matured, petitioner by the same agreement which binds the principal. In
and the Azarraga spouses were able to pay a total of P16,300.00 essence, the contract of a surety starts with the agreement,
thereby leaving a balance of P13, 700.00. No payments were made which is precisely the situation obtaining in this case
after the last payment. On the basis of petitioners’ solidary liability before the Court.
under the promissory note, It will further be observed that petitioner's undertaking as co-
Respondent Corporation filed a complaint against petitioner maker immediately follows the terms and conditions
Palmares as a lone party-defendant, to the exclusion of stipulated between Respondent Corporation, as creditor, and
the principal debtors, allegedly by reason of the insolvency of the the principal obligors. A surety is usually bound with his
latter. RTC Dismissed the complaint and held that principal by the same instrument, executed at the same time
the offer made by petitioner to pay the obligation is considered a and upon the same consideration; he is an original
valid tender of payment sufficient to discharge a debtor, and his liability is immediate and direct. Thus, it has
person's secondary liability on the instrument; as co-maker, is only been held that where a written agreement on the same
secondarily liable on the instrument; and that the sheet of paper with and immediately following the principal
promissory note is a contract of adhesion. Contrary to the findings of contract between the buyer and seller is executed
the trial court, respondent appellate court simultaneously therewith, providing that the signers of the
declared that petitioner Palmares is a surety since she bound herself agreement agreed to the terms of the principal contract,
to be jointly and severally or solidarily liable the signers were "sureties" jointly liable with the buyer. A
with the principal debtors, the Azarraga spouses, when she signed surety usually enters into the same obligation as that of his
as a co-maker. principal, and the signatures of both usually appear upon the
same instrument, and the same consideration usually
Yes. The SC ruled that Palmares is a surety. Settled is the
rule that a surety is bound equally and absolutely
with the principal,and as such is deemed an original promisor
and debtor from the beginning. This is because in
suretyship there is but one contract, and the surety is bound
by the same agreement which binds the principal. In
essence, the contract of a surety starts with the agreement,
which is precisely the situation obtaining in this case
before the Court.
It will further be observed that petitioner's undertaking as co-
maker immediately follows the terms and conditions
stipulated between Respondent Corporation, as creditor, and
the principal obligors. A surety is usually bound with his
principal by the same instrument, executed at the same time
and upon the same consideration; he is an original
debtor, and his liability is immediate and direct. Thus, it has

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been held that where a written agreement on the same


sheet of paper with and immediately following the principal
contract between the buyer and seller is executed
simultaneously therewith, providing that the signers of the
agreement agreed to the terms of the principal contract,
the signers were "sureties" jointly liable with the buyer. A
surety usually enters into the same obligation as that of his
principal, and the signatures of both usually appear upon the
same instrument, and the same consideration usually.

3) Spouses Toh v. RESPONDENT SOLID BANK CORPORATION AGREED TO WON spouses TOH are Yes. This Court holds that the Continuing Guaranty is a valid
Solidbank, Gr. 154183, EXTEND an "omnibus line" credit facility worth P10 million in favor of discharged as sureties under and binding contract of petitioner-spouses as it is a public
August 7, 2003 (FBPC). The terms and conditions of the agreement as well as the the Continuing Guaranty? document that enjoys the presumption of authenticity and due
checklist of documents necessary to open the credit line were execution. Similarly, there is no basis for petitioners to limit
stipulated in a "letter-advise" of the Bank. The documents essential their responsibility so long as they were corporate officers and
for the credit facility and submitted for this purpose were the… (c) stockholders of FBPC. Nothing in the Continuing Guaranty
Continuing Guaranty for any and all amounts signed by petitioner- restricts their contractual undertaking to such condition or
spouses Luis Toh and Vicky Tan Toh, and respondent-spouses eventuality.
Kenneth and Ma. Victoria Ng Li… The Continuing Guaranty set forth Insofar as petitioners stipulate in the Continuing Guaranty that
no maximum limit on the indebtedness that respondent FBPC may respondent Bank "may at any time, or from time to time, in
incur and contained a de facto acceleration clause. So as to [its] discretion x x x extend or change the time payment," this
strengthen this security, the Continuing Guaranty waived rights of provision even if understood as a waiver is confined per se to
the sureties against delay or absence of notice or demand on the the grant of an extension and does not surrender the
part of respondent Bank, and gave future consent to the Bank's prerequisites therefor as mandated in the "letter-advise." In
action to "extend or change the time payment, and/or the manner, other words, the authority of the Bank to defer collection
place or terms of payment," including renewal, of the credit facility or contemplates only authorized extensions, that is, those that
any part thereof in such manner and upon such terms as the Bank meet the terms of the "letter-advise."
may deem proper without notice to or further assent from the Certainly, while the Bank may extend the due date at its
sureties. discretion pursuant to the Continuing Guaranty, it should
On 16 June 1993 respondent FBPC started to avail of the credit nonetheless comply with the requirements that domestic
facility and secured letters of credit. FBPC opened thirteen (13) letters of credit be supported by fifteen percent (15%)
letters of credit and executed a series of trust receipts over the marginal deposit extendible three (3) times for a period of
goods allegedly purchased from the proceeds of the loans. thirty (30) days for each extension, subject to twenty-five
On 13 January 1994 respondent Bank received information that percent (25%) partial payment per extension.
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had An extension of the period for enforcing the indebtedness
fraudulently departed from their conjugal home. On 14 January 1994 does not by itself bring about the discharge of the sureties
the Bank served a demand letter upon FBPC and petitioner Luis Toh unless the extra time is not permitted within the terms of the
invoking the acceleration clause in the trust receipts of FBPC and waiver, i.e., where there is no payment or there is deficient
claimed payment for P10,539,758.68 as unpaid overdue accounts settlement of the marginal deposit and the twenty-five percent
on the letters of credit plus interests and penalties within twenty-four (25%) consideration, in which case the illicit extension
(24) hours from receipt thereof. The Bank also invoked the releases the sureties. Under Art. 2055 of the Civil Code, the

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Continuing Guaranty executed by petitioner-spouses Luis Toh and liability of a surety is measured by the terms of his contract,
Vicky Tan Toh. and while he is liable to the full extent thereof, his
On 17 January 1994 respondent Bank filed a complaint for sum of accountability is strictly limited to that assumed by its terms.
money. The foregoing extensions of the letters of credit made by
Petitioners also contended that through FBPC Board Resolution, respondent Bank without observing the rigid restrictions for
petitioner Luis Toh was removed as an authorized signatory for exercising the privilege are not covered by the waiver
FBPC and replaced by respondent-spouses Ng Li and Padilla for all stipulated in the Continuing Guaranty. Evidently, they
the transactions of FBPC with respondent Bank. They even resigned constitute illicit extensions prohibited under Art. 2079 of the
from their respective positions in FBPC. Finally, petitioners averred Civil Code, "[a]n extension granted to the debtor by the
that sometime in June 1993 they obtained from respondent Kenneth creditor without the consent of the guarantor extinguishes the
Ng Li their exclusion from the several surety agreements they had guaranty."
entered into. As a result of these illicit extensions, petitioner-spouses Luis
Toh and Vicky Tan Toh are relieved of their obligations as
sureties of respondent FBPC under Art. 2079 of the Civil
Code.
For the same reason, the grace period granted by respondent
Bank represents unceremonious abandonment and forfeiture
of the fifteen percent (15%) marginal deposit and the twenty-
five percent (25%) partial payment as fixed in the "letter-
advise." These payments are unmistakably additional
securities intended to protect both respondent Bank and the
sureties in the event that the principal debtor FBPC becomes
insolvent during the extension period. Compliance with these
requisites was not waived by petitioners in the Continuing
Guaranty. For this unwarranted exercise of discretion,
respondent Bank bears the loss; due to its unauthorized
extensions to pay granted to FBPC, petitioner-spouses Luis
Toh and Vicky Tan Toh are discharged as sureties under the
Continuing Guaranty.

4) Aglibot v. Santia, Gr. Private respondent-complainant Engr. Ingersol L. Santia loaned the Whether or not Aglibot is an First ISSUE: Aglibot is an accommodation party and
185945, December 5, 2012 amount of P2,500,000.00 to Pacific Lending & Capital Corporation accommodation party or a therefore liable to Santia. The appellate court ruled that by
(PLCC), through its Manager, petitioner Fideliza J. Aglibot. The loan guaranteeing party? If she is issuing her own post-dated checks, Aglibot thereby bound
the latter, is she benefitted herself personally and solidarily to pay Santia, and dismissed
was evidenced by a Promissory Note dated July 1, 2003, issued by
from excussion against her claim that she issued her said checks in her official
Aglibot in behalf of PLCC, payable in one year subject to interest at Santia? capacity as PLCC’s manager merely to guarantee the
24% per annum. Allegedly as a guaranty or security for the payment investment of Santia. The facts present a clear situation
of the note, Aglibot also issued and delivered to Santia eleven (11) where Aglibot, as the manager of PLCC, agreed to
post-dated personal checks drawn from her own demand account accommodate its loan to Santia by issuing her own post-
maintained at Metrobank, Camiling Branch. Aglibot is a major dated checks in payment thereof. She is what the Negotiable
stockholder of PLCC, with headquarters at 27 Casimiro Townhouse, Instruments Law calls an accommodation party.

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Casimiro Avenue, Zapote, Las Piñas, Metro Manila, where most of


the stockholders also reside. The relation between an accommodation party and the party
Upon presentment of the aforesaid checks for payment, they were accommodated is, in effect, one of principal and surety — the
dishonored by the bank for having been drawn against insufficient accommodation party being the surety. It is a settled rule that
funds or closed account. Santia thus demanded payment from PLCC a surety is bound equally and absolutely with the principal and
and Aglibot of the face value of the checks, but neither of them is deemed an original promisor and debtor from the
heeded his demand. beginning. The liability is immediate and direct. It is not a valid
defense that the accommodation party did not receive any
valuable consideration when he executed the instrument; nor
is it correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the
instrument, he knew that the indorser was only an
accommodation party. Unlike in a contract of suretyship, the
liability of the accommodation party remains not only primary
but also unconditional to a holder for value, such that even if
the accommodated party receives an extension of the period
for payment without the consent of the accommodation party,
the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for
value is concerned, he is a solidary co-debtor

Second ISSUE: Aglibot cannot invoke the benefit of


excussion. It is settled that the liability of the guarantor is only
subsidiary, and all the properties of the principal debtor, the
PLCC in this case, must first be exhausted before the
guarantor may be held answerable for the debt. Thus, the
creditor may hold the guarantor liable only after judgment has
been obtained against the principal debtor and the latter is
unable to pay, “for obviously the ‘exhaustion of the principal’s
property’ — the benefit of which the guarantor claims —
cannot even begin to take place before judgment has been
obtained.” This rule is contained in Article 2062 of the Civil
Code, which provides that the action brought by the creditor
must be filed against the principal debtor alone, except in
some instances mentioned in Article 2059 when the action
may be brought against both the guarantor and the principal
debtor.

The Court must, however, reject Aglibot’s claim as a mere


guarantor of the indebtedness of PLCC to Santia for want of
proof, in view of Article 1403(2) of the Civil Code, embodying

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the Statute of Frauds. Under the above provision, concerning


a guaranty agreement, which is a promise to answer for the
debt or default of another, the law clearly requires that it, or
some note or memorandum thereof, be in writing. Otherwise,
it would be unenforceable unless ratified, although under
Article 1358 of the Civil Code, a contract of guaranty does not
have to appear in a public document. Contracts are generally
obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are
present, and the Statute of Frauds simply provides the
method by which the contracts enumerated in Article 1403(2)
may be proved, but it does not declare them invalid just
because they are not reduced to writing. Thus, the form
required under the Statute is for convenience or evidentiary
purposes only.

On the other hand, Article 2055 of the Civil Code also


provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of
guarantee is unenforceable unless made in writing or
evidenced by some writing.

5) CCC Insurance v.
Kawasaki Steel; GR No.
156162, June 22, 2015

6)

7) Carodan v. China Bank A complaint for a sum of money was filed against Corodan, et.al by Whether Rosalina is liable Strictly speaking, guaranty and surety are nearly related, and
Corporation, G.R. No. China Banking Corporation in relation to the promissory note which jointly and severally with many of the principles are common to both. However, under
210542, February 24, 2016 they promised to pay jointly and severally the amount of 2.8 Million Barbara and Rebbeca for our civil law, they may be distinguished thus: A surety is
pesos. As security for the payment of the loan, Barbara, Rebecca the payment of the loan usually bound with his principal by the same ibnstrument,
and Rosalina also executed a Real Estate Mortgage over a property obligation? executed at the same time, and on the same consideration.
registered in the name of Rosalina. A Surety Agreement in favor of He is an original promissor and debtor from the beginning,
China Bank as creditor was also executed by Barbara and Rebecca and is held, ordinarily, to know every default of his principal.
as principals and Rosalina and her niece Madeline as sureties. The Usually, he will not be discharged, either by the mere
warranties were made by the principal debtor. indulgence of the creditor to the principal, or by want of notice
of the default of the principal, no matter how much he may be
The petitioners failed to pay their loan despite the demands made injured thereby. On the other hand, the contract of guaranty is
which prompted China Bank to institute an extrajudicial foreclosure the guarantor's own separate undertaking, in which the

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proceedings on the mortgage property. China Bank clarified that it principal does not join. It is usually entered into before or after
was suing Barbara and Rebecca as debtors under the Promissory that of the principal, and is often supported on a separate
Note and as principals in the Surety Agreement, as well as Rosalina consideration from that supporting the contract of the
and Madeline as sureties in the Surety Agreement. principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its non-
Rosalina averred that when Barbara and Rebecca paid half of the performance. He is often discharged by the mere indulgence
loan under the Promissory Note, the properties of Barbara covered of the creditor to the principal, and is usually not liable unless
by the mortgage were released by the bank from liability. The notified of the default of the principal.
cancellation of the mortgage lien was effected by an instrument. This
cancellation, according to Rosalina, illegally caused her property to Simply put, a surety is distinguished from a guaranty in that a
absorb the singular risk of foreclosure. The result, according to her, guarantor is the insurer of the solvency of the debtor and thus
was the extinguishment of the indivisible obligation contained in the binds himself to pay if the principal is unable to pay while a
mortgage pursuant to Article 121632 of the Civil Code. surety is the insurer of the debt, and he obligates himself to
pay if the principal does not pay.
China Bank alleged that the issue of whether Rosalina obtained When Rosalina affixed her signature to the Real Estate
material benefit from the loan was not material, since she had Mortgage as mortgagor and to the Surety Agreement as
voluntarily and willingly encumbered her property; that the surety which covered the loan transaction represented by the
indivisibility of mortgage does not apply to the case at bar, since Promissory Note, she thereby bound herself to be liable to
Article 208938 of the Civil Code presupposes several heirs, a China Bank in case the principal debtors, Barbara and
condition that is not present in this case; that nothing short of Rebecca, failed to pay. She consequently became liable to
payment of the debt or an express release would operate to respondent bank for the payment of the debt of Barbara and
discharge a mortgage; and that, as surety, Rosalina was equally Rebecca when the latter two actually did not pay
liable as principal debtor to pay the deficiency obligation.

ALENTON - ENIEGO - HONTIVEROS - LAGAPA - LANZADERAS - MAAGAD - MAGALLON - MALINGIN - NOBLE - ROA

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