Municipality of Gasan vs.

Marasigan September 30, 1936

GR. No. 43486

Facts:

The Municipality of Gasan, Marinduque auctioned the privilege to gather whitefish

spawn (bangus) in its jurisdictional waters for a period of one year. Two bidders
appeared, Graciano Napa and Miguel Marasigan. The Municipality awarded the
privilege to Marasigan.

To secure his compliance with the terms of the contract Marasigan filed a bond,
subscribed by the defendants-appellants Angel R. Sevilla and Gonzalo L. Luna, who
bound themselves in said document to pay to the plaintiff if Marasigan failed to deposit
in advance in the municipal treasury of Gasan. Said defendants-appellants became
sureties in the contract between Marasigan and the Municipilality.

Before the plaintiff municipality and Miguel Marasigan entered into their contract, and
also before the latter's sureties executed the above-stated bond, Graciano Napa,
forwarded a protest to the provincial board, which protest was later indorsed by said
provincial board to the Chief of the Executive Bureau. The Bureau declared the contract
illegal. Graciano however failed to pay deposit and yielded the privilege to Marasigan.

The municipality told Marasigan that the contract was to be effective so the municipality
sought to recover from Marasigan and two other appellants the amount representing the
license fee.

Issue: Whether or not the contract is enforceable and the sureties are bound to perform
their obligation as sureties.

Held:

No. It is a fact that, said contract ceased to have life or force to bind each of the
contracting parties. It ceased to be valid from the time it was cancelled and this being
so, neither the appellant Marasigan nor his sureties or the appellants were bound to
comply with the terms of their respective contracts of fishing privilege and suretyship.
This is so, particularly with respect to the sureties-appellants, because suretyship
cannot exist without a valid obligation.

Therefore, after eliminating the obligation for which said sureties-appellants desired to
answer with their bond, the bond necessarily ceased and it ceases to have effects.

Plaridel Surety & Insurance Co. vs. Artex Dev’t Co., Inc.
FACTS:

Artex withdrew from the Bureau of Customs shipments of imported goods which were
subject to customs duties and other taxes after posting surety bonds pursuant to RA
4086 because its applications for tax exemptions were not approved by the Board of
Industries. In consideration of the obligation assumed by Plaridel, Artex agreed to pay
the premiums and cost of documentary stamps in advance due on bonds for each
period of 12 months until bonds and its renewals, extensions or substitutions be
cancelled in full by the person or entity guaranteed or by court of competent jurisdiction.
Artex stopped paying premiums and costs of documentary stamps after it was granted
tax exemption. Plaridel maintains that it renewed the surety bonds more or less 8
months before the tax exemption. Plaridel seeks recovery from respondent company
P20, 570.24 worth of renewal of premiums on bonds which were already null and void
upon grant of tax exemption to principal

ISSUE:

Whether or not Artex is liable for accrued premiums and costs of doc stamps on
renewals of the surety bonds after grant of tax exemption to Plaridel?

HELD:

No. Suretyship cannot exsist without valid obligation (Art. 2052 par. 1). The renewals
were without consideration. Plaridel incurred no risk from Artex’ tax exemption
application was approved. Any renewals were void from the beginning because the
cause or object of said renewals did not exist at the time of the transtaction. Express
stipulation by parties, surety bonds became null and void upon grant of tax exemption.

CASE DIGEST: FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L. SANTIA,

Respondent. Aglibot v. Santia (G.R. No. 185945. December 5, 2012).

FACTS: Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific
Lending & Capital Corporation (PLCC), through its Manager, petitioner Fideliza J.
Aglibot (Aglibot). The loan was evidenced by a promissory note. Allegedly as a guaranty
for the payment of the note, Aglibot issued and delivered to Santia eleven (11) post-
dated personal checks drawn from her own account maintained at Metrobank. Upon
presentment of the checks for payment, they were dishonored by the bank for having
been drawn against insufficient funds or closed account. Santia thus demanded
payment from PLCC and Aglibot of the face value of the checks, but neither of them
heeded his demand. Consequently, eleven (11) Informations for violation of B.P. 22
were filed before the MTCC.
MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving Aglibot and
dismissing the civil aspect of the case on the ground of "failure to fulfill a condition
precedent of exhausting all means to collect from the principal debtor."

On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the civil
aspect of the case. Hence, the CA ruled that Aglibot is personally liable for the loan.

Thus, Aglibot filed this instant petition for certiorari. She argued that she was merely a
guarantor of the obligation and therefore, entitled to the benefit of excussion under
Article of the 2058 of the Civil Code. She further posited that she is not personally liable
on the checks since she merely contracted the loan in behalf of PLCC.

ISSUES: Is Aglibot entitled to the benefit of excussion? Is Aglibot personally liable on

the checks?

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

The Court must, however, reject Aglibot’s claim as a mere guarantor of the
indebtedness of PLCC to Santia for want of proof, in view of Article 1403(2) of the Civil
Code, embodying the Statute of Frauds. Under the above provision, concerning a
guaranty agreement, which is a promise to answer for the debt or default of another, the
law clearly requires that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified, although under Article 1358 of the
Civil Code, a contract of guaranty does not have to appear in a public document.

Contracts are generally obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present, and the Statute of
Frauds simply provides the method by which the contracts enumerated in Article
1403(2) may be proved, but it does not declare them invalid just because they are not
reduced to writing. Thus, the form required under the Statute is for convenience or
evidentiary purposes only.
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not
presumed, but must be express, and cannot extend to more than what is stipulated
therein. This is the obvious rationale why a contract of guarantee is unenforceable
unless made in writing or evidenced by some writing.

SECOND ISSUE: Aglibot is an accommodation party and therefore liable to Santia. The
appellate court ruled that by issuing her own post-dated checks, Aglibot thereby bound
herself personally and solidarily to pay Santia, and dismissed her claim that she issued
her said checks in her official capacity as PLCC’s manager merely to guarantee the
investment of Santia. The facts present a clear situation where Aglibot, as the manager
of PLCC, agreed to accommodate its loan to Santia by issuing her own post-dated
checks in payment thereof. She is what the Negotiable Instruments Law calls an
accommodation party.

The relation between an accommodation party and the party accommodated is, in
effect, one of principal and surety — the accommodation party being the surety. It is a
settled rule that a surety is bound equally and absolutely with the principal and is
deemed an original promisor and debtor from the beginning. The liability is immediate
and direct.

It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument; nor is it correct to say that the holder
for value is not a holder in due course merely because at the time he acquired the
instrument, he knew that the indorser was only an accommodation party. Unlike in a
contract of suretyship, the liability of the accommodation party remains not only primary
but also unconditional to a holder for value, such that even if the accommodated party
receives an extension of the period for payment without the consent of the
accommodation party, the latter is still liable for the whole obligation and such extension
does not release him because as far as a holder for value is concerned, he is a solidary
co-debtor.

Standard Oil Co. of New York vs. Cho Siong

FACTS:
On January 27, 1926, Cho Siong obliged himself to sell as agent plaintiff’s petroleum
products. He guaranteed the fulfillment of his obligation by giving P3,000 personal bond
subscribed by Ong Guan Can, and with P1,000 in cash which he delivered to the
plaintiff, with the right to apply it to the payment of any amount which he might become
indebted. He also bound himself to pay such attorney’s gees, costs, and other
expenses, as might be occasioned the plaintiff should it be under the necessity of filing
suit of any amount to which it might be entitled.

On the same day, Cho Siong signed an instrument in favor of the plaintiff assuming
responsibility for all accounts that might be owing to the plaintiff by former agent, Tong
Kuan, and for all the latter might have in his possession at the time when the agency
was transferred to Choi Siong.

Cho Siong received from plaintiff P14,136.79 petroleum, and made good to plaintiff the
total amount of P14,027.33, leaving P64.46 in favor of the plaintiff. Adding the
P3,132.96 amount owed by Tong Kuan, Cho Siong has a total debt of P3,197.42.

ISSUE:

WON Ong Guan Can, as a surety should answer for the total amount of debt of Cho
Siong.

HELD:

No. Excluding the amount of former agent, the only balance against Cho Siong is the
sum of P64.46. Considering the P1,000 cash received by plaintiff from Cho Siong which
may be applied to the payment of the sum owed by the latter, Cho Siong incurred no
liability and he still has P935.54 in his favor. Consequently, Ong Guan Can, as surety
does not answer for anything, the principal not having incurred any liability. He cannot
be held for the debt of the former agent which Cho Siong assumed by virtue of another
contract of which Ong Cuan Can was not aware. A contract of suretyship is to be strictly
interpreted and is not to be extended beyond its term.

Municipality of Lemery vs. Mendoza and Blas

Facts:

Municipality of Lemery granted fishing privileges to D for a period of 2 years for the sum
of 23K for each year. Mendoza and Blas as bondsmen, executed a document which
declared, among other thing, the lease by D of the privilege of fishing referred to for the
term of 2 years. In said document, Mendoza and Blass obligated themselves jointly and
severally to pay the sum of
46K in case D shall fail to comply with the conditions of the bond of which we are
informed. D failed to pay.

Issue: WON Mendoza and Blas are bound to pay 46K or 23K

Held: 23K. The obligating clause of the contract of guaranty is quite clear to the effect
that the rent to be paid for the privilege of fishery was 23K for the full term of 2 years. It
is true that Mendoza and Blas declared 46K, but it was only because the bond was
required to be made in double the amount of the principal liability as an assurance of
the performance of the principal obligation.

G.R. No. L-808

PACIFIC TOBACCO CORPORATION vs LORENZANA

FACTS:

The Pacific Tobacco Corporation is a duly organized domestic corporation with offices
at Grace Park, Caloocan, Rizal, engaged in the business of manufacturing and
distributing cigarettes, cigar s and other tobacco products.

On January 16, 1952, Ricardo D. Lorenzana and said corporation entered into an
agreement wer e Lorenza will be selling and distributing the products of the COMPANY.
And one of the stipula tions stated :

To guarantee the faithful performance on his part of the terms and conditions of this
contract, t he DISTRIBUTOR shall post a surety bond in favor of the COMPANY in the
amount of EIGHT T HOUSAND ONLY ——— PESOS (P8,000.00 signed by him and a
reputable surety company acce ptable to the COMPANY, THREE THOUSAND PESOS
(P3,000.00) of which bond shall answer for the faithful settlement of the account of the
DISTRIBUTOR with the COMPANY, and FIVE THOUS AND PESOS (5,000.00) for the
return of the aforementioned truck to the COMPANY in the sam e condition that the
DISTRIBUTOR received it, . . .

In accordance thereto, Lorenzana put up V.S. and I.C. bond No. E-JA-52/101 in the
amount of P 3,000 with the Visayan Surety and Insurance Corporation, as surety to
guarantee the faithful fulfi llment of the principal's (Lorenzana's) part in the contract with
the Pacific Tobacco Corporation, which was "to sell and distribute the latter's cigarettes,
cigar and other tobacco products subject

to the terms and conditions stipulated in the said contract"

The record shows that on various occasions in 1952, The Philippine Tobacco
Corporation deliver ed to Lorenzana for distribution cigarettes, cigars, and other tobacco
products amounting to P15 ,645.64, but out of this amount the latters paid and was only
credited with P13,559.33, leaving a

balance of P2,086.31.

Upon demand by the corporation. Lorenzana proposed to settle his pending

obligation.As he fai led to make any further payment, the Philippine Tobacco
Corporation filed a complaint with the Court of First Instance of Manila for the recovery
of the sum of P2,086.31, with legal interest to with the Court of First Instance of Manila
on October 30, 1953, against Ricardo D. Lorenzana an d the Visayan Surety and
Insurance Corporation.

Appellant surety argues that the bond guarantees only the payment of cigarettes, cigars
or othe r tobacco products that were delivered to and distributed by Lorenzana in Manila
and Rizal and at no other place.

ISSUE:

Whether or not strictissimi juris applies in the case at bar. HELD :

NO

This rule has no bearing on the case at bar.

It is well-settled that the rule of stricticcimi juris, ordinarily applied in relief of an

individual suret y, is not applied in case of compensated sureties; and that where a
bonding company, for a m onetary consideration, has insured against failure of
performance of a contract, it must show tha t it has suffered some injury by reason of
departure from the strict terms of contract, before it can for that reason be discharged
from its liability (Pickens County vs. National Surety Co. 13 F. [2d] 758 [C.C.A.] 4th,
1926).

A departure from the terms of the contract will not have the effect of discharging a
compensat ed surety unless it appears that such departure has resulted in injury, loss or
prejudice to the s urety (Chapman vs. Hoage, 296 U.S. 526).

It has been said that to allow compensated surety companies to collect and retrain
premiums fo r their services, graded according to the nature and extent of the risk, and
then to repudiate th eir obligations on slight pretexts which have no relation to the risk,
would be most unjust and i mmoral, and would be a perversion of the wise and just
rules designed for the protection of v oluntary sureties (M. H. Waller Realty Co. vs. Am

COMMISSION VS. LINES

G.R. No. L-24835, July 31, 1970 REPARATIONS COMMISSION, PLAINTIFF-
APPELLEE, VS. NORTHERN LINES, INC. AND FIELDMEN'S INSURANCE
COMPANY, INC., DEFENDANTS-APPELLANTS.

(Commission vs. Lines G.R. No. L-24835 July 31, 1970)

This decision, and more, can be found at https://www.digest.ph/decisions/commission-

vs-lines

This appeal, taken by the Northern Lines, Inc. and Fieldmen's Insurance Co., Inc., from
a decision of the Court of First Instance of Manila in Cases Nos. 50194 and 51542
thereof, which were jointly tried and disposed of, has been certified to Us by the Court of
Appeals, questions purely of law having been raised in the appeal.

It appears that, pursuant to Rep. Act No. 1789, the Reparations Commission -
hereinafter referred to as the Commission - had awarded two (2) vessels to the
Northern Lines, Inc., a corporation organized and existing under the Philippine laws -
hereinafter referred to as the Buyer - for use in the inter island shipping.According to the
schedules of payment agreed upon between the parties, complete delivery of one of the
vessels - the M/S Magsaysay, later named M/S Don Salvador - took place on April 25,
1960, and that of the other - the M/S Estancia, later named M/S Don Amando - on May
26, 1960.These vessels were the object of separate deeds of conditional purchase and
sale of reparations goods, executed by the Commission, as vendor, and the Buyer, as
vendee, the first dated September 12, 1960, and the second October 20, 1960.In
conjunction with these contracts and in line with the provisions thereof, Surety Bonds
Nos. 3825 and 4123 were executed, on April 25, 1960 and May 30, 1960, respectively,
by the Buyer, as principal, and the Fieldmen's Insurance Co., as surety, in favor of the
Commission, to guarantee the faithful compliance by the Buyer of its obligations under
said contracts. The Buyer undertook therein to pay for said vessels the installments
specified in a schedule of payments, appended to each contract.The schedule for the
M/S Don Salvador (ex-M/S Magsaysay) reads as follows:

"NAME OF END-USERNORTHERN LINES, INC.

"ADDRESS480 Padre Faura, Ermita, Manila

"NATURE OF CAPITAL GOODS/SERVICES One (1) Vessel

'M/S MAGSAYSAY' divested of the cannery plant

"DATE OF COMPLETE DELIVERY April 25, 1960

"TOTAL F .O. B. COSTP1, 747,614 .22

"AMOUNT OF IST INSTALLMENT (10% OF F.O.B. COST)

P174,761,42

"DUE DATE OF IST INSTALLMENT April 25, 1962

"TERM: TEN (10)EQUAL YEARLY INSTALLMENTS

"RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM

whereas that for M/S Don Amando (ex-M/S Estancia) was of the following tenor:

"NAME OF END-USERNORTHERN LINES, INC.

"ADDRESS 480 P. Faura, Ermita, Manila

"NATURE OF CAPITAL GOODS/SERVICES One vessel

'M/S Estancia' Divested of the Cannery Plant

"DATE OF COMPLETE DELIVERY May 26, 1960

"TOTAL F.O. B. COSTP1,747,614.22

"AMOUNT OF IST INSTALLMENT (10% OF F.O.B. COST)

P174,761.42

"DUE DATE OF IST INSTALLMENT May 26, 1962

"TERM: Ten (10)EQUAL YEARLY INSTALLMENTS

"RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM

The Commission alleged - in two separate causes of action set forth in the complaint
therein - that, despite repeated demands, the defendants (Buyer and Surety) had
refused to pay the first installments of P174,761.42 each, that had become due and
demandable on April 25 and May 26, 1962, respectively.Hence, it prayed that the Buyer
and the Surety be sentenced to pay, jointly and severally, to the Commission the
aggregate sum of P349,522.84, with interest thereon at the legal rate, in addition to
attorney's fees and the costs.
Subsequently, or on October 29, 1962, Branch XIII of the Court of First Instance of
Manila dismissed Case No. 50488 - involving the M/S Don Amando or Estancia -
whereupon the Buyer appealed to this Court

In its answer to the complaint, the Buyer admitted some allegations and denied other
allegations thereof, and, by way of special defense, averred that the Commission has
no cause of action until Civil Cases Nos. 50488 and 50194 shall have been decided.The
Surety's answer contained similar admissions and denials, apart from adopting as its
own those made in the Buyer's answer, and set up a cross-claim against the Buyer, for
reimbursement of whatever the Surety may have to pay to the Commission by reason of
its complaint, including interests, and for the sum of P10,541.68 "representing unpaid
premiums and documentary stamps due on the two bonds" above-mentioned, plus
attorney's fees and interests.

Subsequently, or on October 29, 1962, Branch XIII of the Court of First Instance of
Manila dismissed Case No. 50488 - involving the M/S Don Amando or Estancia -
whereupon the Buyer appealed to this Court, where the case was docketed as L-20725.
The same was, however, dismissed on July 2, 1963, for failure of the Buyer, as
appellant therein, to file its brief within the reglementary period.

The Buyer alleges that the trial court erred: (1) in interpreting the contracts in question in
favor of the Commission, which drafted the same; (2) in not interpreting said contracts
"in such a manner as to prevent inconsistency and absurdity"; (3) "in not taking into
account the delay in the use of the goods subject-matter of the contracts in question in
interpreting the latter"; (4) in not holding that the action filed by the Commission (Case
No. 51542) is "barred" by the actions for declaratory judgment filed by the Buyer (Civil
Cases Nos. 50194 and 50488); and (5) in rendering judgment for the Commission and
the Surety "on their main claims, interests, attorney's fees and costs.

The Surety, in turn, contends that the trial court erred: (1) in declaring that the first
installments of the purchase price "became due on April 25, 1962 and May 26, 1962,
respectively"; (2) in holding the Surety jointly and severally liable with the Buyer to pay
to the Commission the two first installments of said purchase price under FICI Surety
Bonds No. 3825 and 4123; (3) in not holding the Commission liable to pay the Surety
"nominal damages, attorney's fees and costs"; and (4) in not ordering the Buyer to pay
to the Surety "attorney's fees equivalent to 20% of the amount which the latter may pay"
to the Commission by reason of the judgment in its favor.

 The main issue for determination in this appeal is that raised in the Buyer's first three
(3) assignments of error and in the Surety's first assignment of error, namely: when did
the first installment under the two (2) contracts become due?
The Buyer states that "in both contracts two due dates are given for the respective first
installments.In the case of M/S 'Don Salvador,' April 25, 1962, and April 25 1963; while
in the case of M/S 'Don Amando,' May 26, 1962, and May 26, 1963.The question is,
which are the correct due dates intended by the parties? The defendant-appellant" - the
Buyer - "claims that they are the second and later dates given, while the plaintiff-
appellee" - the Commission - "claims that they are the first and earlier dates." His
Honor, the trial Judge, sustained the latter contention.

In support of its claim, the Buyer argues that there is an ambiguity in said contracts,
which should be resolved against the Commission, "because it is the latter who caused
the ambiguity"; that otherwise, "there would result an inconsistency and absurdity,"
because the contracts provide for ten (10) equal yearly installments, but, under the
theory of the Commission, there would be two (2) first unequal installments, one for
P174, 761.42 and another for P184, 386.34, and the latter would be followed by nine (9)
yearly installments each for P184,386.34, which, together with the first two (2), would
aggregate eleven (11) installments, instead of ten (10).This contention is manifestly
untenable.

(a)The major premise in appellants' process of reasoning is that the installments due on
April 25, 1963, and May 26, 1963, are "first" installments, although they are not so
designated in the schedule appended to each of the contracts between the
parties.Appellants, moreover, assume that the "first" installment is included  in the "ten
(10) equal yearly installments" mentioned subsequently to said "first" installment.In fact,
however, only one installment is labelled as "first" in each one of said schedules, and
that is the installment due on "April 25, 1962" - as regards M/S Don Salvador
or Magsaysay - and that due on "May 26, 1962" - as regards M/S Don Amando or
Estancia.The schedules do not describe the "ten (10) equal yearly
installments" following the one characterized therein as "first" - as first, second, third,
etc. installments.The words used in the schedules are merely "No. of Installments" -
meaning "number," not order or sequence, of installments - and the numerals 1, 2, 3, 4,
5, 6, 7, 8, 9, 10 written before each one of said "ten (10) equal yearly installments." It is
true that the one therein numbered "1" is, in fact, the first, in the list of "ten (10) equal
yearly installments" following the "first," to accrue after the due date of said "first"
installment.Just the same, the parties have not so described (as "first) - in the
schedules forming part of their contracts - the installments numbered "1" in the list
contained in each.Moreover, considering that the words "TERM: Ten (10) EQUAL
YEARLY INSTALLMENTS," appear after the lines reading: "AMOUNT OF IST
INSTALLMENT (10% OF F.O.B. COST) P174, 761.42" and "DUE DATE OF IST
INSTALLMENT April 25, 1962" (or May 26, 1962), and that, subsequently to said
"TERM: Ten (10) EQUAL YEARLY INSTALLMENTS, " there is a list of ten (10) equal
yearly installments, it is clear that the latter do not include the one designated as "first"
installment.

It is well settled that laws and contracts should be so construed as to harmonize and
give effect to the different provisions thereof. [1] Upon the other hand, the interpretation
insisted upon by the Buyer and the Surety, would, not only create the "contradictions" or
"absurdities" they point out - and which, admittedly, should be avoided - but, also,
render meaningless and set at naught the provisions in said schedules to the effect that
the "amount of (the) 1st installment" is "P174, 761.42," and that the "due date of 1st
installment" would be "April 25, 1962,." as regards the M/S Don Salvador or Magsaysay,
and "May 26, 1962," as regards the M/S Don Amando or Estancia.In fact, the Buyer
maintains that these provisions should be "treated as surplusage" and, hence,
disregarded or ignored.Incidentally, this reveals the inherent infirmity of the theory
advanced by the Buyer and the Surety.

(b)The pertinent part of Section 12 of Rep. Act No. 1789, pursuant to which the vessels
in question were sold to the Buyer, reads:

"x x x Capital goods x x x disposed of to private parties as provided for in subsection

(a) of Section two hereof shall be sold on a cash or credit basis, under rules and
regulations as may be determined by the Commission.Sales on a credit basis shall be
payable in installments: Provided, That the first installment shall be paid within twenty-
four months after complete delivery of the capital goods and the balance within a period
not exceeding ten years, x x x, plus the service fee provided for in section ten
hereof; Provided, further, That the unpaid balance of the price thereof shall bear
interest at the rate of not more than three percent per annum.x x x[2]

It should be noted that, pursuant to the schedules attached to the contracts with the
Buyer, the "complete delivery" of the vessels took place on April 25, and May 26, 1960,
respectively, so that the 24 months fixed by law for the payment of the "first" installment
expired on April 25, 1962 and May 26, 1962, which are the very due dates stated in the
aforementioned schedules for the payment of the respective "1st" installments.What is
more, in view of said legal provision, the Commission had no authority to agree that
the lst installment be paid on any later date, and the Buyer must have been aware of
this fact.Hence, the parties could not have intended the first installments to become due
on April 25 and May 26, 1963.It is, likewise, obvious - particularly when considered in
relation to the provision above quoted - that the "ten (10) equal yearly installments,"
mentioned in the schedules, refer to the "balance" of the price to be paid by the
Buyer, after deducting the "first" installment, so that, altogether, there would be "eleven"
installments, namely, the "first," which would be 10% of F.O.B. cost of the vessel
- as agreed upon between the Governments of the Philippines and Japan - and "ten
(10) equal yearly installments," representing the balance of the amount due to the
Commission from the Buyer, including the interest thereon.
(c)The Buyer insists that the vessels were "delivered late," and that, consequently, it
would be more in line with the spirit of R.A. No. 1789 to declare that the "first"
installments fell due on April 25 and May 26, 1963 respectively.But, the Buyer
seeks, not merely the postponement of the first installment's due date, but,
also, exemption from the obligation to pay its amount of P174, 761.42.Besides, the
dates of "complete delivery" of the vessels are explicitly stated in the schedules as
being "April 25, 1960" and "May 26, 1960." The Buyer would have surely refused to sign
the schedules if said entries therein were not true.The signature affixed thereon by the
Buyer and the fact that April 25, and May 26, 1960 were made the basis for the date of
maturity, not only of the "first" installment, but, also, of the subsequent "ten (10) equal
yearly installments," clearly show that both parties were agreed that complete delivery
of the vessels had been made on the dates set forth in said schedules.

(d)This is borne out by the fact that FICI Surety Bonds Nos. 3825 and 4123 are each for
the sum of P174,761.42.According to paragraph (5) of the Surety's cross-claim, which
is admittedin the Buyer's answer thereto, the latter had agreed to pay the premiums
and the cost of documentary stamps on said bonds "for 2 years  x  x  x  from April 25,
1960 and May 30, 1960,respectively." There can thus be no doubt that the Buyer and
the Surety understood that the "first" installments would fall due on April 25, and May
26, 1962, and that the amount of each of those installment would be P174,761.42,not
P184,386.34, which would be due on April 25, and May 26, 1963 as appellants would
have the Court believe.

(e)The Surety argues that the "first" installment is the one marked No. 1, for P184,
386.34, "which if paid in ten (10) equal yearly installments amounts to P1,843,863.40,
which is the equivalent of the total contract price with interest, of the reparations goods
in question." This is not true.Precisely, it is only byincluding the "first" installment of
P174, 761.42, among the obligations of the Buyer, and charging the stipulated 3%
yearly interest on the balance  of the cost price (of P1,747,614.22) after such
payment, and after the payment of each of the ten (10) equal yearly installmentsof
P184,386.34, that the full amount of said cost price, plus interest, could be satisfied.In
other words, the price agreed upon and the interest thereon would not be satisfied in
full, unless the "first" installment of P174,761.42 were paid in 1962, in addition to the
ten (10) installments of P184, 386.34 each falling due yearly from 1963 to 1972.

2.Appellants assail the decision appealed from, upon the ground that the Commission
had no cause of action against them until the cases (Nos. 50194 and 50488) for a
declaratory relief shall have been decided, and that, consequently, the lower court erred
in dismissing Case No. 50194 instead of Case No. 51552.

As above pointed out, Case No. 50488 was dismissed by Branch XIII of the Court of
First Instance of Manila, on October 29, 1962, and the order of dismissal became final
and executory upon the dismissal of the appeal in L-20725 of the Supreme Court, on
July 2, 1963, months before the rendition of the decision of Branch VII of the trial court,
which is the object of the present appeal, on April 30, 1964.As regards Case No. 50194,
which was commenced on April 24, 1962, the contract involved therein (with reference
to the M/S Don Salvador or Magsaysay) was infringed by the Buyer when it failed to pay
the first installment due the next day, April 25, 1962.The lower court was, accordingly,
justified in dismissing that case, inasmuch as an action for declaratory relief may be
entertained only "before breach or violation" of the law or contract to which it
refers.3 The purpose of the action is to secure an authoritative statement of the rights
and obligations of the parties under said law or contract, for their guidance in the
enforcement thereof or compliance therewith, not to settle issues arising from an
alleged breach thereof.4 Accordingly, after such alleged breach of the law or contract,
or once the aforementioned issue has arisen, an ordinary action is the proper
remedy.Thus, in Samson v. Andal,5 this Court said:

" x x x If there has been a violation, declaratory relief cannot be granted, for the reason
that Sec. 2, Rule 666 relative to said remedy, provides that A contract or statute may be
construed before there has been a breach thereof.' After breach, the regular remedy
obtains.7

What is more, Rule 64, Section 6, of the Rules of Court is clear and explicit about it.It
provides:

" x x x If before the final termination of the case, a breach or violation of an instrument
or a statute, executive order or regulation, or ordinance, should take place, the action
may thereupon be converted into an ordinary action, and parties allowed to file such
pleadings as may be necessary or proper."

Then, too, the facts of record strongly suggest that Cases Nos. 50194 and 50488 for
declaratory relief were commenced in anticipation of an action for breach of contract,
said cases having been filed precisely on the eve of the due date of the "first"
installment, as to M/S Don Salvador or Magsaysay, and on the very due date of the first
installment, as to M/S Don Amando or Estancia.The situation in the case at bar is thus
substantially identical to that obtaining in Teodoro v. Mirasol,8 in which the following
language was used:

"In the case at bar, We are led to the belief that the present action in the Court of First
Instance was prompted by a desire on plaintiff's part to anticipate the action for
unlawful detainer, the probability of which was apparent x x x . x x plaintiff took
advantage of defendant's delayed x x x suit to file this case in the Court of First
Instance in anticipation of the action for unlawful detainer, in order perhaps that he may
claim that the action in the Court of First Instance was prior to the
unlawful detainer case, and, therefore, should enjoy preference over the action filed in
the Municipal Court.

"It is to be noted that the Rules do not require as a ground for dismissal of a complaint
that there is a prior pending action.They provide that there is a pending action, not
a pending prior action.The fact that the unlawful   detainer  suit was of a later date is no
bar to the dismissal of the present action, x x x.

" x x x plaintiff's action for declaratory relief is improper; this action is meant only for
those cases where a contract is desired to be construed prior to  its breach because of
an impending controversy, that the parties thereto may be informed of their
rights thereunder.In the case at bar, x x x there has already been a
breach x x x hence the action for a declaratory judgment is no longer proper.

"xxxxxxxxx

"There is no longer any need for the action, even if proper, because the matter could be
threshed out in the unlawful  detainer  suit that the defendant had instituted in the
municipal court."19

Indeed, otherwise, an action for a declaratory relief could be availed of to, in effect,
suspend, during its pendency, the force and operation of the contracts in question, and
thereby achieve a compulsory deferment or postponement of the maturity of the
obligations therein validly contracted and assumed.Obviously, the Court cannot give the
stamp of its approval thereto.

3. The Surety maintains that, pursuant to the terms of its Bonds Nos. 3825 and 4123,
the same expired on April 25 and May 26, 1961, respectively, so that it was no longer
liable under the Bonds when the "first" installments became due on April 25 and May
26, 1962.

Suffice it to say that, not having been pleaded in the Surety's answer or otherwise
raised in the lower court, such defense cannot be set up, for the first time, in this
appeal.10 Moreover, it is inconsistent with the cross-claim of the Surety, against the
Buyer, for the sum of P10,641.68, representing the premiums and the cost of
documentary stamps on said Bonds, for a period of two (2) years from April 25, 1960
and May 30, 1960, which premiums and documentary stamps could not be due if the
bonds were not in force during said period of two (2) years.

Again, in said bonds, the Buyer, as principal, and the Surety, as such, firmly bound
themselves unto the Reparations Commission, in the sum of P174,761.42, pursuant to
the contract between the Buyer and the Commission, on condition that, if the Buyer
"shall well and truly keep, do and perform, each and every, all and singular, the matters
and things in the contract set forth and specified to be" by the Buyer "done and
performed at the time and in the manner in said contract specified, and shall pay over,
make good and otherwise satisfy the obligations required under the contract, then the
said bond x x x shall be released upon payment of all the sums due" to the Commission,
"otherwise, said bond shall ipso facto be forfeited in full in favor of" said Commission.

Thus, the intention of the parties was, clearly, to guarantee compliance with the
aforementioned obligations.The first of such obligations, in point of time, was the
payment by the Buyer of the "first" installments which were to become due on April 25
and May 26, 1962, that is, one year or about a year after the alleged expiration of the
Bonds.Were We to accept the theory of the Surety, the result would be that it
had never contracted any obligation or assumed any liability in favor of the Commission,
in consequence of the execution of said bonds and that, for all intents and purposes, the
contracts under consideration were, accordingly, devoid of any guarantee.Such result is
manifestly contrary to the intention of the parties.And this explains why the Surety has
not set up said defense in its answer.

Referring to the stipulation in a bond to the effect that the liability thereunder would

expire on the date of maturity of the principal obligation, this Court declared that said
stipulation in effect nullified the nature of said bond, and was, therefore "unfair and
unreasonable, " as well as "a subtle way of making money thru trickery and
deception."11 The situation in the case at bar is even worse, since the Surety contends
that its bond expired about a year before the first installments had become due.

It may not be amiss to note that the rule of strict construction of surety bonds "does not
apply to the engagements of corporate sureties engaged in the business of furnishing
bonds for compensation, and who are, furthermore, secured from all possible loss
by adequate counterbonds.12

4. The Surety impugns the P300 awarded thereto by way of attorney's fees, upon the
ground that the fee agreed upon with the Buyer is "20% of the total amount due." It is
well settled, however, that courts of justice have discretion to fix the amount of
attorney's fees,13 and We do not feel that such discretion has been abused by His
Honor, the trial Judge, considering that the Surety had mainly relied upon the defenses
set up by the Buyer, and that the ultimate liability of the Surety is principally dependent
upon the amount of the principal obligation that the Buyer may be unable to satisfy.

The other assignments of error made by appellants herein are mere corollaries to those
already disposed of, and, hence, need no further discussion.
WHEREFORE, the decision appealed from is hereby affirmed in toto, with costs against
appellants herein.

G.R. No. L-47495             August 14, 1941

THE TEXAS COMPANY (PHIL.), INC., petitioner,

vs.
TOMAS ALONSO, respondent.

On November 5, 1935 Leonor S. Bantug and Tomas Alonso were sued by the
Texas Company (P.I.), Inc. in the Court of First Instance of Cebu for the
recovery of the sum of P629, unpaid balance of the account of Leonora S.
Bantug in connection with the agency contract with the Texas Company for
the faithful performance of which Tomas Alonso signed the following:

For value received, we jointly and severally do hereby bind ourselves and
each of us, in solidum, with Leonor S. Bantug the agent named in the within
and foregoing agreement, for full and complete performance of same hereby
waiving notice of non-performance by or demand upon said agent, and the
consent to any and all extensions of time for performance. Liability under this
undertaking, however, shall not exceed the sum of P2,000, Philippine
currency.

Witness the hand and seal of the undersigned affixed in the presence of two
witness, this 12th day of August, 1929.

Leonor S. Bantug was declared in default as a result of her failure to appear or

answer, but Tomas Alonso filed an answer setting up a general denial and the
special defenses that Leonor S. Bantug made him believe that he was merely a co-
security of one Vicente Palanca and he was never notified of the acceptance of his
bond by the Texas Company. After trial, the Court of First Instance of Cebu
rendered judgment on July 10, 1973, which was amended on February 1, 1938,
sentencing Leonor S. Bantug and Tomas Alonso to pay jointly and severally to the
Texas Company the sum of P629, with interest at the rate of six per cent (6%) from
the date of filing of the complaint, and with proportional costs. Upon appeal by
Tomas Alonso, the Court of Appeals modified the judgment of the Court of First
Instance of Cebu in the sense that Leonor S. Bantug was held solely liable for the
payment of the aforesaid sum of P629 to the Texas Company, with the consequent
absolution of Tomas Alonso. This case is now before us on petition for review
by certiorari of the decision of the Court of Appeals. It is contended by the petitioner
that the Court of Appeals erred in holding that there was merely an offer of guaranty
on the part of the respondent, Tomas Alonso, and that the latter cannot be held
liable thereunder because he was never notified by the Texas Company of its
acceptance.

The Court of Appeals has placed reliance upon our decision in National Bank
vs. Garcia (47 Phil., 662), while the petitioner invokes the case of National
Bank vs. Escueta, (50 Phil., 991). In the first case, it was held that there was
merely an offer to give bond and, as there was no acceptance of the offer, this
court refused to give effect to the bond. In the second case, the sureties were
held liable under their surety agreement which was found to have been
accepted by the creditor, and it was therein ruled that an acceptance need not
always be express or in writing. For the purpose of this decision, it is not
indispensable for us to invoke one or the other case above cited. The Court of
Appeals found as a fact, and this is conclusive in this instance, that the bond
in question was executed at the request of the petitioner by virtue of the
following clause of the agency contract:

Additional Security. — The Agent shall whenever requested by the Company

in addition to the guaranty herewith provided, furnish further guaranty or
bond, conditioned upon the Agent's faithful performance of this contract, in
such individuals of firms as joint and several sureties as shall be satisfactory
to the Company.

In view of the foregoing clause which should be the law between the parties, it is
obvious that, before a bond is accepted by the petitioner, it has to be in such form
and amount and with such sureties as shall be satisfactory hereto; in other words,
the bond is subject to petitioner's approval. The logical implication arising from this
requirement is that, if the petitioner is satisfied with any such bond, notice of its
acceptance or approval should necessarily be given to the property party in interest,
namely, the surety or guarantor. In this connection, we are likewise bound by the
finding of the Court of Appeals that there is no evidence in this case tending to show
that the respondent, Tomas Alonso, ever had knowledge of any act on the part of
petitioner amounting to an implied acceptance, so as to justify the application of our
decision in National Bank vs. Escueta (50 Phil., 991).

While unnecessary to this decision, we choose to add a few words explanatory of

the rule regarding the necessity of acceptance in case of bonds. Where there is
merely an offer of, or proposition for, a guaranty, or merely a conditional guaranty in
the sense that it requires action by the creditor before the obligation becomes fixed,
it does not become a binding obligation until it is accepted and, unless there is a
waiver of notice of such acceptance is given to, or acquired by, the guarantor, or
until he has notice or knowledge that the creditor has performed the conditions and
intends to act upon the guaranty. (National Bank vs. Garcia, 47 Phil., 662; C. J., sec.
21, p. 901; 24 Am. Jur., sec. 37, p. 899.) The acceptance need not necessarily be
express or in writing, but may be indicated by acts amounting to acceptance.
(National Bank vs. Escueta, 50 Phil., 991.) Where, upon the other hand, the
transaction is not merely an offer of guaranty but amounts to direct or unconditional
promise of guaranty, unless notice of acceptance is made a condition of the
guaranty, all that is necessary to make the promise binding is that the promise
should act upon it, and notice of acceptance is not necessary (28 C. J., sec. 25, p.
904; 24 Am. Jur., sec 37, p. 899), the reason being that the contract of guaranty is
unilateral (Visayan Surety and Insurance Corporation vs. Laperal, G.R. No. 46515,
promulgated June 14, 1940).

Separate Opinions

OZAETA, J., with whom concur MORAN and HORRILENO, JJ., dissenting:

e concede that the statement of fact made by the Court of Appeals is conclusive
upon this Court in a petition for review on certiorari. But when it appears from the
decision of the Court of Appeals itself that such a statement is but a conclusion
drawn by that Court from the facts found by it, and that such conclusion is patently
erroneous, we hold that this Court should disregard it.

Of the nature, we believe, is the following statement made by the Court of Appeals
in the course of its ratiocination:

La fianza prestada por el apelante se otorgo a requerimiento de la demandante en

virtud de la siguiente clausula (15) del contrato de agencia Exhibit A, que dice asi:

"ADDITIONAL SECURITY. — The Agent shall, whenever requested by the

Company in addition to the guaranty herewith provided, furnish further guaranty or
bond, conditioned upon the agent's faithful performance of this contract, in such form
and amount and with such bank as surety or with such individuals or firms as joint
and several sureties as shall be satisfactory to the Company." (Pages 8-9, appendix
to petitioner's brief.)

Now if, as found by the Court of Appeals itself, the agency contract between the
petitioner and Leonor S. Bantug was Exhibit A, dated August 12, 1929, and that very
same document was on the same date signed by the respondent Tomas Alonso as
bondsman or surety of the agent, how could the bond in question, which formed part
of Exhibit A, be held to have been executed by virtue of clause 15 of said document
providing for additional security? Indeed, that very clause says that the agent shall
furnish further guaranty or bond "in addition to the guaranty herewith provided,"
whenever requested by the company. The "guaranty herewith provided" was
obviously the bond or guaranty given by the respondent on the same date and in the
same document. It appears clear to us, therefore, that the bond Exhibit A, being
the original guaranty, could not be the "additional guaranty" mentioned in clause 15
of said Exhibit A. Moreover, it does not appear that any bond or guaranty, other than
that of the respondent, to secure the performance of the agency contract in question
was in force on and after August 12, 1929.

Another illogical conclusion drawn by the Court of Appeals is this:

If, as previously found by the Court of Appeals, the herein respondent executed the
bond in question "a requerimiento de la demandante," how could said bond be
understood as an "offer or proposition of guaranty" from Alonso to the plaintiff? .

Yet the judgment of the Court of Appeals, as well as the affirming decision of the
majority of this court, is based on the conclusion that the bond sued upon was an
additional guaranty; that it constituted a mere offer of guaranty and, therefore, had to
be accepted by the petitioner; and that, not having been accepted, it is inefficacious.
We have shown that such conclusion is unwarranted.

Our vote is to reverse the decision of the Court of Appeals and to affirm that of
Judge Felix Martinez of the Court of First Instance of Cebu, who tried this case.