ROSALINA CARODAN, Petitioner,

Vs.
CHINA BANKING CORPORATION, Respondent
G.R. No. 210542 February 24, 2016

FACTS;

The case involved Barbara Perez, Rebecca Perez-Viloria, Rosalina Carodan and Madeline
Carodan, who obtained a loan from respondent China Bank and for value received, executed and
delivered promissory to respondent bank under which they promised therein to jointly and
severally pay the amount of P2.8 million and as security for the payment of the loan, Barbara,
Rebecca and Rosalina also executed a Real Estate Mortgage over a property registered in the
name of Rosalina. Respondent alleged that a Surety Agreement in favor of China Bank as
creditor was also executed by Barbara and Rebecca as principals and Rosalina and her niece
Madeline as sureties. Through that agreement, the principals and sureties warranted the payment
of the loan obligation amounting to P2.8 million including interests, penalties, costs, expenses,
and attorney’s fees.

Despite repeated demands from China Bank, Barbara and Rebecca failed to pay their loan
obligation which prompted the bank to institute extrajudicial foreclosure proceedings on the
mortgaged property. From the extrajudicial sale, it realized only Pl.5million as evidenced by a
Certificate of Sale. This amount, when applied to the total outstanding loan obligation of Pl,
865,345.77, would still leave a deficiency of P365, 345.77.For that reason, the bank prayed that
the court order the payment of the deficiency amount with interest at 12% per annum, attorney's
fees equal to10% of the deficiency amount and litigation expenses and costs of suit.

In this Rosalina protests her liability for the deficiency and claims that China Bank
cancelled the mortgage lien and released the principal borrowers from liability. She contends
that this act violated Article 2089 of the Civil Code on the indivisibility of mortgage and
ultimately discharged her from liability as a surety. The trial court declared that respondent bank
had therefore lawfully foreclosed the mortgage over the property of Rosalina, even if she was a
mere accommodation mortgagor.

The RTC also declared Rosalina's claim to be without merit and without basis in law and
jurisprudence. She claimed that because the Real Estate Mortgage covering her property was a
single and indivisible contract, China Bank's act of releasing the principal debtors ‘properties
resulted in the extinguishment of the obligation. The CA found the appeal bereft of merit. It
qualified Rosalina as a surety who had assumed or undertaken a principal debtor's responsibility
or obligation contained in the mortgage pursuant to Article 1216 of the Civil Code. As such, she
was supposed to be principally liable for the payment of the debt in case the principal debtors did
not pay, regardless of their financial capacity to do as for the deficiency.

Issue;

Is petitioner Rosalina liable jointly and severally with Barbara and Rebecca for the payment of
respondent China Bank's claims?

Held;

Yes. Rosalina is liable jointly and severally with Barbara and Rebecca as an accommodation
mortgagor and as surety.

As stated under Article 2085 of the New Civil Code, in accommodation mortgage it is not
necessarily void simply because the accommodation mortgagor did not benefit from the
same. The validity of an accommodation mo1igage is allowed that third persons who are not
parties to the principal obligation may secure the latter by pledging or mortgaging their
own property. An accommodation mortgagor, ordinarily, is not himself a recipient of the
loan, otherwise that would be contrary to his designation as in this case .

Apart from being an accommodation mortgagor, Rosalina is also a surety, defined under Article
2047 of the Civil Code. By guaranty a person, called a guarantor, binds himself to the creditor to
fulfil the obligation of the principal debtor in case the latter should fail to do so.

In which contract of surety is an accessory promise by which a person binds himself for another
already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A
contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of
another in case the latter does not pay the debt. Simply put, a surety is distinguished from a
guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to
pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates
himself to pay if the principal does not pay.

Thus, when Rosalina affixed her signature to the Real Estate Mortgage as mortgagor and to the
Surety Agreement as surety which covered the loan transaction represented by the Promissory
Note, she thereby bound herself to be liable to China Bank in case the principal debtors,
Barbara and Rebecca, failed to pay. She consequently became liable to respondent bank for the
payment of the debt of Barbara and Rebecca when the latter two actually did not pay.
 THEMUNICIPALITYOFGASAN, plaintiff-appellee,
vs.
MIGUEL MARASIGAN, ANGEL R. SEVILLA and GONZALO L.
LUNA, defendants-appellants.
G.R. No. 43486   September 30, 1936
Facts;

In this case an auction made by the Municipality of Gasan, the privilege of gathering whitefish
spawn in its jurisdictional waters in which Graciano Napa and Miguel Marasigan appeared at the
auction. Napa proposed to accept the privilege by offering P5, 000 while Marasigan proposed
only P4, 200 in which he deposited P420 10% of his bid to the municipal treasurer.

The Municipality, through Resolution rejected Napa’s bid and accepted Marasigan’s, at P4, 200
payable quarterly at the rate of P1, 050 a quarter. To secure his compliance with the terms of the
contract, Marasigan filed the bond, subscribed by Angel Sevilla and Gonzalo Luna who bound
themselves to pay the Municipality if Marasigan fails to deposit P1, 050 quarterly. Sevilla and
Gonzalo became sureties.

Meanwhile, the president of the Municipality notified Marasigan that the contract granting
the privilege was suspended and that he should consider it ineffective in the meantime in view of
the question of Napa’s bid despite the fact that he is the highest bidder, such was being
rejected .He forwarded his protest to the provincial board, alleging that the Municipality violated
the provision of section 2233 of the Administrative Code by accepting Marasigan’s offer instead
of Napa’s, who is actually the highest bidder. Through the decisions of the Provincial Board of
Marinduque and the Executive Board, the Municipality decided to award the privilege to Napa,
giving him a chance to deposit P500 which is 10% of his bid to comply with the conditions of
the public auction, warning him that if he failed to do so, the contract with Marasigan will
automatically take effect. However, Napa not only failed to pay the Municipality but he formally
declared, through his duly authorized representative, that he yielded the privilege to Marasigan
or to any other person selected by the municipal authorities.

On Jan 15, 1931, the president of the Municipality sent a letter to Marasigan telling him that his
contract with the Municipality became effective immediately on Jan 14, 1931 until Dec 31, 1931;
that he is requested to appear before the Municipal Council on Jan 16 with the contract and bond
executed in Marasigan’s favor for ratification; that he was required to payP1,050 as per tax
corresponding to the first quarter of 1931.On June 29, 1931, Marasigan delivered P840 to the
municipal treasurer, making the total amount he delivered to the municipal treasurerP1,260. On
July 20, 1931, Marasigan paid P16.20 to the municipal treasurer as revenue tax on the sales of
whitefish spawn amounting to P1,080 for months April, May, and June 1931; and on Aug 22,
1931, he presented his sales book to the municipal treasurer of Gasan, from which appears
that he sold whitefish spawn amounting to P85 in July and none in Aug and Sept1931.The
Municipality alleges now that Marasigan failed to pay P3,780which is to form part of the license
fees for the privilege granted him in gathering whitefish spawn. The trial court ruled against the
defendants, sentencing them to pay jointly said amount, with legal interest until fully paid.
Defendants appealed and assigned the issues below as errors.

Issue;

Whether or not the contract and bond in question is valid and should Angel r. Sevilla and
Gonzalo l. Luna is absolved from liability gainst the Municipality of Gasan arising from the
contract.

Held:

No. The contract and bond in question was not only considered consummated, but was cancelled.

In the first place when the Municipal president requiring Marasigan to appear before the
municipal council to present his formerly prepared and contract bond to be ratified, in this the
contract entered is deemed ceased to be valid from the time it was cancelled when the Provincial
Board and Executive Board and the municipality award the Bid to Napa and so neither
Marasigan nor his sureties were bound to comply with their respective terms of the contracts of
fishing privilege and suretyship.

This is so particularly with respect to the sureties because suretyship cannot exist without valid
obligation as provided in Article 2052 of the Civil Code. Guaranty is not presumed. The
elimination of the obligation for which said surety desired to answer with their bond also
rendered the bond also eliminated.

Since the contract and bond is cancelled, Angel r. Sevilla and Gonzalo l. Luna is absolved from
liability against the Municipality of Gasan arising from the contract because the suretyship
cannot exist without valid obligation.
 PLARIDEL SURETY & INSURANCE COMPANY, petitioner,
vs.
ARTEX DEVELOPMENT COMPANY, INC., and HON. JESUS P. MORFE, Presiding
Judge, Branch XIII, Court of First Instance of Manila, respondents.
G.R. No. L-30554 February 28, 1983

Facts;

In this case, The action was brought by the petitioner Plaridel to recover from the respondent
company P20, 570.24 worth of renewal premiums and costs of documentary stamps on various
surety bonds posted by petitioner Plaridel Surety and Insurance Co., in behalf of respondent
Artex Development Co. Inc., as principal in favor of the Republic of the Philippines through the
Bureau of Customs and the Board of Industries.

The reason is when the respondent Artex Development Company, INC 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
petitioner 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 of renewal of premiums on bonds which were
already null and void upon grant of tax exemption to principal

Issue:

Is Artex Development Company, INC 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 exist without valid obligation as provided in Article 2052 of the Civil
Code. The renewals were without consideration. Plaridel incurred no risk from Artex’ tax
exemption application was approved.

The grant of tax exemption by the Board of Industries rendered null and void and extinguished
the surety bonds and agreement of counter guaranty. The guaranty and suretyship are accessory
to a dependent upon the principal obligation guaranteed or secured by them and cannot exist
without a valid obligation. Therefore, as a necessary consequence, the obligation of defendant to
pay premiums and cost of documentary stamps allegedly due thereon extinguished the
agreements of counter guaranty has likewise been rendered of no force and effect..
 RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
HON. JOSE P. ARRO, Judge of the Court of First instance of Davao, and RESIDORO
CHUA, respondents.
R. No. L-49401 July 30, 1982

Facts;

Respondent Residoro Chua and Enrique Go, Sr. jointly executed a comprehensive surety
agreement to guaranty any existing or future obligation of Davao Agricultural Industries
Corporation (DAICOR) with petitioner Rizal Commercial Banking Corporation. Thereafter, a
promissory note in the amount of P100, 000.00 was issued in favor of petitioner bank which was
signed solely by Enrique Go, Sr. in his personal capacity and in behalf of DAICOR. The
promissory note was not fully paid despite repeated demands. Hence, this prompt the petitioner
bank to filed a complaint against Daicor, respondent Chua and Enrique Go, Sr.

The trial court, in sustaining the private respondent, dismissed the complaint on the ground that it
states no cause of action as against him since he did not sign the subject promissory note, which
is a necessary corollary to the comprehensive surety agreement as evidence of indebtedness, and
without which the said agreement served no purpose.

 However, the petitioner alleged that by virtue of the execution of the comprehensive surety
agreement, private respondent is liable because said agreement covers not merely the promissory
note subject of the complaint, but is continuing and it encompasses every other indebtedness the
Borrower may, from time to time incur with petitioner bank. Hence, this petition.

Issue;

Is the private respondent is liable to pay the obligation evidence by the promissory note which he
did not sign, in the light of the provisions of the comprehensive surety agreement which
petitioner and private respondent had earlier executed?

Held;

Yes. The private respondent is liable to pay the obligation evidence by the promissory note
which he did not sign, in the light of the provisions of the comprehensive surety agreement
which petitioner and private respondent had earlier executed.

Where the comprehensive surety agreement was jointly executed by Residoro Chua and Enrique
Go, Sr., President and General Manager, respectively of DAICOR, to cover existing as well as
future obligation which DAICOR may incur with the petitioner bank, subject only to the proviso
that their liability shall not exceed at any one time the aggregate principal sum of P100, 000.00.
The agreement was executed obviously to induce petitioner to grant any application for a loan
Daicor may desire to obtain from petitioner bank. The guaranty is a continuing one which shall
remain in full force and effect until the bank is notified of its termination.

This is a continuing guaranty and shall remain in full force and effect until written notice shall
have been received by you that it has been revoked by the undersigned.

At the time the loan of P100, 000.00 was obtained from petitioner by Daicor, for the purpose of
having an additional capital for buying and selling coco-shell charcoal and importation of
activated carbon, 10 the comprehensive surety agreement was admittedly in full force and effect.
The loan was, therefore, covered by the said agreement, and private respondent, even if he did
not sign the promissory note, is liable by virtue of the surety agreement. The only condition that
would make him liable thereunder is that the Borrower is or may become liable as maker,
endorser, and acceptor or otherwise. There is no doubt that Daicor is liable on the promissory
note evidencing the indebtedness.

The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an
accessory obligation, it being dependent upon a principal one which, in this case is the loan
obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank
to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to
guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be
clearly seen that the surety agreement was executed to guarantee future debts which Daicor may
incur with petitioner, as is legally allowable under the Civil Code.

Moreover, as provided in Article 2053 Civil Code, A guaranty may also be given as security for
future debts, the amount of which is not yet known; there can be no claim against the guarantor
until the debt is liquidated. A conditional obligation may also be secured.

Thus, the Petition granted. Assailed decision set aside and case remanded to the court of origin
with instruction to set aside the motion to dismiss and to require Residoro Chua to answer the
complaint.

EMMANUEL C. ONGSIAKO, ET AL., plaintiffs,

vs.
 THE WORLD WIDE INSURANCE and SURETY CO., INC., ET
AL., defendants.
THE WORLD WIDE INSURANCE and SURETY CO. INC., cross-claimant-
appellant,
vs.
CATALINA DE LEON, cross-defendant-appellee

G .R. No. L-12077       June 27, 1958

Facts;

The case involved Catalina de Leon who executed in favor of Augusto V. Ongsiako a
promissory note in the amount of P1, 200.00, payable ninety (90) days after date, with interest at
1% per month. On the same date, a surety bond was executed by Catalina deLeon, as principal,
and the World Wide Insurance & Surety Co., Inc., as surety, whereby they bound to pay said
amount jointly and severally to Augusto V. Ongsiako.

As the obligation was not paid on its date of maturity either of them not with standing the
demands, Ongsiako brought this action to recover from both the principal and the surety.

Judgment having been rendered for the plaintiff, both defendants appealed to the CFI. In the
latter court, Catalina de Leon failed to answer and so she was declared in default. In due time the
surety company filed its answer setting up a counterclaim against plaintiff and a cross-claim
against its co-defendant.

Court ordered de Leon to pay plaintiff the sum of P1, 200.00, with interest at the rate of 1%per
month. Defendant surety company was likewise ordered to pay to plaintiff the same judgment
but with the proviso that "execution should not issue against defendant surety, until a return is
made by the Sheriff upon execution against defendant Catalina de Leon showing that the
judgment against her remained unsatisfied in whole or in part and provided, further, that de Leon
shall reimburse to defendant Company whatever amount the latter might pay under this judgment
together with such expenses as may be necessary to effectuate said reimbursement.

Surety Company appealed. Ongsiako, having died in the meantime, was substituted by his
special administrators Emmanuel Ongsiako and Severino Santiago co.

The surety bond in question was executed in November 10, 1951. Aside from the obligation to
pay jointly, there also appears a special condition which recites:

THE IMPERIAL INSURANCE, INC., petitioner,

vs.
 HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Rizal,
Quezon City Branch IV, ROSA V. REYES, PEDRO V. REYES and CONSOLACION V.
REYES, respondents.
G.R. No. L-28030 January 18, 1982

Facts;

The case involved the private respondents who are the plaintiffs in 2 separate cases where they
obtained a writ of preliminary attachment and, accordingly, levied upon all the properties of
the defendant, Felicisimo V. Reyes.
 For the dissolution of the said attachments, Imperial Insurance and F. Reyes posted a
defendant’s bond for dissolution of attachment in the amount of P100K. RTC favored the
creditors. Writs of execution was issued but was returned unsatisfied. Creditors filed a
motion for recovery on the surety bonds. Creditors sent a letter of demand to Imperial to pay
the amount of the counter bond, which the latter opposed. Respondent judge rendered
judgment against the counter bonds.
The contention of the Plaintiff in this case is that the creditor should exhaust all the properties of
F. Reyes before going after the surety in the counter bond. However the contention of the
Defendant is that they may can go directly after the surety without prior exhaustion of
Felicisimo’s properties.

Issue;
Is Imperial Insurance is primarily liable to pay the counter bond.

Ruling:

Yes. Imperial Insurance is primarily liable to pay the counter bond. Imperial Insurance, Inc.
Had bound itself solidarily with the principal, the deceased defendant Felicisimo V.
Reyes. In accordance with Article 2059, par. 2, excussion of the previous exhaustion of the
property of the debtor shall not take place if the guarantor has bound himself solidarily with
the debtor. Section 17, Rule 57 of the Rules of Court cannot be construed 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.

Hence the petitioner cannot escape liability on its counter bonds. 

MANILA SURETY & FIDELITY CO., INC., plaintiff-appellant,
vs.
 NOEMI ALMEDA, doing business under the name and style of ALMEDA TRADING,
GENEROSO ESQUILLO and NATIONAL MARKETING CORPORATION, defendants-
appellees
G.R. No. L-27249 July 31, 1970

Facts;

Defendants Noemi Almeda, doing business under the name and style of Almeda Trading, entered
into a contract with the National Marketing Corporation (NAMARCO) for the purchase of goods
on credit, payable in 30 days from the dates of deliveries As required by' the NAMARCO, a
bond for P5, 000.00, undertaken by the Manila Surety & Fidelity Co., Inc. was posted by the
purchaser to secure the latter's faithful compliance with the terms of the contract. The agreement
was later supplemented and a new bond for the same amount of P5, 000.00, also undertaken by
the Manila Surety & Fidelity Co., Inc. was given in favor of the NAMARCO.

In their bonds it contained the following provisions wherein if the Principal's account on any
purchase be not paid on time, the Surety, shall, upon demand, pay said account immediately to
the NAMARCO, second is that if the account of the Principal exceed the amount of P5, 000.00,
such excess up to twenty (20%) per cent of said amount shall also be deemed secured by this
Bond. The Surety expressly waives its right to demand payment and notice of non-payment and
agreed that the liability of the Surety shall be direct and immediate and not contingent upon the
exhaustion by the NAMARCO of whatever remedies it may have against the Principal and same
shall be valid and continuous until the obligation so guaranteed is paid in full. The Surety also
waives its right to be notified of any extension of the terms of payment which the NAMARCO
may give to the Principal, it being understood that were extension is given to satisfy the account,
that such extension shall not extinguish the guaranty unless the same is made against the express
wish of the Surety. The marketing firm demanded from the purchaser Almeda Trading the
settlement of its back accounts which, allegedly amounted to P16, 335.09. Furnished with copy
of the NAMARCO's demand- letter, the surety company thereafter also wrote to the said
purchaser urging it to liquidate its unsettled accounts with the NAMARCO however, previous to
this, Generoso Esquillo instituted voluntary insolvency proceeding in the Court of First Instance
of Laguna and by order of said court he was declared insolvent. Manila Surety & Fidelity Co.,
Inc., commenced in the Court of First Instance of Manila Civil Case against the spouses Noemi
Almeda and Generoso Esquillo, and the NAMARCO, to secure its release from liability under
the bonds executed in favor of NAMARCO. The action was based on the allegation that the
defendant spouses had become insolvent and that defendant NAMARCO had rescinded its
agreement with them and had already demanded payment of the outstanding accounts of the
couple. The court rendered judgment sustaining NAMARCO's contention that the insolvency of
the debtor-principal did not discharge the surety's liability under the bond.

Issue:
Is the insolvency of a debtor-principal does not release the surety from its obligation to the
creditor under the bond.

Held:

Yes. Under the Civil Code, with the debtor’s insolvency having been judicially recognized, the
surety’s resort to the courts to be released from the undertaking thus assumed is proper.
 Nevertheless, the guarantor’s action for release cans only be exercised against the principal
debtor and not against the creditor, as is apparent from the precise terms of the provision. The
juridical rule grants no cause of action against the creditor for a release of the guaranty,
before payment of the credit, for a plain reason the creditor is not compellable to release the
guaranty which is a property right against his will. For, there lease of the guarantor imports an
extinction of his obligation to the creditor; it connotes, therefore, either a remission or a novation
by subrogation, and either operation requires the creditor’s assent for its validity (See Article
1270 and Article 1301). Especially should this be the case where the principal debtor has become
insolvent, for the purpose of a guaranty is exactly to protect the creditor against such a
contingency. In the case at bar, it is true that the guaranteed claim of NAMARCO was registered
or filed in the insolvency proceeding. But appellant cannot utilize this fact in support of its
petition for release from the assumed undertaking. For one thing, it is almost a certainty that
creditor NAMARCO cannot secure full satisfaction of its credit out of the debtor's properties
brought into the insolvency proceeding. Considering that under the contract of suretyship, which
remains valid and subsisting, the entire obligation may even be demanded directly against the
surety itself, the creditor's act in resorting first to the properties of the insolvent debtor is to the
surety’s advantage.

CENTRAL SURETY and INSURANCE COMPANY, INC., petitioner,

vs.
Hon. ALBERTO Q. UBAY as Judge of the Court of First Instance of Rizal, Caloocan City,
 Branch XXXII and ONG CHI, doing business under the Firm Name. "TABLERIA DE
LUXE respondents
G.R. No. L-40334 February 28, 1985

Facts;

In this case, Ong Chi, doing business under the firm name "Tableria de Luxe sued Francisco
Reyes, Jr. for a sum of money in the City Court of Caloocan City. Ong Chi applied for a writ of
attachment and upon filing a bond in the amount of P6, 464.18, a jeep belonging to Reyes was
placed in custodia legis.
Reyes moved to dissolve the writ of attachment. He posted a counterbond in the amount of P6,
465.00; his surety was Central Surety and Insurance Co.
In the case the plaintiff recovers judgment in the action the defendant will on demand redeliver
the attached property so released to the officer of the Court to be applied to the payment of the
judgment or in default thereof that the defendant and surety will on demand pay to the plaintiff
the full value of the property released.
The writ of attachment was thereafter lifted and the jeep was returned to Reyes.
Judgment is hereby rendered in favor of the Plaintiff and against the defendant, ordering said
defendant to pay plaintiff the sum of P 6,964.18, with legal interests thereon. 

Upon finality of the judgment, a writ of execution was issued against Reyes. The jeep which was
the object of the attachment was sold by the sheriff for P4, 000.00 and the amount was credited
against the judgment in partial satisfaction thereof.
Central Surety and Insurance Co. filed a motion to cancel the counterbond. Ong Chi not only
opposed the motion but he also asked that the surety company pay the deficiency on the
judgment in the amount of P5, 730. 00 

The motion for a deficiency judgment was opposed by the surety on the ground that it had
fulfilled the condition of the counterbond. Despite the opposition, the court ordered the surety to
pay.

Issue;
Is Central Surety and Insurance Company, Inc. surety is liable for the deficiency?

Held;
No.The stipulation in the counterbond executed by the petitioner is the law between the parties in
this case and not the provisions of the Rules of Court. Under the counterbond, the petitioner
surety company bound itself solidarily with the principal obligor in the sum of P6, 465.00 under
the condition that in case the plaintiff recovers judgment in the action, the defendant will, on
demand, redeliver the attached property so released to the officer of the court to be applied to the
payment of the judgment or in default thereof that the defendant and surety will, on demand, pay
to the plaintiff the full value of the property released. The main obligation of the surety was to
redeliver the jeep so that it could be sold in case execution was issued against the principal
obligor. The amount of P6, 465.00 was merely to fix the limit of the surety’s liability in case the
jeep could not be reached. In the instant case, the jeep was made available for execution of the
judgment by the surety. The surety had done its part; the obligation of the bond had been
discharge bond should be cancelled.

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

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE

PHILIPPINES (Formerly PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE
CORPORATION.), Petitioner,
vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C.
BALDERRAMA, SIDDCOR INSURANCE CORPORATION (now MEGA PACIFIC
INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY AND INSURANCE,
INC., PARAMOUNT INSURANCE CORPORATION,* AND FORTUNE LIFE AND
GENERAL INSURANCE COMPANY, Respondents

Facts;

Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered into a
sub-contracting agreement with the Electrical Projects Company of Libya (ELPCO
for the construction and erection of a double circuit bundle phase conductor
transmission line in the country of Libya. To finance its working capital requirements,
ASPAC obtained loans from foreign banks Banque Indosuez and PCI Capital(Hong Kong)
Limited (PCI Capital) which were secured by several Letters of Guarantee issued by
Trade and Investment Development Corporation of the Philippines (TIDCORP),then
Philippine Export and Foreign Loan Guarantee Corp. Under the Letters of Guarantee,
TIDCORP irrevocably and unconditionally guaranteed full payment of ASPAC’s loan
obligations to Banque Indosuez and PCI Capital in the event of default by the
latter. As a condition precedent to the issuance by TIDCORP of the Letters of
Guarantee, ASPAC,PICO, and ASPAC’s President, Nicolas C. Balderrama (Balderrama)
had to execute several Deeds of Undertaking, binding themselves to jointly and severally
pay TIDCORP for whatever damages or liabilities it may incur under the
aforementioned letters. In the same light, ASPAC,as principal debtor, entered into surety
agreements (Surety Bonds) with Paramount, Phoenix, Mega Pacific and Fortune
(bonding companies), as sureties, also holding themselves solidarily liable to TIDCORP, as
creditor, for whatever damages or liabilities the latter may incur under the Letters of
Guarantee. ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI
Capital. Demand letters to the bonding companies we resent but to no avail. Taking
into account the moratorium request issued by the Minister of Finance of the
Republic of the Philippines, TIDCORP and its various creditor banks, such as Banque
Indosuez and PCI Capital, forged a Restructuring Agreement extending the maturity
dates of the Letters of Guarantee. The bonding companies were not privy to the
Restructuring Agreement and, hence, did not give their consent to the payment extensions.
Nevertheless, following new payment schedules, TIDCORP fully settled its obligations.
Seeking payment for the damages and liabilities it had incurred under the Letters of
Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a
collection case against: (a) ASPAC, PICO, and Balderrama on account of their obligations under
the deeds of undertaking; and (b) the bonding companies on account of their obligations
under the Surety Bonds. The RTC partially granted TIDCORP’s complaint and thereby found
ASPAC, PICO, and Balderrama jointly and severally liable to TIDCORP but
absolved the bonding companies from liability on the ground that the moratorium
request and the consequent payment extensions granted by Banque Indosuez and PCI Capital in
TIDCORP’s favor without their consent extinguished their obligations under the
Surety Bonds. On appeal, the CA upheld the ruling of RTC. Hence, this appeal filed by
TIDCORP

Obligations to the banks in the event of its (ASPAC) default. In other words, the
Letters of Guarantee secured ASPAC’s loan agreements to the banks. Under this
arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal
debtor, and the banks as creditors. Proceeding from the foregoing discussion, it is quite
clear that there are two sets of transactions that should be treated separately and distinctly
from one another following the civil law principle of relativity of contracts “which
provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof." Verily, as the Surety Bonds concern ASPAC’s debt to TIDCORP
and not TIDCORP’sdebt to the banks, the payments extensions would not deprive the
bonding companies of their right to pay their creditor (TIDCORP) and to be immediately
subrogated to the latter’s remedies against the principal debtor (ASPAC) upon the maturity
date. It must be stressed that these payment extensions did not modify the terms of the
Letters of Guarantee but only provided for a new payment scheme covering
TIDCORP’s liability to the banks. In fine, considering the in operability of Article 2079
of the Civil Code in this case, the bonding companies’ liabilities to TIDCORP under
the Surety Bonds, except those issued by Paramount and covered by its Compromise
Agreement with TIDCORP have not been extinguished.

RAMON E. REYES and CLARA R. PASTOR, Petitioners

vs.
BANCOM DEVELOPMENT CORP., Respondent
G.R. No. 190286 January 11, 2018

Facts;
In this case, the dispute originated from a Continuing Guaranty executed in favor of respondent
Bancom by Angel E. Reyes, Sr., Florencio Reyes, Jr., Rosario R. Du, Olivia Arevalo, and the
two petitioners herein, Ramon E. Reyes and Clara R.Pastor, the Reyes Group, agreed to
guarantee the full and due payment of obligations incurred by Marbella under an Underwriting
Agreement with Bancom. These obligations included certain Promissory Notes issued by
Marbella in favor of Bancom. Marbella was unable to pay back the notes at the time of their
maturity. After issuing four sets of replacement Promissory Notes and defaulting on the payment
each time, Bancom filed a Complaint for Sum of Money with a prayer for damages against
Marbella as principal debtor and the individuals comprising the Reyes Group as guarantors of the
loan. Marbella and the Reyes Group argued that they had been forced to execute the documents
against their will and that the documents should be interpreted in relation to the earlier Marbella
II contracts entered into by Bancom, that the Promissory Notes were not meant to be binding,
given that the funds released to Marbella by Bancom were not loans, but merely additional
financing. Also, they pointed out that the Certificate of Registration issued to Bancom had been
revoked by the SEC, and that no trustee or receiver had been appointed to continue the suit.
The RTC held Marbella and the Reyes Group solidarily liable to Bancom. The CA denied the
appeal and also denied the Motion for Reconsideration.

Issue;
As guarantors of the loans of Marbella, are the petitioners liable to Bancom?

Held;
Yes. Having executed a Continuing Guaranty in favor of Bancom, petitioners are solidarily liable
with Marbella for the payment of the amounts indicated on the Promissory Notes.

The obligations of Marbella and the Reyes Group under the Promissory Notes and the
Continuing Guaranty, respectively, are plain and unqualified. Under the notes, Marbella
promised to pay Bancom the amounts stated on the maturity dates indicated. The Reyes Group,
on the other hand, agreed to become liable if any of Marbella's guaranteed obligations were not
duly paid on the due date. Thus, it is provided in the Civil Code that failure of the principal
debtor to pay the debt the creditor may go against the guarantor or both of them as in this case.
Therefore the petitioners are liable.
.
CCC INSURANCE CORPORATION, Petitioner,
vs.
KAWASAKI STEEL CORPORATION, F.F. MAÑACOP CONSTRUCTION CO., INC., and
FLORANTE F. MAÑACOP, Respondent
G.R. No. 156162     June 22, 2015
Facts;
Kawasaki and F.F. Mañacop Construction Company, Inc. (FFMCCI) executed an agreement to
form a consortium, for the purpose of contracting with the Philippine Government for the
construction of a fishing port network in Pangasinan. Indeed, the Project was awarded to the
Kawasaki-FFMCCI Consortium. The Republic of the Philippines, as owner, and the Kawasaki-
FFMCCI Consortium, as contractor, entered into a Contract Agreement entitled Stage I-A
Construction of Pangasinan Fishing Port Network. In accordance with Article 10 of the
Consortium Agreement, "Consortium Leader" Kawasaki secured from the Philippine
Commercial International Bank (PCIB) a Letter of Credit in favor of DPWH. Said Letter of
Credit guaranteed the faithful performance by Kawasaki-FFMCCI Consortium of its obligation
under the Construction Contract. Notably, the Republic made an advance payment for the Project
to the Kawasaki-FFMCCI Consortium. For the release of its share in the advance payment made
by the Republic, and also pursuant to Article 10 of the Consortium Agreement, FFMCCI secured
from CCCIC the following bonds in favor of Kawasaki, a Surety Bond, to counter guarantee the
amount of advance payment FFMCCI would receive from Kawasaki and Performance Bond, to
guarantee completion by FFMCCI of its scope of work in the Project. The Project commenced.
However, several months thereafter, FFMCCI ceased performing its work in the Project after
suffering business reverses. After discussions, Kawasaki and FFMCCI then executed a new
Agreement wherein Kawasaki recognized the "Completed Portion of Work" of FFMCCI, and
agreed to take over the unfinished portion of work of FFMCCI, referred to as "Transferred
Portion of Work." Kawasaki informed CCCIC about the cessation of operations of FFMCCI, and
the failure of FFMCCI to perform its obligations in the Project and repay the advance payment
made by Kawasaki. Consequently, Kawasaki formally demanded that CCCIC, as surety, pay
Kawasaki the amounts covered by the Surety and Performance Bonds. Because CCCIC did not
act upon its demand, Kawasaki filed before the RTC a Complaint against CCCIC to collect on
the Surety Bond and the Performance Bond. CCCIC filed its Answer. After trial, the RTC agreed
with CCCIC that the Surety and Performance Bonds issued by the insurance company were mere
counter-guarantees and the cause of action of Kawasaki based on said Bonds had not yet
accrued. Since the Republic did not exercise its right to claim against the PCIB Letter of Credit,
nor compelled Kawasaki to perform the unfinished work of FFMCCI, Kawasaki could not claim
indemnification from CCCIC. Moreover, the RTC, citing Article 2079 of the Civil Code, ruled
that the obligations of CCCIC under the Surety and Performance Bonds were extinguished when
the Republic granted the Kawasaki-FFMCCI Consortium a 43-day extension to finish the
Project, absent the consent of CCCIC. On appeal by Kawasaki to the Court of Appeals, the
appellate court reversed the impugned RTC Decision.
Issue;
Is CCCIC may be lawfully ordered to pay Kawasaki under the Surety and Performance Bonds

Held;
Yes. The Surety and Performance Bonds are enforceable by and against the parties FFMCCI as
the obligor and CCCIC as the surety, as well as the third person Kawasaki as the obligee in
whose favour said bonds had been explicitly constituted; while the related Consortium
Agreement binds the parties Kawasaki and FFMCCI. Since the Republic is neither a party to the
Surety and Performance Bonds nor the Consortium Agreement, any action or omission on its
part has no effect on the liability of CCCIC under said bonds. The Surety and Performance
Bonds state that their purpose was to secure the full and faithful performance on part of said
undertaking," particularly, the repayment by FFMCCI of the down payment advanced to it by
Kawasaki (in the case of the Surety Bond) and the full and faithful performance by FFMCCI of
its portion of work in the Project. These are the only undertakings expressly guaranteed by the
bonds, the fulfillment of which by FFMCCI would release CCCIC from its obligations as surety;
or conversely, the non-performance of which would give rise to the liabilities of CCCIC as a
surety. The Surety and Performance Bonds do not contain any condition that CCCIC would be
liable only if, in addition to the default on its undertakings by FFMCCI, the Republic also made
a claim against the PCIB Letter of Credit furnished by Kawasaki, on behalf of the Kawasaki-
FFMCCI Consortium. The Court agrees with the observation of the Court of Appeals that "it is
not provided, neither in the Consortium Agreement nor in the subject bonds themselves that
before KAWASAKI may proceed against the bonds posted by FFMCCI and CCCIC, the
Philippine government as employer must first exercise its rights against the bond issued in its
favor by the consortium. The Court cannot give any additional meaning to the plain language of
the undertakings in the Surety and Performance Bonds. The extent of a surety's liability is
determined by the language of the suretyship contract or bond itself. Article 1370 of the Civil
Code provides that "[i]f the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control." It is not disputed that
FFMCCI, due to financial difficulties, was unable to repay the advance payment it received from
Kawasaki and to finish its scope of work in the Project, thus, FFMCCI defaulted on its
obligations to Kawasaki. Given the default of FFMCCI, CCCIC as surety became directly,
primarily, and absolutely liable to Kawasaki as the obligee under the Surety and Performance
Bonds. The following pronouncements of the Court in Asset Builders Corporation v. Stronghold
Insurance Company, Inc. are relevant herein: As provided in Article 2047, the surety undertakes
to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an
ancillary contract as it presupposes the existence a principal contract. Although the contract of a
surety is in essence secondary only to a valid principal obligation, the surety becomes liable for
the debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom.

RAMON GONZALES, plaintiff-appellee,
vs.
GO TIONG and LUZON SURETY CO., INC., defendants-appellants.
G.R. No. L-11776   August 30, 19

Facts;
The case involved Go Tiong who owned a rice mill and warehouse. He obtained a license of a
bonded businessman with Luzon Surety Co., with conditions he failed to fulfill. The warehouse
and palay deposited therein were insured with the Alliance Surety and Insurance
Company. Ramon Gonzales deposited palay to Go Tiong even before he got the license
who later demanded the value of his deposits. But Go Tiong failed to give him his value until
fire burned down the warehouse, with sacks in excess of that was authorized under his license.
The receipts issued to Gonzales were ordinary receipts and not the warehouse receipts as defined
by Warehouse receipts act. Plaintiff filed their claims with the Bureau of Commerce and the
proceeds of the insurance policy, BOC paid off some claims. Plaintiff’s counsel withdrew the
claims, because according to court the thing came from plaintiff's efforts to have his
claim paid, inconsistent with what Go Tiong claimed that it was denied Gonzales filed
claims both against Gonzales and Luzon Surety, and renewed his claim with BOC.
Gonzales and Go Tiong entered into a contract of amicable settlement to the effect that
upon the settlement of all accounts, but upon failure to comply, Gonzales prosecuted his court
action. Court ruled in favor of Gonzales.

Issue;

Is the compromise or amicable settlement made between Gonzales and Go Tiong discharged
Luzon Surety Co from liability, discharges the surety.

Held;

No. The compromise or amicable settlement made between Gonzales and Go Tiong do not
discharged Luzon Surety Co from liability. It is evident, however, that while there was an
attempt to settle the case amicably, the settlement was never consummated because Go Tiong
failed to settle the account of Gonzales to the latter’s satisfaction. Consequently, said non-
consummated compromise settlement does not discharge the surety.
 The compromise or settlement between the creditor or obligee and the principal, by which the
latter is discharged from liability, discharges the surety, but an unconsummated agreement to
compromise, falling short of an effective settlement, will not discharge the surety.
THE IMPERIAL INSURANCE, INC., petitioner,
vs.
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Rizal,
Quezon City Branch IV, ROSA V. REYES, PEDRO V. REYES and CONSOLACION V.
REYES, respondents.
G.R. No. L-28030 January 18, 1982

Facts;
In this case the Private respondents are the plaintiffs in 2 separate cases where they obtained a
writ of preliminary attachment and, accordingly, levied upon all the properties of the defendant,
Felicisimo V. Reyes.

For the dissolution of the attachments referred to above, the herein petitioner, The Imperial
Insurance, Inc., as surety, and Felicisimo V. Reyes, as principal, posted a defendant's bond for
dissolution of attachment' in the amount of P60,000.00 and another bond of the same nature in
the amount of P40,000.00. Both cases were tried jointly and a decision was rendered in favor of
the plaintiffs.

The records of the cases were remanded to the CFI-Quezon, for execution of judgment. This
decision was affirmed by this Court on appeal. The lower Court, presided by Judge Delos
Angeles, issued the writs of execution of judgment in said cases. The Provincial Sheriff of
Bulacan returned the writs of execution unsatisfied in whole or in part.

On September 9, 1966, Private respondents filed a motion for recovery on the surety bonds.
Thereafter, said private respondents, thru counsel, sent a letter of demand upon petitioner asking
the latter to pay them the accounts on the counter-bonds. Respondent Judge, in his order,
rendered judgment against the counter-bonds. Petitioner filed a petition for certiorari with prayer
for preliminary injunction with the Court of Appeals to restrain the enforcement of the writ of
execution.

During the pendency of the case, the defendant, Felicisimo died. He was duly substituted by his
surviving spouse, Emilia T. David, an administratrix of his intestate estate.
 

Issue;

Is the Imperial Insurance Inc. should be made liable to the bond after the execution was returned
unsatisfied?

Held;

Yes. The Imperial Insurance, Inc. had bound itself solidarily with the principal, the deceased
defendant Felicisimo V.Reyes. In accordance with Article 2059, par. 2 of the CC, the excussion
shall not take place if he the guarantor has bound himself solidarily with the debtor.

The judgment having been rendered against the defendant, Felicisimo V. Reyes, the counter-
bonds given by him and the surety, The Imperial Insurance, Inc., under Sec. 12, Rule 57 are
made liable after execution was returned unsatisfied. Under the said rule, a demand shall be
made upon the surety to pay the plaintiff the amount due on the judgment, and if no payment
is so made, the amount may be recovered from such surety after notice and hearing in the same
action. A separate action against the sureties is not necessary.

As a solidary guarantor, the petitioner, the Imperial Insurance, Inc., is liable to pay the amount
due on such counter-bonds should the creditors, private respondents herein, choose to go directly
after it.

ROMULO MACHETTI, plaintiff-appellee,
vs.
HOSPICIO DE SAN JOSE, defendant-appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS, defendant-appellant
G.R. No. L-1666     April 10, 1922
Facts;
The case involved Machetti who constructed the building under the supervision of architects
representing the Hospicio de San Jose.
One of the agreement’s conditions was for the contractor to obtain the guarantee of the Fidelity
and Surety Company. The guarantee was for the compliance of Machetti to the contract’s terms
and conditions. Subsequently it was found that the work had not been carried out in accordance
with the specifications which formed part of the contract. Hospicio therefore refused to pay the
balance of the contract price. Machetti thereupon brought an action to which Hospicio presented
a counterclaim. After the issue was joined, Machetti, on petition of his creditors declared
insolvency. An order was then entered suspending the proceeding in the case. Hospicio filed a
motion asking that the Fidelity to be made as a cross-defendant in the case in which it
was granted by the courts. Hospicio then filed a complaint against the Fidelity asking for a
judgment against the company upon its guaranty. CFI rendered judgment against the
Fidelity. The case is now before this court upon appeal by the Fidelity from said judgment.

Issue;
Is the contract entered is one of guaranty or surety?

Held;

The contract entered in this case is Surety.

The circumstances in the contract are distinguishing features of contracts of
guaranty. The contract is the guarantor’s separate undertaking in which the principal does not
join. It rests on a separate consideration moving from the principal and that although it is written
in continuation of the contract for the construction of the building, it is collateral undertaking
separate and distinct from the latter.

While a surety undertakes to pay if the principal does not pay, the guarantor only binds himself
to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer of the
solvency of the debtor. The Fidelity having bound itself to pay only in the event its principal,
Machetti, cannot pay it follows that it cannot be compelled to pay until it is shown that Machetti
is unable to pay. Such inability to pay is not determined until the final liquidation of his
estate and is not sufficiently established by the mere fact that he has been declared insolvent in
insolvency proceeding.