Guaranty and Suretyship (Articles 2047-2084)

Chapter 1. Nature and Extent of Guaranty (Arts. 2047-2084)

#1 Piczon vs. Piczon
Facts:
Sosing-Lobos & Co. obtained loan from Piczon Co. Esteban Piczon (president of borrowing firm)bound
himself as guarantor and agreed to the use of the loan as surety cash deposit for the registration with
the SEC. Consuelo Piczon (lending firm) brought action to recover the amount loaned. Court ruled in
favor of Consuelo Piczon and ordered Esteban Piczon and Sosing-Lobos to pay him as guarantor the
amount of the loan + interest.
Issue:
WON Esteban Piczon is a surety or a guarantor?
Held:
Under the terms of the contract Esteban Piczon expressly bound himself only as guarantor. Guaranty
must express, and it would be violative of the law to consider a party to be bound as surety when the
very word used in the agreement is guarantor.

#2 Palmares vs. CA
(288 SCRA 422)
Facts:
Private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn
Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before
May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30days
from the date thereof. 1 On four occasions after the execution of the promissory note and even after
the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00,thereby
leaving a balance of P13,700.00. No payments were made after the last payment on September 26,
1991. 2Consequently, on the basis of petitioner's solidary liability under the promissory note,
respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to
the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter.
Issue:
WON Palmares is liable
Held:
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter3, Title I
of this Book shall be observed. In such case the contract is called a suretyship. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall control. 13 In the case at
bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal
maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioners liability
is that of a surety.

# 3 Castellvi de Higgins & Higgins vs. Sellner

Facts:
Sellner (defendant) wrote a letter to Mcleod (Castellvis agent) saying that he would bound himself to
pay the promissory note of Mining, Clarke and Maye amounting 10K + % if not fully paid at maturity,
upon the surrender 8k worth of MCMs stock which is held by Castellvi.
Issue:
WON Sellner is a guarantor or surety?
Held:
Sellner is a GUARANTOR. Sellner was not bound with Castellvi by the same instrument executed at the
time and the same consideration, but his responsibility was secondary, one founded on an independent
collateral agreement. Neither was he jointly and severally liable with Castellvi.

#4 Reiss vs. Memije

Facts:
Memije entered into a contract with D (building contractor) for repair of a house. D has no credit line so
Reiss refused to sell D lumber without an advance. Memije accompanied D and told Reiss that he would
guarantee payment for lumber. The lumber extended by Reiss solely and exclusively to Memije was
under a verbal agreement. Reiss brought an action for the purchase price of the lumber.
Issue:
WON Memije is liable as guarantor or as original promisor?
Held:
Memije is primarily liable. It is evident that Memije used the words guarantor not in a technical sense
but rather that after satisfying, Reiss as to his own financial responsibility. If goods are sold upon the
sole credit and responsibility of the party who makes the promise then, even though they are delivered
to a 3rd person, there is no liability to the 3rd person. Promise to pay need not require a writing or
memorandum to be enforceable by action.

#5 Machetti vs. Hospicio de San Jose

Facts:
By a written agreement, Machetti undertook to construct a building for Hospicio de San Jose. One of
the conditions was that Machetti obtain the guarantee of Fidelity & Surety Co. to the amount of 12K. It
was subsequently found out that the work had not been carried out in accordance with the
specifications. Hospicio refused to pay therefore Machetti brought an action to recover the amount.
Issue:
WON the undertaking assumed by FSC that of guarantor or surety?
Held:
Circumstances may be shown which convert the contract into one of suretyship but that does not exist.
It appears that the contract is the guarantors separate undertaking in which the principal doesnot join,
that 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. All these are features of a contract of guaranty.

#6 Severino vs. Severino

Facts:
Melecio Severino upon his death, left considerable properties. To end litigation among heirs a
compromise was effected where defendant (son of MS) took over the property of deceased and agreed
to pay installment of 100K to plaintiff (wife of MS) payable first in 40K cash upon execution of document
in 3 equal installments. Enrique Echauz became guarantor. Upon failure to pay the balance, plaintiff filed
and action against the defendant and Echauz. Enchauz contends that he received nothing from affixing
his signature in the document and the contract lacked the consideration as to him.
Issue:
WON there is a consideration for the guaranty?
Held:
1. The guarantor or surety is bound by the same consideration that makes the contract effective
between the principal parties thereto.
2. It is neither necessary that guarantor or surety should receive any part of the benefit, if such there be
accruing to his principal.

#7 Municipaity of Gasan vs. Marasigan

Facts:
Municipality of Gasan granted Marasigan fishing privileges within the jurisdictional waters. To secure
payment of license fees, Marasigan filed a bond subscribed by G and H who bound themselves to pay if
Marasigan failed to comply with the terms of the contract. Contract was declared illegal by the Executive
Bureau therefore the Municipality awarded the privilege to another person who failed topay the deposit
and yielded the privilege to Marasigan. The municipality told Marasigan that the contract was to be
effective so the municipality sought to recover from Marasigan and G and H, the amount representing
the license.
Issue:
WON the contract and bond are valid and enforceable?
Held:
No. Contract was not consummated and was cancelled. It ceased to be valid when it was cancelled so
Marasigsan and G&H were not bound to comply with the terms of the contract. A guaranty cannot exist
without a valid obligation.

#8 Plaridel Surety Insurance vs. Artex Development Co.

Facts:
Artex withdrew from the Bureau of Customs shipments of imported goods which were subject to
customs duties and other taxes after posting surety bonds pursuant to RA 4086 because its applications
for tax exemptions were not approved by the Board of Industries. In consideration of the obligation
assumed by Plaridel, Artex agreed to pay the premiums and cost of documentary stamps in advance due
on bonds for each period of 12 months until bonds and its renewals, extensions or substitutions be
cancelled in full by the person or entity guaranteed or by court of competent jurisdiction. Artex stopped
paying premiums and costs of documentary stamps after it was granted tax exemption. Plaridel
maintains that it renewed the surety bonds more or less 8 months before the tax exemption. Plaridel
seeks recovery of renewal of premiums on bonds which were already null and void upon grant of tax
exemption to principal
Issue: WON Artex is liable for accrued premiums and costs of doc stamps on renewals of the surety
bonds after grant of tax exemption to Plaridel?
Held:
No. Suretyship cannot exsist without valid obligation. The renewals were without consideration. Plaridel
incurred no risk from Artex tax exemption application was approved. Any renewals were void from the
beginning because the cause or object of said renewals did not exist at the time of the transaction.
Express stipulation by parties, surety bonds became null and void upon grant of tax exemption.