Art. 2058.
The guarantor cannot be compelled to pay the
Aglibot v. Santia GR 185945; Dec. 5, 2012
Tickler: No showing that Agli was a guarantor
Private respondent-complainant Engr. Ingersol L. Santia loaned
the amount of P2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager, petitioner Fideliza J.
Aglibot. The loan was evidenced by a Promissory Note dated
July 1, 2003, issued by Aglibot on behalf of PLCC, payable in
one year subject to interest at 24% per annum. Allegedly as a
guaranty or security for the payment of the note, Aglibot also
issued and delivered to Santia eleven (11) post-dated personal
checks drawn from her own demand account maintained at
Metrobank. Aglibot is a major stockholder of PLCC, with
headquarters at 27 Casimiro Townhouse, Casimiro Avenue,
Zapote, Las Piñas, Metro Manila, where most of the
stockholders also reside.
Upon presentment of the aforesaid 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,
11 Informations for BP 22, corresponding to the number of
dishonored checks, were filed against Aglibot before the
MTCC.
Aglibot, in her counter-affidavit, admitted that she did obtain a
loan from Santia, but claimed that she did so in behalf of PLCC.
Whether or not Aglibot was a mere guarantor of PLCC when
she issued the 11 post-dated checks to Santia; and hence may
invoke the benefit of excussion. (NO)
NO. Petitioner Aglibot reasserts that as a guarantor she must
be accorded the benefit of excussion—prior exhaustion of the
property of the debtor—as provided under Art. 2058 of the
NCC, which provides:
creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against the
debtor.
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 Art. 2062 of the NCC, which provides that the
action brought by the creditor must be filed against the principal
debtor alone, except in some instances mentioned in Art. 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 Art. 1403(2), embodying the Statute of Frauds,
which provides:
Art. 1403. The following contracts are unenforceable, unless
they are ratified
XXXX
(2) Those that do not comply with the Statute of Frauds as set
forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxxx
b) A special promise to answer for the debt, default, or
miscarriage of another.
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 Art. 1358 of the NCC, 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 SOF simply provides the
method by which the contracts enumerated in Art. 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, Art. 2055 of the NCC 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 guaranty is unenforceable
unless made in writing or evidenced by some writing.
For as pointed out by Santia, Aglibot has not shown any proof,
such as a contract, a secretary’s certificate or a board
resolution, nor even a note or memorandum thereof, whereby it
was agreed that she would issue her personal checks in behalf
of the company to guarantee the payment of its debt to Santia.
Certainly, there is nothing in the Promissory Note signed by
Aglibot herself remotely containing an agreement between her
and PLCC resembling her guaranteeing its debt to Santia. And
neither is there a showing that PLCC thereafter ratified her act
of “guaranteeing” its indebtedness by issuing her own checks
to Santia.
Tupaz v. CA GR 145578; Nov. 18, 2005
Tickler: 2 letters of credit done but one by Jose signed
in personal capacity.
Jose and Petronila Tupaz were VP for Operations and
VP/Treasurer, respectively, of El Oro Corporation. El Oro
Corporation had a contract with the PH Army to supply the
latter with “survival bolos”
To finance the purchases of the raw materials for the bolos,
the petitioners (on behalf of El Oro) applied with BPI for 2
commercial letters of credit. The letters of credit were in
favor of El Oro’s suppliers, Tanchaoco Incorporated and
Maresco Corporation. >>> BPI granted the application and
issued the letters of credit for P564,871.05 and P294,000.00
to Tanchaoco Incorporated and Maresco Corporation
respectively.
Simultaneous with the issuance of the letters of credit, the
petitioners signed trust receipts in favor of BPI
:a)Jose signed in his personal capacity a trust receipt
corresponding for the first letter of credit, binding himself to
sell the goods and to remit the proceeds to BPI, if sold, or to
return the goods, if not sold, on or before 29 December
1981.
b)Both petitioners signed in their capacities as officers of El
Oro a trust receipt covering the second letter of credit to
remit proceeds/return goods by 8 December 1981.
Tanchauco Incorporated and Maresco Corp. complied with
their obligation and delivered the raw materials to El Oro.
BPI then paid the 2 corporations P564, 871.05 and
P294,000 accordingly.
However, petitioners did not comply with their undertakings
under the trust receipts.
>>> BPI made several demands for payment but El Oro
made partial payments only. Final demand letters were then
sent but El Oro replied that it could not fully pay its debt
because the AFP had delayed in their payment for the
bolos.~
BPI charged petitioners with estafa under Sec. 13 of the
Trust Receipts Law.
RTC: petitioners acquitted based on reasonable doubt.
However, they are solidarily liable with El Oro for the
balance of the principal debt under the trust receipts.
CA: affirmed RTC. The trust receipts clearly showed the
terms that the petitioners signed the same as Surety for the
corporation and that they bound themselves directly and
immediately liable in case of default without need of demand
Whether petitioner Jose Tupaz is liable as a guarantor only
to El Oro Corporation as he signed his trust receipts in his
personal capacity.
Yes. For the trust receipt dated 30 September 1981 (letter of
credit in favor of Tanchoco inc), the dorsal portion of which
petitioner Jose Tupaz signed alone, we find that he did so in
his personal capacity.
Petitioner Jose Tupaz did not indicate that he was signing as
El Oro Corporation's Vice-President for Operations. Hence,
petitioner Jose Tupaz bound himself personally liable for El
Oro Corporation's debts. Not being a party to the trust
receipt dated 30 September 1981, petitioner Petronila Tupaz
is not liable under such trust receipt.
In Prudential Bank v. Intermediate Appellate Court, the Court
interpreted a substantially identical clause in a trust receipt
signed by a corporate officer who bound himself personally
liable for the corporation's obligation. The petitioner in that
case contended that the stipulation "we jointly and severally
agree and undertake'' rendered the corporate officer
solidarily liable with the corporation.
We dismissed this claim and held the corporate officer liable
as guarantor only. The Court further ruled that had there
been more than one signatories to the trust receipt, the
solidarily liability would exist between the guarantors.
We held: The clause "we jointly and severally agree and
undertake" refers to the undertaking of the two (2) parties
who are to sign it or to the liability existing between
themselves. It does not refer to the undertaking between
either one or both of them on the one hand and the
petitioner on the other with respect to the liability described
under the trust receipt.
Respondent bank's suit against petitioner Jose Tupaz
stands despite the Court's finding that he is liable as
guarantor only.
First, excussion is not a prerequisite to secure judgment
against a guarantor.
The guarantor can still demand deferment of the execution
of the judgment against him until after the assets of the
principal debtor shall have been exhausted.
Second, the benefit of excussion may be waived. Under the
trust receipt dated 30 September 1981, petitioner Jose
Tupaz waived excussion when he agreed that his "liability in
[the] guaranty shall be DIRECT AND IMMEDIATE, without
any need whatsoever on xxx [the) part [of respondent bank]
to take any steps or exhaust any legal remedies xxx."
The clear import of this stipulation is that petitioner Jose
Tupaz waived the benefit of excussion under his guarantee.
As guarantor, petitioner Jose Tupaz is liable for El Oro
Corporation's principal debt and other accessory liabilities
(as stipulated in the trust receipt and as provided by law)
under the trust receipt dated 30 September 1981.
That trust receipt (and the trust receipt dated 9 October
1981) provided for payment of attorney's fees equivalent to
10% of the total amount due and an "interest at the rate of
7% per annum, or at such other rate as the bank may fix,
from the date due until paid xxx." In the applications for the
letters of credit, the parties stipulated that drafts drawn
under the letters of credit are subject to interest at the rate of
18% per annum.
Kuenzle v. Tan Sunco 16 Phil 670
Kuenzle & Streiff instituted an action against Chung Chu
Sing for the recovery of indebtedness. Before Kuenzle &
Streiff could secure judgment, Tan Sunco brought an action
against Chung Chu Sing for the payment of another
obligation from Ed. and A. Keller and Co. for which Tan
Sunco acted as guarantor.
The total debt was composed of four invoices of varying
amounts — P395.50, P450, P565, and P320.20. Chung Chu
Sing confessed judgment in favor of Tan Sunco.
Immediately after obtaining judgment, Tan Sunco caused to
be levied upon under excussion, all the properties of Chung
Chu Sing. Kuenzle & Streiff commenced an action to set
aside the judgment, claiming it was obtained by the fraud
and collusion, and that Tan Sunco had not paid the debt for
which as guarantor he obtained the judgment.
WON a guarantor who sues his principal debtor before
paying the debt himself entitled to recover judgment for the
debt?
No, while the surety has the right to obtain judgment against
his principal debtor, he will not be permitted to realize on
said judgment to the point of actual collection until he
has satisfied, or caused to be satisfied, the obligation the
payment of the obligation of which he assures.
Sunco shall not execute said judgments against the
property of the judgment debtor until he has paid the debt
for which he stands surety. A guarantor who obtains
judgment against his principal cannot execute said
judgment against the latter’s property until he has paid the
debt for which he stands as guarantor.
Manila Surety v. Almeda GR L-27249; July 31, 1970
In 1961, Noemi Almeda, married to Generoso Esquillo, and
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
thereof.
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 on 17 October 1962 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 1965, The marketing firm demanded from the purchaser
Almeda Trading the settlement of its back accounts which,
as of 15 May 1965, allegedly amounted to P16,335.09.
Furnished with copy of the NAMARCO's demand-letter,
Manila Surety thereafter also wrote to the said purchaser
urging it to liquidate its unsettled accounts with the
NAMARCO. It appears, however, that previous to this, or on
26 March 1965, Generoso Esquillo instituted voluntary
insolvency proceeding in the Court of First Instance of
Laguna, and by order of said court of 6 April 1965, he was
declared insolvent, with listed credits amounting to
P111,873.00 and properties valued at P39,000.00. In the
meeting of the named creditors of the insolvent, held on 14
May 1965 for the purpose of electing the assignee of his
properties, the NAMARCO was represented and its
contingent claim duly registered.
The Manila surety commenced a case against the said
spouses, and 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 NAMARCO had
rescinded its agreement with Manila Surety and had already
demanded payment of the outstanding accounts of the
spouses.
NAMARCO denied the claims of Manila Surety. The trial
court rendered judgment in favor of NAMARCO holding
NAMARCO’S contention that the insolvency of the
debtor-principal did not discharge Manila Surety’s liability
under the bond. Manila Surety’s complaint was dismissed
and it was ordered to pay off the indebtedness of the spouse
to NAMARCO to the extent of Manila Surety’s undertaking.
Manila Surety appealed the decision of the trial court. It
argued that its action to secure its discharge from the
suretyship was based on Article 2071 of the Civil Code
which provides the following:
ARTICLE 2071. The guarantor, even before having paid,
may proceed against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from
the guaranty within a specified period, and this period has
expired;
(4) When the debt has become demandable, by reason of
the expiration of the period for payment;
(5) After the lapse of ten years, when the principal obligation
has no fixed period for its maturity, unless it be of such
nature that it cannot be extinguished except within a period
longer than ten years;
(6) If there are reasonable grounds to fear that the principal
debtor intends to abscond;
(7) If the principal debtor is in imminent danger of becoming
insolvent.
In all these cases, the action of the guarantor is to obtain
release from the guaranty, or to demand a security that shall
protect him from any proceedings by the creditor and from
the danger of insolvency of the debtor.
On the other hand, the lower court's ruling, is anchored on
the explicit provision of the Insolvency law (Act 1956, as
amended): "SEC. 68. xxx xxx xxx No discharge (of the
insolvent from his obligations) shall release, discharge or
affect any person liable for the same debt, for or with the
debtor, either as partner, joint contractor, indorser, surety, or
otherwise."
Whether or not Manila Surety can avail itself of the relief
specifically afforded in Article 2071 of the Civil Code and be
released from its liability under the bonds, notwithstanding a
prior declaration of the insolvency of the debtor-principal
spouses in an insolvency proceeding.
No, Manila Surety cannot validly avail itself of the relief in
Article 2071 and be released from its liability.
Under the Civil Code, with the spouse’s insolvency having
been judicially recognized, Manila Surety’s resort to the
courts to be released from the undertaking thus assumed
would have been appropriate.
Under Article 2071, the guarantor's action for release can
only be exercised against the principal debtor and not
against the creditor, as is apparent from the precise terms of
the legal provision. "The guarantor" (says Article 2071 of the
Civil Code of the Philippines) "even before having paid, may
proceed against the principal debtor, to obtain a release
from the guaranty".
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, the release 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 (Article 1270 and
Article 1301, respectively). 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.
Article 2071 of the Civil Code can be availed of where the
debtor cannot make full payment, the release of the
guarantor can only be obtained with the assent of the
creditor, by persuading the latter to accept an equally safe
security, either another suitable guaranty or else a pledge or
mortgage. Absent the creditor's consent, the principal debtor
may only proceed to protect the demanding guarantor by a
counterbond or counter guaranty, as is authorized by the
codal precept (Article 2071).
In the case at bar, there is no question that under the bonds
posted in favor of NAMARCO, Manila Surety assumed to
make immediate payment to NAMARCO of any due and
unsettled accounts of the spouses, even without demand
and notice of said spouses' non-payment, Manila Surety, in
fact, agreeing that its liability to NAMARCO shall be direct,
without benefit of exhaustion of the spouses' properties, and
to remain valid and continuous until the guaranteed
obligation is fully satisfied. In short, Manila Surety secured to
NAMARCO not just the payment by the spouses of their
accounts, but the payment itself of such accounts. Clearly, a
contract of suretyship was thus created, Manila Surety
becoming the insurer, not merely of the spouses' solvency or
ability to pay, but of the debt itself.
It is true that the guaranteed claim of NAMARCO was
registered or filed in the insolvency proceeding. But Manila
Surety cannot utilize this fact in support of its petition for
release from the guaranty. For one thing, it is almost a
certainty that NAMARCO cannot secure full satisfaction of
its credit out of the spouses’ 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 Manila
Surety itself, NAMARCO's act in resorting first to the
properties of the insolvent spouses is to Manila Surety's
advantage. At least, Manila Surety would be answerable
only for whatever amount may remain not covered or
unsatisfied by the disposition of the insolvent spouses’
properties, with the right to go against spouses after it has
made the necessary payment to NAMARCO. For another,
the fact that the spouses may be discharged from all his
outstanding obligations in the insolvency case would not
benefit Manila Surety, as to relieve it of its liability under the
surety agreement. That is so provided in Section 68 of the
Insolvency Act, which shall be controlling in the case.
Even supposing that the present action is not blocked by the
insolvency proceedings because it does not aim at reducing
the insolvent's assets, but only at having the suretyship
substituted by other equivalent security, still it is difficult to
see how the spouses, with their business, property and
assets impounded by the insolvency court, can obtain other
securities with which to replace the guaranty given by Manila
Surety. The action at bar would seem to be destined to end
in futility.
II. SURETY CASES
Diño and Uy v. CA Gr 89775; Nov. 26, 1992
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS),
through its representative Uy Tiam, applied for and obtained
credit accommodations (letter of credit and trust receipt
accommodations) from the METROBANK in the sum of
P700,000.00.
To secure the aforementioned credit accommodations,
Norberto Uy and Jacinto Uy Diño executed separate
Continuing Suretyships dated 25 February 1977, in favor of
the latter. Having paid the obligation under the above letter
of credit in 1977, UTEFS, through Uy Tiam, obtained
another credit accommodation from METROBANK in 1978,
which credit accommodation was fully settled before an
irrevocable letter of credit was applied for and obtained by
the abovementioned business entity in 1979. They did not
sign the said document. Also, they were not asked to
execute any suretyship to guarantee its payment. Neither
did METROBANK nor UTEFS inform them that the 1979
Letter of Credit has been opened and that the Continuing
Suretyships separately executed in February, 1977 shall
guarantee its payment.
However, UTEFS did not acquiesce to the obligatory
stipulations in the trust receipt. METROBANK sent letters to
the said principal obligor and its sureties demanding
payment of the amount due. Diño maintained that he cannot
be held liable for the 1979 credit accommodation because it
is a new obligation contracted without his participation.
Besides, the 1977 credit accommodation which he
guaranteed has been fully paid. METROBANK filed a
complaint for collection of a sum of money. The trial court
ruled in favor of Diño and Uy. On appeal, the CA reversed
the trial court’s decision.
Whether or not the petitioners may be held liable as sureties
for the obligation contracted by Uy Tiam under and by virtue
of the Continuing Suretyship Agreements signed on 26
February 1977.
Yes. Under the Civil Code, a guaranty may be given to
secure even future debts, the amount of which may not be
known at the time the guaranty is executed. This is the
basis for contracts denominated as a continuing guaranty or
suretyship. A continuing guaranty is one which is not limited
to a single transaction, but which contemplates a future
course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It is
prospective in its operation and is generally intended to
provide security with respect to future transactions within
certain limits, and contemplates a succession of liabilities,
for which, as they accrue, the guarantor becomes liable.
Otherwise stated, a continuing guaranty is one which covers
all transactions, including those arising in the future, which
are within the description or contemplation of the contract of
guaranty, until the expiration or termination thereof.
A guaranty shall be construed as continuing when by the
terms thereof it is evident that the object is to give a standing
credit to the principal debtor to be used from time to time
either indefinitely or until a certain period, especially if the
right to recall the guaranty is expressly reserved. Hence,
where the contract of guaranty states that the same is to
secure advances to be made "from time to time" the
guaranty will be construed to be a continuing one.
In other jurisdictions, it has been held that the use of
particular words and expressions such as payment of "any
debt," "any indebtedness," "any deficiency," or "any sum," or
the guaranty of "any transaction" or money to be furnished
the principal debtor "at any time," or "on such time" that the
principal debtor may require, have been construed to
indicate a continuing guaranty. The suretyship agreements
in the case at bar are continuing in nature and they did not
deny the fact that they had not revoked the suretyship
agreements.
Security Bank v. Cuenca GR 138544; Oct. 3, 2000
Defendant-appellant Sta. Ines Melale (‘Sta. Ines’/SIMC) is a
corporation engaged in logging operations. It was a holder of
a Timber License Agreement issued by the DENR
On 10 November 1980, Security Bank and Trust Co. granted
appellant Sta. Ines a credit line in the amount of
(P8,000,000.00) effective til November 30, 1981 to assist the
latter in meeting the additional capitalization requirements of
its logging operations.
To secure payment, it executed a chattel mortgage over
some of its machineries and equipments. And as an
additional security, its President and Chairman of the Board
of Directors Rodolfo Cuenca, executed an Indemnity
agreement in favor of Security Bank whereby he bound
himself jointly and severally with Sta. Ines.
Specific stipulations:
The bank reserves the right to amend any of the
aforementioned terms and conditions upon written notice to
the Borrower.
As additional security for the payment of the loan, Rodolfo
M. Cuenca executed an Indemnity Agreement dated 17
December 1980 solidary binding himself:
Rodolfo M. Cuenca x x x hereby binds himself x x x jointly
and severally with the client (SIMC) in favor of the bank for
the payment, upon demand and without the benefit of
excussion of whatever amount x x x the client may be
indebted to the bank x x x by virtue of aforesaid credit
accommodation(s) including the substitutions, renewals,
extensions, increases, amendments, conversions and
revivals of the aforesaid credit accommodation(s) x x x .’
1985: Cuenca resigned as President and Chairman of the
Board of Directors of defendant-appellant Sta. Ines.
Subsequently, the shareholdings of Cuenca in Sta. Ines
were sold at a public auction to Adolfo Angala. Before and
after this, Sta Ines availed of its credit line.
Sta Ines encountered difficulty in making the amortization
payments on its loans and requested SBTC for a complete
restructuring of its indebtedness. SBTC accommodated
SIMC’s request and signified its approval in a letter dated 18
February 1988 wherein SBTC and Sta. Ines, without notice
to or the prior consent of ] Cuenca, agreed to restructure the
past due obligations of defendant-appellant Sta. Ines. To
formalize their agreement to restructure the loan obligations
of Sta. Ines, Security Bank and Sta. Ines executed a Loan
Agreement dated 31 October 1989 ‘
Sta Ines made payments up to (P1,757,000.00) The
defaulted in the payment of its restructured loan obligations
to SBTC despite demands made upon appellant SIMC and
CUENCA,
SBTC filed a complaint for collection of sum of resulting after
trial on the merits in a decision by the court a quo, from
which Cuenca appealed
CA: Released Cuenca from liability because 1989 Loan
Agreement novated the 1980 credit accommodation which
extinguished the Indemnity Agreement for which Cuenca
was liable solidarily. No notice/consent to restructure. Since
with expiration date, liable only up to that date and up to that
amount (8M). Amounted to extension.of time with no notice
to surety therefore released from liability.
Whether Cuenca waived his right to be notified of and to
give consent to any substitution, renewal, extension,
increase, amendment, conversion or revival of the said
credit accommodation. NO
In the Indemnity Agreement, while respondent held himself
liable for the credit accommodation or any modification
thereof, such clause should be understood in the context of
the P8 million limit and the November 30, 1981 term. It did
not give the bank or Sta. Ines any license to modify the
nature and scope of the original credit accommodation,
without informing or getting the consent of respondent who
was solidarily liable.
A contract of surety "cannot extend to more than what is
stipulated. It is strictly construed against the creditor, every
doubt being resolved against enlarging the liability of the
surety."31 Likewise, the Court has ruled that "it is a
well-settled legal principle that if there is any doubt on the
terms and conditions of the surety agreement, the doubt
should be resolved in favor of the surety x x x. Ambiguous
contracts are construed against the party who caused the
ambiguity.32In the absence of an unequivocal provision that
respondent waived his right to be notified of or to give
consent to any alteration of the credit accommodation, we
cannot sustain petitioner’s view that there was such a
waiver.
It should also be observed that the Credit Approval
Memorandum clearly shows that the bank did not have
absolute authority to unilaterally change the terms of the
loan accommodation. At most, the alleged basis of
respondent’s waiver is vague and uncertain. It confers no
clear authorization on the bank or Sta. Ines to modify or
extend the original obligation without the consent of the
surety or notice thereto.
Palmares v. CA GR 126490; Mar. 31, 1998
Palmares signed as co-maker in a loan extended by M.B.
Lending Corp. A promissory note was executed whereby
she acknowledged her joint and several (solidary) liability
with the principal, that the creditor may demand payment in
case of default, and that she fully understood the contents
thereof. Palmares, when informed that the debtors
defaulted, requested that creditor try to collect from her
principal first and offered to settle the obligation in case the
creditor fails to collect.
ATTENTION TO CO-MAKERS : PLEASE READ WELL
I, Mrs . Estrella Palmares , as the Co-maker of the
above-quoted
loan, have fully understood the contents of this Promissory
Note for
Short-Term Loan:
That as Co-maker, I am fully aware that I shall be jointly and
severally or solidarily liable with the above principal maker of
this note;
That in fact, I hereby agree that M.B. LENDING
CORPORATION
may demand payment of the above loan from me in case
the principal
maker, Mrs . Merlyn Azarraga defaults in the payment of the
note
subject to the same conditions above-contained.
On the basis of petitioner's solidary liability under the
promissory note, M.B. Lending filed a complaint against
Palmares as the lone party-defendant, to the exclusion of
the principal debtors, allegedly by reason of the insolvency
of the latter. She offered a parcel of land to settle the
obligation but the creditor refused.
RTC dismissed the complaint on the grounds that there is
discharge of a prior party by excluding the principal debtor;
that there is valid tender of payment made by Palmeras and
that as co-maker, she is only secondary liable on the
instrument.
The Court of Appeals, reversing the trial court, ruled that
petitioner is solidarily liable with the principal debtors and
may be sued for the entire obligation.
Whether Palmares is only a guarantor with a subsidiary
liability and no a co-maker with primary liability.
SURETY. Palmares expressly binds herself to be jointly and
severally or solidarily liable with the principal maker of the
note, her liability is that of a surety and is bound equally and
absolutely with the principal.
Although the second paragraph says that she is liable as a
surety, the third paragraph defines the nature of her liability
as that of a guarantor. The second paragraph should not be
taken in isolation, but should be read in relation to the third
paragraph.
Having entered into a contract with full knowledge of its
terms and conditions, petitioner is estopped to assert that
she did so in ignorance of their legal effect.
The obligee is entitled to demand fulfillment of the obligation
or performance stipulated, hence, an offer to pay obligation
in an amount less or different from that due does not
discharge liability.
E. Zobel, Inc. v. CA GR 113931; May 6, 1998

IFC v. Imperial Textile GR 160324; Nov. 15, 2005
On December 17, 1974, International Finance Corporation
(IFC) and Philippine Polyamide Industrial Corporation
(PPIC) entered into a loan agreement. IFC extended to
PPIC a loan of US$7,000,000.00, payable in sixteen (16)
semi-annual installments beginning June 1, 1977 to
December 1, 1984, with 10% interest rate per annum on the
principal amount of the loan advanced and outstanding from
time to time. The interest shall be paid in US dollars
semi-annually on June 1 and December 1 in each year and
interest for any period less than a year shall accrue and be
pro-rated on the basis of a 360-day year of twelve 30-day
months.
On December 17, 1974, a 'Guarantee Agreement' was
executed with x x x Imperial Textile Mills, Inc. (ITM), Grand
Textile Manufacturing Corporation (Grandtex) and IFC as
parties thereto. ITM and Grandtex agreed to guarantee
PPIC's obligations under the loan agreement
PPIC paid the installments due on June 1, 1977, December
1, 1977 and June 1, 1978. The other on due payments were
rescheduled as requested by PPIC, but PPIC still defaulted.
On April 1, 1985, IFC served a written notice of default to
PPIC demanding the payment of the outstanding principal
loan and all its accrued interests. PPIC still failed to pay.
Because of such failure to pay, IFC, together with DBP,
applied for the extrajudicial foreclosure of mortgages on the
real estate, buildings, machinery, equipment plant and all
improvements owned by PPIC. IFC and DBP were the only
bidders during the auction sale. IFC's bid was was
equivalent to US$5,250,000. The outstanding loan, however,
amounted to US$8,083,967.00 thus leaving a balance of
US$2,833,967.00. PPIC failed to pay the remaining balance.
IFC demanded ITM and Grandtex, as guarantors of PPIC, to
pay the outstanding balance. However, the outstanding
balance remained unpaid.
On May 20, 1988, IFC filed a complaint with the RTC of
Manila against PPIC and ITM for the payment of the
outstanding balance plus interests and attorney's fees.
The trial court held PPIC liable for the payment of the
outstanding loan plus interests. It also ordered PPIC to pay
IFC its claimed attorney's fees. However, the trial court
relieved ITM of its obligation as guarantor. Hence, the trial
court dismissed IFC's complaint against ITM.
Whether or not Imperial Textile Mills, Inc. is a surety, and
thus solidarily liable with PPIC for the payment of the loan.
Imperial Textile Mills, Inc (ITM) is a surety, and thus
solidarily liable with Philippine Polyamide Industrial
Corporation (PPIC) for the payment of the loan.
The contract stated that ITM was a primary obligor, not a
mere surety. Those stipulations meant only one thing: that at
bottom, and to all legal intents and purposes, it was a surety.
the phrase in the Agreement - - "as primary obligor and not
merely as surety" - - stresses that ITM is being placed on the
same level as PPIC.
The use of the word "guarantee" does not ipso facto make
the contract one of guaranty.24 This Court has recognized
that the word is frequently employed in business
transactions to describe the intention to be bound by a
primary or an independent obligation.
Although a surety contract is secondary to the principal
obligation, the liability of the surety is direct, primary and
absolute; or equivalent to that of a regular party to the
undertaking.33 A surety becomes liable to the debt and duty
of the principal obligor even without possessing a direct or
personal interest in the obligations constituted by the latter.3
As stated in Article 2047 provides that a suretyship is
created By guaranty, a person, called the guarantor binds
himself to the creditor to fulfill the obligation of the principal
in case the latter should fail to do so.
Also Relevant to this case is Article 1216, which states that:
"The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand
made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so
long as the debt has not been fully collected." Pursuant to
this provision, petitioner (as creditor) was justified in taking
action directly against respondent.
Phil. Blooming v. CA GR 142381; Oct. 15, 2003
Ching, the Senior Vice President of PBM, in his personal
capacity and not as a corporate officer, signed a Deed of
Suretyship dated 21 July 1977. He bound himself as a
primary obligor and not as a mere guarantor and warrant to
the TRADERS ROYAL BANK, the due and punctual
payment of what is owed to it. Their liabilities under the
Deed of Suretyship was also solidary, direct and immediate
and not contingent upon the pursuit by the CREDITOR and
they agreed to be and remain bound upon the suretyship,
irrespective of the existence, value or condition of any
collateral, and notwithstanding also that all obligations of the
DEBTOR(S) to you outstanding and unpaid at any time may
exceed the aggregate principal sum herein above stated.
On 24 March and 6 August 1980, TRB granted PBM letters
of credit on application of Ching in his capacity as Senior
Vice President of PBM. Ching later accomplished and
delivered to TRB trust receipts, which acknowledged receipt
in trust for TRB of the merchandise subject of the letters of
credit. Under the trust receipts, PBM had the right to sell the
merchandise for cash with the obligation to turn over the
entire proceeds of the sale to TRB as payment of PBM’s
indebtedness.
On 27 April 1981, PBM obtained a ₱3,500,000 trust loan
from TRB. Ching signed as co-maker in the notarized
Promissory Note evidencing this trust loan. PBM defaulted in
its payment. On 1 April 1982, PBM and Ching filed a petition
for suspension of payments with the Securities and
Exchange Commission ("SEC"), seeking to suspend
payment of PBM’s obligations and prayed that the SEC
allow PBM to continue its normal business operations free
from the interference of its creditors including TRB.
On 9 July 1982, the SEC placed all of PBM’s assets,
liabilities, and obligations under the rehabilitation
receivership of Kalaw, Escaler and Associates. On 13 May
1983, ten months after the SEC placed PBM under
rehabilitation receivership, TRB filed with the trial court a
complaint for collection against PBM and Ching. On 25 May
1983, TRB moved to withdraw the complaint against PBM
on the ground that the SEC had already placed PBM under
receivership. The trial court thus dismissed the complaint
against PBM.
On 23 June 1983, PBM and Ching also moved to dismiss
the complaint on the ground that the trial court had no
jurisdiction over the subject matter of the case. TRB filed an
opposition to the Motion to Dismiss. TRB argued that (1)
Ching is being sued in his personal capacity as a surety for
PBM; (2) the SEC decision declaring PBM in suspension of
payments is not binding on TRB; and (3) Presidential
Decree No. 1758 ("PD No. 1758"), which Ching relied on to
support his assertion that all claims against PBM are
suspended, does not apply to Ching as the decree regulates
corporate activities only. Ching denied liability as surety and
accommodation co-maker of PBM. He further claimed that
even as a surety, he has the right to the defenses personal
to PBM. Thus, his liability as surety would attach only if, after
the implementation of payments scheduled under the
rehabilitation plan, there would remain a balance of PBM’s
debt to TRB.
WON Ching is liable as a surety after the execution of the
Deed of Suretyship.
YES. The SC held that Ching can be sued separately to
enforce his liability as surety for PBM, as expressly provided
by Article 1216 of the New Civil Code. Ching is liable for
credit obligations contracted by PBM against TRB before
and after the execution of the 21 July 1977 Deed of
Suretyship. This is evident from the tenor of the deed itself,
referring to amounts PBM "may now be indebted or may
hereafter become indebted" to TRB.
The law expressly allows a suretyship for “future debts.”
Article 2053 of the Civil Code provides: A guaranty may also
be given as security for future debts, the amount of which is
not yet known; there can be no claim against the guarantor
until the debt is liquidated. A conditional obligation may also
be secured.
The SC ruled in in Diño v. Court of Appeals that: Under the
Civil Code, a guaranty may be given to secure even future
debts, the amount of which may not be known at the time
the guaranty is executed. This is the basis for contracts
denominated as continuing guaranty or suretyship. A
continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of
dealing, covering a series of transactions, generally for an
indefinite time or until revoked. It is prospective in its
operation and is generally intended to provide security with
respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they
accrue, the guarantor becomes liable. Otherwise stated, a
continuing guaranty is one which covers all transactions,
including those arising in the future, which are within the
description or contemplation of the contract of guaranty, until
the expiration or termination thereof. A guaranty shall be
construed as continuing when by the terms thereof it is
evident that the object is to give a standing credit to the
principal debtor to be used from time to time either
indefinitely or until a certain period; especially if the right to
recall the guaranty is expressly reserved. Hence, where the
contract states that the guaranty is to secure advances to be
made "from time to time," it will be construed to be a
continuing one.
In other jurisdictions, it has been held that the use of
particular words and expressions such as payment of "any
debt," "any indebtedness," or "any sum," or the guaranty of
"any transaction," or money to be furnished the principal
debtor "at any time," or "on such time" that the principal
debtor may require, have been construed to indicate a
continuing guaranty.
In granting the loan to PBM, TRB required Ching’s surety
precisely to insure full recovery of the loan in case PBM
becomes insolvent or fails to pay in full. This was the very
purpose of the surety. Thus, Ching cannot use PBM’s failure
to pay in full as justification for his own reduced liability to
TRB. As surety, Ching agreed to pay in full PBM’s loan in
case PBM fails to pay in full for any reason, including its
insolvency.

Ong v. PCIB GR 160466; Jan. 17, 2005
Baliwag Mahogany Corporation (BMC) is a domestic
corporation engaged in the manufacture and export of
finished wood products. The Petitioners, Spouses Alfredo
and Susana Ong (Spouses Ong) are its President and
Treasurer, respectively.
In 1991, BMC needed additional capital for its business and
applied for various loans, amounting to a total of Php 5M,
with the respondent bank. Petitioners acted as sureties for
these loans and issued three (3) promissory notes.
It was stipulated that PCIB may consider debtor BMC in
default and demand payment of the remaining balance of
the loan upon the levy, attachment or garnishment of any of
its properties; or upon BMC’s insolvency; or if it is declared
to be in a state of suspension of payment.
PCIB granted BMC’s loan application, BMC thereafter filed a
petition for rehabilitation and suspension of payment with the
SEC atter its properties were attached by the creditors. The
PCIB considered BMC in default of its obligations and
sought to collect payment from the Spouses as sureties.
On April 20, 1992, The Respondent, Philippine Commercial
International Bank (now EPCIB) filed a case for collection of
sums of money against the Spouses Ong.
On October 13, 1992, a Memorandum of Agreement (MOA)
was executed by BMC, the petitioners as President and
Treasurer of BMC, and the consortium of creditor banks of
BMC, in which PCIB is included. The MOA took effect upon
its approval by the SEC on November 27, 1992.
The Petitioners moved to dismiss the complaint and argued
that as the SEC declared the principal debtor BMC in a state
of suspension of payments and, under MOA, the creditor
banks, including respondent bank, agreed to temporarily
suspend any pending civil action against the debtor BMC,
the benefits of the MOA should be extended to the Spouses
who acted as BMC’s sureties in their contracts of loan with
the Respondent Bank.
Whether or not the suit against the Petitioners-Spouses
should be dismissed
No. The collection suit filed by the Respondent bank against
the Spouses as sureties can prosper.
Articles 2063 and 2081 of the Civil Code is misplaced as
these provisions refer to contracts of guaranty. They do not
apply to suretyship contracts. Petitioners-spouses are not
guarantors but sureties of BMC's debts.
There are differences in the rights and liabilities of a
guarantor and a surety. A guarantor insures the solvency of
the debtor while a surety is an insurer of the debt itself. A
contract of guaranty gives rise to a subsidiary obligation on
the part of the guarantor.
It is only after the creditor has proceeded against the
properties of the principal debtor and the debt remains
unsatisfied that a guarantor can be held liable to answer for
any unpaid amount. (Principle of excussion)
In a suretyship contract, however, the benefit of excussion is
not available to the surety as he is principally liable for the
payment of the debt.
As the surety insures the debt itself, he obligates himself to
pay the debt if the principal debtor will not pay, regardless of
whether or not the latter is financially capable to fulfill his
obligation.
Thus, a creditor can go directly against the surety although
the principal debtor is solvent and is able to pay or no prior
demand is made on the principal debtor. A surety is directly,
equally and absolutely bound with the principal debtor for
the payment of the debt and is deemed as an original
promissor and debtor from the beginning.
Under the suretyship contract entered into by Spouses with
respondent bank, the former obligated themselves to be
solidarily bound with the principal debtor BMC for the
payment of its debts to respondent bank amounting to
P5,000,000.00.
Under Article 1216 of the Civil Code, respondent bank as
creditor may proceed against the Spouses as sureties
despite the execution of the MOA which provided for the
suspension of payment and filing of collection suits against
BMC.
Respondent bank's right to collect payment from the surety
exists independently of its right to proceed directly against
the principal debtor. In fact, the creditor bank may go against
the surety alone without prior demand for payment on the
principal debtor.
The provisions of the MOA regarding the suspension of
payments by BMC and the non-filing of collection suits by
the creditor banks pertain only to the property of the
principal debtor BMC.
Special Steel v. Villareal GR 143304; July 8, 2004
Special Steel Products,Inc., is a domestic corporation
engaged in the principal business of importation, sale, and
marketing of BOHLER steel products. Respondentsworked
for petitioners as assistant manager and salesman. Villareal
obtained a car loan from Bank of Commerce with petitioner
as surety wherein they are jointly and severally agreed to
pay the bank in installment basis. In January 1997, Villareal
resigned and joined Hi-Grade Industrial and Technical
Products as Executive vice-president.
Respondent So was sponsored by petitioner to attend a
training course in Kapfenberg,Austria conducted by
BOHLER. It rewarded So’s outstanding sales performance.
WhenSo returned, the petitioner asked respondent So to
sign a memorandum to work for the company for three
years. After 2 years and 4 months, So resigned
from thecompany.Petitioner ordered respondents an
accounting of the various Christmasgiveaways they
received. In return, respondents also demanded payment of
their separation benefits, commissions, monetary benefits
but petitioner refused and withheld the 13th month pay and
other benefits.
On April 16, 1997, respondents filed with the Labor Arbiter;
in due course, the LaborArbiter rendered a Decision IN
FAVOR OF So and Villareal. Petitioner filed a motion for
reconsideration but was denied Hence, petitioner filed with
the Court of Appeals petition for certiorari.
On October 29, 1999, the Court of Appeals rendered a
Decision Dismissing the petition and affirming the assailed
NLRC Decision. Petitioner filed a motion for reconsideration
but was denied by the Appellate Court in a Resolution dated
May 8, 2000. Hence, this petition
WON the employer can withhold its employee’s wages and
benefits as lien to protect its interest as surety in the car loan
and for expenses in the training abroad
No. The employer cannot withhold respondent’s 13th month
pay and other monetary benefits. What an employee has
worked for, his employer must pay. Thus, an employer
cannot simply refuse to pay the wages or benefits of its
employee because he has either defaulted in paying a loan
guaranteed by his employer; or violated their memorandum
of agreement; or failed to render an accounting of his
employer’s property.
There is no guaranty involved herein, and therefore Art.
2071 does not apply. The contract executed by petitioner
and respondent Villareal (in favor of the Bank of Commerce)
is a contract of surety. In fact, it is denominated as a
“continuing suretyship agreement.”
A guaranty is distinguished from a surety 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
Hence, petitioner could not just unilaterally withhold
respondent's wages or benefits as a preliminary remedy
under Article 2071. It must file an action against respondent
Villareal. Thus, the Appellate Court aptly ruled that petitioner
„may only protect its right as surety by instituting an “action
to demand a security.”
As to respondent So, petitioner maintains that there can be
a set-off or legal compensation between them.
Consequently, it can withhold his 13th month pay and other
benefits. In the present case, set-offor legal compensation
cannot take place between petitioner and respondent So
because they are not mutually creditor and debtor of each
other.”
A careful reading of the Memorandum reveals that the “lump
sum compensation of not less than US$6,000.00 will have to
be refunded” by each trainee to BOHLER, not to petitioner.
In fine, we rule that petitioner has no legal right to withhold
respondents’ 13th month pay and other benefits to
recompense for whatever amount it paid as security for
respondent Villareal’s car loan; and for the expenses
incurred by respondent So in his training abroad.
Escano v. Ortigas GR 151953; June 29, 2007
On April 28, 1980, Private Development Corp. of the
Philippines (PDCP) entered into a loan agreement with the
Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to
make available and lend to Falcon the amount of US $320,
000.00 for specific purposes and subject to certain terms
and conditions.
Three stockholder officers of the Falcon assumed solidary
liability, in their individual capacity, with Falcon for the due
and punctual payment of the loan.
Two years later, control of Falcon was ceded to Escaño,
Silos and Matti, and the shares of deceased Scholey,
through his heirs Ortigas, Scholey and Inductivo, were
assigned to the three new stock-holders, as well as all of
their guaranteed to PDCP and PAIC.
Petitioners submit that they could only be held jointly, not
solidarily, liable to Ortigas, claiming that the Undertaking did
not provide for express solidarity. They cite Article 1207 of
the New Civil Code, which states in part that "[t]here is a
solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires
solidarity."
Ortigas in turn argues that petitioners, as well as Matti, are
jointly and severally liable for the Undertaking, as the
language used in the agreement "clearly shows that it is a
surety agreement" between the obligors (Ortigas group) and
the sureties (Escaño group). Ortigas points out that the
Undertaking uses the word "SURETIES" although the
document, in describing the parties. It is further contended
that the principal objective of the parties in executing the
Undertaking cannot be attained unless petitioners are
solidarily liable "because the total loan obligation can not be
paid or settled to free or release the OBLIGORS if one or
any of the SURETIES default from their obligation in the
Undertaking."
On April 28, 1989, PDCP filed a complaint for sum of money
with the RTC of Makati. A counterclaim was filed by Ortigas.
The other parties entered into compromise agreement with
PDCP. Ortigas pursued his claim against Escaño, Silos and
Matti, and filing a motion for Summary Judgement in his
favor against Escaño, Silos and Matti.
The RTC ruled in favor of Ortigas, ordering the three to pay
jointly and severally the amount of P1,300,000.00 as well as
P20,000.00 in attorney’s fees.
On appeal, the Court of Appeals affirmed the Summary
Judgement. Hence, the present petition for review.
Whether this obligation to repay is solidary, as contended by
respondent and the lower courts, or merely joint as argued
by petitioners.
severally" in their obligations to the Ortigas group, or any
such terms to that effect. Hence, such obligation established
in the Undertaking is presumed only to be joint. Ortigas, as
the party alleging that the obligation is in fact solidary, bears
the burden to overcome the presumption of jointness of
obligations. We rule and so hold that he failed to discharge
such burden.
Ortigas places primary reliance on the fact that the
petitioners and Matti identified themselves in the
Undertaking as "SURETIES", a term repeated no less than
thirteen (13) times in the document. Ortigas claims that such
manner of identification sufficiently establishes that the
obligation of petitioners to him was joint and solidary in
nature. WHEREFORE, the Petition is GRANTED in PART.

In case, there is a concurrence of two or more creditors or of

two or more debtors in one and the same obligation, Article
1207 of the Civil Code states that among them, "[t]here is a
solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires
solidarity." Article 1210 supplies further caution against the
broad interpretation of solidarity by providing: "The
indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility."
These Civil Code provisions establish that in case of
concurrence of two or more creditors or of two or more
debtors in one and the same obligation, and in the absence
of express and indubitable terms characterizing the
obligation as solidary, the presumption is that the obligation
is only joint. It becomes incumbent upon the party alleging
that the obligation is indeed solidary in character to prove
such fact with a preponderance of evidence.
The Undertaking does not contain any express stipulation
that the petitioners agreed "to bind themselves jointly and