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Section 1. Effects of Guaranty Between the Guarantor and the Creditor Wise & Co. vs.

Tanglao Facts: Atty. Dionisio Tanglao (Cornelio Davids atty) by power of attorney mortgaged two real properties belonging to him to secure the payment of a judgment credit of P640 obtained by Wise & Co. against Cornelio David (agent of W&C). As Cornelio David paid only a part of the indebtedness, Wise & Co. filed an action against Atty. Tanglao to recover the unpaid balance. Issue: WON atty. Dionisio Tanglao is liable for the balance? Held: No, Nothing is stated in the compromise agreement to the effect that Atty. Tanglao become Davids surety for the payment of the judgment debt. (1) Tanglao did not contract any personal responsibility for the payment of the sum of P640. The only obligation which he contracted was that resulting from the mortgage. However, a foreclosure suit was not instituted against Atty. Tanglao but a purely personal action for the recovery of the amount still owned by Atty. Tanglao. (2) Even granting that Atty. Tanglao may be considered a surety (or guarantor), the action does not lie against him on the ground that all the legal remedies against him have not previously been asked for and David has property sufficient to pay the balance of the debt the payment of which is sought of Tanglao in his alleged capacity as surety. A guaranty or surety must be expressed and cannot be presumed. Art 2058 the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all legal remedies against the debtor. Mira Hermanos, Inc. vs. Manila Tobaconists, Inc. Facts: To secure the obligation of Manila Tobaconists up to the sum of 3,000 under contract with Mira Hermanos who agreed to deliver to Manila Tobacconists merchandise for sale on consignment under certain specified terms, Provident Insurance Co. executed a bond of 3,000. Since the value of merchandise exceeded 3,000 Manila Compania de Seguros executed a bond of 2,000 with the same terms and conditions that the bonds would respond for the obligation of Manila Tobacconists. Mira Hermanos sued the 2 insurance companies for the amount of 2,500 Issue: WON Provident Insurance Co. is entitled to the benefit of division. Held: No, The benefit of division is applicable only where there are several guarantors or sureties of only one debtor for the same debt. In the instant case, although the 2 bonds on their face appear to guarantee the same debt co-extensively up to 2K that Provident Insurance Co. alone extending beyond the sum up to 3K in reality said bonds do not guarantee the same debt. Art. 2065 should there be several guarantors of only one debtor and for the same debt, the obligation to answer for the same is divided among all. The creditor cannot claim from the guarantors except shares which they are respectively bound to pay, unless solidarily has been expressly stipulated. The benefit of division against the co-guarantors ceased in the same cases and for the same reasons as the benefit of excussion against the principal debtor. Section 2. Effects of Guaranty Between the Debtor and the Guarantor (Arts. 2066-2072 NCC) Tuason, Tuason, Inc. vs. Machuca Facts: Manila Compania de Seguros signed a note for 10,000 in favor of Tuason, Tuason Inc. to guarantee a liability of Universal Trading Co, In turn,

Universal Trading Co. and its president, Antonio Machuca, in his personal capacity, executed a document wherein they bound themselves solidarily to reimburse Manila Compania de Seguros all of such sum it may pay or become bound to pay, upon its obligation to Tuason, Tuason Inc. whether or not it shall have actually paid such sums or any part thereof. Universal Trading Co. was declared insolvent. Tuason, Tuason, Inc. brought action against Manila Compania De Seguros to recover the value of the note and obtained final judgment. Later, Manila Compania De Seguros filed a complaint against Machuca to recover the amount which Manila Compania De Seguros was sentenced to pay Tuason, Tuason, Inc, plus attorneys fees, judicial costs and sheriffs fees, and interest, although Manila Compania De Seguros had not, in fact, paid the amount of the judgment. Issue:
a) WON Tuason, Tuason Inc. Is entitled to the relief sought in view of the

above facts?
b) WON Tuason, Tuason Inc. has the right to recover from Machuca more

than the value of the note executed by Tuason, Tuason, Inc. in favor of Manila Compania de Seguros? Held:
a. Yes. It is indispensable that Universal Trading Co. became bound by

virtue of final judgment to pay the value of the note executed by it in favor of Manila Compania de Seguros, and according to the document executed solidarily by Universal Trading Co. and Machuca, Machuca bound himself to pay Tuason, Tuason, Inc. as soon as the latter may have become bound and liable, whether or not it shall have actually paid. b. Machuca must not be responsible for the expenses incurred by Manila Compania De Seguros in the litigation between it and Tuason, Tuason, Inc. and it cannot charge Machuca with expenses it was compelled to make by reason of its fault. It is entitled only to expenses incurred by it in the action against Machuca. Art. 2071 the guarantor, even before having paid, may proceed against the principal debtor: 1. When he is being sued for the payment 2. In the case of insolvency of the principal debtor 3. When the debtor has bound himself to relieve him from the guaranty within specified period, and this period has expired 4. When the debt has become demandable, by reason of the expiration of the period of the payment 5. After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless it be 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 the insolvency of the debtor. Saenz vs. Yap Chuan Facts: By order of the court, Engracio Palanca, as judicial administrator of an estate, gave a bond to guarantee his administration. The judicial bond was executed by Palanca, Vizmanos, and others jointly and severally in favor of the Government for the sum of 60K. In turn, Palanca and 5 others executed in favor of Vizmanos another bond. As guarantor in solidum of Palanca who was replaced by Yap Chengtua as the new administrator, Vizmanos was ordered by the court to pay to the

estate the sum of 48K. Vizmanos paid 8K and still owed 40K. Palanca could not pay Vizmanos. Issue: WON the other creditors should reimburse Vizmanos each or a total of 20K notwithstanding that Vizmanos had paid only 8K of his bond? Held: NO 1. Guarantors rights of reimbursement limited to amount paid 2. An action of subrogation is an action of indemnity Art. 2067 the guarantor who pays is subrogated by virtue thereof of all the rights which the creditor had against the debtor. If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what he has really paid. Gidwani vs. Domestic Insurance Co. of the Phils. Facts: 2 securities were given to Domestic Insurance for the faithful compliance of the obligation of Plastic Era to pay the promissory note that it executed in favor of Manufacturers Bank & Trust Co. (MBTC) the counterguaranty agreement jointly executed by Plastic Era and spouses Gidwani, and the second security was the pledge of shares of stock made by Sati B. Gidwani. Domestic Insurance paid Manufactures bank & Trust Company, thereby subrogating itself to the rights of the latter against Plastic Era, the maker of the note. Domestic Insurance sued Plastic Era and Spouses Gidwani under indemnity agreement, obtaining a judgment with partial satisfaction, by reason of which Domestic Insurance caused the sale at public auction of the pledged shares, with Domestic Insurance acquiring them as the highest bidder. Issue: WON Domestic Insurance abandoned and waived its right or cause of action under the agreement when it instituted the civil action based on guaranty-agreement and obtained a favorable judgment? Held: No, The indemnity agreement and pledge agreement are 2 different securities, and the creditor did not avail of the remedy to obtain a personal judgment against the debtor. It is not barred to enforce its claim against both securities. From the nature of the situation, Domestic Insurance cannot prosecute its claim against the 2 securities in one and the same action. Kuenzle & Streiff vs. Tan Sunco Facts: 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 for which Tan Sunco acted as guarantor. Chung Chu Sing confessed judgment in favor of Tan Sunco. Immediately after obtaining judgment, Tan Sunco caused to be levied upon under execution 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. Issue: WON a guarantor who sues his principal debtor before paying the debt himself entitled to recover judgment for the debt? Held: 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. A guarantor who obtains judgment against his principal cannot execute said judgment against the latters property until he has paid the debt for which he stands as guarantor.

General Indemnity Co., Inc vs. Alvarez Facts: General Indemnity Co. filed a complaint against Estanislao Alvarez for the recovery of 2,000 representing the amount of a loan allegedly taken by Alvarez from PNB, the payment of which General Indemnity Co. guaranteed with an indemnity bond. There exists a controversy in the complaint and answer as to whether or not General Indemnity Co. had actually paid Alvarez obligation to the PNB. Issue: WON the action by the guarantor against the principal debtor for payment before the guarantor has paid the creditor premature? Held: Yes, An action by the guarantor against principal debtor for payment before the guarantor has paid the creditor is, premature. Under Art. 2071, a guarantor who has not paid the creditor can proceed against the principal debtor only for the purpose of obtaining release from the guaranty or security against an eventual insolvency of the debtor. Art. 2071 the guarantor, even before having paid, may proceed against the principal debtor: 1. When he is being sued for the payment 2. In the case of insolvency of the principal debtor 3. When the debtor has bound himself to relieve him from the guaranty within specified period, and this period has expired 4. When the debt has become demandable, by reason of the expiration of the period of the payment 5. After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless it be 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 the insolvency of the debtor.

Section 3. Effects of Guaranty as Between Co-Guarantors (Arts. 2073-2075 NCC) Chapter 3. Extinguishment of Guarantee (Arts. 2076-2081) J.V. House vs. Dela Costa Facts: In a civil case against Bush & Upton, for the recovery of a sum of money, JV House obtained preliminary attachment of certain properties of the Bush & Upton. Later, Bush & Upton secured the discharge of the attachment by filing a bond posted by Far Eastern Surety for 2,000, the condition of the bond being that, should JV House obtain a judgment against Bush & Upton, the latter would return to the properties discharged from attachment to the Sheriff, and should he fail to do so, Far Eastern would pay the value thereof. JV House and Bush & Upton entered into an agreement, without the knowledge of Far Eastern Surety whereby Bush & Upton delivered to JV House the properties in question to be sold at public auction. JV House-highest bidder; properties adjudicated to him. JV House obtained judgment against Bush & Upton for 2,000. JV House asked of execution of judgment against Far Eastern Surety. Issue: WON Far Eastern Surety is released from its obligation as surety? Held: Yes. The agreement between JV House and Bush & Upton subsequently altered their juridical relations as to the properties discharged from

attachment and for the delivery of which Far Eastern was surety, which alteration necessarily released Far Eastern from its obligation as surety. Material alteration of the principal contract effected by the creditor and the principal debtor without the knowledge and consent of the surety discharges the guaranty of the surety PNB vs. Manila Surety & Fidelity Co. Facts: PNB was negligent in its duty under the power of attorney to collect sums due to debtor from the latters debtor, thereby allowing such funds to be exhausted by other creditors. Issue: WON Manila Surety is exonerated from liability to PNB? Held: Yes. Even if the assignment with the power of attorney from the principal debtor was considered as a mere additional security, still, by allowing the assigned funds to be exhausted without notifying Manila Surety, PNB deprived the former of the possibility of taking recourse against the security. PNB thereby exonerated Manila Surety, pursuant to Art. 2080. Art. 2080 the guarantors, even though they be solidarily, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter. E Zobel, Inc. vs. CA Facts: Respondentr spouses applied for a loan with respondent SOLIDBANK. The loan was granted subject to the condition that spouses execute a chattel mortgage over the 3 vessels to be acquired by them and that a continuing guarantee be executed by petitioner EZ, Inc. in favor of Solid Bank. The spouses defaulted in payment of the entire obligation upon maturity. SolidBank filed a complaint for the sum of money against EZ Zobel. Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080. Issue: 1. WON Art. 2080 is applicable to petitioner; 2. WON petitioners obligation to SOLIDBANK under the continuing guaranty is that of a surety; 3. WON the failure of SOLIDBANK to register the chattel mortgage extinguish petitioners liability to SOLIDBANK Held: 1. Art. 2080 is not applicable where liability is a surety 2. Petitioner obligated itself as a surety the contract executed is a contact of surety 3. Petitioner bound itself irrespective of existence of collateral failure to register the chattel mortgage did not release petitioner from obligation. Art 2080 The guarantors, even though they be solidarily, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter.