Case:

MANILA SURETY & FIDELITY CO., INC., vs. NOEMI ALMEDA

, doing business under the name and style of ALMEDATRADING, GENEROSO ESQUILLO and NATIONAL MARKETING CORPORATION,Date:
July 31, 1970Ponente:REYESPlace: MANILA

Facts:

Noemi Almeda, doing business under the name and style of Almeda Trading, entered into a contract with the
NationalMarketingCorporation (NAMARCO) for the purchase of goods on credit, payable in 30 days from the dates of deliveriesAs
required by' theNAMARCO, a bond for P5,000.00, undertaken by the Manila Surety & Fidelity Co., Inc. was posted bythe purchaser to
secure thelatter's faithful compliance with the terms of the contract. The agreement was latersupplemented and a new bond for the
same amountof P5,000.00, also undertaken by the Manila Surety & Fidelity Co.,Inc. was given in favor of the NAMARCOThe bonds
uniformly contained the following provisions:2. Should the Principal's account on any purchase be not paidon time, then the Surety,
shall, upon demand, pay said account immediately to theNAMARCO;3. Should the account of the Principal exceed the amount of FIVE
THOUSAND (P5,000.00) PESOS, Philippine Currency, such excess up totwenty(20%) per cent of said amount shall also be deemed
secured by this Bond;4. The Surety expressly waives its rightto demand payment and notice of non-payment and agreed that the liability
of the Surety shall be direct andimmediateand not contingent upon the exhaustion by the NAMARCO of whatever remedies it may have
against the Principal andsame shall be valid and continuous until the obligation so guaranteed is paid in full; and5. The Surety also waives
its rightto be notified of any extension of the terms of payment which the NAMARCO may give to the Principal, it beingunderstood that
were extension is given to satisfy the account, that such extension shall not extinguish the guarantyunless the same is made against the
express wish of the Surety.The marketing firm demanded from the purchaser Almeda Trading the settlement of its back accounts which,
allegedlyamounted to P16,335.09. Furnished with copy of the NAMARCO's demand- letter, the surety company thereafter alsowrote to
the said purchaser urging it to liquidate its unsettled accounts with the NAMARCO however, previous to this,Generoso Esquillo instituted
voluntary insolvency proceeding in the Court of First Instance of Laguna and by order of said court he was declared insolvent.Manila
Surety & Fidelity Co., Inc., commenced in the Court of First Instance of Manila Civil Case against the spouses Noemi Almeda and
Generoso Esquillo, and the NAMARCO, to secure its releasefrom liability under the bonds executed in favor of NAMARCO. The action
was based on the allegation that thedefendant spouses had become insolvent and that defendant NAMARCO had rescinded its
agreement with them andhad already demanded payment of the outstanding accounts of the couple. The court rendered judgment
sustainingNAMARCO's contention that the insolvency of the debtor-principal did not discharge the surety's liability under thebond.

Issue

: WON the insolvency of a debtor-principal does not release the surety from its obligation to the creditor under thebond.

Held : YES

Ratio:

There is no question that under the bonds posted in favor of the NAMARCO in this case, the surety company assumed tomake immediate
payment to said firm of any due and unsettled accounts of the debtor-principal, even without demandand notice of the debtor's non-
payment, the surety, in fact, agreeing that its liability to the creditor shall be direct,without benefit of exhaustion of the debtor's
properties, and to remain valid and continuous until the guaranteedobligation is fully satisfied. Appellant secured to the creditor not
just the payment by the debtor-principal of hisaccounts, but the payment itself of such accounts. Clearly, a contract of suretyship was
thus created, the appellant

becoming the insurer, not merely of the debtor's solvency or ability to pay, but of the debt itself.The guarantor's actionfor release can
only be exercised against the principal debtor and not against the creditor Under the Civil Code, with thedebtor's insolvency having
been judicially recognized, herein appellant's resort to the courts tobe released from theundertaking thus assumed would have been
appropriate.Nevertheless, , as is apparent from the precise terms of the legal provision. "The guarantor" (says Article 2071 of theCivil
Code of the Philippines) "even before having paid, may proceed against the principal debtor ------------------ to obtaina release from the
guaranty ---------------." The juridical rule grants no cause of actionagainst the creditor for a release of the guaranty, before payment of
the credit, for a plain reason: the creditor is not compellable torelease the guaranty(which is a property right) against his will. For, the
release of the guarantor imports an extinction of his obligationto thecreditor; it connotes, therefore, either a remission or a novation
by subrogation, and either operation requires thecreditor's assentfor its validity (See Article 1270 and Article 1301). Especially should
this be the case where the principaldebtor has become insolvent,for the purpose of a guaranty is exactly to protect the creditor against
such a contingency.In the case at bar, it is true that the guaranteed claim of NAMARCO was registered or filed in the insolvency
proceeding.Butappellant can not utilize this fact in support of its petition for release from the assumed undertaking. For one thing, itis
almost acertainty that creditor NAMARCO can not secure full satisfaction of its credit out of the debtor's propertiesbrought into the
insolvencyproceeding. Considering that under the contract of suretyship, which remains valid andsubsisting, the entire obligation may
even bedemanded directly against the surety itself, the creditor's act in resortingfirst to the properties of the insolvent debtor is to the
surety'sadvantage

al Commercial Banking Corporation, petitioner, vs. Hon. Jose P. Arro, Judge of the Court of First Instance of Davao,and Residoro Chua,
respondents. Date:31 July 1982 Ponente:De Castro,J

.Facts:

Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensivesurety agreement to guaranty,above all, any existing
or future indebtedness of Davao Agricultural Industries Corporation (Daicor), and/or induce thebank at anytime or from time to time to
make loans or advances or to extend credit to saidDaicor, provided that theliability shall not exceed ay any time Php100,000.00.A
promissory note for Php100,000.00 (for additional capital to the charcoal buy andsell and the activated carbonimportation business)
was issued in favor of petitionerRCBC payable a month after execution. This was signed by Go inhis personalcapacity and in behalf of
Daicor. Respondent Chua did not sign in said promissorynote. As the note was notpaid despite demands, RCBC filed a complaint for a
sum of money against Daicor, Go and Chua.The complaint against Chua was dismissed upon his motion, alleging that thecomplaint
states no cause of actionagainst him as he was not a signatory to the noteand hence he cannot be held liable. This was s

o despite RCBC’s

opposition, invokingthe comprehensive surety agreement which it holds to cover not just the note inquestion but alsoevery other
indebtedness that Daicor may incur from petitioner bank. RCBC moved for reconsideration of the dismissalbut to no avail. Hence, this
petition.

Issue:

WON respondent Chua may be held liable with Go and Daicor under the promissorynote, even if he was not asignatory to it, in light of
the provisions of thecomprehensive surety agreement wherein he bound himself with Go andDaicor, assolidary debtors, to pay existing
and future debts of said corporation.

Held:

Yes, he may be held liable. Order dismissing the complaint against respondent Chuareversed and set aside. Caseremanded to court of
origin with instruction to set asidemotion to dismiss and to require defendant Chua to answer thecomplaint.

Ratio:

The comprehensive surety agreement executed by Chua and Go, as president andgeneral manager, respectively,of Daicor, was to cover
existing as well as futureobligations which Daicor may incur with RCBC. This was only subject tothe provisothat their liability shall not
exceed at any one time the aggregate principal amount of Php100,000.00. (Par.1of said agreement).

The agreement was executed to induce petitioner Bank to grant any application for aloan Daicor would request for.According to said
agreement, the guaranty iscontinuing and shall remain in full force or effect until the bank is notifiedof itstermination.During the time
the loan under the promissory note was incurred, the agreement wasstill in full force and effect and isthus covered by the latter
agreement. Thus, even if Chua did not sign the promissory note, he is still liable by virtue of the suretyagreement. The only condition
necessary for him to be

liable under the agreementwas that Daicor “is or maybecome liable as maker, endorser, acceptor or otherwise.”

The comprehensive surety agreement signed by Go and Chua was as an accessoryobligation dependent upon theprincipal obligation,
i.e., the loan obtained by Daicoras evidenced by the promissory note. The surety agreementunequivocally shows that it was executed
to guarantee futuredebts that may be incurred by Daicor with petitioner, asallowed under NCC Art.2053.

“A guaranty may also be given as se

curity for future debts, the amount of which isnot yet known; there can be no claim

against the guarantor until the debt isliquidated. A conditional obligation may also be secured.”

SOUTHERN MOTORS VS ELISEO BARBOSA, GR # L-9306

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 principal’s 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 CA 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-principal’s property before he can proceed to foreclose the mortgage.

HELD: No. Defendant’s 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, defendant’s 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.

CENTRAL SURETY and INSURANCE COMPANY, INC., petitioner vs. Hon. ALBERTO Q. UBAY as Judge of the RTC of Rizal, Caloocan
City, and ONG CHI, doing business under the Firm Name TABLERIA DE LUXE respondents
G.R. No. L-40334 February 28, 1985

Facts

Ong Chi, doing business under the firm name "Tableria de Luxe" sued Francisco Reyes, Jr. for a sum of money in the City Court of
Caloocan City. Ong Chi applied for a writ of attachment and upon filing a bond in the amount of P6,464.18, a jeep belonging to Reyes
was placed in custodia legis.

Reyes moved to dissolve the writ of attachment. He posted a counterbond in the amount of P 6,465.00; his surety was Central Surety
and Insurance Co. The condition of the counterbond is that in consideration of the dissolution of writ of attachment, Reyes as principal
and Central Surety and Insurance Co. as surety are jointly and severally bind themselves in the sum of P 6,465.00, under the condition
that in case Ong Chi recovers judgment in the action, Reyes will on demand redeliver the attached property to be applied to the
payment of the judgment or in default thereof that Reyes and surety will on demand pay Ong Chi the full value of the property
released. The writ of attachment was thereafter lifted and the jeep was returned to Reyes. The City Court ordered the Reyes to pay
Ong Chi the sum of P 6,964.18 with legal interests, attorney's fees and the costs of the suit.

Reyes appealed to the RTC of Rizal but the court affirmed the judgment in toto. Upon finality of the judgment, a writ of execution was
issued against Reyes. The jeep which was the object of the attachment was sold by the sheriff for P4,000.00 and the amount was
credited against the judgment.

After the sale of the jeep, Central Surety and Insurance Co. filed a motion to cancel the counterbond. Ong Chi opposed the motion
and asked that the surety company pay the deficiency on the judgment in the amount of P5,730. 00 (P9,730.00 as of the filing of the
motion, less P4,000.00 the proceeds of the sale of the jeep). The motion for a deficiency judgment was opposed by the surety on the
ground that it had fulfilled the condition of the counterbond. Despite the opposition, the court ordered the surety to pay and denied
the motion for reconsideration.
Issue

Whether or not the Central Surety and Insurance Co. surety is liable for the deficiency.

Ruling

The SC set aside the orders of the respondent judge and cancelled the Central Surety and Insurance Co.'s counterbond.

The stipulation in the counterbond executed by the Central Surety and Insurance Co. is the law between the parties and not the
provisions of the Rules of Court.

The main obligation of the surety was to redeliver the jeep so that it could be sold in case execution was issued against the principal
obligor. The amount of P6,465.00 was merely to fix the limit of the surety's liability in case the jeep could not be reached. The jeep
was made available for execution of the judgment by the surety. The surety had done its part; the obligation of the bond had been
discharged; the bond should be cancelled.

The petitioner's surety bond was for the amount of P6,465.00. So even on the assumption that the bond was not discharged, since
the sale of the jeep yielded P4,000.00, the surety can be held liable at most for P2,465.00. But the respondent judge ordered the
surety to pay P5,730.00 which is the entire deficiency and is in excess of P2,465.00. It is axiomatic that the obligation of a surety cannot
extend beyond what is stipulated.

Associated Insurance & Surety Co., Inc. v. Bacolod, 105 Phil. 246 (1959)

Facts:Plaintiff brought this action before the Court of First Instance to secure the cancellation of certain surety bonds
executed by it in favor of defendant Bacolod-Murcia Milling Co., Inc. or, in the alternative, to order defendants Sixto R. Ruiz
and Raymundo D. Dizon to pay to plaintiff the amount of P2,956.60, plus interest thereon, for ultimate delivery to their co-
defendant and to order defendants to pay plaintiff's attorney's fees and costs.

The complaint alleges that defendants Sixto R. Ruiz obtained two crop loans in the aggregate amount of P11,626.00 from
defendant Bacolod-Murcia Milling Co., Inc., a corporation duly organized under the laws of the Philippines, Subject to the
condition that he shall post surety bonds to guarantee the payment of 25% of said crop loans; that in compliance with said
condition, plaintiff, also a corporation, executed in favor of the milling corporation two surety bonds in the aggregate amount
of P2,956.50.

The complaint, as an alternative cause of action, also alleges that defendant Sixto R. Ruiz, as debtor, and defendant
Raymundo D. Dizon, as surety, executed an indemnity agreement in favor of plaintiff to indemnify the latter for executed
the two surety bonds in favor of the milling company mentioned in the preceding paragraph; that defendant milling company
notified plaintiff that the debtor has an standing account with said defendant in the amount of P15,285.72 and demanded
that it pay its share thereof in the amount of P2,956.50 as agreed upon in the surety bonds, and that in the event plaintiff is
compelled pay to the defendant milling company said amount of P2,956.50, plaintiff would have a valid cause of action
against debtor and his surety for the recovery of said amount under the provisions of the indemnity agreement.

Defendant milling company filed a motion to dismiss on the ground that the complaint fails to state a cause of action against
it for the following reasons: there is no allegation in the complaint that the plaintiff, as a surety, has paid the obligation it
guaranteed, or has been required to pay the same by said defendant. And granting arguendo that the allegations in the
complaint regarding breach of the conditions of the surety bonds are true, the same would only be matters of defense which
plaintiff could put up should it be made to pay its obligation under the bonds of defendant milling company.

Despite the opposition of plaintiff to this motion to dismiss, the court granted the same in a brief order as follows:
"Defendants' motion to dismiss on the ground that plaintiff's complaint states no cause of action being meritorious, the same
is granted. This case is hereby dismissed, with costs against the defendants." Hence this appeal.

Issue:Whether or notthe trial court erred in dismissing the case on the grounds set forth by the defendant.
Held: Yes.The purpose of the action is not dispute the validity of any demand for payment that may have been made upon
plaintiff by defendant company on the strength of its liability under the bonds but rather to ask for its release from its liability
under the bonds for certain breach of its conditions committed by the milling company, and it is for the reason that the action
was brought against the milling company. It is true that, as an alternative action, the debtor and the other surety were also
included to exact liability from them under the indemnity agreement, but that is an action distinct and separate from that
alleged against the milling company and as such it cannot in any way affect the relation of the latter to the plaintiff. We find
therefore immaterial or unnecessary to allege in the complaint that plaintiff has either paid or been required to pay its
obligation under the bonds by the creditor considering the nature of the main cause of action. It is sufficient if it alleges
therein, as it actually does, that conditions agreed upon in the bonds had been violated. We therefore conclude that the
complaint states a valid cause of action insofar as the milling company is concerned.

REPUBLIC v PAL-FOX LUMBER

Facts: Pal-Fox Lumber Co., Inc. was indebted to the Bureau of Internal Revenue for forest charges and surcharges
amounting to P11,851.56, and that the Far Eastern Surety & Insurance Co., Inc. was jointly and severally liable with the
lumber company for the payment of said forest charges up to P5,000.00. Republic moved for reconsideration, pointing out
that the surety company's correct liability under the appealed decision was P5,000.00 plus legal interest from the filing of
the complaint. In other words, the Republic would want the surety company to pay the legal interest adjudged by the trial
court before the case may finally be considered dismissed. Far Eastern's denial of liability for such interest is based on the
stipulation in the bond that it was bound to the plaintiff "in the sum of P5,000.00."

Issue: W/N Far Eastern should also pay interest?

Ruling: Yes. Article 2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable. If it (the guaranty) be simple
or indefinite, it shall comprise not only the principal obligation

but also all its accessories

, including judicial costs.