Dio vs.

Court of Appeals (1992)

In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied
for and obtained credit accommodations from Metrobank in the sum of Php700,000. This was secured
by Continuing Suretyships separately executed by petitioners Norberto Uy (who agreed to pay
Php300,000) and Jacinto Dio (who bound himself liable up to Php800,000). Uy Tiam paid the
obligation under this letter of credit in 1977. UTEFS obtained another credit accommodation in 1978,
which was likewise settled before he applied and obtained another in 1979 in the sum of Php815,600.
This sum covered UTEFS purchase of fertilizers from Planters Producst. Uy and Dio did not sign the
application for this credit and were not asked to execute suretyship or guarantee. UTEFS executed a
trust receipt whereby it agreed to deliver to Metrobank the goods in the event of non-sale, and if
sold, the proceeds will be delivered to Metrobank. However, UTEFS did not comply with its obligation.
As a result, Metrobank demanded payment from UTEFS and the sureties, Uy & Dio. The sureties
refused to pay on the ground that the obligation for which they executed the continuing suretyship
agreement has been paid. RTC ruled in favor of the petitioners, CA affirmed.

Issue: WON petitioners are liable for payment of the 1979 transaction under the
continuing suretyship agreement they executed in 1977. Assuming that they are, what is
the extent of their liability?

The Supreme Court held that Uy & Dio are liable. The agreement they executed in 1977 is a
continuing suretyship, one which is not limited to a single transaction but which contemplates a
succession of liabilities, for which, as they accrue, the guarantor becomes liable. The agreement that
petitioners signed expressly provided that it is a continuing guaranty and shall be in full force and
effect until written notice to the bank that it has been revoked by the surety. As to the 2 nd issue,
petitioners are only liable up to the maximum limit fixed in the continuing suretyship agreements
(Php800,000 for Dio and Php300,000 for Uy). The law is clear that a guarantor may bind himself for
less, but not for more than the principal debtor, both as regards the amount and the onerous nature
of the conditions (Art. 2054). CA decision ordering petitioners to pay P2,397,883.68 which represents
the amount due inclusive of interest and charges, is modified.

SURETY
SECURITY BANK V. CUENCA, (2000)
Surety: Obligations Secured, Art. 2053
Being an onerous undertaking, a surety agreement is strictly construed against the creditor, and
every doubt is resolved in favor of the solidary debtor. The fundamental rules of fair play require the
creditor to obtain the consent of the surety to any material alteration in the principal loan agreement,
or at least to notify it thereof. Hence, petitioner bank cannot hold herein respondent liable for loans
obtained in excess of the amount or beyond the period stipulated in the original agreement, absent
any clear stipulation showing that the latter waived his right to be notified thereof, or to give consent
thereto. This is especially true where, as in this case, respondent was no longer the principal officer
or major stockholder of the corporate debtor at the time the later obligations were incurred. He was

thus no longer in a position to compel the debtor to pay the creditor and had no more reason to bind
himself anew to the subsequent obligations.
Continuing Surety
Issue: Contending that the Indemnity Agreement was in the nature of a continuing surety, petitioner
maintains that there was no need for respondent to execute another surety contract to secure the
1989 Loan Agreement. Correct? NO.
Held: That the Indemnity Agreement is a continuing surety does not authorize the bank to extend
the scope of the principal obligation inordinately.
In Dino v. CA, the Court held that 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.
To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the
credit accommodation:
1.
2.

that the obligation should not exceed P8 million, and

that the accommodation should expire not later than November 30, 1981. Hence, it was a
continuing surety only in regard to loans obtained on or before the aforementioned expiry date and
not exceeding the total of P8 million.
In Dino, the surety Agreement specifically provided that each suretyship is a continuing one which
shall remain in full force and effect until this bank is notified of its revocation. Since the bank had
not been notified of such revocation, the surety was held liable even for the subsequent obligations
of the principal borrower.

PALMARES V. CA & M. B. LENDING CORPORATION, (1998)

Surety distinguished from Guaranty, Art. 2047
Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally
liable with the principal debtor in case the latter defaults in the payment of the loan, is such
undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a guarantor
who warrants the solvency of the debtor?SURETY.
The Civil Code pertinently provides:
Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship.
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 petitioner's liability is that of a surety. Her pretension that the terms "jointly and severally or
solidarily liable" contained in the second paragraph of her contract are technical and legal terms
which could not be easily understood by an ordinary layman like her is diametrically opposed to her
manifestation in the contract that she "fully understood the contents" of the promissory note and
that she is "fully aware" of her solidary liability with the principal maker.
Petitioner would like to make capital of the fact that although she obligated herself to be jointly and
severally liable with the principal maker, her liability is deemed restricted by the provisions of the
third paragraph of her contract wherein she agreed "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," which makes her contract one of guaranty and not suretyship. The purported
discordance is more apparent than real.

Suretyship
A surety is an insurer of the debt

Guaranty
guarantor

is

an

insurer

of

undertaking

that

the solvency of the debtor

A suretyship is an undertaking that

guaranty

is

an

the debt shall be paid

the debtor shall pay

surety promises to pay the principal's

a guarantor agrees that the creditor,

debt if the principal will not pay

after proceeding against the principal,

may proceed against the guarantor if the
principal is unable to pay

A surety binds himself to perform if the

A guarantor does not contract that the

principaldoes not, without regard to his

principal will pay, but simply that he is

ability to do so

able to do so.

a surety undertakes directly for the

a guarantor contracts to pay if, by the

payment and is so responsible at once if use of due diligence, the debt cannot be
the principal debtor makes default

made out of the principal debtor

Note: Quintessentially, the undertaking to pay upon default of the principal debtor does not
automatically remove it from the ambit of a contract of suretyship. It has not been shown, either in
the contract or the pleadings, that respondent corporation agreed to proceed against herein
petitioner only if and when the defaulting principal has become insolvent. A contract

of

suretyship is that wherein one lends his credit by joining in the principal debtor's obligation, so as to
render himself directly and primarily responsible with him, and without reference to the solvency of
the principal.
Case Digest: Aglibot vs Santia
G.R. No. 185945 : December 5, 2012
FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L. SANTIA, Respondent.
REYES, J.:

FACTS:
Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was
evidenced by a promissory note. Allegedly as a guaranty for the payment of the note, Aglibot issued
and delivered to Santia eleven (11) post-dated personal checks drawn from her own account
maintained at Metrobank. Upon presentment of the checks for payment, they were dishonored by the
bank for having been drawn against insufficient funds or closed account. Santia thus demanded
payment from PLCC and Aglibot of the face value of the checks, but neither of them heeded his
demand. Consequently, eleven (11) Informations for violation of B.P. 22 were filed before the MTCC.
MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving Aglibot and dismissing the
civil aspect of the case on the ground of failure to fulfill a condition precedent of exhausting all
means to collect from the principal debtor.
On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the civil aspect of the
case. Hence, the CA ruled that Aglibot is personally liable for the loan.
Thus, Aglibot filed this instant petition for certiorari. She argued that she was merely a guarantor of
the obligation and therefore, entitled to the benefit of excussion under Article of the 2058 of the Civil
Code. She further posited that she is not personally liable on the checks since she merely contracted
the loan in behalf of PLCC.
ISSUES:
I. Whether or not Aglibot is entitled to the benefit of excussion?
II. Whether or not Aglibot is personally liable on the checks?
HELD: The petition is bereft of merit.
CIVIL LAW: guaranty; benefit of excussion; Statute of Frauds; contracts
FIRST ISSUE: Aglibot cannot invoke the benefit of excussion.
It is settled that the liability of the guarantor is only subsidiary, and all the properties of the principal
debtor, the PLCC in this case, must first be exhausted before the guarantor may be held answerable
for the debt. Thus, the creditor may hold the guarantor liable only after judgment has been obtained
against the principal debtor and the latter is unable to pay, for obviously the exhaustion of the
principals property the benefit of which the guarantor claims cannot even begin to take place before
judgment has been obtained. This rule is contained in Article 2062 of the Civil Code, which provides
that the action brought by the creditor must be filed against the principal debtor alone, except in
some instances mentioned in Article 2059 when the action may be brought against both the
guarantor and the principal debtor.
The Court must, however, reject Aglibots claim as a mere guarantor of the indebtedness of PLCC to
Santia for want of proof, in view of Article 1403(2) of the Civil Code, embodying the Statute of Frauds.
Under the above provision, concerning a guaranty agreement, which is a promise to answer for the
debt or default of another, the law clearly requires that it, or some note or memorandum thereof, be
in writing. Otherwise, it would be unenforceable unless ratified, although under Article 1358 of the
Civil Code, a contract of guaranty does not have to appear in a public document. Contracts are
generally obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present, and the Statute of Frauds simply provides the method by
which the contracts enumerated in Article 1403(2) may be proved, but it does not declare them
invalid just because they are not reduced to writing. Thus, the form required under the Statute is for
convenience or evidentiary purposes only.
On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but

must be express, and cannot extend to more than what is stipulated therein. This is the obvious
rationale why a contract of guarantee is unenforceable unless made in writing or evidenced by some
writing.
MERCANTILE LAW: accommodation party
SECOND ISSUE: Aglibot is an accommodation party and therefore liable to Santia.
The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby bound herself
personally and solidarily to pay Santia, and dismissed her claim that she issued her said checks in
her official capacity as PLCCs manager merely to guarantee the investment of Santia. The facts
present a clear situation where Aglibot, as the manager of PLCC, agreed to accommodate its loan to
Santia by issuing her own post-dated checks in payment thereof. She is what the Negotiable
Instruments Law calls an accommodation party.
The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety the accommodation party being the surety. It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an original promisor and debtor from
the beginning. The liability is immediate and direct. It is not a valid defense that the accommodation
party did not receive any valuable consideration when he executed the instrument; nor is it correct to
say that the holder for value is not a holder in due course merely because at the time he acquired the
instrument, he knew that the indorser was only an accommodation party. Unlike in a contract of
suretyship, the liability of the accommodation party remains not only primary but also unconditional
to a holder for value, such that even if the accommodated party receives an extension of the period
for payment without the consent of the accommodation party, the latter is still liable for the whole
obligation and such extension does not release him because as far as a holder for value is concerned,
he is a solidary co-debtor.
Petition is DENIED. Court of Appeals is AFFIRMED.