Part II. Deposit
Because
Voluntary Deposit
23. BPI v. The Intermediate Appellate Court & Zshornack, G.R. No.
L-66826, August 19, 1998
Facts:
Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar
savings account and a peso current account. An application for a
dollar drat was accomplished by Virgillo Garcia branch manager of
COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion,
Garcia indicated that the amount was to be charged to the dolar
savings account of the Zshornacks. There wasa no indication of the
name of the purchaser of the dollar draft. Comtrust issued a check
payable to the order of Dizon. When Zshornack noticed the
withdrawal from his account, he demanded an explainaiton from the
bank. In its answer, Comtrust claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy.
When he encashed with COMTRUST a cashiers check for P8450
issued by the manila banking corporation payable to Ernesto.
Issue: Whether the contract between petitioner and respondent
bank is a deposit?
Held: The document which embodies the contract states that the
US$3,000.00 was received by the bank for safekeeping. The
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time. Thus, Zshornack demanded the
return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962,
New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no
deposit but some other contract.
24. Agro-Industrial Development Corporation v. Ca and Security
Bank & Trust Company, G.R. No. 90027, March 3, 1993, 219 SCRA
426
Facts:
On July 3, 1979, petitioner (through its President- Sergio Aguirre)
and the Spouses Ramon and Paula Pugao entered into an agreement
whereby the former purchase two parcel of lands from the latter. It
was paid of downpayment while the balance was covered by there
postdated checks. Among the terms and conditions embodied in the
agreement were the titles shall be transferred to the petitioner upon
full payment of the price and the owner's copies of the certificate of
titles shall be deposited in a safety deposit box of any bank.
Petitioner and the Pugaos then rented Safety Deposit box of private
respondent Security Bank and Trust Company.
Thereafter, a certain Margarita Ramos offered to buy from the
petitioner. Mrs Ramos demand the execution of a deed of sale
which necessarily entailed the production of the certificate of titles.
In view thereof, Aguirre, accompanied by the Pugaos, then proceed
to the respondent Bank to open the safety deposit box and get the
certificate of titles. However, when opened in the presence of the
Bank's representative, the box yielded no such certificate.
of the delay in the reconstitution of the title, Mrs Ramos withdrew
her earlier offer to purchase.
Hence this petition.
Issue:
Whether or not the contractual relation between a commercial
bank and another party in the contract of rent of a safety deposit
box is one of bailor and bailee.
Ruling:
Yes.
The contract in the case at bar is a special kind of deposit. It
cannot be characterized as an ordinary contract of lease under
Article 1643 because the full and absolute possession and control of
the safety deposit box was not given to the joint renters – the
petitioner and Pugaos.
American Jurisprudence:
The prevailing rule is that the relation between a bank renting
out safe-deposit boxes and its customer with respect to the contents
of the box is that of a bail or bailee, the bailment being for hire and
mutual benefit.
Our provisions on safety deposit boxes are governed by
Section 72 (a) of the General Banking Act, and this primary function
is still found within the parameters of a contract of deposit like the
receiving in custody of funds, documents and other valuable objects
for safekeeping. The renting out of the safety deposit boxes is not
independent from, but related to or in conjunction with, this
principal function. Thus, depositary’s liability is governed by our civil
code rules on obligation and contracts, and thus the SBTC would be
liable if, in performing its obligation, it is found guilty of fraud,
negligence, delay or contravention of the tenor of the agreement.
25. Roman Catholic Bishop of Jaro v. Dela Pena, G.R. No. L-6913,
November 21, 1913, 26 Phil 144
FACTS : The plaintiff is the trustee of a charitable bequest made for
the construction of a leper hospital and that father Agustin de la
Peña was the duly authorized representative of the plaintiff to
receive the legacy. The defendant is the administrator of the estate
of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed
that he had on hand as such trustee the sum of P6,641, collected by
him for the charitable purposes aforesaid. In the same year he
deposited in his personal account P19,000 in the Hongkong and
Shanghai Bank at Iloilo. Shortly thereafter and during the war of the
revolution, Father De la Peña was arrested by the military
authorities as a political prisoner, and while thus detained made an
order on said bank in favor of the United States Army officer under
whose charge he then was for the sum thus deposited in said bank.
The arrest of Father De la Peña and the confiscation of the funds in
the bank were the result of the claim of the military authorities that
he was an insurgent and that the funds thus deposited had been
collected by him for revolutionary purposes. The money was taken
from the bank by the military authorities by virtue of such order,
was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question
whether the P6,641 of trust funds was included in the P19,000
deposited as aforesaid, nevertheless, a careful examination of the
case leads us to the conclusion that said trust funds were a part of
the funds deposited and which were removed and confiscated by
the military authorities of the United States.
ISSUE : Whether or not Father de la Peña is liable for the loss of the
money under his trust?
RULINGS : The court, therefore, finds and declares that the money
which is the subject matter of this action was deposited by Father
De la Peña in the Hongkong and Shanghai Banking Corporation of
Iloilo; that said money was forcibly taken from the bank by the
armed forces of the United States during the war of the insurrection;
and that said Father De la Peña was not responsible for its loss.
Father De la Peña's liability is determined by those portions of the
Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence pertaining
to a good father of a family" (art. 1094), it also provides, following
the principle of the Roman law, major casus est, cui humana
infirmitas resistere non potest, that "no one shall be liable for events
which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in
the law or those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal
funds De la Peña did not thereby assume an obligation different
from that under which he would have lain if such deposit had not
been made, nor did he thereby make himself liable to repay the
money at all hazards. If the had been forcibly taken from his pocket
or from his house by the military forces of one of the combatants
during a state of war, it is clear that under the provisions of the Civil
Code he would have been exempt from responsibility. The fact that
he placed the trust fund in the bank in his personal account does not
add to his responsibility. Such deposit did not make him a debtor
who must respond at all hazards.
Necessary Deposit
26. Durban Apartments Corp. v. Pioneer Insurance and Surety
Corp, G.R. No. 179419, January 12, 2011, 639 SCRA 441
FACTS: July 22, 2003, Pioneer Insurance and Surety Corp, by right of
subrogation, filed with the RTC of Makati a Complaint for Recovery
of Damages against Durban Apartments Corp. (or City Garden Hotel)
and defendant before the RTC, Vicente Justimbaste. Respondent
averred that it is the insurer for loss and damage of Jeffrey S. See’s
2001 Suzuki Grand Vitara in the amount of P1,175,000.00. On April
30, 2002, See arrived and checked in at the City Garden Hotel before
midnight, and its parking attendant, Justimbaste got the key to said
Vitara from See to park it. On May 1, 2002, at about 1:00 am, See
received a phone call where the Hotel Chief Security Officer
informed him that his Vitara was carnapped while it was parked
unattended at the parking area of Equitable PCI Bank See went to
see the Security Officer, thereafter reported the incident to the
Operations Division of the Makati City Police Anti-Carnapping Unit,
and a flash alarm was issued. The police investigated Hotel Security
Officer, Ernesto T. Horlador, Jr. and Justimbaste. See gave his
Sinumpaang Salaysay to the police investigator, and filed a
Complaint Sheet with the PNP Traffic Management Group in Camp
Crame. it paid the P1,163,250.00 money claim of See and mortgagee
ABN AMRO Savings Bank, Inc. as indemnity for the loss of the Vitara.
The Vitara was lost due to the negligence of Durban Apartments and
Justimbaste because it was discovered during the investigation that
this was the second time that a similar incident of carnapping
happened in the valet parking service and no necessary precautions
were taken to prevent its repetition. Durban Apartments was
wanting in due diligence in the selection and supervision of its
employees particularly defendant Justimbaste. Both failed and
refused to pay its valid, just, and lawful claim despite written
demands.
ISSUE: Is petitioner liable for the loss of See’s vehicle?
RULING: Yes.
Article 1962, in relation to Article 1998, of the Civil Code defines a
contract of deposit and a necessary deposit made by persons in
hotels or inns:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely
keeping it and returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no
deposit but some other contract.
Art. 1998. The deposit of effects made by travelers in hotels or inns
shall also be regarded as necessary. The keepers of hotels or inns
shall be responsible for them as depositaries, provided that notice
was given to them, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised
relative to the care and vigilance of their effects.
Plainly, from the facts found by the lower courts, the insured See
deposited his vehicle for safekeeping with petitioner, through the
latter’s employee, Justimbaste. In turn, Justimbaste issued a claim
stub to See. Thus, the contract of deposit was perfected from See’s
delivery, when he handed over to Justimbaste the keys to his
vehicle, which Justimbaste received with the obligation of safely
keeping and returning it. Ultimately, petitioner is liable for the loss
of See’s vehicle.

27. YHT Realty Corporation v. CA, G.R. No. 126780, February 17,
2005, 451 SCRA 638
FACTS:
Respondent McLoughlin would always stay at Tropicana
Hotel every time he is here in the Philippines and would rent a
safety deposit box. The safety deposit box could only be opened
through the use of 2 keys, one of which is given to the registered
guest, and the other remaining in the possession of the
management of the hotel.
McLoughlin allegedly placed the following in his safety
deposit box – 2 envelopes containing US Dollars, one envelope
containing Australian Dollars, Letters, credit cards, bankbooks and a
checkbook.
On 12 December 1987, before leaving for a brief trip,
McLoughlin took some items from the safety box which includes the
ff: envelope containing Five Thousand US Dollars (US$5,000.00), the
other envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00), his passports and his credit cards. The other items
were left in the deposit box. Upon arrival, he found out that a few
dollars were missing and the jewelry he bought was likewise
missing.
Eventually, he confronted Lainez and Paiyam who
admitted that Tan opened the safety deposit box with the key
assigned to him. McLoughlin went up to his room where Tan was
staying and confronted her. Tan admitted that she had stolen
McLouglin’s key and was able to open the safety deposit box with
the assistance of Lopez, Paiyam and Lainez. Lopez also told
McLoughlin that Tan stole the key assigned to McLouglin while the
latter was asleep.
McLoughlin insisted that it must be the hotel who must
assume responsibility for the loss he suffered. Lopez refused to
accept responsibility relying on the conditions for renting the safety
deposit box entitled “Undertaking For the Use of Safety Deposit
Box”
ISSUE: WON the "Undertaking for the Use of Safety Deposit Box"
admittedly executed by private respondent is null and void.
HELD: YES
Article 2003 was incorporated in the New Civil Code as an
expression of public policy precisely to apply to situations such as
that presented in this case. The hotel business like the common
carrier’s business is imbued with public interest. Catering to the
public, hotelkeepers are bound to provide not only lodging for hotel
guests and security to their persons and belongings. The twin duty
constitutes the essence of the business. The law in turn does not
allow such duty to the public to be negated or diluted by any
contrary stipulation in so-called “undertakings” that ordinarily
appear in prepared forms imposed by hotel keepers on guests for
their signature.
In an early case (De Los Santos v. Tan Khey), CA ruled that
to hold hotelkeepers or innkeeper liable for the effects of their
guests, it is not necessary that they be actually delivered to the
innkeepers or their employees. It is enough that such effects are
within the hotel or inn. With greater reason should the liability of
the hotelkeeper be enforced when the missing items are taken
without the guest’s knowledge and consent from a safety deposit
box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the “undertaking” manifestly
contravene Article 2003, CC for they allow Tropicana to be released
from liability arising from any loss in the contents and/or use of the
safety deposit box for any cause whatsoever. Evidently, the
undertaking was intended to bar any claim against Tropicana for any
loss of the contents of the safety deposit box whether or not
negligence was incurred by Tropicana or its employees. The New
Civil Code is explicit that the responsibility of the hotel-keeper shall
extend to loss of, or injury to, the personal property of the guests
even if caused by servants or employees of the keepers of hotels or
inns as well as by strangers, except as it may proceed from any force
majeure.41 It is the loss through force majeure that may spare the
hotel-keeper from liability. In the case at bar, there is no showing
that the act of the thief or robber was done with the use of arms or
through an irresistible force to qualify the same as force majeure.
Part III.
Guaranty
28. American Home Insurance Co. of New York v. F.F. Cruz & Co.,
Inc., G.R. No. 174926, August 10, 2011
29. Salvador P. Escano, et al v. Rafael Ortigas Jr., G.R. No. 151953,
June 29, 2007
Facts:
On April 28, 1980, Private Development Corporation of the
Philippines (PDCP) entered into a loan agreement with Falcon
Minerals, Inc. (Falcon) amounting to $320,000.00 subject to terms
and conditions. [“Nagpautang ang PDCP sa Falcon ng $320K]
On the same day, 3 stockholders-officers of Falcon: Ortigas Jr.,
George A. Scholey, and George T. Scholey executed an Assumption
of Solidary Liability “to assume in [their] individual capacity, solidary
liability with [Falcon] for due and punctual payment” of the loan
contracted by Falcon with PDCP.
Two (2) separate guaranties were executed to guarantee payment of
the same loan by other stockholders and officers of Falcon, acting in
their personal and individual capacities. One guaranty was executed
by Escaño, Silos, Silverio, Inductivo and Rodriguez.
Two years later, an agreement developed to cede control of Falcon
to Escaño, Silos and Matti. Contracts were executed whereby
Ortigas, George A. Scholey, Inductivo and the heirs of then already
deceased George T. Scholey assigned their shares of stock in Falcon
to Escaño, Silos and Matti. An Undertaking dated June 11, 1982 was
executed by the concerned parties, namely: with Escaño, Silos and
Matti as “SURETIES” and Ortigas, Inductivo and Scholeys as
“OBLIGORS”
Falcon eventually availed of the sum of $178,655.59 from the credit
line extended by PDCP. It would also execute a Deed of Chattel
Mortgage over its personal properties to further secure the loan.
However, Falcon subsequently defaulted in its payments. After PDCP
foreclosed on the chattel mortgage, there remained a subsisting
deficiency of Php 5,031,004.07 which falcon did not satisfy despite
demand.
Issue: Whether the obligation to repay is solidary, as contended by
respondent and the lower courts, or merely joint as argued by
petitioners.
Held/Ruling:
In case, there is a concurrence of two or more creditors or
of two or more debtors in one and the same obligation, Article 1207
of the Civil Code states that among them, “[t]here 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 caution against the broad interpretation of
solidarity by providing: “The indivisibility of an obligation does not
necessarily give rise to solidarity. Nor does solidarity of itself imply
indivisibility.” These Civil Code provisions establish that in case of
concurrence of two or more creditors or of two or more debtors in
one and the same obligation, and in the absence of express and
indubitable terms characterizing the obligation as solidary, the
presumption is that the obligation is only joint. It thus becomes
incumbent upon the party alleging that the obligation is indeed
solidary in character to prove such fact with a preponderance of
evidence.
Note that Article 2047 itself specifically calls for the
application of the provisions on joint and solidary obligations to
suretyship contracts. Article 1217 of the Civil Code thus comes into
play, recognizing the right of reimbursement from a co-debtor (the
principal debtor, in case of suretyship) in favor of the one who paid
(i.e., the surety).[However, a significant distinction still lies between
a joint and several debtor, on one hand, and a surety on the other.
Solidarity signifies that the creditor can compel any one of the joint
and several debtors or the surety alone to answer for the entirety of
the principal debt. The difference lies in the respective faculties of
the joint and several debtor and the surety to seek reimbursement
for the sums they paid out to the creditor. In the case of joint and
several debtors, Article 1217 makes plain that the solidary debtor
who effected the payment to the creditor “may claim from his co-
debtors only the share which corresponds to each, with the interest
for the payment already made.” Such solidary debtor will not be
able to recover from the co-debtors the full amount already paid to
the creditor, because the right to recovery extends only to the
proportional share of the other co-debtors, and not as to the
particular proportional share of the solidary debtor who already
paid. In contrast, even as the surety is solidarily bound with the
principal debtor to the creditor, the surety who does pay the
creditor has the right to recover the full amount paid, and not just
any proportional share, from the principal debtor or debtors. Such
right to full reimbursement falls within the other rights, actions and
benefits which pertain to the surety by reason of the subsidiary
obligation assumed by the surety.
*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of
P1.3M; Legal interest of 12% per annum on P 1.3M computed from
March 14, 1994. Assailed rulings are affirmed. Costs against
petitioners
30. Atok Finance Corporation v. CA, G.R. No. 80078, May 18, 1993
FACTS:
 Sanyu Chemical Corporation (Sanyu Chemical) as Principal
 Sanyu Trading Corporation (Sanyu Trading) along with Private
Stockholders (as sureties):
o Sps. Danilo E. Arrieta & Nenita B. Arrieta
o Leopoldo G. Halili
o Pablito Bermindo
They Executed a Continuing Suretyship Agreement1 in favor of
Atok Finance Corporation (Atok Finance) as creditor.
 Under this Agreement, Sanyu Trading and the individual private
respondents who were officers and stockholders of Sanyu
Chemical did:
(1) For Valuable and/or other consideration x x x, jointly and
severally unconditionally guarantee to ATOK FINANCE
CORPORATION (hereinafter called Creditor), the full, faithful
and prompt payment and discharge of any and all indebtedness
of [Sanyu Chemical] x x x (hereinafter called Principal) to the
Creditor
The word ‘indebtedness’ is used herein in its most comprehensive
sense and includes any and all advances, debts, obligations and
liabilities of Principal or any one or more of them, here[to]fore, now
or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether direct or acquired by the
Creditor by assignment or succession, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or
undetermined and whether the Principal may be liable individually
or jointly with others, or whether recovery upon such indebtedness
may be or hereafter become barred by any statute of limitations, or
whether such indebtedness may be or otherwise become
unenforceable.”

 27 November 1981: Sanyu Chemical assigned its trade
receivables outstanding as of 27 November 1981 with a total
face value of P125,871.00 to Atok Finance in consideration of
receipt from Atok Finance of the amount of P105,000.00.
o The assigned receivables carried a standard term of 30 days;
o It appeared, however, that the standard commercial practice
was to grant an extension of up to 120 days without
penalties.
 13 January 1984: Atok Finance commenced action against
 Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and
Leopoldo Halili before the RTC-Manila to:
o Collect the sum of P120,240.00
o Plus penalty charges amounting to P0.03 for every peso due
and payable for each month starting from 1 September 1983.
 Atok Finance alleged that Sanyu Chemical had failed to collect
and remit the amounts due under the trade receivables.
 Sanyu Chemical and individual private respondents sought
dismissal of Atok’s claim upon the ground that:
o Such claim had prescribed under Article 1629 of the Civil
Code and
o Lack of cause of action
o Also contended that the Continuing Suretyship Agreement,
being an accessory contract, was null and void since, at the
time of its execution, Sanyu Chemical had no pre-existing
obligation due to Atok Finance.
 The trial court rendered a decision in favor of Atok Finance.
(Respondents had no evidence)
o Private Respondents appealed before the IAC but was
dismissed
o Dismissed the appeal upon the ground of abandonment,
since the private respondents had failed to file their appeal
brief
o CA granted petition for relief of judgment
 Held that a surety agreement is an accessory contract and
therefore cannot exist without a principal contract, which
was not proven to have existed when the time the surety
agreement was constituted.2
 Cited Article 2052 which states that a guarantee cannot
exist without a valid obligation.
 Cited Art. 1629, which made Sanyu Chemical free from
liability.
ISSUE (S):
1)WoN that Agreement must be held null and void as having been
executed without consideration and without a pre-existing principal
obligation to sustain it and would then hold private respondents and
Sanyu Chemical solidarily liable.
2) WoN private respondents are liable under the Deed of
Assignment on the receivables thereby assigned.
RATIO: Petition for Review is hereby GRANTED DUE COURSE, and
the Decision of the CA are hereby REVERSED and SET ASIDE. RTC
decision reinstated but modified. Penalty is reduced to 18% per
annum (instead of P0.03 for every peso monthly or 36% per annum.
In the First Issue: (Relevant to DOCTRINE)
 Article 2052 is not to be read in an absolute and literal manner
and carried to the limit of its logic.
 This is clear from Article 2052 and 20533 of the Civil Code itself:
“Art. 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the
2
Article 2052; NCC
3:
“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 secured.” 
 liability shall cease one year after the maturity.”
performance of a viodable or an unenforceable contract. It may
also guarantee a natural obligation.
 In Rizal Commercial Banking Corporation and the NARIC cases4
rejected the distinction which the CA in the case at bar sought
to make with respect to Article 2053, that is, that the “future
debts” referred to in that Article relate to “debts already
existing at the time of the constitution of the agreement but
the amount [of which] is unknown,” and not to debts not yet
incurred and existing at that time.
 A surety is not bound under any particular principal obligation
until that principal obligation is born. But there is no theoretical
or doctrinal difficulty inherent in saying that the suretyship
agreement itself is valid and binding even before the principal
obligation intended to be secured thereby is born, any more
than there would be in saying that obligations which are
subject to a condition precedent are valid and binding before
the occurrence of the condition precedent.
 Comprehensive or continuing surety agreements are common
in present day financial and commercial practice. A bank or a
financing company which anticipates entering into a series of
credit transactions with a particular company, commonly
requires the projected principal debtor to execute a
continuing surety agreement along with its sureties.
 By executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with
its creditor; with such suretyship agreement, there would be no
need to execute a separate surety contract or bond for each
financing or credit accommodation extended to the principal
debtor. This is precisely what happened in the case at bar.
In the Second Issue: (Not so Relevant)
 The contention of Sanyu Chemical was that Atok Finance had
no cause of action under the Deed of Assignment for the
reason that Sanyu Chemical’s warranty of the debtors’
solvency had ceased.
o In submitting this contention, Sanyu Chemical relied on
Article 16295
 Assignment of receivables is a commonplace commercial
transaction today. It is an activity or operation that permits the
assignee to monetize or realize the value of the receivables
before the maturity thereof. In other words, Sanyu Chemical
received from Atok Finance the value of its trade receivables it
had assigned; Sanyu Chemical obviously benefitted from the
assignment. The payments due in the first instance from the
trade debtors of Sanyu Chemical would represent the return of
the investment which Atok Finance had made when it paid
Sanyu Chemical the transfer value of such receivables.
 the assignor Sanyu Chemical becomes a solidary debtor under
the terms of the receivables covered and transferred by virtue
of the Deed of Assignment. And because assignor Sanyu
Chemical became, under the terms of the Deed of Assignment,
solidary obligor under each of the assigned receivables, the
other private respondents (the Arrieta spouses, Pablito
4 See notes
5 “Art. 1629. In case the assignor in good faith should have made
himself responsible for the solvency of the debtor, and the
contracting parties should not have agreed upon the duration of the
liability, it shall last for one year only, from the time of the
assignment if the period had already expired. If the credit should be
payable within a term or period which has not yet expired, the


 Bermundo and Leopoldo Halili), became solidarily liable for that
obligation of Sanyu Chemical, by virtue of the operation of the
Continuing Suretyship Agreement.
 Put a little differently, the obligations of individual private
respondent officers and stockholders of Sanyu Chemical under
the Continuing Suretyship Agreement were activated by the
resulting obligations of Sanyu Chemical as solidary obligor
under each of the assigned receivables by virtue of the
operation of the Deed of Assignment. That solidary liability of
Sanyu Chemical is not subject to the limiting period set out in
Article 1629 of the Civil Code.
 It follows that at the time the original complaint was filed by
Atok Finance in the trial court, it had a valid and enforceable
cause of action against Sanyu Chemical and the other private
respondents. We also agree with the Court of Appeals that the
original obligors under the receivables assigned to Atok Finance
remain liable under the terms of such receivables.
Notes: (For your reference.)
In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and
Alto Surety Co., Inc:
Mr. Justice J.B.L. Reyes, made short shrift of the private
respondents’ doctrinaire argument:
“Under his third assignment of error, appellant Fojas questions the
validity of the additional bonds on the theory that when they were
executed, the principal obligation referred to in said bonds had not
yet been entered into, as no copy thereof was attached to the deeds
of suretyship.
This defense is untenable, because in its complaint the NARIC
averred, and the appellant did not deny that these bonds were
posted to secure the additional credit that Fojas has applied for, and
the credit increase over his original contract was sufficient
consideration for the bonds. That the latter were signed and filed
before the additional credit was extended by the NARIC is no ground
for complaint. Article 1825 of the Civil Code of 1889, in force in
1948,expressly recognized that ‘a guaranty may also be given as
security for future debts the amount of which is not yet known.’ ”
(Italics supplied)
In Rizal Commercial Banking Corporation v. Arro:
The Court was confronted again with the same issue, that is,
whether private respondent was liable to pay a promissory note
dated 29 April 1977 executed by the principal debtor in the light of
the provisions of a comprehensive surety agreement which
petitioner bank and the private respondent had earlier entered into
on 19 October 1976.
Under the comprehensive surety agreement, the private
respondents had bound themselves as solidary debtors of the Diacor
Corporation not only in respect of existing obligations but also in
respect of future ones. In holding private respondent surety
(Residoro Chua) liable under the comprehensive surety agreement,
the Court said:
“The surely agreement which was earlier signed by Enrique Go., Sr.
and private respondent, is an accessory obligation, it being
dependent upon a principal one which, in this case is the loan
obtained by Diacor as evidence by a promissory note. What
obviously induced petitioner bank to grant the loan was the surety
agreement whereby Go and Chua bound themselves solidarily to
guaranty the punctual payment of the loan at maturity. By terms
that are unequivocal, it can be clearly seen that the surety
agreement was executed to guarantee future debts which Daicor
may incur with petitioner, as is legally allowable under the Civil Code.
Relevant provision of deed of assignment:
“2. To induce the ASSIGNEE [Atok Finance] to purchase the above
contracts, the ASSIGNOR [Sanyu Chemical] does hereby certify,
warrant and represent that x x x
(g) the debtor/s under the assigned contract/s are solvent and
his/its/theirfailure to pay the assigned contract/s and/or any
installment thereon upon maturity thereof shall be conclusively
considered as a violation of this warranty; and x x x
The foregoing warranties and representations are in addition to
those provided for in the Negotiable Instruments Law and other
applicable laws. Any violation thereof shall render the ASSIGNOR
immediately and unconditionally liable to pay the ASSIGNEE jointly
and severally with the debtors under the assigned contracts, the
amounts due thereon.
31. Bank of Commerce, et al. v. Sps. Andres and Eliza Flores, G.R.
No. 174006, December 8, 2010
Facts:
Spouse Flores borrowed money from petitioner bank in the amount
of Nine Hundred Thousand Pesos (P900,000.00) on Oct 1993.
Respondents executed a Real Estate Mortgage5 over the
condominium unit as collateral, and the same was annotated at the
back of CCT No. 2130. Two years later again the spouses borrowed
One Million One Hundred Thousand Pesos (P1,100,000.00) from
petitioner bank, which was also secured by a mortgage over the
same property annotated at the back of CCT No. 2130.
On Jan 1996 respondents paid One Million Eleven Thousand Five
Hundred Fifty-Five Pesos and 54 centavos (P1,011,555.54), as
evidenced by Official Receipt No. 1477417 issued by petitioner bank.
On the face of the receipt, it was written that the payment was "in
full payment of the loan and interest." Respondents then asked
petitioner bank to cancel the mortgage annotations on CCT No. 2130
since the loans secured by the real estate mortgage were already
paid in full. However, the bank refused to cancel the same and
demanded payment of Four Million Six Hundred Thirty-Three
Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos
(P4,633,916.67), then petitioner bank applied for extra-judicial
foreclosure of the mortgages over the condominium unit. The public
auction sale was scheduled on September 4, 1998.
Respondents filed suit with the RTC, Quezon City, assailing the
validity of the foreclosure and auction sale of the property.
RTC granted respondents’ prayer for issuance of a writ of
preliminary injunction, restraining petitioner bank from foreclosing
on the mortgage and ordered that specific performance with
damages and injunction filed by plaintiffs, Sps. Andres and Eliza
Flores against defendants, Bank of Commerce and Stephen Z. Taala,
is hereby DISMISSED. Likewise, the counterclaim filed by defendants,
Bank of Commerce and Stephen Z. Taala against plaintiffs, Sps.
Andres and Eliza Flores is DISMISSED for insufficiency of evidence.
Upon appeal, CA rendered a Decision reversing the decision and the
resolution of the RTC entering a new order:
(a) ordering the cancellation of the real estate mortgage annotations
on the dorsal side of CCT No. 2130 of the Registry of Deeds of
Quezon City;
(b) ordering appellee Bank to issue a corresponding release of
mortgages to plaintiffs-appellants’ CCT No. 2130;
(c) declaring null and void the challenged extra-judicial foreclosure
and public auction sale held on March 25, 2004 together with the
Certificate of Sale dated April 14, 2004 issued in favor of appellee
Bank; and,
(d) appellees’ counterclaims are ordered dismissed, for lack of
sufficient basis therefor.
Issue:
WON the real estate mortgage over the subject condominium unit is
a continuing guaranty for the future loans of respondent spouses
despite the full payment of the principal loans annotated on the title
of the subject property.
Held:
Yes, A continuing guaranty is a recognized exception to the rule that
an action to foreclose a mortgage must be limited to the amount
mentioned in the mortgage contract.23 Under Article 2053 of the
Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is
executed. This is the basis for contracts denominated as a continuing
guaranty or suretyship. A continuing guaranty is not limited to a
single transaction, but contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time or
until revoked. It is prospective in its operation and is generally
intended to provide security with respect to future transactions
within certain limits, and contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. In other words,
a continuing guaranty is one that covers all transactions, including
those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or
termination thereof.
The language of the real estate mortgage unambiguously reveals
that the security provided in the real estate mortgage is continuing
in nature. Thus, it was intended as security for the payment of the
loans annotated at the back of CCT No. 2130, and as security for all
amounts that respondents may owe petitioner bank. It is well
settled that mortgages given to secure future advance or loans are
valid and legal contracts, and that the amounts named as
consideration in said contracts do not limit the amount for which the
mortgage may stand as security if from the four corners of the
instrument the intent to secure future and other indebtedness can
be gathered.
Respondents’ full payment of the loans annotated on the title of the
property shall not effect the release of the mortgage because, by the
express terms of the mortgage, it was meant to secure all future
debts of the spouses and such debts had been obtained and remain
unpaid. Unless full payment is made by the spouses of all the
amounts that they have incurred from petitioner bank, the property
is burdened by the mortgage.
Decision of the CA is REVERSED and SET ASIDE. The decision of the
Regional Trial Court dated December 4, 2002 is hereby REINSTATED.
32. Philippine Blooming Mills, Inc. v. CA, G.R. No. 142381, October
15, 2003
FACTS: Ching was the Senior Vice President of PBM. In his personal
capacity and not as a corporate officer, Ching signed a Deed of
Suretyship for trust receipts and bound himself as a co-maker of a
promissory note to cover a trust loan. All of which were loaned from
TRB.
PBM defaulted in its payment of the three liabilities. PBM and
Ching filed a petition for suspension of payments with the Securities
and Exchange Commission. The petition sought to suspend payment
of PBMs obligations and prayed that the SEC allow PBM to continue
its normal business operations free from the interference of its
creditors. One of the listed creditors of PBM was TRB.
PBM and Ching moved to dismiss the complaint on the ground
that the trial court had no jurisdiction over the subject matter of the
case. PBM and Ching invoked the assumption of jurisdiction by the
SEC over all of PBMs assets and liabilities. TRB filed an opposition to
the Motion to Dismiss. TRB argued that (1) Ching is being sued in his
personal capacity as a surety for PBM; (2) the SEC decision declaring
PBM in suspension of payments is not binding on TRB; and (3)
Presidential Decree No. 1758 (PD No. 1758), which Ching relied on
to support his assertion that all claims against PBM are suspended,
does not apply to Ching as the decree regulates corporate activities
only.
The trial court denied the motion to dismiss with respect to
Ching and affirmed its dismissal of the case with respect to PBM. The
trial court stressed that TRB was holding Ching liable under the Deed
of Suretyship. As Ching’s obligation was solidary, the trial court ruled
that TRB could proceed against Ching as surety upon default of the
principal debtor PBM. The trial court also held that PD No. 1758
applied only to corporations, partnerships and associations and not
to individuals.
Upon the trial courts denial of his Motion for Reconsideration,
Ching filed a Petition for Certiorari and Prohibition before the Court
of Appeals. The appellate court granted Chings petition and ordered
the dismissal of the case. The appellate court ruled that the SEC
assumed jurisdiction over Ching and PBM to the exclusion of courts
or tribunals of coordinate rank.
TRB assailed the Court of Appeals Decision before this
Court. In Traders Royal Bank v. Court of Appeals, this Court upheld
TRB and ruled that Ching was merely a nominal party in SEC Case
No. 2250. Creditors may sue individual sureties of debtor
corporations, like Ching, in a separate proceeding before regular
courts despite the pendency of a case before the SEC involving the
debtor corporation.
In his Answer dated 6 November 1989, Ching denied liability as
surety and accommodation co-maker of PBM. He claimed that the
SEC had already issued a decision approving a revised rehabilitation
plan for PBMs creditors, and that PBM obtained the credit
accommodations for corporate purposes that did not redound to his
personal benefit. He further claimed that even as a surety, he has
the right to the defenses personal to PBM. Thus, his liability as
surety would attach only if, after the implementation of payments
scheduled under the rehabilitation plan, there would remain a
balance of PBMs debt to TRB.
ISSUE: Whether Ching can be sued separately and whether Ching is
liable for obligations PBM contracted after execution of the Deed of
Suretyship.
RULING: Yes, Ching can be sued separately to enforce his liability as
surety for PBM, as expressly provided by Article 1216 of the New
Civil Code. It is elementary that a corporation has a personality
distinct and separate from its individual stockholders and
members. Being an officer or stockholder of a corporation does not
make ones property the property also of the corporation, for they
are separate entities. Ching’s act of joining as a co-petitioner with
PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over
his person or property, for jurisdiction does not depend on the
consent or acts of the parties but upon express provision of law.
Also, Ching is liable for credit obligations contracted by PBM against
TRB before and after the execution of the 21 July 1977 Deed of
Suretyship. This is evident from the tenor of the deed itself, referring
to amounts PBM may now be indebted or may hereafter become
indebted to TRB. 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 secured. (Emphasis supplied)
Furthermore, this Court has ruled in Dio v. Court of Appeals
that:
Under the Civil Code, a guaranty may be given to secure even future
debts, the amount of which may not be known at the time the
guaranty is executed. This is the basis for contracts denominated as
continuing guaranty or suretyship. A continuing guaranty is one
which is not limited to a single transaction, but which contemplates
a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It is prospective in
its operation and is generally intended to provide security with
respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue,
the guarantor becomes liable. Otherwise stated, a continuing
guaranty is one which covers all transactions, including those arising
in the future, which are within the description or contemplation of
the contract of guaranty, until the expiration or termination
thereof. A guaranty shall be construed as continuing when by the
terms thereof it is evident that the object is to give a standing credit
to the principal debtor to be used from time to time either
indefinitely or until a certain period; especially if the right to recall
the guaranty is expressly reserved. Hence, where the contract states
that the guaranty is to secure advances to be made from time to
time, it will be construed to be a continuing one.
In other jurisdictions, it has been held that the use of particular
words and expressions such as payment of any debt, any
indebtedness, or any sum, or the guaranty of any transaction, or
money to be furnished the principal debtor at any time, or on such
time that the principal debtor may require, have been construed to
indicate a continuing guaranty.
33. Security Bank & Trust Company v. Cuenca, G.R. No. 138544,
October 3, 2000, 341 SCRA 781
I. Facts
* Creditor: Sccurity Bank and Trust Co.
Debtor: Sta. Ines Melale Corp.
Surety: Rodolfo Cuenca
A. Sta. Ines is a corporation engaged in logging operations. In
1980, it was granted by Security Bank a credit line in the amount of
Php 8M. To secure payment, it executed a chattel mortgage over
some of its machineries and equipments. And as an additional
security, its President and Chairman of the Board of Directors
Rodolfo Cuenca, executed an Indemnity agreement in favor of
Security Bank whereby he bound himself jointly and severally with
Sta. Ines. After Cuenca resigned, Sta. Ines obtained a Php 6M loan.
Because of its difficulty in making the amortization payments, in
1989 it requested Security Bank a complete restructure of its
indebtedness, which was approved without prior notice to, or prior
consent of Cuenca. Still it was unable to pay.
B. Contention of the Petitioner
Security Bank insists that the 1989 Loan Agreement was a
mere renewal or extension of the Php 8M original accommodation,
that Cuenca waived his right to be notified of and to give consent to
any substitution, renewal, extension, increase, amendment,
conversion or revival of the same, and that it was a continuing
surety.
C. Contention of the Respondent
Cuenca argues that the 1989 agreement extinguished the
obligation under the 1980 credit accommodation by novation.
II. Issues
WON the 1989 Loan Agreement novated the original credit
accommodation and Cuenca’s liability under the Indemnity
Agreement.
III. Ruling
 Yes. The 1989 Loan Agreement is extinguished by novation
the obligation under the 1980 P8 million credit accommodation. It is
essential in the law of suretyship that any agreement between the
creditor and the principal debtor that essentially varies the terms of
the principal contract without the consent of the surety, will release
the surety from liability. The 1989 Loan Agreement expressly
stipulated that its purpose was to liquidate, not to renew or extend,
the outstanding indebtedness. Moreover, respondent did not sign or
consent to the 1989 Loan Agreement, which had allegedly extended
the original P8 million credit facility.

Indeed, the stipulation in the 1989 Loan Agreement

providing for the surety of respondent, without even informing him,
smacks of negligence on the part of the bank and bad faith on that
of the principal debtor. Since that Loan Agreement constituted a
new indebtedness, the old loan having been already liquidated, the
spirit of fair play should have impelled Sta. Ines to ask somebody
else to act as a surety for the new loan.