You are on page 1of 23

GUARANTY CASE DIGEST

NO CASE TITLE PONENTE DESCRIPTION

1 Velasquez v Solidbank Reyes, RT

2 PNB v Macapanga Labrador

3 Southern Motors v Barbosa Concepcion

4 Luzon Steel v Sia Reyes, JBL

5 Palmares v CA Regalado

6 Philguarantee v VPECI Davide

7 Tupaz v CA Carpio

8 Eastern Shipping v CA Vitug

9 Escano v Ortigas Tinga

10 Philippine Bloomings v CA Carpio


CASE 1: MARLOU L. VELASQUEZ v. SOLIDBANK CORPORATION
G.R. No. 157309. March 28, 2008
REYES, R.T., J

DOCTRINE: It bears stressing that a letter of undertaking is a separate contract from the sight draft. The
liability of petitioner under the letter of undertaking is direct and primary. It is independent from his liability
under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-acceptance or
non-payment.
Petitioner cannot be both the primary debtor and the guarantor of his own debt.

FACTS: Velasquez is engaged in the export business (Wilderness Trading). Solid Bank is a domestic
banking corporation organized under Philippine laws. The case arose out of a business transaction for the
sale of dried sea cucumber for export to S.Korea between Wilderness, as seller, and Goldwell Trading of
S. Korea, as buyer. To facilitate payment of the products, Goldwell opened a letter of credit in favor of
Wilderness in the amount of US$87,500.00 with the Bank of Seoul. In 1992, Velasquez applied for credit
accommodation with Solid Bank for pre-shipment financing. The credit accommodation was granted. In
1993, petitioner submitted to respondent the necessary documents for his third shipment. Wanting to be
paid the value of the shipment in advance, petitioner negotiated for a documentary sight draft to be drawn
on the letter of credit, chargeable to the account of Bank of Seoul. The sight draft represented the value
of the shipment in the amount of US$59,640.00.As a condition for the issuance of the sight draft, petitioner
executed a letter of undertaking in favor of respondent. Under the terms of the letter of undertaking,
petitioner promised that the draft will be accepted and paid by Bank of Seoul according to its tenor.
Petitioner also held himself liable if the sight draft was not accepted.

By virtue of the letter of undertaking, respondent advanced the value of the shipment (P1,495,115.16),
less bank charges, to petitioner. However, respondent failed to collect on the sight draft as it was
dishonored by non- acceptance by the Bank of Seoul. Due to the dishonor of the sight draft and the stop
payment order, respondent demanded restitution of the sum advanced. Petitioner failed to heed the
demand therefore a complaint for recovery of sum of money was filed.

Petitioner alleged that his liability under the sight draft was extinguished when respondent failed to protest
its non-acceptance, as required under the NIL. He also alleged that the letter of undertaking is not binding
because it is a superfluous document, and that he did not violate any of the provisions of the letter of
credit

RTC ruled in favor of Solid Bank: RTC is not convinced with the defendant's argument that because of
plaintiff's failure to protest the dishonor of the sight draft, his liability is extinguished because his liability
remains under the letter of undertaking which he signed and without which plaintiff would not have
advanced or credited to him the amount.

CA Affirmed: He cannot be allowed to impugn the contract of undertaking he entered into by saying that
it was a superfluous document, and therefore, not binding on him. The contract of undertaking is the law
between them, and must be enforced accordingly. This is in accord with Article 1159 of the New Civil
Code.
Petitioner argues that he cannot be held liable under either the sight draft or the letter of undertaking. He
claims that the failure of respondent to protest the dishonor of the sight draft under Sec. 152 NIL
discharged him from liability under the negotiable instrument. It is also contended that his liability under
the letter of undertaking is that of a mere guarantor; that the letter of undertaking is only an accessory
contract to the sight draft. Since he was discharged from liability under the sight draft, he cannot be held
liable under the letter of undertaking.

Respondent counters that petitioner's liability springs from the letter of undertaking, independently of the
sight draft.

ISSUE: W/ON Velasquez should be held liable to Solid bank under the letter of undertaking. YES

HELD: Petitioner's liability under the letter of undertaking is independent from his liability under the sight
draft. He may be held liable under either the sight draft or the letter of undertaking or both.

We cannot accept petitioner's thesis that he is only a mere guarantor under the letter of credit. Petitioner
cannot be both the primary debtor and the guarantor of his own debt. This is inconsistent with the very
purpose of a guarantee which is for the creditor to proceed against a third person if the debtor defaults in
his obligation. Certainly, to accept such an argument would make a mockery of commercial transactions.

It is also argued that petitioner cannot be held liable under the letter of undertaking because respondent
failed to prove that he violated any of the provisions in the letter of credit or that 60/71 bags shipped to
Goldwell contained soil instead of dried sea cucumber. We cannot agree. Respondent need not prove
that petitioner violated the provisions of the letter of credit in order to be held liable under the letter of
undertaking. Parties are bound to fulfill what has been expressly stipulated in the contract. Petitioner's
liability under the letter of undertaking is clear. He is liable to respondent if the sight draft is not accepted
by the Bank of Seoul. Mere non- acceptance of the sight draft is sufficient for liability to attach. Here, the
sight draft was dishonored for non-acceptance. The non-acceptance of the sight draft triggered
petitioner's liability under the letter of undertaking.

CASE 2: PNB v MACAPANGA PRODUCERS INC., PLARIDEL SURETY AND INSURANCE CO.
G.R. No. L-8349. May 23, 1956
LABRADOR, J

DOCTRINES: If a person binds himself solidarity with the principal debtor, the contract is called a
suretyship. An assignment without knowledge or consent of the surety is not a material alteration of the
contract, sufficient to discharge the surety. There is besides no allegation in the complaint or provision in
the deed of assignment, or any change therein that makes the obligation of surety more onerous than that
stated in the performance bond. Such assignment did not, therefore, release the surety from the obligation
under the surety bond.

FACTS: A complaint is filed by PNB against Macapanga Producers Inc. and Plaridel Surety and Insurance
Co (PSI). Principal and allegations are: In 1952, Luzon Sugar Company leased a sugar mill located at
Calumpit, Bulacan to Macapanga beginning with the crop year 1952-53 at a min. annual royalty of 50k,
which shall be a lien on the sugar produced by the lessee and shall be paid before sale or removal of sugar
from warehouse; Macapanga, as principal, and PSI, as surety, executed and delivered to plaintiff a
performance bond in the amount of 50k for the full and faithful compliance by Macapanga of all terms and
conditions of the lease; In 1953, Luzon Sugar assigned to plaintiff the payment due from Macapanga in
the sum of 50k, representing royalty for the lease of the sugar mill for the crop year 1952-53); plaintiff
notified Macapanga and PSI of said assignment; plaintiff had demanded from Macapanga and PSI
payment of said royalty, but they refused;

PSI moved to dismiss the complaint for failure to state cause of action, alleging that it is a guarantor and
as such is responsible only if Macapanga has no property or assets to pay its obligation as lessee. Plaintiff
opposed the motion calling attention to the provision of the performance bond in which Macapanga and
PSI, the former as principal and the latter as surety, agreed to be held and firmly bound unto Luzon Sugar
in the penal sum of P50,000, "for the payment of which, well and truly be made, we bind ourselves, our
heirs, executors, administrators, successors, and assigns, jointly and severally." Plaintiff contended that, as
Plaridel Surety & Insurance bound itself solidarily with Macapanga Producers

RTC dismissed the complaint.

ISSUE: W/ON PSI is discharged from its obligation. NO

HELD:
PSI became a surety in accordance with Article 2047, par. 2 of the Civil Code. “If a person binds himself
solidarily with the principal debtor, the provisions of section 4, Charter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship." The creditor may sue any of the solidary debtors
or all of them simultaneously. An action instituted against one shall not be a bar to those which may be
subsequently brought against the others, as long as the debt has not been entirely satisfied.

An assignment without knowledge or consent of the surety is not a material alteration of the contract,
sufficient to discharge the surety (Stearns Law of Suretyship, Elder, fifth edition, p. 113.) There is, besides,
no allegation in the complaint, or provision in the deed of assignment, or any change therein that makes
the obligation of PSI more onerous than that stated in the performance bond. Such assignment did not,
therefore, release the PSI from its obligation under the surety bond.

CASE 3: SOUTHERN MOTORS, INC., v. ELISEO BARBOSA


G.R. No. L-9306. May 25, 1956
CONCEPCION, J

DOCTRINE:The right of guarantors, under article 2058 of NCC, to demand exhaustion of the property of
the principal debtor, exists only when a pledge or a mortgage has not been given as special security for
the payment of the principal obligation. Guarantees, without any such pledge or mortgage, are governed
by title XV of said Code, whereas pledges and mortgages fall under title XVI thereof, in which articles 2087
and 2126 of same code among others are found.
Although an ordinary personal guarantor, not a mortgagor or pledgor, may demand exhaustion, the
creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to
a deferment of the execution of said judgment against him, until after the properties of the principal debtor
shall have been exhausted, to satisfy the obligation involved in the case.

FACTS: Plaintiff, Southern Motors, brought this action against Barbosa, to foreclose a real estate
mortgage, constituted by the latter in favor of the former, as security for the payment of the sum of
P2,889.53 due to said plaintiff from one Alfredo Brillantes, who had failed to settle his obligation in
accordance with the terms and conditions of the corresponding deed of mortgage. Defendant Barbosa
led an answer admitting the allegations of the complaint and alleging, by way of "special and affirmative"
defense: 1) that Barbosa has executed the deed of mortgage for the only purpose of guaranteeing (as
surety and/or guarantor) the payment of the above mentioned debt of Brillantes in favor of Southern and
2) Southern until now has no right of action against Barbosa on the ground that said plaintiff did not
exhaust all recourses to collect from the true debtor and did not resort all the legal remedies against the
true debtor notwithstanding the fact that said Brillantes is solvent and has many properties within the
Province of Iloilo.
Plaintiff moved for summary judgment which Judge Ibañez, denied on the ground that it "is premature”.

ISSUE: W/ON mortgagor is entitled to the exhaustion of property of the principal debtor. NO

HELD:The right of guarantors, under Article 2058 of the Civil Code of the Philippines, to demand
exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has not been
given as special security for the payment of the principal obligation. Guarantees, without any such pledge
or mortgage, are governed by Title XV of said Code, whereas pledges and mortgages fall under Title XVI
of the same Code, in which the following provisions, among others, are found:

ART. 2087. "It is also of the essence of these contracts that when the principal obligation becomes due,
the things in which the pledge or mortgage consists may be alienated for the payment to the creditor."

ART. 2126. "The mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted."

It has been held already (Saavedravs. Price, 68 Phil., 688), that a mortgagor is not entitled to the exhaustion
of the property of the principal debtor.

Although an ordinary personal guarantor — not a mortgagor or pledgor — may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor,
who shall be entitled, however, to a deferment of the execution of said judgment against him until after
the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the
case.

CASE 4: LUZON STEEL CORPORATION, represented by TOMAS AQUINO CU, v. JOSE O. SIA, TIMES
SURETY & INSURANCE CO., INC.
G.R. No. L-26449. May 15, 1969
REYES, J.B.L., C.J

DOCTRINES:

SAID COUNTERBONDS DISTINGUISHED FROM BOND FILED BY PLAINTIFF FOR THE ISSUANCE OF
WRIT OF ATTACHMENT. — Counterbonds posted to obtain the lifting of a writ of attachment is a security
for the payment of any judgment that the attaching party may obtain; they are thus mere replacements of
the property formerly attached and may be levied upon after final judgment in the case in order to realize
the amount adjudged. This situation does not obtain in the case of injunction counterbonds, since the
sureties in the latter case merely undertake to pay all damages that the plaintiff may suffer by reason of
the continuance - of the acts complained of and not to secure payment of the judgment recovered.
Article 2059, paragraph 2, of the Civil Code of the Philippines requiring excussion (previous exhaustion of
the property of the debtor) does not apply if the guarantor has bound himself solidarily with the debtor.

A procedural rule may not amend the substantive law expressed in the Civil Code, and would nullify the
express stipulation of the parties.

Even if the surety's undertaking were not solidary with that of the principal debtor, still he may not demand
exhaustion of the property of the latter, unless he can point out sufficient leviable property of the debtor
within Philippine territory.

FACTS:Luzon Steel Corporation has sued Metal Manufacturing of the Philippines and Jose O. Sia, the
former's manager, for breach of contract and damages. It obtained a writ of preliminary attachment of the
properties of the defendants, but the attachment was lifted upon a P25,000.00 counter-bond executed by
the defendant Sia, as principal, and the Times Surety & Insurance., Inc. (hereinafter designated as the
surety), as solidary guarantor, in the following terms: SIA, as principal, and the TIMES, as Surety, in
consideration of the dissolution of attachment, hereby jointly and severally bind themselves in the sum of
P25,000.00, to answer for the payment to the plaintiff of any judgment it may recover in the action in
accordance with Section 12, Rule 59, of the Rules of Court."

Luzon and Sia (without intervention of the surety) entered into a compromise whereby defendant Sia
agreed to settle the plaintiff's claim in the following manner: Defendant shall settle with the Plaintiff the
amount of P25,000 in the following manner: P500, monthly for the first 6 mos to be paid at the end of
every month and to commence in January, 1965, and within one month after paying the last installment
of P500, the balance of P22,000 shall be paid in lump sum, without interest. It is understood that failure of
the Defendant to pay one or any installment will make the whole obligation immediately due and
demandable and that a writ of execution will be issued immediately against Defendants bond."

Defendant having failed to comply, plaintiff moved for and obtained a writ of execution against defendant
and the joint and several counter-bond. The surety, however, moved to quash the writ of execution against
it, averring that it was not a party to the compromise, and that the writ was issued without giving the surety
notice and hearing. The court, overruling the plaintiff's opposition, set aside the writ of execution, and
later cancelled the counter-bond, and denied the motion for reconsideration. Hence this appeal.

ISSUE:(1) W/ON the judgment upon the compromise discharged the surety from its obligation under its
attachment counterbond NO
(2) W/ON the writ of execution could be issued against the surety without previous exhaustion of the
debtor's properties YES

HELD:Both questions can be solved by bearing in mind that we are dealing with a counterbond filed to
discharge a levy on attachment. Rule 57, Section 12, specifies that an attachment may be discharged upon
the making of a cash deposit or filing a counterbond "in an amount equal to the value of the property
attached as determined by the judge"; that upon the filing of the counterbond "the property attached . .
. shall be delivered to the party making the deposit or giving the counterbond, or the person appearing
on his behalf, the deposit or counterbond of aforesaid standing in place of the property so released".

The counterbond contemplated in the rule is evidently an ordinary guaranty where the sureties assume a
subsidiary liability. This is not the case here, because the surety in the present case bound itself "jointly
and severally" (in solidum) with the defendant; and it is prescribed in Article 2059, paragraph 2, of the
Civil Code of the Philippines that excussion (previous exhaustion of the property of the debtor) shall not
take place "if he (the guarantor) has bound himself solidarily with the debtor". The rule heretofore quoted
can not be construed as requiring that an execution against the debtor be first returned unsatisfied even
if the bond were a solidary one; for a procedural rule may not amend the substantive law expressed in the
Civil Code, and further would nullify the express stipulation of the parties that the surety's obligation
should be solidary with that of the defendant.

A second reason against the stand of the surety and of the court below is that even if the surety's
undertaking were not solidary with that of the principal debtor, still he may not demand exhaustion of the
property of the latter, unless he can point out sufficient leviable property of the debtor within Philippine
territory. There is no record that the appellee surety has done so. Says Article 2060 of the Civil Code of
the Philippines: "ART. 2060. In order that the guarantor may make use of the benefit of excussion, he must
set it up against the creditor upon the latter's demand for payment from him, and point out to the creditor
available property of the debtor within Philippine territory, sufficient to cover the amount of the debt."

A third reason against the thesis of appellee is that, under the rule and its own terms, the counter-bond is
only conditioned upon the rendition of the judgment. Payment under the bond is not made to depend
upon the re-delivery or availability of the property previously attached, as it was under Section 440 of the
old Code of Civil Procedure. Where under the rule and the bond the undertaking is to pay the judgment,
the liability of the surety or sureties attaches upon the rendition of the judgment, and the issue of an
execution and its return nulla bona is not, and should not be, a condition to the right to resort to the bond.
CASE 5: ESTRELLA PALMARES v. COURT OF APPEALS and M.B. LENDING CORPORATION
G.R. No. 126490. March 31, 1998
REGALADO, J

DOCTRINES:The underlying principle therefor is that suretyship is a direct contract to pay the debt of
another. A surety is liable as much as his principal is liable, and absolutely liable as soon as default is made,
without any demand upon the principal whatsoever or any notice of default. As an original promisor and
debtor from the beginning, he is held ordinarily to know every default of his principal. TIDcE

FACTS:Petitioner signed as co-maker in a loan. A promissory note was executed whereby she
acknowledged her joint and several (solidary) liability with the principal, that the creditor may demand
payment in case of default, and that she fully understood the contents thereof. Petitioner, when informed
that the debtors defaulted, requested that creditor try to collect from her principal first and offered to
settle the obligation in case the creditor fails to collect. She also offered a parcel of land to settle the
obligation which the creditor refused. Thereafter, a complaint was filed against petitioner to the exclusion
of the principal debtors. Again petitioner offered to pay but the amount offered was way below the amount
computed. The trial court dismissed the complaint and ruled that the complaint against the petitioner
amounted to a discharge of a prior party, that the offer to pay made by petitioner who is secondarily liable
to the instrument discharged petitioner. The Court of Appeals, reversing the trial court, ruled that
petitioner is solidarily liable with the principal debtors and may be sued for the entire obligation. Hence,
this recourse. aTEScI

The Supreme Court held that it is a cardinal rule in interpretations of contracts that if the terms of a contract
are clear and leave no doubt upon the intention of the parties, the literal meaning of its stipulation shall
control. Hence, where petitioner expressly binds herself to be jointly and severally or solidarily liable with
the principal maker of the note, her liability is that of a surety and is bound equally and absolutely with the
principal.

Having entered into a contract with full knowledge of its terms and conditions, petitioner is estopped to
assert that she did so in ignorance of their legal effect.

The obligee is entitled to demand fulfillment of the obligation or performance stipulated, hence, an offer
to pay obligation in an amount less or different from that due does not discharge liability. SECIcT

ISSUE:
HELD:
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A
suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall
pay. Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a
guarantor agrees that the creditor, after proceeding against the principal, may proceed against the
guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not,
without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal
will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment
and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if,
by the use of due diligence, the debt cannot be made out of the principal debtor.

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.

DEMAND ON SURETIES, NOT NECESSARY BEFORE BRINGING SUIT AGAINST THEM; NOR ENTITLED
TO BE GIVEN NOTICE OF PRINCIPAL'S DEFAULT. — Even if it were otherwise, demand on the sureties
is not necessary before bringing suit against them, since the commencement of the suit is a sufficient
demand. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right,
to be given notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to
take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the
default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice
of the principal's default and to perform the obligation. He cannot complain that the creditor has not
notified him in the absence of a special agreement to that effect in the contract of surety. In the absence
of a statutory or contractual requirement, it is not necessary that payment or performance of his obligation
be first demanded of the principal, especially where demand would have been useless; nor is it a requisite,
before proceeding against the sureties, that the principal be called on to account.
CREDITOR, NOT REQUIRED TO EXHAUST REMEDIES AGAINST THE PRINCIPAL BEFORE HE CAN
PROCEED AGAINST THE SURETY. — A creditor's right to proceed against the surety exists independently
of his right to proceed against the principal. Under Article 1216 of the Civil Code, the creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that
if the obligation is joint and several, the creditor has the right to proceed even against the surety alone.
Since, generally, it is not necessary for a creditor to proceed against the principal in order to hold the
surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the
principal, then as soon as the principal in order to hold the surety liable, where, by the terms of the
contract, the obligation of the surety is the same as that of the principal, then as soon as the principal is in
default, the surety is likewise in default, and may be sued immediately and before any proceedings are
had against the principal. Perforce, in accordance with the rule that, in the absence of statute or agreement
otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and
pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the
absence of any agreement limiting the application of the security, require the creditor or obligee, before
proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly
where both principal and surety are equally bound.

REASON. — Where a creditor refrains from proceeding against the principal, the surety is not exonerated.
In other words, mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the
surety, unless the surety requires him by appropriate notice to sue on the obligation. Such gratuitous
indulgence of the principal does not discharge the surety whether given at the principal's request or
without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the
principal, or is only the result of passiveness. The neglect of the creditor to sue the principal at the time
the debt falls due does not discharge the surety, even if such delay continues until the principal becomes
insolvent. And, in the absence of proof of resultant injury, a surety is not discharged by the creditor's mere
statement that the creditor will not look to the surety, or that he need not trouble himself. The
consequences of the delay, such as the subsequent insolvency of the principal, or the fact that the
remedies against the principal may be lost by lapse of time, are immaterial. The raison d' etre for the rule
is that there is nothing to prevent the creditor from proceeding against the principal at any time. At any
rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his
principal, he may pay the debt himself and become subrogated to all the right and remedies of the
creditor.

EXTENSION DISCHARGING SURETY, CONSTRUED. — It may not be amiss to add that leniency shown
to a debtor in default, by delay permitted by the creditor without change in the time when the debt might
be demanded, does not constitute an extension of the time of payment, which would release the surety.
In order to constitute an extension discharging the surety, it should appear that the extension was for a
definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it
was made without the consent of the surety or with a reservation of rights with respect to him. The contract
must be one which precludes the creditor from, or at least hinders him in, enforcing the principal contract
within the period during which he could otherwise have enforced it, and which precludes the surety from
paying the debt.

CASE AT BAR. — None of these elements are present in the instant case. Verily, the mere fact that
respondent corporation gave the principal debtors an extended period of time within which to comply
with their obligation did not effectively absolve herein petitioner from the consequences of her
undertaking. Besides, the burden is on the surety, herein petitioner, to show that she has been discharged
by some act of the creditor, herein respondent corporation, failing in which we cannot grant the relief
prayed for.

DELAY IN DISCHARGING SURETY; THERE MUST BE ACTUAL OFFER OF PAYMENT. — Respondent


corporation cannot be faulted for not immediately demanding payment from petitioner. It was petitioner
who initially requested that the creditor try to collect from her principal first, and she offered to pay only
in case the creditor fails to collect. The delay, if any, was occasioned by the fact that respondent
corporation merely acquiesced to the request of petitioner. At any rate, there was here no actual offer of
payment to speak of but only a commitment to pay if the principal does not pay.

CASE 6: PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION v. V.P. EUSEBIO
CONSTRUCTION, INC.; 3- PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO; SOLEDAD C.
EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND FIRST INTEGRATED BONDING AND
INSURANCE COMPANY, INC.
G.R. No. 140047. July 13, 2004
DAVIDE, JR., C.J

DOCTRINES: A guarantor who pays for a debtor should be indemnified by the latter and would be legally
subrogated to the rights which the creditor has against the debtor. However, a person who makes payment
without the knowledge or against the will of the debtor has the right to recover only insofar as the payment
has been beneficial to the debtor. If the obligation was subject to defenses on the part of the debtor, the
same defenses which could have been set up against the creditor can be set up against the paying
guarantor.

FACTS:This case is an offshoot of a service contract entered into by a Filipino construction firm with the
Iraqi Government for the construction of the Institute of Physical Therapy-Medical Center, Phase II, in
Baghdad, Iraq, at a time when the Iran-Iraq war was ongoing. In a complaint filed with the RTC, petitioner
Philguarantee sought reimbursement from the respondents of the sum of money it paid to Al Ahli Bank of
Kuwait pursuant to a guarantee it issued for respondent VPECI.

The State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq, awarded
the construction of the Institute of Physical Therapy–Medical Rehabilitation Center, Phase II, in Baghdad,
Iraq, (Project) to Ajyal Trading and Contracting Company (Ajyal), a firm duly licensed with the Kuwait
Chamber of Commerce for a total contract price of ID5,416,089/046 (or about US$18,739,668).
Respondent spouses Eduardo and Iluminada Santos, in behalf of respondent 3-Plex entered into a JVA
with Ajyal wherein the former undertook the execution of the entire Project, while the latter would be
entitled to a commission of 4% of the contract price. Later on respondent 3-Plex, not being accredited by
or registered with the Philippine Overseas Construction Board (POCB), assigned and transferred all its
rights and interests under the JVA to VPECI, a construction and engineering firm duly registered with the
POCB. However, 3-Plex and VPECI entered into an agreement that the execution of the Project would be
under their joint management.

The SOB required the contractors to submit (1) a performance bond representing 5% of the total contract
price and (2) an advance payment bond representing 10% of the advance payment to be released upon
signing of the contract. To comply with these requirements, respondents 3-Plex and VPECI applied for the
issuance of a guarantee with petitioner Philguarantee, a government financial institution empowered to
issue guarantees for qualified Filipino contractors to secure the performance of approved service contracts
abroad.

Petitioner Philguarantee approved respondents' application. Subsequently, letters of guarantee were


issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the performance and advance
payment bonds, but they were not accepted by SOB. What SOB required was a letter-guarantee from
Rafidain Bank, the government bank of Iraq. Rafidain Bank then issued a performance bond in favor of
SOB on the condition that another foreign bank, not Philguarantee, would issue a counter-guarantee to
cover its exposure. Al Ahli Bank of Kuwait was, therefore, engaged to provide a counter-guarantee to
Rafidain Bank, but it required a similar counter-guarantee in its favor from the petitioner. Thus, three layers
of guarantees had to be arranged.

Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favor of Al Ahli
Bank of Kuwait Letter of Guarantee No. 81-194-F (Performance Bond Guarantee) in the amount of
ID271,808/610 and Letter of Guarantee No. 81-195-F (Advance Payment Guarantee) in the amount of
ID541,608/901, both for a term of eighteen months from 25 May 1981.

SOB and the joint venture VPECI and Ajyal executed the service contract for the construction of the
project, wherein the joint venture contractor undertook to complete the Project within a period of 547
days or 18 months. Under the Contract, the Joint Venture would supply manpower and materials, and
SOB would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the
exchange rate of 1 Dinar to 3.37777 US Dollars.

The construction, which was supposed to start on June 1981, commenced only on the last week of August.
Because of this delay and the slow progress of the construction work due to some setbacks and difficulties,
the Project was not completed on 15 November 1982 as scheduled. But in October 1982, upon foreseeing
the impossibility of meeting the deadline and upon the request of Al Ahli Bank, the joint venture contractor
worked for the renewal or extension of the Performance Bond and Advance Payment Guarantee.As of
March 1986, the status of the Project was 51% accomplished. The remaining 47% consisted in electro-
mechanical works and the 2%, sanitary works, which both required importation of equipment and
materials.

On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of
its performance bond counter-guarantee. Upon receiving a copy of that telex message, respondent VPECI
requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex
call on the performance guarantee for being a drastic action in contravention of its mutual agreement with
the latter that (1) the imposition of penalty would be held in abeyance until the completion of the project;
and (2) the time extension would be open, depending on the developments on the negotiations for a
foreign loan to finance the completion of the project. It also wrote SOB protesting the call for lack of
factual or legal basis, since the failure to complete the Project was due to (1) the Iraqi government's lack
of foreign exchange with which to pay its (VPECI's) accomplishments and (2) SOB's noncompliance for the
past several years with the provision in the contract that 75% of the billings would be paid in US dollars.
Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner not to pay yet Al Ahli
Bank because efforts were being exerted for the amicable settlement of the Project.

On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had
already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding
reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related
expenses. Philguarantee paid the bank and sent to the respondents separate letters demanding full
payment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and 10% attorney’s fees
pursuant to their joint and solidary obligations under the deed of undertaking and surety bond. When the
respondents failed to pay, the petitioner filed a civil case for collection of a sum of money.

RTC ruled against Philguarantee and held that the latter had no valid cause of action against the
respondents. It opined that at the time the call was made on the guarantee which was executed for a
specific period, the guarantee had already lapsed or expired. There was no valid renewal or extension of
the guarantee for failure of the petitioner to secure respondents' express consent thereto.

The trial court also found that the joint venture contractor incurred no delay in the execution of the Project.
Considering the Project owner's violations of the contract which rendered impossible the joint venture
contractor's performance of its undertaking, no valid call on the guarantee could be made. Furthermore,
the trial court held that no valid notice was first made by the Project owner SOB to the joint venture
contractor before the call on the guarantee.

CA affirmed.

The petitioner asserts that since the guarantee it issued was absolute, unconditional, and irrevocable the
nature and extent of its liability are analogous to those of suretyship. Its liability accrued upon the failure
of the respondents to finish the project.

ISSUE:
1) W/ON petitoner is a guarantor YES
2) W/ON the petitioner as a guarantor may secure reimbursement from the respondents for what it has
paid under Letter of Guarantee No. 81-194-F? NO
3)
HELD:
1) By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal
debtor, the contract is called suretyship.
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both.
In both contracts, there is a promise to answer for the debt or default of another. However, in this
jurisdiction, they may be distinguished thus:
1. A surety is usually bound with his principal by the same instrument executed at the same time and on
the same consideration. On the other hand, the contract of guaranty is the guarantor's own separate
undertaking often supported by a consideration separate from that supporting the contract of the
principal; the original contract of his principal is not his contract.
2. A surety assumes liability as a regular party to the undertaking; while the liability of a guarantor is
conditional depending on the failure of the primary debtor to pay the obligation.
3. The obligation of a surety is primary, while that of a guarantor is secondary.
4. A surety is an original promissor and debtor from the beginning, while a guarantor is charged on his
own undertaking.
5. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is not bound to
take notice of the non- performance of his principal.
6. Usually, a surety will not be discharged either by the mere 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 injured thereby. A
guarantor is often discharged by the mere indulgence of the creditor to the principal, and is usually not
liable unless notified of the default of the principal.

Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be
compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all
legal remedies against the said debtor have been resorted to by the creditor. It could also set up
compensation as regards what the creditor SOB may owe the principal debtor VPECI. In this case,
however, the petitioner has clearly waived these rights and remedies by making the payment of an
obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal
debtor.

2) As a rule, a guarantor who pays for a debtor should be indemnified by the latter and would be legally
subrogated to the rights which the creditor has against the debtor. However, a person who makes payment
without the knowledge or against the will of the debtor has the right to recover only insofar as the payment
has been beneficial to the debtor. If the obligation was subject to defenses on the part of the debtor, the
same defenses which could have been set up against the creditor can be set up against the paying
guarantor.

From the findings of the Court of Appeals and the trial court, it is clear that the payment made by the
petitioner guarantor did not in any way benefit the principal debtor, given the project status and the
conditions obtaining at the Project site at that time. Moreover, the respondent contractor was found to
have valid defenses against SOB, which are fully supported by evidence and which have been meritoriously
set up against the paying guarantor, the petitioner in this case. And even if the deed of undertaking and
the surety bond secured petitioner's guaranty, the petitioner is precluded from enforcing the same by
reason of the petitioner's undue payment on the guaranty. Rights under the deed of undertaking and the
surety bond do not arise because these contracts depend on the validity of the enforcement of the
guaranty.

The petitioner guarantor should have waited for the natural course of guaranty: the debtor VPECI should
have, in the first place, defaulted in its obligation and that the creditor SOB should have first made a
demand from the principal debtor. It is only when the debtor does not or cannot pay, in whole or in part,
that the guarantor should pay. When the petitioner guarantor in this case paid against the will of the debtor
VPECI, the debtor VPECI may set up against it defenses available against the creditor SOB at the time of
payment. This is the hard lesson that the petitioner must learn.

CASE 7: JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, petitioners, vs. THE COURT OF APPEALS and
BANK OF THE PHILIPPINE ISLANDS
G.R. No. 145578. November 18, 2005
CARPIO, J

DOCTRINES:Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by
a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned
provision is a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It,
however, described the guaranty as solidary between the guarantors; this would have been correct if two
(2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers to the
undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does
not refer to the undertaking between either one or both of them on the one hand and the petitioner on
the other with respect to the liability described under the trust receipt

BPI’s suit against petitioner Jose stands despite the Court's finding that he is liable as guarantor only. First,
excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand
deferment of the execution of the judgment against him until after the assets of the principal debtor shall
have been exhausted. Second, the benefit of excussion may be waived.

FACTS: Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were VP for Operations and VP/Treasurer,
respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract with
the Philippine Army to supply the latter with "survival bolos." To finance the purchase of the raw materials
for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent BPI for two
commercial letters of credit. The letters of credit were in favor of El Oro Corporation's suppliers, Tanchaoco
Inc. and Maresco Corporation. BPI granted petitioners' application and issued Letter of Credit for
P564,871.05 to Tanchaoco and Letter of Credit for P294,000 to Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of
respondent bank. Jose Tupaz signed, in his personal capacity, a trust receipt corresponding to first Letter
of Credit. Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds
to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981. Both
petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to
the second Letter of Credit.

Petitioners did not comply with their undertaking under the trust receipts. BPI made several demands for
payments but El Oro Corporation made partial payments only. El Oro Corporation could not fully pay its
debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. BPI then
charged petitioners with estafa
RTC acquitted the petitioners of estafa on reasonable doubt. However, the trial court found petitioners
solidarily liable with El Oro Corporation for the balance of El Oro Corporation's principal debt under the
trust receipts. CA affirmed.

ISSUE: W/ON petitioners' liability is solidary with El Oro Corporation NO

HELD: A corporation, being a juridical entity, may act only through its directors, officers, and employees.
Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability
of the corporation they represent. As an exception, directors or officers are personally liable for the
corporation's debts only if they so contractually agree or stipulate.

“Our . . . reading of the questioned solidary guaranty clause yields no other conclusion than that the
obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of
waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party
whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense
of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation.
Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly
distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the
guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and
severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the
liability existing between themselves. It does not refer to the undertaking between either one or both of
them on the one hand and the petitioner on the other with respect to the liability described under the
trust receipt. . . . Furthermore, any doubt as to the import or true intent of the solidary guaranty clause
should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty
clause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limited to
the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly
construed against the party responsible for its preparation.
However, respondent bank's suit against petitioner Tupaz stands despite the Court's finding that he is
liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The
guarantor can still demand deferment of the execution of the judgment against him until after the assets
of the principal debtor shall have been exhausted. Second, the benefit of excussion may be waived. Under
the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that
his "liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on . . . [the]
part [of respondent bank] to take any steps or exhaust any legal remedies . . . ." The clear import of this
stipulation is that petitioner Jose waived the benefit of excussion under his guarantee.

CASE 8: EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND
MERCANTILE INSURANCE COMPANY, INC.
G.R. No. 97412. July 12, 1994
VITUG

DOCTRINES: The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common carrier is similar
to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE to take good care
of the goods that are in its custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore
charged with the obligation to deliver the goods in goods condition to the consignee.

FACTS: "This is an action against defendants shipping company, arrastre operator and broker-forwarded
for damages sustained by a shipment while in defendants' custody, led by the insurer-subrogee who paid
the consignee the value of such losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel `SS EASTERN COMET' owned by defendant Eastern Shipping Lines. The shipment was insured
under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Services, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received
the shipment from defendant Metro Port Service, Inc., one drum opened and without seal. On January 8
and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignees'
warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was
adulterated/fake. Plaintiff contended that due to the losses/damage sustained by said drum, the
consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were
presented against defendants who failed and refused to pay the same.

ISSUE: W/ON a claim for damage sustained on a shipment of goods can be a solidary, or joint and several,
liability of the common carrier, the arrastre operator and the customs broker YES

HELD: The question of charging both the carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund
Insurance vs. Metro Port Services (182 SCRA 455), we have explained in holding the carrier and the arrastre
operator liable in solidum, thus: ”The legal relationship between the consignee and the arrastre operator
is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is similar to that of the consignee and the
arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of
the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition
to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver the goods in goods condition to the
consignee."

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs
broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The instant petition has been brought solely by
Eastern Shipping Lines which, being the carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and
the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage
while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the
liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of
whether there are others solidarily liable with it.
CASE 9: SALVADOR P. ESCAÑO and MARIO M. SILOS v RAFAEL ORTIGAS, JR.
G.R. No. 151953. June 29, 2007
TINGA, J

DOCTRINES: A guarantor who binds himself in solidum with the principal debtor under the provisions of
the second paragraph does not become a solidary co-debtor to all intents and purposes.There is a
difference between a solidary co- debtor and a fiador in solidum (surety). The latter, outside of the liability
he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all
the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-
debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the
Civil Code.

FACTS: Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with
Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of
US$320,000 for specific purposes and subject to certain t&c.On the same day, three stockholders- officers
of Falcon, namely: respondent Rafael Ortigas, Jr. George A. and George T. Scholey executed an
Assumption of Solidary Liability whereby they agreed "to assume in [their] individual capacity, solidary
liability with [Falcon] for the due and punctual payment" of the loan contracted by Falcon with PDCP. In
the meantime, 2 separate guaranties were executed to guarantee the payment of the same loan by other
stockholders and officers of Falcon, acting in their personal and individual capacities. one guaranty was
executed by petitioner Escaño, while the other by Silos, Silverio, Inductivo and Rodriguez. 2 years later,
an agreement developed to cede control of Falcon to Escaño, Silos and Matti. Thus, contracts were
executed whereby Ortigas, George A., Inductivo and the heirs of then already deceased George T.
assigned their shares of stock in Falcon to Escaño, Silos and Matti. Part of the consideration that induced
the sale of stock was a desire by Ortigas, et al., to relieve themselves of all liability arising from their
previous joint and several undertakings with Falcon, including those related to the loan with PDCP. Thus,
an Undertaking was executed by the concerned parties, namely: with Escaño, Silos and Matti identified in
the document as "SURETIES," on one hand, and Ortigas, Inductivo and the Scholeys as "OBLIGORS," on
the other. The Undertaking reads in part:

3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to release OBLIGORS
from their said guarantees,SURETIES hereby irrevocably agree and undertake to assume all of OBLIGORs'
said guarantees to PDCP and PAIC under the following terms and conditions:
a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the payment of
FALCON's obligations with it, any of [the] OBLIGORS shall immediately inform SURETIES thereof so
that the latter can timely take appropriate measures;
b. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS for collection of
said loans and/or credit facilities, SURETIES agree to defend OBLIGORS at their own expense, without
prejudice to any and/or all of OBLIGORS impleading SURETIES therein for contribution, indemnity,
subrogation or other relief in respect to any of the claims of PDCP and/or PAIC; and
c. In the event that any of [the] OBLIGORS is for any reason made to pay any amount to PDCP and/or
PAIC, SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar days from such
payment; CSEHIa
4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due from FALCON arising
out of, or in connection with, their said guarantee
Falcon eventually availed of the sum of US$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 P5,031,004.07, which Falcon did not satisfy despite demand.

On 28 April 1989, in order to recover the indebtedness, PDCP led a complaint for sum of money with RTC
against Falcon, Ortigas, Escaño, Silos, Silverio and Inductivo. For his part, Ortigas led together with his
answer a cross-claim against his co-defendants Falcon, Escaño and Silos, and also manifested his intent to
file a third-party complaint against the Scholeys and Matti. The cross-claim lodged against Escaño and
Silos was predicated on the 1982 Undertaking, wherein they agreed to assume the liabilities of Ortigas
with respect to the PDCP loan.

Escaño, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms with
PDCP was Escaño, who in December of 1993, entered into a compromise agreement whereby he agreed
to pay the bank 1M. In exchange, PDCP waived or assigned in favor of Escaño 1/3 of its entire claim in the
complaint against all of the other defendants in the case. The compromise agreement was approved by
the RTC.

Ortigas entered into his own compromise agreement with PDCP, allegedly without the knowledge of
Escaño, Matti and Silos. Thereby, Ortigas agreed to pay PDCP 1.3M as "full satisfaction of the PDCP's
claim against Ortigas," in exchange for PDCP's release of Ortigas from any liability or claim arising from
the Falcon loan agreement, and a renunciation of its claims against Ortigas. ACETSa

In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed to pay 500k
in exchange for PDCP's waiver of its claims against him.

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escaño, Silos and
Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint against Matti and Silos,
while he maintained his cross-claim against Escaño. In 1995, Ortigas led a motion for Summary Judgment
in his favor against Escaño, Silos and Matti. On 5 October 1995, the RTC issued the Summary Judgment,
ordering Escaño, Silos and Matti to pay Ortigas,j ointly and severally, the amount of 1.3M

ISSUE: W/ON petitioners are jointly liable only

HELD: A guarantor who binds himself in solidum with the principal debtor under the provisions of the
second paragraph does not become a solidary co-debtor to all intents and purposes.There is a difference
between a solidary co- debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes
to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights,
actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other
rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code.

The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. The civil law
suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil law relationship
existing between the co-debtors liable in solidum is similar to the common law suretyship.

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. ISCaDH

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions should
not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions on joint and
several obligations should apply to sureties. We reject that argument, and instead adopt Dr. Tolentino's
observation that "[t]he reference in the second paragraph of [Article 2047] to the provisions of Section 4,
Chapter 3, Title I, Book IV, on solidary or several obligations, however, does not mean that suretyship is
withdrawn from the applicable provisions governing guaranty."For if that were not the implication, there
would be no material difference between the surety as defined under Article 2047 and the joint and several
debtors, for both classes of obligors would be governed by exactly the same rules and limitations.

Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor
by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. These rights granted
to the surety who pays materially differ from those granted under Article 1217 to the solidary debtor who
pays, since the "indemnification" that pertains to the latter extends "only [to] the share which corresponds
to each [co-debtor]." It is for this reason that the Court cannot accord the conclusion that because
petitioners are identified in the Undertaking as "SURETIES," they are consequently joint and severally
liable to Ortigas.

CASE 10: PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING v COURT OF
APPEALS and TRADERS ROYAL BANK
G.R. No. 142381. October 15, 2003
CARPIO, J

DOCTRINES: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 secure.AaECSH

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 dated 21 July 1977 binding himself as
follows: . . . as primary obligor(s) and not as mere guarantor(s), hereby warrant to the TRADERS
ROYAL BANK, its successors and assigns, the due and punctual payment by the following
individuals and/or companies/firms, hereinafter called the DEBTOR(S), of such amounts whether
due or not, as indicated opposite their respective names.

TRB granted PBM letters of credit on application of Ching in his capacity as Senior Vice President
of PBM. Ching later accomplished and delivered to TRB trust receipts, which acknowledged
receipt in trust for TRB of the merchandise subject of the letters of credit. Under the trust receipts,
PBM had the right to sell the merchandise for cash with the obligation to turn over the entire
proceeds of the sale to TRB as payment of PBM's indebtedness. Letter of Credit No. 479 AD,
covered by Trust Receipt No. 106, has a face value of US$591,043, while Letter of Credit No.
563 AD, covered by Trust Receipt No. 113, has a face value of US$155,460.34.

PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479 AD) for
P959,611.96, and of Trust Receipt No. 113 (Letter of Credit No. 563 AD) for P1,191,137.13. PBM
also defaulted on its P3,500,000 trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the Securities
and Exchange Commission ("SEC"), docketed as SEC Case No. 2250.The petition sought to
suspend payment of PBM's 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. On 9 July 1982, the SEC placed all of PBM's assets, liabilities, and obligations under
the rehabilitation receivership of Kalaw, Escaler and Associates.

On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground that the
SEC had already placed PBM under receivership. The trial court thus dismissed the complaint
against PBM.

On 23 June 1983, PBM and Ching also 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 PBM's 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.

RTC found Ching liable to TRB for P19,333,558.16 under the Deed of Suretyship. The trial court
explained: The liability of Ching as a surety attaches independently from his capacity as a
stockholder of the Philippine Blooming Mills. Indisputably, under the Deed of Suretyship
defendant Ching unconditionally agreed to assume PBM's liability to the plaintiff in the event
PBM defaulted in the payment of the said obligation in addition to whatever penalties, expenses
and bank charges that may occur by reason of default. Clear enough, under the Deed of
Suretyship, defendant Ching bound himself jointly and severally with PBM in the payment of the
latter's obligation to the plaintiff. The obligation being solidary, the plaintiff Bank can hold Ching
liable upon default of the principal debtor. This is explicitly provided in Article 1216 of the New
Civil Code already quoted above.

The Court of Appeals resolved the first two questions in favor of TRB, The appellate court stated:
Ching did not deny under oath the genuineness and due execution of the L/Cs, Trust Receipts,
Undertaking, Deed of Surety, and the 3.5 Million Peso Promissory Note upon which TRB's action
rested. He is, therefore; presumed to be liable unless he presents evidence showing payment,
partially or in full, of these obligations (Investment and Underwriting Corporation of the
Philippines v. Comptronics Philippines, Inc. and Gene v. Tamesis, 192 SCRA 725 [1990]).

As surety of a corporation placed under rehabilitation receivership, Ching can answer separately
for the obligations of debtor PBM (Rizal Banking Corporation v. Court of Appeals, Philippine
Blooming Mills, Inc., and Alfredo Ching, 178 SCRA 738 [1990], and Traders Royal Bank v.
Philippine Blooming Mills and Alfredo Ching, 177 SCRA 788 [1989]) Even a[n] SEC injunctive
order cannot suspend payment of the surety's obligation since the rehabilitation receivers are
limited to the existing assets of the corporation.

ISSUE:
1) W/ON Ching is liable for obligations PBM contracted after execution of the Deed of
Suretyship YES
2) W/ON Ching's liability is limited to the amount stated in PBM's rehabilitation plan NO

HELD:

1) 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.

2) In granting the loan to PBM, TRB required Ching's surety precisely to insure full recovery of
the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the
surety. Thus, Ching cannot use PBM's failure to pay in full as justification for his own reduced
liability to TRB. As surely, Ching agreed to pay in full PBM's loan in case PBM fails to pay in full
for any reason, including its insolvency.

TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount
of PBM's loan. This is clear from Article 1216 of the Civil Code: ART. 1216. The creditor may
proceed against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one of thetas shall not be an obstacle to those which may subsequently
be directed against the others, so long as the debt has not been fully collected. (Emphasis
supplied)