NATURE and EXTENT of GUARANTY

I.

PNB vs. ESCUETA

Supreme Court EN BANC

G.R. No. L-26118 December 31, 1926
PHILIPPINE NATIONAL BANK, Plaintiff-Appellant, vs. MARIANO ESCUETA, CIRILO B. SANTOS and
TEOFILO VILLONGCO, Defendants-Appellants.
Dionisio de Leon and Carlos B. Hilado for plaintiff-appellant.
Eusebio Orense and Victorino Yamson for defendants-appellants.
OSTRAND, J.:
In its complaint the plaintiff alleges "that on February 14, 1919, and to secure the payment of any
obligation the Island Trading Co., a corporation duly organized under the laws of the Philippine Islands,
might contract with the Philippine National Bank, the plaintiff, Mariano Escueta, Cirilio B. Santos,
Teofillo Villongco, the defendants and Wm. Kennedy and Rafael Villanueva, signed jointly and severally,
a surety agreement in favor of said bank, copy of which is hereto attached and made a part hereof as
Exhibit A. Wm. Kennedy is now dead and Rafael Villanueva withdraw from said agreement on April 6,
1920 and for these reasons they are not made parties defendants in the complaint. That the present
indebtedness of the principal, the Island Trading Co., to the plaintiff, the Philippine National Bank and
for which the above surety agreement was executed, amounts to P26,736.10, with interest at the rate
of 6 per cent per annum from January 1, 1924," all of which is due and
unpaid.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff therefore asks judgment against the defendants, jointly and severally, for said sum and
interest with costs. The surety agreement referred to in the complaint and made a part thereof reads
as follows:
This surety agreement, executed at the City of Manila, P. I., on this 14th day of February, 1919, by
Mariano Escueta, Rafael Villanueva, Cirilo B. Santos, Wm. Kennedy and Teofilo Villongco, all of the
lawful age and residents of the City of Manila, P. I. herein referred to as the Guarantors, and the
Philippine National Bank herein referred to as the Creditor, bears witness that: chanrobles virtual law
library
Whereas, the Island Trading Co., Inc., of Manila, P. I., herein referred to as the principal, desires to
obtain credits loans, overdrafts, discounts, etc., from the Creditor, for all of which the Creditor requires
security; and the Guarantors, on account valuable consideration received from the Principal, are
desirous of assisting the Principal in obtaining such credits, etc., and of becoming such
security; chanrobles virtual law library
Now, therefore, for the purpose above-mentioned, the Guarantors, jointly and severally, hereby
guarantee and warrant to the Creditor, its successors or assigns, the prompt payment at maturity of all
the notes, drafts, bill of exchange, overdrafts and other obligations of every kind, on which the
Principal may now be indebted, or may hereafter become indebted to the Creditor, plus the interest
thereon at the rate of six and one-half (6 ) per cent per annum, and the costs and expenses of the
Creditor incurred in connection therewith.chanroblesvirtualawlibrary chanrobles virtual law library
In case of default by the Principal in the payment at maturity of any of the obligations above
mentioned, or in case of the Principal's failure promptly to respond to any other lawful demand made
by the Creditor, the Guarantors, jointly and severally, agree to pay to the Creditor, its successors or
assigns, upon demand, all outstanding obligations of the Principal whether due or not due, and
whether held by the Creditor as principal or agent; and it is agreed that a certified statement by the
Creditor as to the amount due from the shall be accepted as correct by the Guarantors without
questions,
and
may
be
admitted
by
any
court
as
conclusive
evidence.chanroblesvirtualawlibrary chanrobles virtual law library
The Guarantors expressly waive all rights to demand of payment and notice of nonpayment and
protest, and agree that the securities of every kind, that are now and may hereafter be left with
Creditor, its successors, endorsees or assigns, as collateral to any evidences of debt or obligation or
upon which a lien may exist therefor, may be withdrawn or surrendered at any time, and the time of
payment thereof extended, without notice to, or consent by the guarantors, and that the liability on
this guaranty shall be direct and immediate and not contingent upon the pursuit by the Creditor, its
successors, endorsees or assigns, of whatever remedies it or they have against the Principal or the
securities or lien it or they may possess, and the guarantors will at any time on demand, whether due

or not due, pay to the Creditor any overdraft of the Principal.chanroblesvirtualawlibrary chanrobles
virtual law library
This instrument is intended to be a complete and perfect indemnity to the Creditor for any
indebtedness or liability of any kind owning the Principal to the Creditor from time to time, and to be
valid and cotinuous without further notice to the Guarantors, and may be revoked by the Guarantors at
any time, but only after forty-eight hours' notice in writing to the Creditor, and such revocation shall
not operate to relieve the Guarantors from the responsibility for obligations incurred by the Principal
prior to the termination of such period.
(Sgd.) MARIANO ESCUETA chanrobles virtual law library
RAFAEL VILLANUEVA chanrobles virtual law library
CIRILO B. SANTOS chanrobles virtual law library
WM. KENNEDY chanrobles virtual law library
TEOFILO VILLONGCO
Guarantor"
In their answer, the defendants make a general denial of the allegations of the complaint and, in
substance, set up as special defenses that the aforesaid surety agreement was never accepted by the
plaintiff; that the plaintiff had unduly and without the consent of the defendants, extended the time for
the payment of the debt by the principal, the Island Trading Co., Inc. and thereby relieved the
defendants from their liabilities as sureties; that the plaintiff without the knowledge and consent of the
defendants released the surety, Rafael Villanueva from his obligations under the agreement, and that
the plaintiff should have presented its claim against the estate of the surety, Wm. Kennedy, deceased,
but have failed to do so and that, consequently, the defendants cannot be held liable for the shares of
these two sureties.chanroblesvirtualawlibrary chanrobles virtual law library
Upon trial, the court below found that the defendants were liable for the sum of P26,736.10, less onefifth said one-fifth representing the liability of the deceased surety, Wm. Kennedy, but should be
credited with the sum of P17,076.68, the value of certain merchandise sent by the Island Trading Co.,
Inc., through the plaintiff to Shanghai, China, to be there disposed of by the Shanghai branch of the
plaintiff corporation and of which transaction no account had been rendered by the plaintiff. Judgment
was therefore rendered in favor of the plaintiff and against the defendants for the sum of P7,727.54,
with legal interest from April 5, 1924, and without costs. From this judgment both the plaintiff and the
defendants appealed.chanroblesvirtualawlibrary chanrobles virtual law library
Under its first assignment of error, the plaintiff - appellant argues that the court below erred in finding
that from the sum of P26,736.10 prayed for by the plaintiff-appellant in its complaint, there should be
deducted the amount of P17,076.68 supposed value of certain goods which are alleged to have been
sent by the Island Trading Co., Inc., to the Pongee & Produce Co., Shanghai, thru the branch office of
the plaintiff-appellant in Shanghai." chanrobles virtual law library
The only evidence as to the transaction referred to in this assignment of error is the testimony of the
defendant Escueta in which the following question and answers are found:
Q. Aside from all that, do you know if some goods outside of the Philippines and in foreign countries
were sold by the bank, which goods were also the property of the Island Trading Co., Inc., and of which
the bank had also taken possession? - A. Yes sir.chanroblesvirtualawlibrary chanrobles virtual law
library
Q. What are those goods? - A. In May, 1921, the Island Trading Co., Inc., thought of sending certain
goods to Shanghai, to a firm the Pongee & Produce Co. to be sold in the amount of P17,076.68 as per
invoice copy which . . . .
Mr. Orese: Copy of which we ask should marked Exhibit 8.chanroblesvirtualawlibrary chanrobles virtual
law library
(Witness continuing.) When these goods were already packed up came Mr. Wilson, son, who was also
working in the National Bank. As it was custom to go often to our office to transact business with the
manager, when he saw the box containing the said goods, furious he said to the manager: Why do you
send those goods to Shanghai without the consent of the bank? Then Goldenberg, in my presence,
said: I had your permission. - Alright, but you must send those goods to Shanghai thru the bank and

that the firm Pongee & Produce Co. cannot sell said goods without the authority of the Manager of the
Bank's branch in Shanghai.
Q. Were those sent to Shanghai thru the bank? - A. Yes sir.chanroblesvirtualawlibrary chanrobles virtual
law library
Q. And after said goods were sent to Shanghai, do you know if they were sold there and who sold
them? - A. Up to the year 1923, said goods were not sold and afterwards ultimately the bank has
ignored it completely and we do not know what has been done by the Bank with those
goods.chanroblesvirtualawlibrary chanrobles virtual law library
Q. What was the value of those goods at the time they were sent to Shanghai thru the bank? - A. It
appears in this invoice, P17,076.68.chanroblesvirtualawlibrarychanrobles virtual law library
Q. That amount or the proceeds of this goods if they were sold in Shanghai by the branch of the bank,
do you know if they were credited to the account of the Island Trading Co., Inc., with the Philippine
National Bank? - A. I think, not, because it seems not that nobody in the bank knows about these
goods which were sent to Shanghai.
In the opinion the writer, the testimony quoted is hardly sufficient to charge the plaintiff with the
responsibility for the disposal of the merchandise alleged to have been shipped to Shanghai. The
Island Trading Co., was a commercial organization and presumably kept records of its transactions, but
there seems to be no document or book entry showing that the good were shipped to Shanghai
through the plaintiff bank or any of its branches. If the shipping documents were transmitted or
delivered to the bank, there should have been a letter of transmittal, of which the Island Trading Co.,
must have retained a copy; but no such letter or copy has been offered in evidence; the invoice
referred to in the testimony is, if anything, in favor of the plaintiff inasmuch as it may be construed to
indicate that the invoiced goods were shipped to the Pongee & Produce Co., Shanghai. The majority of
the members of the court are, however, of the opinion that the uncontradicted testimony of Mr.
Escueta must be accepted as true and that it shows sufficiently that the bank assumed control over
the merchandise that it was its duty to account therefor, and that having failed to do so, it must be
charged with the value of the goods.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff-appellant's second assignments of error is to the effect that the court below erred in
finding that the surety, Rafael Villanueva, had been released from responsibility by the plaintiffappellant and in deducting, for that reason, one-fifth from the amount due the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
This assignment, is, we think, well taken. There is absolutely no evidence in the record showing that
the plaintiff gave its consent to Villanueva's withdrawal from the surety agreement, or that it released
him from responsibility. The fact that he was not made a defendant in this action is not sufficient to
show such consent or release; the sureties were jointly and severally bound and the action might be
brought against either of them without joining the cosureties. It is further to be noted that the
defendants made no motion in the court below to have Villanueva included as a party
defendant.chanroblesvirtualawlibrary chanrobles virtual law library
The defendants-appellants present seven assignments of error, none of which can be sustained. Under
the first three and the fifth, it is argued that it has not been shown that the plaintiff accepted the
surety agreement. This is a question of fact, which in our opinion was correctly determined by the trial
court. The document evidencing the agreement was delivered to the plaintiff bank and retained by it
without objection. It also appears that the bank, on the strength of the agreement, extended credit to
the Island Trading Co. These facts sufficiently indicated the acceptances. Such acceptances need not
necessarily be express or in writing.chanroblesvirtualawlibrary chanrobles virtual law library
The fourth assignment of error has reference to the fact that the plaintiff, in its transaction with the
Island Trading Co., charged a higher rate of interest that fixed in the surety agreement and the
defendants argue that one of the principal conditions of the agreement thereby violated and altered by
the plaintiff and sureties consequently released. This contention cannot successfully be maintained.
Whatever interest the plaintiff may have charged the Island Trading Co., in its accounts the fact
remains that as against the sureties, it is demanding only the rate of interest specified in the
agreement, which still remains unchanged and in force.chanroblesvirtualawlibrary chanrobles virtual
law library
The defendants-appellants other assignments of error are so clearly untenable as to require no
discussion.chanroblesvirtualawlibrary chanrobles virtual law library
For the reasons stated, the appealed judgment is hereby modified by increasing the plaintiff's recovery
to the full sum of P9,659.42, with interest at the rate of 6 per cent per annum from April 3, 1924. In

all
other
respects,
the
judgment
is
affirmed
ordered.chanroblesvirtualawlibrary chanrobles virtual law library

without

costs.

So

Avancea, C. J., Street, Malcolm, Johns, Romualdez and Villa-Real, JJ., concur.

II.

Texas Co., Inc. vs. Alonso

G.R. No. L-47495

August 14, 1941

THE TEXAS COMPANY (PHIL.), INC., petitioner,

vs.
TOMAS ALONSO, respondent.
C. D. Johnston & A. P. Deen for petitioner.
Tomas Alonso in his own behalf.
LAUREL, J.:
On November 5, 1935 Leonor S. Bantug and Tomas Alonso were sued by the Texas Company (P.I.), Inc.
in the Court of First Instance of Cebu for the recovery of the sum of P629, unpaid balance of the
account of Leonora S. Bantug in connection with the agency contract with the Texas Company for the
faithful performance of which Tomas Alonso signed the following:

For value received, we jointly and severally do hereby bind ourselves and each of us, in
solidum, with Leonor S. Bantug the agent named in the within and foregoing agreement, for
full and complete performance of same hereby waiving notice of non-performance by or
demand upon said agent, and the consent to any and all extensions of time for performance.
Liability under this undertaking, however, shall not exceed the sum of P2,000, Philippine
currency.
Witness the hand and seal of the undersigned affixed in the presence of two witness, this 12th
day of August, 1929.
Leonor S. Bantug was declared in default as a result of her failure to appear or answer, but Tomas
Alonso filed an answer setting up a general denial and the special defenses that Leonor S. Bantug
made him believe that he was merely a co-security of one Vicente Palanca and he was never notified
of the acceptance of his bond by the Texas Company. After trial, the Court of First Instance of Cebu
rendered judgment on July 10, 1973, which was amended on February 1, 1938, sentencing Leonor S.
Bantug and Tomas Alonso to pay jointly and severally to the Texas Company the sum of P629, with
interest at the rate of six per cent (6%) from the date of filing of the complaint, and with proportional
costs. Upon appeal by Tomas Alonso, the Court of Appeals modified the judgment of the Court of First
Instance of Cebu in the sense that Leonor S. Bantug was held solely liable for the payment of the
aforesaid sum of P629 to the Texas Company, with the consequent absolution of Tomas Alonso. This
case is now before us on petition for review by certiorari of the decision of the Court of Appeals. It is
contended by the petitioner that the Court of Appeals erred in holding that there was merely an offer
of guaranty on the part of the respondent, Tomas Alonso, and that the latter cannot be held liable
thereunder because he was never notified by the Texas Company of its acceptance.
The Court of Appeals has placed reliance upon our decision in National Bank vs. Garcia (47 Phil., 662),
while the petitioner invokes the case of National Bank vs. Escueta, (50 Phil., 991). In the first case, it
was held that there was merely an offer to give bond and, as there was no acceptance of the offer, this
court refused to give effect to the bond. In the second case, the sureties were held liable under their
surety agreement which was found to have been accepted by the creditor, and it was therein ruled
that an acceptance need not always be express or in writing. For the purpose of this decision, it is not
indispensable for us to invoke one or the other case above cited. The Court of Appeals found as a fact,
and this is conclusive in this instance, that the bond in question was executed at the request of the
petitioner by virtue of the following clause of the agency contract:
Additional Security. The Agent shall whenever requested by the Company in addition to the
guaranty herewith provided, furnish further guaranty or bond, conditioned upon the Agent's
faithful performance of this contract, in such individuals of firms as joint and several sureties
as shall be satisfactory to the Company.
In view of the foregoing clause which should be the law between the parties, it is obvious that, before a
bond is accepted by the petitioner, it has to be in such form and amount and with such sureties as
shall be satisfactory hereto; in other words, the bond is subject to petitioner's approval. The logical
implication arising from this requirement is that, if the petitioner is satisfied with any such bond, notice
of its acceptance or approval should necessarily be given to the property party in interest, namely, the
surety or guarantor. In this connection, we are likewise bound by the finding of the Court of Appeals
that there is no evidence in this case tending to show that the respondent, Tomas Alonso, ever had
knowledge of any act on the part of petitioner amounting to an implied acceptance, so as to justify the
application of our decision in National Bank vs. Escueta (50 Phil., 991).
While unnecessary to this decision, we choose to add a few words explanatory of the rule regarding
the necessity of acceptance in case of bonds. Where there is merely an offer of, or proposition for, a
guaranty, or merely a conditional guaranty in the sense that it requires action by the creditor before
the obligation becomes fixed, it does not become a binding obligation until it is accepted and, unless
there is a waiver of notice of such acceptance is given to, or acquired by, the guarantor, or until he has
notice or knowledge that the creditor has performed the conditions and intends to act upon the
guaranty. (National Bank vs. Garcia, 47 Phil., 662; C. J., sec. 21, p. 901; 24 Am. Jur., sec. 37, p. 899.)
The acceptance need not necessarily be express or in writing, but may be indicated by acts amounting
to acceptance. (National Bank vs. Escueta, 50 Phil., 991.) Where, upon the other hand, the transaction
is not merely an offer of guaranty but amounts to direct or unconditional promise of guaranty, unless
notice of acceptance is made a condition of the guaranty, all that is necessary to make the promise
binding is that the promise should act upon it, and notice of acceptance is not necessary (28 C. J., sec.
25, p. 904; 24 Am. Jur., sec 37, p. 899), the reason being that the contract of guaranty is unilateral
(Visayan Surety and Insurance Corporation vs. Laperal, G.R. No. 46515, promulgated June 14, 1940).
The decision appealed from will be, as the same is hereby, affirmed, with costs of this instance against
the petitioner. So ordered.
Avancea, C.J., Abad Santos, and Diaz, JJ., concur.
Separate Opinions
OZAETA, J., with whom concur MORAN and HORRILENO, JJ., dissenting:
We concede that the statement of fact made by the Court of Appeals is conclusive upon this Court in a
petition for review on certiorari. But when it appears from the decision of the Court of Appeals itself

that such a statement is but a conclusion drawn by that Court from the facts found by it, and that such
conclusion is patently erroneous, we hold that this Court should disregard it.
Of the nature, we believe, is the following statement made by the Court of Appeals in the course of its
ratiocination:
La fianza prestada por el apelante se otorgo a requerimiento de la demandante en virtud de la
siguiente clausula (15) del contrato de agencia Exhibit A, que dice asi:
"ADDITIONAL SECURITY. The Agent shall, whenever requested by the Company in
addition to the guaranty herewith provided, furnish further guaranty or bond,
conditioned upon the agent's faithful performance of this contract, in such form and
amount and with such bank as surety or with such individuals or firms as joint and
several sureties as shall be satisfactory to the Company." (Pages 8-9, appendix to
petitioner's brief.)
It is important to note that the above-quoted statement forms part of the court's ratio decidendi and
not of its findings of fact. Its findings of fact appear in the first three paragraphs of its decision, which
we quote as follows:
El 12 de agosto de 1929 la demandante y el demandado Leonor S. Bantug celebraron un
contrato, (Exhibit A) por virtud del cual aquella nombro a este Agente vendedor de sus
productos petroliferos en el Municipio de Maasin, Provincia de Leyte, mediante pago de una
comision sobre el valor de todos los efectos que llegase a vender, obligandose por su parte
Leonor S. Bantug como Agente, a ingresar y pagar a la compaia el importe neto de las ventas
realizadas, despues de deducir su comision y los demas gastos de agencia que se estipularon
en el referido contrato.
En el mismo documento Exhibit A, el otro demandado Tomas Alonso suscribio una fianza,
obligandose mancomunada y solidariamente con el Agente Leonor S. Bantug a cumplir
fielmente las condiciones del contrato de Agencia hasta la suma de P2,000.
El estado de cuentas de la agencia que se presento en el juicio como Exhibit B, demuestra que
la ultima liquidacion arroja un balance contra el Agente Leonor S. Bantug por la cantidad de
P629; y como esta suma no ha sido pagado ni por Leonor S. Bantug ni por su fiador Tomas
Alonso, a pesar de los requerimientos que se les ha hecho, de ahi que la demandante, el 18 de
noviembre de 1938, dedujo accion en el Juzgado de Primera Instancia de Cebu para el cobro de
dicha suma y sus intereses legales desde la presentacion de la demanda. (Pages 1-3, appendix
to petitioner's brief.)
Now if, as found by the Court of Appeals itself, the agency contract between the petitioner and Leonor
S. Bantug was Exhibit A, dated August 12, 1929, and that very same document was on the same date
signed by the respondent Tomas Alonso as bondsman or surety of the agent, how could the bond in
question, which formed part of Exhibit A, be held to have been executed by virtue of clause 15 of said
document providing for additional security? Indeed, that very clause says that the agent shall furnish
further guaranty or bond "in addition to the guaranty herewith provided," whenever requested by the
company. The "guaranty herewith provided" was obviously the bond or guaranty given by the
respondent on the same date and in the same document. It appears clear to us, therefore, that the
bond Exhibit A, being the original guaranty, could not be the "additional guaranty" mentioned in clause
15 of said Exhibit A. Moreover, it does not appear that any bond or guaranty, other than that of the
respondent, to secure the performance of the agency contract in question was in force on and after
August 12, 1929.
Another illogical conclusion drawn by the Court of Appeals is this:
"Por el requerimiento que contiene la clausula preinserta, de que el Agente puede prestar una garantia
adicional a satisfaccion de la compaia, debe entenderse que la fianza prestada por el apelante era
una oferta o proposicion de garantia, cuya efectividad dependia de la acceptacion de la compaia,
comunicada al garante." (Page 9, appendix to petitioner's brief.) .
If, as previously found by the Court of Appeals, the herein respondent executed the bond in question "a
requerimiento de la demandante," how could said bond be understood as an "offer or proposition of
guaranty" from Alonso to the plaintiff? .
Yet the judgment of the Court of Appeals, as well as the affirming decision of the majority of this court,
is based on the conclusion that the bond sued upon was an additional guaranty; that it constituted a
mere offer of guaranty and, therefore, had to be accepted by the petitioner; and that, not having been
accepted, it is inefficacious. We have shown that such conclusion is unwarranted.
Our vote is to reverse the decision of the Court of Appeals and to affirm that of Judge Felix Martinez of
the Court of First Instance of Cebu, who tried this case.

III.

Poblete vs. Lo Singco

G.R. No. L-19439

January 17, 1923

PERFECTA POBLETE, plaintiff-appellee,

vs.
LO SINGCO, RUPERTO CARREON and FABIANO BENIPAYO, defendants-appellants.
Pedro Sabido and Domingo Imperial for the other appellants.
Manly, Goddard and Lockwood for appellee.
STREET, J.:
By the amended complaint in this action, the plaintiff, Doa Perfecta Poblete, widow and resident of
Tabaco, Albay, seeks to recover a sum of money of the defendant Lo Singco, as principal, and of his
two codefendants, Ruperto Carreon and Fabiano Benipayo, as joint and solidary sureties. At the hearing
in the Court of First Instance of the Province of Albay judgment was rendered in favor of the plaintiff to
recover jointly and severally of all three defendants the sum of P15,000, with lawful interest on P5,000
from March 14, 1919, and on the remainder from November 13, 1920. Upon this the defendants took
steps to bring the case by appeal to this court, but only the two sureties have assigned error to the
judgment.
It appears that in September of the year 1918, the plaintiff was the owner of certain lands in the
municipalities of Malinao and Tabaco, of the Province of Albay, which contained valuable plantings of
hemp then about ready to be cut. In the latter part of said month the defendant Lo Singco, a resident
of Polangui, Albay, presented himself to the plaintiff and indicated a desire to cut and remove such of
the hemp as was then in a fit state for stripping, under a form of agreement commonly known in that
region as the pujanza, which involves a letting of the land by the owner to a lessee-purchaser for the
purpose of a single stripping.
In response to this suggestion, the plaintiff informed Lo Singco that the price would bee P20,000,
payable in part upon the making of the contract and the balance on time, with adequate security for
the deferred payments. Lo Singco indicated his conformity with these terms and went away to find the
necessary sureties. Individuals suited to this purpose were found in the defendants Ruperto Carreon
and Fabiano Benipayo; and with a view to effecting the object desired, a document was on September
30, 1918, executed before a notary public in Polangui, Albay, by these three.
This document (Exhibit B) starts out with a recital of the fact that Lo Singco had made a contract,
commonly known as the pujanza, with Doa Poblete, or Tabaco, for the taking of the hemp on certain
lands owned by her in the province, at the price of P20,000 for the stripping. The document then
continues as follows:
Therefore, we, the Chinaman Lo Singco as principal, Ruperto Carreon and Fabiano Benipayo as
sureties of the Chinaman Lo Singco bind ourselves in amount of fifteen thousand pesos,
Philippine currency, the same to be paid in conformity with the terms of the contract, to wit:
the Chinaman Lo Singco will pay Mrs. Pitang Poblete as follows: P5,000 at the delivery of this
document; P5,000 three months after this first payment and P10,000, Philippine currency, six
months after this second installment is completely paid to the said owner, Mrs. Pitang Poblete,
her executors and assigns. The conditions of this obligation are such that if the said Chinaman,
Lo Singco fails to comply with his obligation under his contract of lease ( pujanza), we, the
undersigned sureties, without excluding the principal, Lo Singco, from this contract of
suretyship, faithfully bind ourselves, our heirs and successors, jointly and severally to pay the
amount guaranteed by this contract of suretyship. And if the contracting party, Lo Singco,
fulfills the obligation contracted by him, then and in that event this obligation shall be null and
void, otherwise it shall remain in full force and effect. (Exhibit B.)
Armed with this paper, Lo Singco presented himself again to the plaintiff; and on October 4, 1918, the
contract for the letting of the hemp lands to Lo Singco was reduced to from and duly signed by both
parties (Exhibit A). At the same time the contract of suretyship, or guaranty, was delivered to the
plaintiff, and Lo Singco made the first payment of P5,000, as stipulated. Lo Singco then proceeded to
strip the lands of the plantings of hemp, but he has made no further payment upon account of his
obligations to the plaintiff, and this action against him and his sureties has resulted.
The defense interposed in behalf of the two sureties the present appellants is based on two
grounds. The first is that the plaintiff is not a party to the document of suretyship (Exhibit B), and it is
therefore supposed that she cannot maintain an action thereon. The second is that the supposed
contract of suretyship is a nullity because of certain discrepancies between the terms stated in the
document of sureties (Exhibit B) and the contract of lease ( pujanza), to which it is appurtenant. These
objections to the maintenance of the action will be considered in turn.
The answer to the contention that the plaintiff cannot maintain an action against the sureties on the
Exhibit B is to be found, we think, in the consideration that this document was undoubtedly intended to
create a legal obligation upon delivery to the plaintiff; and there is nobody else who could possibly

maintain an action to enforce the engagements expressed therein except the plaintiff. It is
undoubtedly a general rule that a contract is binding only upon the parties who execute them and their
heirs (art. 1257, Civil Code); but the same article which announces this doctrine creates an exception
in the case of stipulations in favor of a third person who gives notice of acceptance before revocation
of the stipulation. In the case before us the plaintiff accepted this contract of suretyship, and upon the
faith of it allowed another person to strip her lands of valuable plantings of hemp. There was no
revocation of the offer before it was accepted, nor, so far as appears, at any time before demand was
made upon the sureties for the fulfillment thereof. Under these circumstances notification of
acceptance, other than such as is involved in the making of demand, was unnecessary. We are
accordingly of the opinion that the contract of suretyship is obligatory upon the appellants, and that
the plaintiff, having accepted and acted upon the faith of the same, can maintain an action thereon
against them.
With respect to the discrepancies between the contract of suretyship (Exhibit B) and the contract for
the letting of the land (Exhibit A), we note that the first is expressed in more general terms than the
latter. For instance, Exhibit A contains a provision not found in Exhibit B to the effect that the cutting of
the hemp shall be so conducted that no plants shall be cut unless it is more than 1 meter high, and it is
further stipulated that the purchaser shall pay 50 centavos for each immature plant that is taken or
destroyed.
In the document Exhibit B the land supposed to be the subject of the contract of pujanza is described
as three parcels of hemp land; while in Exhibit A the lands which are the subject of the contract are
described as consisting of four parcels. The largest of the parcels described in the two contracts is
identified by the circumstance that it has a circumference of about three thousand brazas. The other
two parcels spoken of in Exhibit B are not particularly described but are said to be all within the
municipality of Tabaco. In the Exhibit A, where the three additional parcels are specially described, they
are all placed in the adjoining municipality of Malinao. It appears, however, from the testimony that all
of the parcels referred to in Exhibit B were delivered to Lo Singco, and the only possible difference
between the two contracts with reference to the land referred to therein is that somewhat more land
passes to Lo Singco under the contract Exhibit A than is called for in the Exhibit B; and it is evident
that there is a mere mistake of description in Exhibit B in the part where two of the parcels in question
are supposed to be in Tabaco.
Again, another discrepancy between the two documents is that, if regard is had to Exhibit A, the last
installments of the purchase price, consisting of P10,000, should be paid on the last day of March,
1919; while according to the contract Exhibit B, said installment of the purchase price is said to be
payable at the end of June of the same year.
We are of the opinion that none, or all of these discrepancies, affect the validity of the contract of
suretyship. So far as they are material, the terms of the contract of suretyship fall short of the
requirements of the principal contract. In other words, the contract of suretyship is more favorable to
the sureties than the principal contract is to the principal debtor.
Now, it is well recognized that sureties may bind themselves to obligations distinct from those to which
their principal is liable; and it is expressly declared in article 1140 of the Civil Code that solidarity may
exist even though the creditors and debtors are not bound in the same manner or upon the same
terms and conditions. The only restriction upon this proposition is found in the rule that the obligation
of the surety cannot be greater than that of the principal, either as to the amount or as to the
burdensome character of the conditions. Such is the express provision of article 1826; and even to that
proposition the authors of the Code hasten to add that if the surety binds himself for more than the
principal is bound, his liability shall be reduced to the limits of that of the principal debtor. The thing to
be noted here is that lack of coincidence between the obligations assumed by the principal and the
sureties does not render the obligations of the latter invalid.
For the reasons stated, we are of the opinion that no error was committed by the trial judge in giving
judgment against the appellants in conformity with the obligations assumed by them as sureties for
the defendant Lo Singco. The judgment will therefore be affirmed, with costs. So ordered.
Araullo, C. J., Malcolm, Avancea, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

IV.

Pastoral vs. Mutual Security Insurance Corp.

G.R. No. L-20469

August 31, 1965

PEDRO C. PASTORAL, petitioner,

vs.
MUTUAL SECURITY INSURANCE CORPORATION and THE HONORABLE COURT OF
APPEALS,respondents.
San Juan, Africa and Benedicto for petitioner.
Vicente L. San Luis for respondents.
REYES, J.B.L., J.:
Petition by Pedro C. Pastoral for the review and reversal of a decision of the Court of Appeals (in its
Case CA-G.R. No. 29180-R), that absolved the Mutual Security Insurance Corporation of its liability to
the said petitioner, reversing the decision of the Court of First Instance of Manila.
The facts are stated by the Court of Appeals to be as follows:
It appears that on and from October 1, 1957, plaintiff Pedro C. Pastoral leased a crane to
defendant Mapada & Company, Inc., at a monthly rental of P900.00, Exhibit A. The contract
provides that if the crane be not returned 10 days after notice therefor, defendant will pay
plaintiff P15,000, as the value of the crane. In compliance with paragraph 2(b) of Exhibit A,
defendant on October 22, 1957, put up a surety bond, Exhibit B, in the total amount of P15,000
executed by appellant Mutual Security Insurance Corporation to fully and faithfully guarantee
compliance by defendant of "all the conditions and obligations" under the lease contract. Upon
request of defendant which was expecting some money from the construction contract with
the government about the end of November, plaintiff deferred its collection of rentals for the
months of October and November, 1957 until the beginning of December; but when no
payment was made despite demands, plaintiff advised, and demanded payment from, the
surety company on December 5, 1957, Exhibit C. Up to the date of the trial and despite
numerous demands by plaintiff, defendant failed to pay any rental (except P2,000 in March,
1958 from the Bureau of Public Highways) nor to return the crane to plaintiff.
After trial, judgment was rendered in favor of plaintiff and against the defendants, ordering the
latter solidarity to pay the plaintiff the sum of P7,700 as unpaid rentals up to and including the
month of September, 1958 when the complaint was filed plus P900 as monthly rental from the
month of October, 1958 until the crane is actually returned, or in default thereof to pay to
plaintiff the sum of P15,000 for the crane, provided that the amount for which appellant Mutual
Security Insurance Corporation shall be liable shall not exceed the sum of P15,000; and to pay
the costs.

Only the surety company appealed, urging that the trial court erred in not holding that it was
released from liability under the surety bond which had become null and void from the failure
of plaintiff to report within five days to appellant the violation of the lease contract.
The Contract of Lease of Construction Equipment, Exhibit A, provides inter alia: "2. That the
lessee obligates to pay a monthly rental of Nine Hundred Pesos (P900) Philippine Currency
payable at the residence of the LESSOR ..."; while the surety bond, Exhibit B, after
guaranteeing compliance with the lease contract provides: "Any violation of said contract will
be reported to the herein Surety Company within (5) days, otherwise, this bond will be null and
void."
Upon the facts above narrated, the Court of Appeals decided that Pastoral's failure to notify the surety
of the principal's defaults between October 6-10 and November 6-10, 1957, and in notifying the surety
only on December 5, 1957, constituted a violation of the conditions of the bond that exonerated the
surety from liability.
Unable to obtain reconsideration of the decision, Pastoral resorted to this Court.
We find the appealed decision to be in error.
On the basis that Pastoral received a copy of the bond (containing the requirement to notify the surety
of any default within 5 days) only on November 21, 1957 and this date is not seriously disputed
Pastoral's obligation to notify it within five (5) days of the defaults in the payment of the first two
monthly rentals, falling due in early October and early November, had become impossible of
performance, so that compliance with the 5-day notice requirement had become excused for those two
months. No reason is shown why Pastoral should anticipate that the surety would impose this condition
when the lease contract merely required that lessee Mapada & Co., Inc. should furnish a surety bond.
That Pastoral knew nothing about such a condition before November 21 is further emphasized by the
fact that in late October or early November he agreed with Mapada & Co., Inc., to defer payment of the
October and November rentals to the end of November.
By imposing on Pastoral the condition of notifying it within 5 days of default, the surety company made
it necessary that Pastoral should accept the bond; and Pastoral could not do so before learning of it.
This Court has ruled that where the guaranty requires action by the creditor before the obligation
becomes fixed, it is not binding until accepted (National Bank vs. Garcia, 47 Phil. 63; Texas Co. [Phil.]
Inc. vs. Alonzo, 73 Phil. 90). The rule is grounded on common sense; otherwise, the debtor and the
guarantor could easily defraud the creditor by inserting in the bond conditions that would render it
nugatory.
The suretyship contract, therefore, was not perfected and was not binding on Pastoral until November
21, 1957, when he received copy thereof and tacitly accepted it. By then two defaults had already
occurred (even disregarding the extension agreement of October 31, hereinafter discussed); and
Pastoral was in no position to give notice of them within 5 days after default, as required by the bond,
because the latest happened on November 5. The 5-day period to notify expired November 10, and
Pastoral only learned of the existence of the condition on November 21. Ad impossibilia nemor tenetur.
In fact, by not notifying Pastoral earlier, the surety must be deemed to have waived the condition as to
rentals already due, since a condition is deemed fulfilled when the obligor voluntarily prevents its
fulfillment (Civ. Code, Art. 1186).
The Court of Appeals held that Pastoral was duty-bound to know and secure copy of the surety contract
within a reasonable time from its execution on October 22, 1957, and that not having done so, he was
chargeable with its contents. We find no justification for this pronouncement. If anyone was obligated
to notify Pastoral of the conditions attached to the bond, that one was the guarantor. Pastoral was not
obligated to inquire, since his assent to the condition was necessary; and if no acceptable bond was
forthcoming, he could always rescind the lease of the machinery to Mapada & Co., Inc., and recover his
crane.
The Court of Appeals further held that the act of Pastoral in granting to the debtor on October 31, 1957
time up to the end of November, 1957 to pay the rentals that fell due on the first five days of October
and November, without the surety's consent, constituted a material alteration that discharged the
surety. We agree with appellant that this view is untenable. When Pastoral agreed on October 31 that
the October and November rentals be paid at the end of November, he had not yet learned of them on
November 21. On the latter date, the debtor was not yet in default, because the extension given had
wiped out the previous failures to pay on October 5 and November 5. The first default after the bond
had become effective in law (on November 21) occurred on the last day of November, and Pastoral
gave notice thereof to the surety on the 5th day of December, within the five-day period prescribed by
the bond.

A contract of guaranty or suretyship is only prospective, and not retroactive in operation (Socony
Vacuum, Corp. vs. Miraflores, 67 Phil. 304; El Venceder vs. Canlas, 44 Phil. 699; Asiastic Petroleum Co.
vs. De Pio, 46 Phil. 167), unless a contrary intent is clearly shown. Consequently, Pastoral, was entitled
to assume that the notice provided by the surety bond did not, and was not intended to include any
defaults incurred prior to his acceptance. The surety, which drafted the bond, could have expressly
provided, if it so chose, that the five-day notice therein provided should extend to the amounts of
falling due on October 5 and November 5, but the surety failed to do so, and cannot blame Pastoral
therefor.
The fault in the reasoning of the Court of Appeals lies in its assumption that the surety bond became
effective immediately, without taking into account that the five-day notice provision required the
creditor's assent to become effective and binding This assent could not be given before November 21,
when Pastoral learned of the condition for the first time and tacitly agreed to it, as shown by his notice
to the surety on December 5, that the principal debtor had defaulted.
It is worth stressing here that this Court has repeatedly decided (Pacific Tobacco Co. vs. Lorenzana and
Visayan Surety, L-8086, October 31, 1957; Phil. Surety vs. Royal Oil Products, L-9981, Oct. 31, 1957;
Atkins Kroll & Co. vs. Reyes, L-11936, April 30, 1959) that the rule holding sureties to be favorites of
the law, and their contracts to be strictissimi juris, does not apply to compensated sureties, following
United States Fidelity & Guaranty Co. vs. Golden Pressed & Fire Brick Co., 191 U.S. 416, 48 L. ed. 242:
We are familiar with the old rule of strict construction in favor of the surety, based upon the
underlying principle that formerly parties became sureties, not for hire but as a matter of
accommodation, usually lending their names through motives of friendship, and hence a surety
obligation would be construed most strongly in their favor. But the rule "strictissimi juris" has
no application to surety companies, organized for the purpose of conducting an indemnity
business at established rates of compensation.
and which, it may be added, protect themselves against loss by exacting adequate counterbonds.
WHEREFORE, the decision of the Court of Appeals is reversed, and that of the Court of First Instance of
Manila is upheld and confirmed. Respondent-appellee Mutual Security Insurance Corporation shall pay
the costs in all instances.
Bengzon, C.J., Concepcion, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo, J., took no part

V.

ESTATE of HEMADY vs. LUZON SURETY CO., INC.

[G.R. No. L-8437. November 28, 1956.]

ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant-Appellant.

DECISION
REYES, J. B. L., J.:

Appeal by Luzon Surety Co., Inc., from an order of the Court of First Instance of Rizal, presided by Judge
Hermogenes Caluag, dismissing its claim against the Estate of K. H. Hemady (Special Proceeding No.
Q-293) for failure to state a cause of action.
The Luzon Surety Co. had filed a claim against the Estate based on twenty different indemnity
agreements, or counter bonds, each subscribed by a distinct principal and by the deceased K. H.
Hemady, a surety solidary guarantor) in all of them, in consideration of the Luzon Surety Co.s of
having guaranteed, the various principals in favor of different creditors. The twenty counterbonds, or
indemnity agreements, all contained the following stipulations:chanroblesvirtuallawlibrary
Premiums. As consideration for this suretyship, the undersigned jointly and severally, agree to pay
the COMPANY the sum of ________________ (P______) pesos, Philippines Currency, in advance as
premium there of for every __________ months or fractions thereof, this ________ or any renewal or
substitution thereof is in effect.
Indemnity. The undersigned, jointly and severally, agree at all times to indemnify the COMPANY and
keep it indemnified and hold and save it harmless from and against any and all damages, losses, costs,
stamps, taxes, penalties, charges, and expenses of whatsoever kind and nature which the COMPANY
shall or may, at any time sustain or incur in consequence of having become surety upon this bond or
any extension, renewal, substitution or alteration thereof made at the instance of the undersigned or
any of them or any order executed on behalf of the undersigned or any of them; chan
roblesvirtualawlibraryand to pay, reimburse and make good to the COMPANY, its successors and
assigns, all sums and amount of money which it or its representatives shall pay or cause to be paid, or
become liable to pay, on account of the undersigned or any of them, of whatsoever kind and nature,
including 15% of the amount involved in the litigation or other matters growing out of or connected
therewith for counsel or attorneys fees, but in no case less than P25. It is hereby further agreed that in
case of extension or renewal of this ________ we equally bind ourselves for the payment thereof under
the same terms and conditions as above mentioned without the necessity of executing another
indemnity agreement for the purpose and that we hereby equally waive our right to be notified of any
renewal or extension of this ________ which may be granted under this indemnity agreement.
Interest on amount paid by the Company. Any and all sums of money so paid by the company shall
bear interest at the rate of 12% per annum which interest, if not paid, will be accummulated and
added to the capital quarterly order to earn the same interests as the capital and the total sum
thereof, the capital and interest, shall be paid to the COMPANY as soon as the COMPANY shall have
become liable therefore, whether it shall have paid out such sums of money or any part thereof or not.
xxx

xxx

xxx

Waiver. It is hereby agreed upon by and between the undersigned that any question which may
arise between them by reason of this document and which has to be submitted for decision to Courts
of Justice shall be brought before the Court of competent jurisdiction in the City of Manila, waiving for
this purpose any other venue. Our right to be notified of the acceptance and approval of this indemnity
agreement is hereby likewise waived.
xxx

xxx

xxx

Our Liability Hereunder. It shall not be necessary for the COMPANY to bring suit against the principal
upon his default, or to exhaust the property of the principal, but the liability hereunder of the
undersigned indemnitor shall be jointly and severally, a primary one, the same as that of the principal,
and shall be exigible immediately upon the occurrence of such default. (Rec. App. pp. 98- 102.)
The Luzon Surety Co., prayed for allowance, as a contingent claim, of the value of the twenty bonds it
had executed in consideration of the counterbonds, and further asked for judgment for the unpaid
premiums and documentary stamps affixed to the bonds, with 12 per cent interest thereon.
Before answer was filed, and upon motion of the administratrix of Hemadys estate, the lower court, by
order of September 23, 1953, dismissed the claims of Luzon Surety Co., on two
grounds:chanroblesvirtuallawlibrary (1) that the premiums due and cost of documentary stamps were
not contemplated under the indemnity agreements to be a part of the undertaking of the guarantor
(Hemady), since they were not liabilities incurred after the execution of the counterbonds; chan
roblesvirtualawlibraryand (2) that whatever losses may occur after Hemadys death, are not
chargeable to his estate, because upon his death he ceased to be guarantor.
Taking up the latter point first, since it is the one more far reaching in effects, the reasoning of the
court below ran as follows:chanroblesvirtuallawlibrary
The administratrix further contends that upon the death of Hemady, his liability as a guarantor
terminated, and therefore, in the absence of a showing that a loss or damage was suffered, the claim
cannot be considered contingent. This Court believes that there is merit in this contention and finds
support in Article 2046 of the new Civil Code. It should be noted that a new requirement has been
added for a person to qualify as a guarantor, that is:chanroblesvirtuallawlibrary integrity. As correctly
pointed out by the Administratrix, integrity is something purely personal and is not transmissible. Upon
the death of Hemady, his integrity was not transmitted to his estate or successors. Whatever loss
therefore, may occur after Hemadys death, are not chargeable to his estate because upon his death
he ceased to be a guarantor.
Another clear and strong indication that the surety company has exclusively relied on the personality,
character, honesty and integrity of the now deceased K. H. Hemady, was the fact that in the printed
form of the indemnity agreement there is a paragraph entitled Security by way of first mortgage,
which was expressly waived and renounced by the security company. The security company has not
demanded from K. H. Hemady to comply with this requirement of giving security by way of first
mortgage. In the supporting papers of the claim presented by Luzon Surety Company, no real property
was mentioned in the list of properties mortgaged which appears at the back of the indemnity
agreement. (Rec. App., pp. 407-408).

We find this reasoning untenable. Under the present Civil Code (Article 1311), as well as under the Civil
Code of 1889 (Article 1257), the rule is that
Contracts take effect only as between the parties, their assigns and heirs, except in the case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law.
While in our successional system the responsibility of the heirs for the debts of their decedent cannot
exceed the value of the inheritance they receive from him, the principle remains intact that these heirs
succeed not only to the rights of the deceased but also to his obligations. Articles 774 and 776 of the
New Civil Code (and Articles 659 and 661 of the preceding one) expressly so provide, thereby
confirming Article 1311 already quoted.
ART. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance, of a person are transmitted through his death to another
or others either by his will or by operation of law.
ART. 776. The inheritance includes all the property, rights and obligations of a person which are not
extinguished by his death.
In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court ruled:chanroblesvirtuallawlibrary
Under the Civil Code the heirs, by virtue of the rights of succession are subrogated to all the rights
and obligations of the deceased (Article 661) and cannot be regarded as third parties with respect to a
contract to which the deceased was a party, touching the estate of the deceased (Barrios vs. Dolor, 2
Phil. 44).
xxx

xxx

xxx

The principle on which these decisions rest is not affected by the provisions of the new Code of Civil
Procedure, and, in accordance with that principle, the heirs of a deceased person cannot be held to be
third persons in relation to any contracts touching the real estate of their decedent which comes in
to their hands by right of inheritance; chan roblesvirtualawlibrarythey take such property subject to all
the obligations resting thereon in the hands of him from whom they derive their rights.
(See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. 2874 and de Guzman vs. Salak, 91 Phil., 265).
The binding effect of contracts upon the heirs of the deceased party is not altered by the provision in
our Rules of Court that money debts of a deceased must be liquidated and paid from his estate before
the residue is distributed among said heirs (Rule 89). The reason is that whatever payment is thus
made from the estate is ultimately a payment by the heirs and distributees, since the amount of the
paid claim in fact diminishes or reduces the shares that the heirs would have been entitled to receive.
Under our law, therefore, the general rule is that a partys contractual rights and obligations are
transmissible to the successors. The rule is a consequence of the progressive depersonalization of
patrimonial rights and duties that, as observed by Victorio Polacco, has characterized the history of
these institutions. From the Roman concept of a relation from person to person, the obligation has
evolved into a relation from patrimony to patrimony, with the persons occupying only a representative
position, barring those rare cases where the obligation is strictly personal, i.e., is contracted intuitu
personae, in consideration of its performance by a specific person and by no other. The transition is
marked by the disappearance of the imprisonment for debt.
Of the three exceptions fixed by Article 1311, the nature of the obligation of the surety or guarantor
does not warrant the conclusion that his peculiar individual qualities are contemplated as a principal
inducement for the contract. What did the creditor Luzon Surety Co. expect of K. H. Hemady when it
accepted the latter as surety in the counterbonds? Nothing but the reimbursement of the moneys that
the Luzon Surety Co. might have to disburse on account of the obligations of the principal debtors. This
reimbursement is a payment of a sum of money, resulting from an obligation to give; chan
roblesvirtualawlibraryand to the Luzon Surety Co., it was indifferent that the reimbursement should be
made by Hemady himself or by some one else in his behalf, so long as the money was paid to it.
The second exception of Article 1311, p. 1, is intransmissibility by stipulation of the parties. Being
exceptional and contrary to the general rule, this intransmissibility should not be easily implied, but
must be expressly established, or at the very least, clearly inferable from the provisions of the contract
itself, and the text of the agreements sued upon nowhere indicate that they are non-transferable.
(b) Intransmisibilidad por pacto. Lo general es la transmisibilidad de darechos y obligaciones;chan
roblesvirtualawlibraryle excepcion, la intransmisibilidad. Mientras nada se diga en contrario impera el
principio de la transmision, como elemento natural a toda relacion juridica, salvo las personalisimas.
Asi, para la no transmision, es menester el pacto expreso, porque si no, lo convenido entre partes
trasciende a sus herederos.
Siendo estos los continuadores de la personalidad del causante, sobre ellos recaen los efectos de los
vinculos juridicos creados por sus antecesores, y para evitarlo, si asi se quiere, es indespensable
convension terminante en tal sentido.
Por su esencia, el derecho y la obligacion tienden a ir ms all de las personas que les dieron vida, y a
ejercer presion sobre los sucesores de esa persona; chan roblesvirtualawlibrarycuando no se quiera
esto, se impone una estipulacion limitativa expresamente de la transmisibilidad o de cuyos tirminos
claramente se deduzca la concresion del concreto a las mismas personas que lo otorgon. (Scaevola,
Codigo Civil, Tomo XX, p. 541-542) (Emphasis supplied.)
Because under the law (Article 1311), a person who enters into a contract is deemed to have
contracted for himself and his heirs and assigns, it is unnecessary for him to expressly stipulate to that
effect; chan roblesvirtualawlibraryhence, his failure to do so is no sign that he intended his bargain to
terminate upon his death. Similarly, that the Luzon Surety Co., did not require bondsman Hemady to
execute a mortgage indicates nothing more than the companys faith and confidence in the financial
stability of the surety, but not that his obligation was strictly personal.

The third exception to the transmissibility of obligations under Article 1311 exists when they are not
transmissible by operation of law. The provision makes reference to those cases where the law
expresses that the rights or obligations are extinguished by death, as is the case in legal support
(Article 300), parental authority (Article 327), usufruct (Article 603), contracts for a piece of work
(Article 1726), partnership (Article 1830 and agency (Article 1919). By contract, the articles of the Civil
Code that regulate guaranty or suretyship (Articles 2047 to 2084) contain no provision that the
guaranty is extinguished upon the death of the guarantor or the surety.
The lower court sought to infer such a limitation from Art. 2056, to the effect that one who is obliged
to furnish a guarantor must present a person who possesses integrity, capacity to bind himself, and
sufficient property to answer for the obligation which he guarantees. It will be noted, however, that
the law requires these qualities to be present only at the time of the perfection of the contract of
guaranty. It is self-evident that once the contract has become perfected and binding, the supervening
incapacity of the guarantor would not operate to exonerate him of the eventual liability he has
contracted; chan roblesvirtualawlibraryand if that be true of his capacity to bind himself, it should also
be true of his integrity, which is a quality mentioned in the article alongside the capacity.
The
foregoing
concept
is
confirmed
follows:chanroblesvirtuallawlibrary

by

the

next

Article

2057,

that

runs

as

ART. 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or
should become insolvent, the creditor may demand another who has all the qualifications required in
the preceding article. The case is excepted where the creditor has required and stipulated that a
specified person should be guarantor.
From this article it should be immediately apparent that the supervening dishonesty of the guarantor
(that is to say, the disappearance of his integrity after he has become bound) does not terminate the
contract but merely entitles the creditor to demand a replacement of the guarantor. But the step
remains optional in the creditor:chanroblesvirtuallawlibrary it is his right, not his duty; chan
roblesvirtualawlibraryhe may waive it if he chooses, and hold the guarantor to his bargain. Hence
Article 2057 of the present Civil Code is incompatible with the trial courts stand that the requirement
of integrity in the guarantor or surety makes the latters undertaking strictly personal, so linked to his
individuality that the guaranty automatically terminates upon his death.
The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being
rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the contracts
themselves, nor by provision of law, his eventual liability thereunder necessarily passed upon his death
to his heirs. The contracts, therefore, give rise to contingent claims provable against his estate under
section 5, Rule 87 (2 Moran, 1952 ed., p. 437; chan roblesvirtualawlibraryGaskell & Co. vs. Tan Sit, 43
Phil. 810, 814).
The most common example of the contigent claim is that which arises when a person is bound as
surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship
the surety has no claim whatever against his principal until he himself pays something by way of
satisfaction upon the obligation which is secured. When he does this, there instantly arises in favor of
the surety the right to compel the principal to exonerate the surety. But until the surety has
contributed something to the payment of the debt, or has performed the secured obligation in whole or
in part, he has no right of action against anybody no claim that could be reduced to judgment. (May
vs. Vann, 15 Pla., 553; chan roblesvirtualawlibraryGibson vs. Mithell, 16 Pla., 519; chan
roblesvirtualawlibraryMaxey vs. Carter, 10 Yarg. [Tenn.], 521 Reeves vs. Pulliam, 7 Baxt. [Tenn.],
119; chan roblesvirtualawlibraryErnst vs. Nou, 63 Wis., 134.)
For Defendant administratrix it is averred that the above doctrine refers to a case where the surety
files claims against the estate of the principal debtor; chan roblesvirtualawlibraryand it is urged that
the rule does not apply to the case before us, where the late Hemady was a surety, not a principal
debtor. The argument evinces a superficial view of the relations between parties. If under the Gaskell
ruling, the Luzon Surety Co., as guarantor, could file a contingent claim against the estate of the
principal debtors if the latter should die, there is absolutely no reason why it could not file such a claim
against the estate of Hemady, since Hemady is a solidary co-debtor of his principals. What the Luzon
Surety Co. may claim from the estate of a principal debtor it may equally claim from the estate of
Hemady, since, in view of the existing solidarity, the latter does not even enjoy the benefit of
exhaustion of the assets of the principal debtor.
The foregoing ruling is of course without prejudice to the remedies of the administratrix against the
principal debtors under Articles 2071 and 2067 of the New Civil Code.
Our conclusion is that the solidary guarantors liability is not extinguished by his death, and that in
such event, the Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. It becomes unnecessary now to discuss the estates liability for premiums and stamp
taxes, because irrespective of the solution to this question, the Luzon Suretys claim did state a cause
of action, and its dismissal was erroneous.
Wherefore, the order appealed from is reversed, and the records are ordered remanded to the court of
origin,
with
instructions
to
proceed
in
accordance
with
law.
Costs
against
the
Administratrix- Appellee. SO ORDERED.
Paras, C.J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia
and Felix, JJ., concur.

EFFECTS of GUARANTY

I.

WISE & CO. VS. TANGLAO

G.R. No. L-42518

August 29, 1936

WISE & CO., INC., plaintiff-appellee,

vs.
DIONISIO P. TANGLAO, defendant-appellant.
The appellant in his own behalf.
Franco and Reinoso for appellee.
AVANCEA, C. J.:
In the Court of First Instance of Manila, Wise & Co. instituted civil case No. 41129 against Cornelio C.
David for the recovery of a certain sum of money David was an agent of Wise & Co. and the amount
claimed from him was the result of a liquidation of accounts showing that he was indebted in said
amount. In said case Wise & Co. asked and obtained a preliminary attachment of David's property. To
avoid the execution of said attachment, David succeeded in having his Attorney Tanglao execute on
January 16, 1932, a power of attorney (Exhibit A) in his favor, with the following clause:
To sign for me as guarantor for himself in his indebtedness to Wise & Company of Manila,
which indebtedness appears in civil case No. 41129, of the Court of First Instance of Manila,
and to mortgage my lot (No. 517-F of the subdivision plan Psd-20, being a portion of lot No.
517 of the cadastral survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said
obligations to the Wise & Company, Inc., of Manila.
On the 18th of said month David subscribed and on the 23d thereof, filed in court, the following
document (Exhibit B):
COMPROMISE
Come now the parties, plaintiff by the undersigned attorneys and defendants in his own behalf
and respectfully state:
I. That the defendant confesses judgment for the sum of six hundred forty pesos
(P640), payable at the rate of eighty pesos (P80) per month, the first payment to be
made on February 15, 1932 and successively thereafter until the full amount is paid;
the plaintiff accepts this stipulation.
II. That as security for the payment of said sum of P640, defendant binds in favor of,
and pledges to the plaintiff, the following real properties:
1. House of light materials described under tax declaration No. 9650 of the
municipality of Angeles, Province of Pampanga, assessed at P320.
2. Accesoria apartments with a ground floor of 180 sq. m. with the first story of
cement and galvanized of iron roofing located on the lot belonging to Mariano
Tablante Geronimo, said accesoria is described under tax declaration No.
11164 of the municipality of Angeles, Province of Pampanga, assessed at P800.
3. Parcel of land described under Transfer Certificate of Title No. 2307 of the
Province of Pampanga recorded in the name of Dionisio Tanglao of which
defendant herein holds a special power of attorney to pledge the same in favor

of Wise & Co., Inc., as a guarantee for the payment of the claim against him in
the above entitled cause. The said parcel of land is bounded as follows: NE. lot
No. 517 "Part" de Narciso Garcia; SE. Calle Rizal; SW. lot No. 517 "Part" de
Bernardino Tiongco; NW. lot No. 508 de Clemente Dayrit; containing 431 sq. m.
and described in tax declaration No. 11977 of the municipality of Angeles,
Pampanga, assessed at P423.
That this guaranty is attached to the properties above mentioned as first lien and for this
reason the parties agree to register this compromise with the Register of Deeds of Pampanga,
said lien to be cancelled only on the payment of the full amount of the judgment in this case.
Wherefore, the parties pray that the above compromise be admitted and that an order issue
requiring the register of Deeds of Pampanga to register this compromise previous to the filing
of the legal fees.
David paid the sum of P343.47 to Wise & Co., on account of the P640 which he bound himself to pay
under Exhibit B, leaving an unpaid balance of P296.53.
Wise & Co. now institutes this case against Tanglao for the recovery of said balance of P296.53.
There is no doubt that under Exhibit, A, Tanglao empowered David, in his name, to enter into a
contract of suretyship and a contract of mortgage of the property described in the document, with
Wise & Co. However, David used said power of attorney only to mortgage the property and did not
enter into contract of suretyship. Nothing is stated in Exhibit B to the effect that Tanglao became
David's surety for the payment of the sum in question. Neither is this inferable from any of the clauses
thereof, and even if this inference might be made, it would be insufficient to create an obligation of
suretyship which, under the law, must be express and cannot be presumed.
It appears from the foregoing that defendant, Tanglao could not have contracted any personal
responsibility for the payment of the sum of P640. The only obligation which Exhibit B, in connection
with Exhibit A, has created on the part of Tanglao, is that resulting from the mortgage of a property
belonging to him to secure the payment of said P640. However, a foreclosure suit is not instituted in
this case against Tanglao, but a purely personal action for the recovery of the amount still owed by
David.
At any rate, even granting that defendant Tanglao may be considered as a surety under Exhibit B, the
action does not yet lie against him on the ground that all the legal remedies against the debtor have
not previously been exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court of Spain
of March 2, 1891). The plaintiff has in its favor a judgment against debtor David for the payment of
debt. It does not appear that the execution of this judgment has been asked for and Exhibit B, on the
other hand, shows that David has two pieces of property the value of which is in excess of the balance
of the debt the payment of which is sought of Tanglao in his alleged capacity as surety.
For the foregoing considerations, the appealed judgment is reversed and the defendant is absolved
from the complaint, with the costs to the plaintiff. So ordered.
Villa-Real, Abad Santos, Imperial, Diaz, Recto, and Laurel, JJ., concur.

II. MIRA HERMANOS, INC. VS. MANILA TOBACCONISTS INC.,

G.R. No. L-48979

September 29, 1943

MIRA HERMANOS, INC., plaintiff-appellee,

vs.
MANILA TOBACCONISTS, INC., ET AL., defendants.
PROVIDENT INSURANCE CO., defendant-appellant.
E. V. Filamor for appellant.
Ramirez and Ortigas for appellee.
Ernesto Zaragoza for defendant, Manila Compaia de Seguras.
OZAETA, J.:
This appeal has been certified to this court by the Court of Appeals because it involves only a question
of law arising from the following facts:
By virtue of a written contract (Exhibit A) entered into between Mira Hermanos, Inc., and Manila
Tobacconists, Inc., the former agreed to deliver to the latter merchandise for sale on consignment
under certain specified terms and the latter agreed to pay to the former on or before the 20th day of
each month the invoice value of all the merchandise sold during the preceding month. Mira Hermanos,
Inc., required of the Manila Tobacconists, Inc., a bond of P3,000, which was executed by the Provident
Insurance Co., on September 2, 1939 (Exhibit B), to secure the fulfillment of the obligation of the
Tobacconists under the contract (Exhibit A) up to the sum of P3,000.
In the month of October, 1940, the volume of the business of the Tobacconists having increased so
that the merchandise received by it on consignment from Mira Hermanos exceeded P3,000 in value,
Mira Hermanos required of the Tobacconist an additional bond of P2,000, and in compliance with that
requirement the defendant Manila Compaia de Seguros, on October 16, 1940, executed a bond of
P2,000 (Exhibit C) with the same terms and conditions (except as to the amount) as the bond of the
Provident Insurance Co.
On June 1, 1941, a final and complete liquidation was made of the transactions between Mira
Hermanos and the Tobacconists, as a result of which there was found a balance due from the latter to
the former of P2,272.79, which indebtedness the Tobacconists recognized but was unable to pay.
Thereupon Mira Hermanos made a demand upon the two surety companies for the payment of said
sum.

The Provident Insurance Co., paid only the sum of P1,363.67, which is 60% of the amount owned by
the Tobacconists to Mira Hermanos, alleging that the remaining 40% should be paid by the other
surety, Manila Compaia de Seguros, in accordance with article 8137 of the Civil Code. The Manila
Compaia de Seguros refused to pay the balance, contending that so long as the liability of the
Tobacconists did not exceed P3,000, it was not bound to pay anything because its bond referred only to
the obligation of the Tobacconists in excess of P3,000 and up to P5,000. Hence Mira Hermanos, Inc.,
brought this action against the Manila Tobacconists, Inc., Provident Insurance Co., and Manila
Compaia de Seguros to recover from them jointly and severally the sum of P909.12 with legal interest
thereon from the date of the complaint.
The controversy is mainly between the two surety companies. In its answer the defendant Manila
Compaia de Seguros alleged as a special defense:
4. Que la fianza otorgada por esta demandada 'Manila Compania de Seguros', el Octubre de
1940 fue exigida por la demandante solo cuando el importe de las mercancias servidas por
esta y pedidas por la demandada Manila Tobacconists, Inc., excedio de la suma de P3,000
garantizada por la otra demandada Provident Insurance Co.; por lo que quedo entendido entre
la demandante y las tres demandadas que la fianza de P2,000 prestada el Octubre de 1940
por esta demandada, 'Manila Compaia de Seguros', se limitaba y era para responder
solamente del importe de mercancias servidad a la demandada Manila Tobacconists, Inc., en
tanto en cuanto el valor de esas mercancias excediese de P3,000 asegurada por la fianza
P3,000 de la Manila Tobacconists, Inc.
To that the defendant Provident Insurance Co. replied:
Que no es verdad el hecho alegado por la demandada 'Manila Compaia de Seguros' en el
parrafo 4 de su contestacion que dice: 'que quedo entendido entre la demandante y las tres
demandadas que la fianza de P2,000 prestada el Octubre de 1940 por esta demandada
"Manila Compaia de Seguros" se limitaba y era para responder solamente del importe de
mercancias servidas a la demandada Manila Tocacconists, Inc., en tanto en cuanto el valor de
esas mercancias excediese de P3,000 asegurada por la fianza de P3,000 de la "Manila
Tobacconists, Inc."
Que la demandada, aqui compareciente, nunca ha tenido conocimiento ni menos prestado su
consentimiento a esa supuesta inteligencia.
Que esta demandada no puede ser privada del beneficio de division a que tiene derecho como
co-fiador, sin que conste expresamente, por escrito, su conformidad y consentimiento de
renunciar a su derecho.
Thus there was an issue of fact between the two surety companies, viz.: whether the understanding
between the plaintiff and the three defendants was, that the bond of P2,000 given by the Manila
Compaia de Seguros was limited to and responded for the obligation of the Tobacconists only insofar
as it might exceed the amount of P3,000 secured by the bond of the Provident Insurance Co. That issue
of fact was decided by the trial court in favor of the contention of the Manila Compaia de Seguros;
and judgment was rendered by it against the Provident Insurance Co. alone for the amount claimed by
the plaintiff.
Appellant's first two assignments of error (the third being a mere consequence of the first two) read as
follows:
1. El juzgado inferior incurrio en error al hacer caso omiso del beneficio de division reclamado
por la demandada Provident Insurance Co. of the Philippines con arreglo a lo dispuesto en el
Art. 1837 del Codigo Civil.
2. El juzgado erro al aplicar, en lugar de lo dispuesto en el Art. 1837 del Codigo Civil, una teoria
suya, declarando que la fianza de P3,000.00 prestada por Provident Insurance Co. of the
Philippines y la fianza de P2,000 de Manila Compaia de Seguros, cada una tiene una esfera de
responsabilidad propia e independiente la una de la otra.
Discussing these two assignments of error jointly, counsel says:
La unica cuestion que se presenta en esta causa es puramente de derecho. Si el saldo deudor
de P2,272.79 que Tobacconists ha dejado de pagar, deben pagarlo en su lugar, los dos fiadores
proporcionalmente a la cuantia en que se obligaron o debe pagarlo sola y exclusivamente la
fiadora Provident Insurance Co., como ordena la sentencia opelada.

Thus it appears that the issue of fact raised by and between the two surety companies before the trial
court and decided by the latter in favor of the appellee Manila Compaia de Seguros is no longer
raised before this Court, appellant Provident Insurance Co. having limited the issue in this appeal to
whether or not it is entitled to the "benefit of division" provided in article 1837 of the Civil Code, which
reads as follows:
Art. 1837. Should there be several sureties of only one debtor for the same debt, the liability
therefor shall be divided among them all. The creditor can claim from each surety only his
proportional part unless liabilityin solidum has been expressly stipulated.
The right to the benefit of division against the co-sureties for their respective shares ceases in
the same cases and for the same reason as that to an exhaustion of property against the
principal debtor.
With particular reference to the second assignment of error, we find that the statement of the trial
court to the effect that the bond of P3,000 responded for the obligation of the Tobacconists up to the
sum of P3,000 and the bond of P2,000 responded for the obligation of the Tobacconists only insofar as
it might exceed P3,000 and up to P5,000, is not a mere theory but a finding of fact based upon the
undisputed testimony of the witnesses called by the defendant Manila Compaia de Seguros in support
of its special defense hereinbefore quoted. While on its face the bond given by the Manila Compaia de
Seguros contains the same terms and conditions (except as to the amount) as those of the bond given
by the Provident Insurance Co., nevertheless it was pleaded by the Manila Compaia de Seguros and
found proven by the trial court "que la intencion realmente que se habia perseguido, por lo menos en
lo que respecta a la Manila Tobacconists, Inc., y la Manila Compaia de Seguros, era la de que esta
fianza de P2,000 habria de responder solamente por todo aquello que excediera de los P3,000."
The evidence upon which that finding is based is not only undisputed but perfectly reasonable and
convincing. For, as the trial court observed, there would have been no need for the additional bond of
P2,000 if its purpose were to cover the first P2,000 already covered by the P3,000 bond of the
Provident Insurance Co. Indeed, we might add, if the purpose of the additional bond of P2,000 were to
cover not the excess over and above P3,000 but the first P2,000 of the obligation of the principal
debtor like the bond of P3,000 which covered only the first P3,000 of said obligation, then it would
result that had the obligation of the Tobacconists exceeded P3,000, neither of the two bonds would
have responded for the excess, and that was precisely the event against which Mira Hermanos wanted
to protect itself by demanding the additional bond of P2,000. For instance, suppose that the obligation
of the principal debtor, the Tobacconists, amounted to P5,000; if both bonds were co-extensive up to
P2,000 as would logically follow if appellant's contention were correct the result would be that the
first P2,000 of the obligation would have to be divided between and paid equally by the two surety
companies, which should pay P1,000 each, and of the balance of P3,000 the Provident Insurance Co.
would have to pay only P1,000 more because its liability is limited to the first P3,000, thus leaving the
plaintiff in the lurch as to the excess of P2,000. That was manifestly not the intention of the parties. As
a matter of fact, when the Provident gave its bond and fixed the premiums thereon it assumed an
obligation of P3,000 in solidum with the Tobacconists without any expectation of any benefit of division
with any other surety. The additional bond of P2,000 was, more than a year later, required by the
creditor of the principal debtor for the protection of said creditor and certainly not for the benefit of the
original surety, which was not entitled to expect any such benefit.
The foregoing considerations, which fortify the trial court's conclusion as to the real intent and
agreement of the parties with regard to the bond of P2,000 given by the Manila Compaia de Seguros,
destroys at the same time the theory of the appellant regarding the applicability of article 1837 of the
Civil Code.
That article refers to several sureties of only one debtor for the same debt. In the instant case, altho
the two bonds on their face appear to guarantee the same debt co-extensively up to P2,000 that of
the Provident Insurance Co. alone extending beyond that sum up to P3,000 it was pleaded and
conclusively proven that in reality said bonds, or the two sureties, do not guarantee the same debt
because the Provident Insurance Co. guarantees only the first P3,000 and the Manila Compaia de
Seguros, only the excess over and above said amount up to P5,000. Article 1837 does not apply to this
factual situation.
The judgment of the trial court is affirmed, with the only modification that it shall be entered against
the defendants Manila Tobacconists, Inc., and Provident Insurance Co. jointly and severally. Appellant
shall pay the costs of this instance.
Yulo, C.J., Moran, Paras and Bocobo, JJ., concur.
III.

TUASON, TUASON, INC. VS. MACHUCA

G.R. No. L-22177

December 2, 1924

TUASON, TUASON, INC., plaintiff-appellee,

vs.
ANTONIO MACHUCA, defendant-appellant.
Marcaida, Capili & Ocampo for appellant.
Antonio M. Opisso for appellee.
AVANCEA, J.:
By giving a bond in the sum of P9,663 executed by "Manila Compaia de Seguros," the Universal
Trading Company was allowed by the Insular Collector of Custom to withdraw from the customhouse
sundry goods imported by it and consigned through the bank of the Philippine Islands. Subsequently,
the Bank of the Philippine Islands claimed the value of the goods, and the Insular Collector of Customs
obligated the "Manila Compaia de Seguros" to pay the sum of P9,663, the amount of the bond. Before
paying this amount to the Insular Collector of Customs, the "Manila Compaia de Seguros" obtained
from the Universal Trading Company and Tuason, Tuason & Co., a solidary note for the sum of P9,663
executed by said companies in its favor. Before signing said note, Tuason, Tuason & Co., in turn, caused
the Universal Trading Company and its president Antonio Machuca, personally, to sign a document
(Exhibit B), wherein they bound themselves solidarily to pay, reimburse, and refund to the company all
such sums or amounts of money as it, or its representative, may pay or become bound to pay, upon its
obligation with "Manila Compaia de Seguros," whether or not it shall have actually paid such sum or
sums or any part thereof. The Universal Trading Company having been declared insolvent, "Manila
Compaia de Seguros" brought an action in the lower court against Tuason, Tuason & Co. to recover
the value of the note for P9,663 and obtained final judgment therein, which was affirmed by this court
on appeal, for the total sum of P12,197.27, which includes the value of the note with interest
thereon. 1 Subsequently, all the rights of Tuason, Tuason & Co. were transferred to the plaintiff Tuason,
Tuason, Inc.
Later on Tuason, Tuason, Inc., brought this action to recover of Antonio Machuca the sum of P12,197.27
which it was sentenced to pay in the case filed against it by "Manila Compaia de Seguros," plus
P3,000 attorney's fees, and P155.92 court's costs and sheriff's fees, that is, a total of P15,353.19,
together with P1,180.46 as interest upon the sum of P15,353.19 at the rate of 10 per cent per annum
from October 8, 1922, to July 8, 1923, and interest on the sum of P16,535.65 at the rate of 10 per cent
from July 8, 1923, until this sum was paid, and, in addition the sum of P1,653.65 for attorney's fees in
this case. For its cause of action, the plaintiff alleges that it had paid "Manila Compaia de Seguros"
the sum of P12,197.27, the amount of the judgment against it. The dispositive part of the judgment
appealed from is as follows:itc-a1f
Judgment is rendered against the defendant Antonio Machuca, and he is hereby ordered to pay
the plaintiff company the sum of fifteen thousand three hundred fifty-three pesos and nineteen
centavos (15,353.19), with compound interest thereon at the rate of ten per cent (10%) per
annum, to be computed quarterly, that is, one thousand one hundred eighty pesos and fortysix centavos (1,180.46), which is ten per cent interest on the amount of fifteen thousand three
hundred fifty-three pesos and nineteen centavos (P15,353.19) from October 8, 1922, to July 8,
1923, and ten per cent on the sum of sixteen thousand five hundred thirty-three pesos and
sixty-five centavos (P16,533.65) from July 8, 1923, until full payment, to be computed
quarterly, besides the sum of one thousand six hundred fifty-three pesos and sixty-five
centavos (P1,653.65), which is ten per cent (10%) on the amount due and the interest thereon,
which said defendant promised to pay as penalty and attorney's fees in the event of a suit
being necessary to recover the debt, and the costs. So ordered.
It appears from the evidence that what the plaintiff alleged to be a payment made to "Manila
Compaia de Seguros", for the satisfaction of the judgment rendered in favor of the latter is the
execution by Albina Tuason of a document Exhibit D in favor of "Manila Compaia de Seguros." In this
document Albina Tuason declares that she assumes and makes hers the obligation to pay the amount
of said judgment to "Manila Compaia de Seguros" within one year and mortgages a property
described in the document as security for this obligation. This obligation of Albina Tuason was accepted
by the "Manila Compaia de Seguros," in the following terms: "I accept the foregoing security
executed by Miss Albina Tuason in favor of `Manila Compaia de Seguros.'" It, thus, appears that the
plaintiff has not in fact paid the amount of the judgment to "Manila Compaia de Seguros." The action
brought by the plaintiff is that which surety, who pays the debt of the debtor, is entitled to bring to
recover the amount thus paid (art. 1823, Civil Code). It is evidence that such a payment not having
been made the alleged cause of action does not exist.
The plaintiff company argues that, at all events, it is entitled to bring this action under article 1843 of
the Civil Code, which provides that the surety may, even before making payment, bring action against
the principal debtor. This contention of the plaintiff is untenable. The present action, according to the
terms of the complaint, is clearly based on the fact of payment. It is true that, under article 1843, an
action lies against the principal debtor even before the surety pays the debt, but it clearly appears in

the complaint that this is not the action brought by the plaintiff. Moreover this article 1843 provided
several cumulative remedies in favor of the surety, at his election, and the surety who brings an action
under this article must choose the remedy and apply for it specifically. At any rate this article does not
provide for the reimbursement of any amount, as is sought by the plaintiff.lawphi1.net
But although the plaintiff has not as yet paid "Manila Compaia de Seguros" the amount of the
judgment against it, and even considering that this action cannot be held to come under article 1843
of the Civil Code, yet the plaintiff is entitled to the relief sought in view of the facts established by the
evidence. The plaintiff became bound, by virtue of a final judgment, to pay the value of the note
executed by it in favor of "Manila Compaia de Seguros." According to the document executed
solidarily by the defendant and the Universal Trading Company, the defendant bound himself to pay
the plaintiff as soon as the latter may have become bound and liable, whether or not it shall have
actually paid. It is indisputable that the plaintiff became bound and liable by a final judgment to pay
the value of the note to "Manila Compaia de Seguros."
The defendant also contends that the document executed by Albina Tuason in favor of "Manila
Compaia de Seguros" assuming and making hers the obligation of Tuason, Tuason & Co., was a
novation of the contract by substitution of the debtor, and relieved Tuason, Tuason & Co. from all
obligation in favor of "Manila Compaia de Seguros." As to this, it is enough to say that if this was what
Albina Tuason contemplated in signing the document, evidently it was not what "Manila Compaia de
Seguros" accepted. As above stated, "Manila Compaia de Seguros" accepted this document only as
additional security for its credit and not as a novation of the contract.
Our conclusion is that the plaintiff has the right to recover of the defendant the sum of P9,663, the
value of the note executed by the plaintiff in favor of "Manila Compaia de Seguros" which the plaintiff
is under obligation to pay by virtue of final judgment. We do not believe, however, that the defendant
must pay the plaintiff the expenses incurred by it in the litigation between it and "Manila Compaia de
Seguros." That litigation was originated by the plaintiff having failed to fulfill its obligation with "Manila
Compaia de Seguros," and it cannot charge the defendant with expenses which it was compelled to
make by reason of its own fault. It is entitled, however, to the expenses incurred by it in this action
brought against the defendant, which are fixed at P1,653.65 as attorney's fees.
The judgment appealed from is modified, and the defendant is sentenced to pay the plaintiff the sum
of P9,663, with interest thereon at the rate of 10 per cent per annum from July 19, 1923, when the
complaint was filed until full payment thereof, plus the sum of P1,653.65 for attorney's fees, without
special pronouncement as to costs. So ordered.
Johnson, Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.

IV.

GIDWANI VS. DOMESTIC INSURANCE CO. OF THE PHILS.

G.R. No. L-31442 June 24, 1983

SPOUSES BHAGWANDAS & SATI GIDWANI and SAMUEL SHARUFF, petitioners,
vs.
DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES and MARINDUQUE MINING &
INDUSTRIAL CORPORATION (formerly Marinduque Iron Mines, Inc.) and JUDGE FEDERICO C.
ALIKPALA, respondents.
Ernesto T. Zshornack, Jr. for petitioners.
Edgardo P. Cruz for respondent Domestic Insurance Co. of the Philippines.

RELOVA, J.:
Appeal by certiorari from the decision of respondent Judge of the Court of First Instance of Manila
(Branch XXII), in Civil Case No. 75092, entitled "Spouses Bhagwandas & Sati Gidwani et al. vs.
Domestic Insurance Company of the Philippines, et al. ", the dispositive portion of which ready
WHEREFORE, judgment is hereby rendered dismissing plaintiffs' complaint, and
spouses Bhagwandas Gidwani and Sati B. Gidwani with Samuel Sharuff are jointly and
severally sentenced to pay to Domestic Insurance Company of the Philippine and
Marinduque Mining & Industrial Corporation the sum of P1,500.00 each plus the costs
of suit.
Both parties are in agreement with respect to the finding of facts made by respondent Judge, as stated
in the appealed decision, to wit:
The Manufacturers' Bank & Trust Company granted Plastic Era Manufacturing Co., Inc.
(hereinafter referred to for brevity as Plastic Era) a discounting line of P20,000.00. To
secure the payment of any loan which said bank may extend to Plastic Era, the latter
posted a surety bond for P 20,000.00 issued by the Domestic Insurance Company of
the Philippines (hereinafter referred to as Domestic Insurance).
On September 9, 1959, Plastic Era, Bhagwandas B. Gidwani and Kishu Gidwani
executed an indemnity agreement whereby they bound themselves, jointly and
severally, to indemnify Domestic Insurance against all damages, losses and expenses
which the latter may incur as a consequence of having issued said surety bond.
On September 10, 1959, Plastic Era signed and executed a promissory note in favor of
the Manufacturers Bank & Trust Company, wherein the former promised to pay the

latter the sum of P20,000.00, with interest thereon at the rate of 10% per annum
payable 120 days from said date.
DOMESTIC INSURANCE required PLASTIC ERA to give additional security and so on
September 23, 1959, Sati B. Gidwani, wife of Bhagwandas Gidwani, pledged to
DOMESTIC INSURANCE her shares of stock in three corporations, among which were
12,000 shares of the Marinduque Iron Mines, Inc. (which corporate name has
subsequently been changed to Marinduque Mining & Industrial Corporation). This
pledge agreement was to secure the fulfillment by PLASTIC ERA of its undertaking to
indemnify DOMESTIC INSURANCE from any and all damages, losses and expenses
which the latter may sustain as a consequence of its having executed a surety bond in
favor of the Manufacturers Bank & Trust Company.
On September 26, 1959, the Marinduque Mining & Industrial Corporation (hereinafter
referred to as MARINDUQUE) was notified of the pledge of the shares of Sati Gidwani
and a 'stop transfer' notice was entered in its books. Since then, an stock dividends
declared and cash dividends paid corresponding to the pledged shares were delivered
to DOMESTIC INSURANCE.
PLASTIC ERA failed to pay the promissory note it executed in favor of the
Manufacturers Bank & Trust Company, and as a result thereof. the latter in turn files a
claim against the bond issued by DOMESTIC INSURANCE, which on October 27,1960,
paid the sum of P20,000.00 to said bank.
On January 26, 1961, DOMESTIC INSURANCE filed an action in the Court of First
Instance of Manila, which was docketed therein as Civil Case No. 46142, against
PLASTIC ERA, Kishu Gidwani and Bhagwandas Gidwani, for the recovery of the sum of P
20,000.00 which DOMESTIC INSURANCE paid to the Manufacturers Bank & Trust
Company, plus interest and attorney's fees.
On November 9, 1961, the Court of First Instance of Manila rendered judgment in Civil
Case No. 46142, based on a compromise agreement, wherein the defendants therein
were sentenced to pay to DOMESTIC INSURANCE the sum of P20,000.00, with interest
thereon at the rate of 12% per annum from October 27, 1960, plus Pl,100.00 as
attorney's fees, without costs. The decision, however, provided that any amount
payable to the plaintiff in excess of P 20,000.00, including interest and attorney's fees
would not be due until one year from the finality of the judgment.
Pursuant to a writ of execution issued in said Civil Case No. 46142, the Sheriff
garnished the liquidating dividends of Bhagwandas Gidwani in the Old Manila Club
amounting to P3,950.00. One Gustav Real claiming to be the assignee of said
dividends, filed a suit in the City Court of Manila against the sheriff and DOMESTIC
INSURANCE for the recovery thereof. The City Court of Manila rendered judgment for
Gustav Real but DOMESTIC INSURANCE and the Sheriff appealed from the decision and
the appealed case is still pending before another branch of this court.
On October 1, 1968, DOMESTIC INSURANCE requested Notary Public Antonio Manzano
to sell at public auction the shares pledged to it by Sati Gidwani for the satisfaction of
the sum of P44,656.55. After the corresponding notice had been given, on October 31,
1968, all the pledged shares were sold at public auction for the sum of P19,322.30 to
DOMESTIC INSURANCE, which was the highest bidder.
On November 7, 1968, DOMESTIC INSURANCE surrendered to MARINDUQUE the
certificate of stock of the pledged shares and requested that they be cancelled and
new certificates of stock issued in its name. In due time, MARINDUQUE complied, but it
only issued 232 and 46/100 shares in the name of DOMESTIC INSURANCE, which was
based on the adjusted new par value of P15.00 per share, instead of the original par
value of P0.10 per share.
On November 5,1968, the transfer agents of MARINDUQUE on the same occasion
received two letters signed by the spouses Bhagwandas B. Gidwani and Sati B.
Gidwani. In the first letter, the spouses stated that they have assigned all their rights
to 34,846 shares belonging to them in favor of Samuel Sharuff and request that the
corresponding notation be made thereof in the stock and transfer book of the
corporation, with the promise, however, that 'in due time ... the stock certificate duly
accomplished and endorsed in favor of Mr. Samuel Sharuff would be forwarded to
MARINDUQUE.

In the second letter, the Gidwani spouses stated that they were not yet able to recover
the corresponding stock certificates which they assigned to Samuel Sharuff and so
they requested that they be and cancelled, and thereafter new ones be issued in lieu
thereof in favor of Samuel Sharuff.
At first, the stock transfer clerk refund to acknowledge receipt of the letters for the
reason that the corresponding stock tea had not been enclosed them- with. Later, she
had a telephone conversation with a party who introduced himself as Samuel Sharuff.
After talking for a time, the party claiming 110 be Samuel Sharuff was able to prevail
upon the stock transfer clerk to receive the two letters and to prepare a reply thereto
along the line suggested by the former. The stock transfer-clerk typed the letter, after
which she signed it in behalf of the transfer agents of MARINDUQUE. In the third
paragraph of the letter, it was stated that a 'atop transfer' notation would be made in
the records of the corporation that the stock certificates in the name of either the
Gidwani spouses would be cancelled only if the instruction accompanying them was to
issue new shares in the name of Samuel Sharuff.
On December 5, 1968, counsel for Sharuff wrote the transfer agents of MARINDUQUE
to cancel the stock certificates issued in the name of DOMESTIC INSURANCE and to
issue in lieu thereof new ones in the name of his client.
The transfer agents of MARINDUQUE declined to recall the shares issued in the name
of the plaintiff with the explanation that the stop order' notation made at the instance
of Samuel Sharuff had no basis because the shares in question were pledged to
DOMESTIC INSURANCE and the pledge had been foreclosed, with the pledgee acquiring
them at the auction sale.
As a result of this denial the Gidwani spouses joined by Samuel Sharuff sued
DOMESTIC INSURANCE and MARINDUQUE, and in their complaint, the plaintiffs prayed
that the pledge of the shares of Sati Gidwani be declared to have been extinguished;
that the sale of the pledged shares to DOMESTIC INSURANCE was null all void, and that
MARINDUQUE be to issue new shares in favor of Samuel Sharuff and to the defendants
to pay attorney's few in the sum of P10,000.00.
The plaintiffs contend that the filing by DOMESTIC INSURANCE of an action based on
the counter-guaranty, and obtaining therein a judgment in its favor with a partial
satisfaction thereof, released the Hen of the plaintiff on the shares pledged to it by Sati
Gidwani The defendants, more particularly, DOMESTIC INSURANCE, however, maintain
the contrary view. (Decision pp. 1-7)
Not satisfied with the decision of respondent Judge, petitioners filed this appeal by certiorari, claiming
that respondent Judge erred: (1) when he did not find and hold that the pledge constituted on the
subject shares of stock had already been extinguished and released at the time its extrajudicial
foreclosure was belatedly instituted by the pledgee; (2) when he did not invalidate for being nun and
void the extrajudicial foreclosure of the pledge in question (3). when he did not find and hold that since
petitioner-pledgor Sati Gidwani continued to be the lawful owner of the subject shares, her assignment
thereof to Samuel Sharuff was, therefore, valid and the same produced legal and binding effects even
as against the pledgee, Domestic Insurance Company of the Philippines; (4) when he did not order
Marinduque Mining and Industrial Corporation to cancel the certificates of stock illegally issued to
Domestic Insurance Company of the Philippines and issue new stock certificates to Samuel Sharuff the
assignee thereof; and (5) when he refused or failed to grant the other relief prayed for in the complaint
filed by herein petitioners.
It is the position of the petitioners that the pledge constituted on the subject shares was given as
security in favor of Domestic Insurance to guarantee the fulfillment of the obligation assumed by
Plastic Era, Bhagwandas Gidwani and Kishu Gidwani under the Indemnity Agreement which they
executed, jointly and severally, "to indemnify (Domestic Insurance) from and against any and all
liabilities, damages, losses, costs and expenses which said (Domestic Insurance) may incur in
consequence of having became surety" in its D.I.C.P. Surety Bond No. 04739 (Annex 1, Answer of
Domestic Insurance); that the pledge of the shares of stock of Sati Gidwani to respondent Domestic
Insurance was extinguished when the latter sued Plastic Era, Bhagwandas Gidwani and Kishu Gidwani
in Civil Case No. 46142 of the Court of First Instance of Manila to enforce the Indemnity Agreement;
and that when Domestic Insurance instituted the above action and obtained a favorable judgment
against the defendants in Civil Case No. 46142, said respondent abandoned and waived its rights or
cause of action under the Pledge Agreement.
We are not persuaded. As aptly observed by the trial court, "there were two securities given to
DOMESTIC INSURANCE for the faithful compliance of the obligation of PLASTIC ERA to pay the
promissory note it executed in favor of the Manufacturers Bank & Trust Co., namely, the counter-

guaranty agreement jointly executed by PLASTIC ERA, Kishu Gidwani and Bhagwandas Gidwani and
the second was the pledge of shares of stock made by Sati B. Gidwani. By paying the promissory note
to the Manufacturers Bank & Trust Company, DOMESTIC INSURANCE thereby was subrogated to the
rights of the former to demand for and collect payment of the amount due thereon from PLASTIC ERA,
the maker of the promissory note. Had DOMESTIC INSURANCE sued PLASTIC ERA under this cause of
action, and assuming that the ruling in the cited cases which referred to real estate and chattel
mortgages would also be applicable where the security given is pledge, then the plaintiff would
thereafter be barred from enforcing its claim against any of the securities given to it to guaranty the
faithful payment of the original obligation. The indemnity agreement jointly signed by PLASTIC ERA,
Kishu Gidwani and Bhagwandas Gidwani and the pledge agreement of the shares are the two
securities, and as 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 two securities in one and the same
action. The foreclosure of the pledged shares would not require an action in court, whereas it would be
necessary if the claim would be enforced under the indemnity agreement. The Court is, therefore, of
the opinion and so holds that the filing of Civil Case No. 46142, and securing a judgment therein
against the counter-guarantors, did not release, much less extinguish, the lien of DOMESTIC
INSURANCE on the shares of stock of Sati B. Gidwani which were pledged in its favor." Further, the
pledge of the shares of stock of Sati Gidwani did not release the obligation of the indemnitors. The
pledge was an additional security for the indemnification of the damages and losses which Domestic
Insurance might, and did, suffer under the surety bond which it issued for Plastic Era.
ACCORDINGLY, the appealed decision is hereby AFFIRMED in toto. Without costs.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Gutierrez, Jr., JJ., concur

V.

KUENZLE & STREIFF VS. TAN SUICO

G.R. No. L-5208 December 1, 1909

KUENZLE AND STREIFF, plaintiff-appellant,
vs.
JOSE TAN SUNCO ET AL., defendants-appellees.
Hartigan and Rohde, and Roman Lacson, for appellant.
Antonio Constantino, for appellees.
MORELAND, J.:
This is an action to set aside four judgments rendered by a justice of the peace of the city of Manila
upon the ground that they were procured by collision and fraud, to the injury and damage of the
plaintiff.
The court below, after hearing the evidence offered upon the trial, found against the plaintiff and
rendered a judgment in favor of the defendant dismissing the plaintiff's complaint, with costs.
The plaintiff did not make a motion for a new trial in the court below and this court can not, therefore,
look into the evidence but must confine itself to the facts stated in the opinion of the court below for
the purpose of ascertaining whether or not the judgment of that court can be sustained.
It appears from the opinion of the court below that Tan Sunco was a surety for Chung Chu Sing for the
payment by the latter of the purchase price of certain merchandise purchased by said Chung Chu Sing
of Ed. and A. Keller and Co., that the time within which said merchandise was to be paid for under the
terms of its purchase had expired long before said four judgments were obtained, and that the debt
remained unpaid; that the total debt was composed of four invoices of varying amounts P395.50,
P450, P565, and P320.20; that an action had been commenced against the said debtor, Chung Chu
Sing, by the present plaintiff for the recovery of the indebtedness due it; that shortly before judgment
was secured in that action the said Tan Sunco began four separate action against the said debtor upon
the said invoices in the court of the justice of the peace of the city of Manila; that soon thereafter the
said sunco and the said debtor appeared before the said court, and the said debtor then and there
confessed judgment in favor of said Tan Sunco in each one of said actions, Tan Sunco thereby obtaining
against the said debtor four separate judgments; that immediately upon the recovery of said
judgments the plaintiff in those actions, Sunco caused to be levied thereunder executions upon all of
the property of said debtor, which property was not more than sufficient to pay to the judgments under
which the levies were made; that thereupon the action at bar was begun and the sales under said
executions were enjoined pending the determination thereof. These are the admitted facts.lawphi1.net
The plaintiff in this action contends that said four judgments ought to be set wholly aside on account of
their having been obtained, as he claims, by collusion and fraud, because the debtor did not owe
anything to Sunco at the time the four judgments were secured, basing that contention on the fact,
which is admitted, that Sunco and not yet paid the sums for which he had become surety and in
connection with which he obtained the judgments.
We think that the article 1843 of the Civil Code is applicable to this case.lawphi1.net In their purposes
articles 1838 and 1843 are quite distinct, although in perfect harmony, the latter making more clearly
effective the purpose of the former. Article 1838 provides for the enforcement of the right of the surety
against the debtor after he has paid the debt. Article 1843 provides for his protection before he has
paid but after he has become liable to do so. The one gives a right of action after payment, the other a
protective remedy before payment. (Supreme court of Spain, March 22, 1901.) The one is a
substantive right, the other of the nature of a preliminary remedy. The one gives a right of action
which, without the provisions of the of the other, might be worthless. The remedy given in article 1843
purposes to obtain for the surety "relief from the burden of his suretyship or a guaranty to defend him
against any proceedings of the creditor and from the danger of insolvency of the debtor." (Last
paragraph of art. 1843.) article 1838, speaking under this article become available, he is past the point
where a preliminary protective remedy is of any value to him.lawphi1.net
It being evident that the purpose of article 1843 is to give to the surety a remedy in anticipation of the
payment of the debt, which debt, being due, he could be called upon to pay at any time, it remains
only to say, in this connection, that the only procedure known under our present practice to enforce
that right is by action. (Manresa, Civil Code, vol. 12, p. 320.) The defendant Sunco availed himself of
that right against the debtor. The methods employed by him to realize his end were unusual but not of
themselves fraudulent. We agree with the trial court that the evidence adduced is entirely insufficient
to establish such fraud and collusion as would justify a decision setting aside the judgment assailed.
(Arts. 1291, 1297, Civil Code; Pena vs. Mitchell, 9 Phil. Rep., 587; Jones vs. Brittan, 13 Fed. Cas., No.

7455; Oberly vs. Oberly, 190 Pa. st., 341; Caldwell vs. Finfield, 24 n. J. L., 150.) The facts stated in the
opinion of the court below abundantly justify the conclusion.
But while the surety has the right to obtain as he did the judgments against the principal debtor, he
ought not to be allowed to realize the said judgments to the point of actual collection of the same until
he has satisfied or caused to be satisfied the obligation the payment of which he assures. Otherwise, a
great opportunity for collusion and improper practices between the surety and his principal would be
offered which might result to the injury and prejudice of the creditor who holds the claim against them.
The judgement of the court below is, therefore, affirmed, with costs against the appellant. But the said
Sunco shall not execute said judgments against the property of the judgment debtor until he has paid
the debt for which he stands surety. So ordered.
Arellano, C. J., Torres, Johnson, Carson and Elliott, JJ., concur.

VI.

GENERAL INDEMNITY CO., INC. VS. ALVAREZ

G.R. No. L-9434

March 29, 1957

GENERAL INDEMNITY CO., INC., plaintiff-appellee,

vs.
ESTANISLAO ALVAREZ, defendant-appellant.
A. A. Dimaculangan for appellee.
Antonio Barredo for appellant.
REYES, J.B.L., J.:
Appeal taken by defendant Estanislao Alvarez from a summary judgment rendered by the Court of First
Instance of Manila.
On February 18, 1954, appellee General Indemnity Co., Inc., filed a complaint (C. C. No. 22005) in the
Court of First Instance of Manila against appellant Estanislao Alvarez for the recovery of the sum of
P2,000 representing the amount of a loan allegedly taken by the appellant from the Philippine National
Bank, the payment of which appellee guaranteed with an indemnity bond, and for which appellant, as
counter-guaranty, executed in plaintiff's favor a mortgage on his share of land in a parcel of land
(Annex "A" of the complaint). The complaint further alleged that the appellant failed to pay said loan,
together with interest, to Philippine National Bank, as a result of which the bank deducted the amount
thereof plaintiff's deposit. Plaintiff likewise claimed the amount of P426.07 as attorney's fees which the
defendant agreed to pay under mortgage annexed to the complaint.
On March 29, 1954, appellant Estanislao Alvarez, answered, admitting the fact of the loan and the
execution of the mortgage Annex "A" of the complaint, but plaintiff to the Philippine National Bank; and
as affirmative defense, appellant averred that the loan in question was secured by him only in
accommodation of one Hao Lam, and that plaintiff agreed not to take any steps against appellant and
the mortgage executed by him in plaintiff's favor until the latter had failed to obtain payment from said
Hao Lam.
Eight months later, or on November 24, 1954, plaintiff filed a motion for summary judgment, claiming
that appellant's answer the genuineness and due execution of the mortgage annexed to its complaint,
presented no real and meritorious defense and that it was entitled to a summary judgment in its favor,
based on the affidavit of its comptroller Pedro R. Mendiola supporting the motion, which states:
That he is the Comptroller of the General Indemnity Co., Inc., plaintiff in the above-entitled
case;
That he has personal knowledge of the indebtedness of the defendant as of January 31, 1954,
in the sum of P2,130.36 plus daily interest of P0.69 from February 1, 1954 until fully paid, and
the additional amount of P426.07 as attorney's fees;
That he knows of his own personal knowledge that several demands have been upon the
defendant for the payment of the above-mentioned obligation of the plaintiff, but
notwithstanding said demands, defendant has failed and refused and still fails and refuses to
pay the same. (Rec. on Appeal, pp. 19-20)

The lower court found the motion for summary judgment well-taken and on March 29, 1955, rendered
judgment in favor of plaintiff for the amount of P2,130.38, plus daily interest of P0.69 from February 1,
1954 until payment, and the additional sum of P426.07 attorney's fees, and costs. Defendant filed a
motion for reconsideration to have this judgment set aside and the case set for hearing, but said
motion was denied, and so he appealed to this Court.
Insofar as appellant argues that the affirmative defense in his answer that he secured the loan in
question only to accommodate a third party and that appellee promised not to proceed against him
until it had failed to collect from said third party, tenders genuine issues on the time and manner of
payment of the indebtedness in question, appellee is correct in saying that said defense is immaterial
to its right to recovery, since the mortgage deed executed by appellant in its favor (the genuineness
and due execution of which appellant admitted in his answer) shows appellant to be the actual and
only debtor, and appellant is precluded from varying this representation by parol evidence.
However, there is merit in appellant's contention that there exists a controversy in the complaint and
answer as to whether or not appellee had actually paid appellant's obligation to the Philippine National
Bank, a matter which should be decided in the affirmative before appellant, as surety, can claim
reimbursement from appellant, the principal debtor. Appellee assert that this issue was brought up by
appellant for the first time on appeal and should, therefore, be ignored; but contrary to appellee's
assertion, this question was brought up by appellant in his answer, when he specifically denied the
allegation of the complaint that the Philippine National Bank deducted from appellee's deposit the
amount of the loan in question, by the following allegation:
3. . . . that he does not have sufficient knowledge or information to form a belief as to the truth
of the allegations regarding payments made by plaintiff to the P.N.B. (Answer, Rec. App., p.
16).
And as the affidavit of plaintiff's comptroller Pedro R. Mendiola, supporting the motion for summary
judgment, simply relates to the amount of the loan in question and appellant's failure to pay the same
to appellee inspite of repeated demands, but does not touch on the alleged payment made by
appellee to the bank, there was no necessity for appellant to submit counter-affidavits to show that
such payment had not been made. Appellee likewise contends that it is immaterial to its cause of
action against appellant whether or not it had actually paid the Philippine National Bank, citing Art.
2071 of the New Civil Code to the effect that a guarantor may proceed against the principal debtor,
even before having paid, when the debt has become demandable. The last paragraph of this same
article, however, provides that in such instance, the only action the guarantor can file against the
debtor "to obtain release from the guaranty, or to demand a security that shall protect him from any
proceeding by the creditor and from the danger of insolvency of the debtor." An action by the
guarantor against the principal debtor for payment, before the former has paid the creditor, is
premature.
The judgment appealed from is hereby set aside and the lower court is ordered to set anew this case
for trial on the sole issue of whether or not appellee General Indemnity Co., Inc., had already paid the
loan in question to the Philippine National Bank, after which a new judgment shall be rendered. Costs
against appellee General Indemnity Co., Inc. So ordered.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Endencia and Felix,
JJ., concur.

CHAPTER 3. EXTINGUISHMENT OF GUARANTY

I.

J.V. HOUSE VS. DELA COSTA

[G.R. No. 46534. October 16, 1939.]

J. V. HOUSE, Petitioner, v. SIXTO DE LA COSTA, JUDGE OF FIRST INSTANCE OF MANILA,
BRANCH V, ET AL., Respondents.
Yuseco, Arteche and Abdon for Petitioner.
Antonio Gonzalez for Respondents.
SYLLABUS
SURETYSHIP AND GUARANTY; RELEASE OF SURETY FROM ITS OBLIGATION. The petitioner and C. P.
B., under the agreement of September 1st, substantially altered their juridical relations as to the
properties discharged from attachment and for the delivery of which Far Eastern Surety & Insurance
Co., Inc., was a surety, which alteration necessarily released the latter from its obligations as such
surety. The properties discharged from attachment having been turned over to the petitioner and
thereafter public sold and adjudicated to him under the said agreement, the obligation of C. P. B. to
return the priorities to the Sheriff, in satisfaction of the judgment in favor of the petitioner, was
extinguished and compliance therewith became impossible by petitioners own act, thereby resulting
in the release of the surety from its obligation to pay the value of said properties (articles 1184 an(l
1817 of the Civil Code.)

DECISION

AVANCEA, J.:

The petitioner, plaintiff in a civil case against C. P. Bush And George Upton for the recovery of a sum of
money, obtained a preliminary attachment of certain properties of the latter. Three days thereafter,
Bush and Upton secured the discharge of the attachment of these properties by filing a bond posted by
Far Eastern Surety & Insurance Co., Inc., on August 25, 1934, for P2,000, the condition of the bond
being that, should the plaintiff and petitioner House obtain a judgment against C. P. Bush, the latter

would return to the Sheriff of Manila the properties discharged from attachment and, should he fail to
do so, the Far Eastern Surety & Insurance Co., Inc., would pay the value thereof.
On September 1st following, the petitioner House and C. P. Bush entered into an agreement, without
the knowledge or consent of the Far Eastern Surety & Insurance Co., Inc., whereby Bush delivered to
the petitioner, together with other properties, those discharged from attachment to be sold at public
auction. The petitioner was the highest bidder in this sale and the properties were adjudicated to him.
Eventually the petitioner obtained judgment against C. P. Bush for the amount of P2,000, and the same
not having been satisfied, he asked for execution against Far Eastern Surety & Insurance Co., Inc., as
Surety of C. P. Bush in the discharge of the properties from the attachment. The court denied this
petition.
The petitioner alleges that the court exceeded and abused its discretion in so ruling.
From the foregoing it appears that the petitioner and C. P. Bush, under the agreement of September
1st, substantially altered their juridical relations as to the properties discharged from attachment and
for the delivery of which Far Eastern Surety & Insurance Co., Inc., was a surety, which alteration
necessarily released the latter from its obligations as such surety. The properties discharged from
attachment having been turned over to the petitioner and thereafter publicly sold and adjudicated to
him under the said agreement, the obligation of C. P. Bush to return the properties to the Sheriff, in
satisfaction of the judgment in favor of the petitioner, was extinguished and compliance therewith
became impossible by petitioners own act, thereby resulting in the release of the surety from its
obligation to pay the value of said properties (articles 1184 and 1847 of the Civil Code).
The petition is denied, with the Costs to the petitioner. So ordered.
Villa-Real, Imperial, Diaz, Laurel, Concepcion, and Moran, JJ., concur.

II.

PNB VS. MANILA SURETY & FIDELITY CO., INC.

G.R. No. L-20567

PHILIPPINE NATIONAL BANK, petitioner,
vs.
MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second
Division), respondents.

Besa, Galang and Medina for petitioner.

De Santos and Delfino for respondents.

REYES, J.B.L., J.:

The Philippine National Bank petitions for the review and reversal of the decision rendered by the Court
of Appeals (Second Division), in its case CA-G.R. No. 24232-R, dismissing the Bank's complaint against
respondent Manila Surety & Fidelity Co., Inc., and modifying the judgment of the Court of First Instance
of Manila in its Civil Case No. 11263.

The material facts of the case, as found by the appellate Court, are as follows:

The Philippine National Bank had opened a letter of credit and advanced thereon $120,000.00 to
Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000 tons worth P279,000.00
were released and delivered to Adams & Taguba Corporation (known as ATACO) under a trust receipt
guaranteed by Manila Surety & Fidelity Co. up to the amount of P75,000.00. To pay for the asphalt,
ATACO constituted the Bank its assignee and attorney-in-fact to receive and collect from the Bureau of
Public Works the amount aforesaid out of funds payable to the assignor under Purchase Order No.
71947. This assignment (Exhibit "A") stipulated that:

The conditions of this assignment are as follows:

1. The same shall remain irrevocable until the said credit accomodation is fully liquidated.

2. The PHILIPPINE NATIONAL BANK is hereby appointed as our Attorney-in-Fact for us and in our name,
place and stead, to collect and to receive the payments to be made by virtue of the aforesaid Purchase
Order, with full power and authority to execute and deliver on our behalf, receipt for all payments
made to it; to endorse for deposit or encashment checks, money order and treasury warrants which
said Bank may receive, and to apply said payments to the settlement of said credit accommodation.

This power of attorney shall also remain irrevocable until our total indebtedness to the said Bank have
been fully liquidated. (Exhibit E)

ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the total value of
P431,466.52. Of this amount the Bank regularly collected, from April 21, 1948 to November 18, 1948,
P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to collect, until in 1952 its
investigators found that more moneys were payable to ATACO from the Public Works office, because
the latter had allowed mother creditor to collect funds due to ATACO under the same purchase order to
a total of P311,230.41.

Its demands on the principal debtor and the Surety having been refused, the Bank sued both in the
Court of First Instance of Manila to recover the balance of P158,563.18 as of February 15, 1950, plus
interests and costs.

On October 4, 1958, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendants, Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc., to pay
plaintiff, Philippines National Bank, the sum of P174,462.34 as of February 24, 1956, minus the amount
of P8,000 which defendant, Manila Surety Co., Inc. paid from March, 1956 to October, 1956 with
interest at the rate of 5% per annum from February 25, 1956, until fully paid provided that the total
amount that should be paid by defendant Manila Surety Co., Inc., on account of this case shall not
exceed P75,000.00, and to pay the costs;

2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-party defendant, Pedro A. Taguba,
jointly and severally, to pay cross and third-party plaintiff, Manila Surety & Fidelity Co., Inc., whatever
amount the latter has paid or shall pay under this judgment;

3. Dismissing the complaint insofar as the claim for 17% special tax is concerned; and

4. Dismissing the counterclaim of defendants Adams & Taguba Corporation and Manila Surety &
Fidelity Co., Inc.

From said decision, only the defendant Surety Company has duly perfected its appeal. The Central
Bank of the Philippines did not appeal, while defendant ATACO failed to perfect its appeal.

The Bank recoursed to the Court of Appeals, which rendered an adverse decision and modified the
judgment of the court of origin as to the surety's liability. Its motions for reconsideration having proved
unavailing, the Bank appealed to this Court.

The Court of Appeals found the Bank to have been negligent in having stopped collecting from the
Bureau of Public Works the moneys falling due in favor of the principal debtor, ATACO, from and after
November 18, 1948, before the debt was fully collected, thereby allowing such funds to be taken and
exhausted by other creditors to the prejudice of the surety, and held that the Bank's negligence
resulted in exoneration of respondent Manila Surety & Fidelity Company.

This holding is now assailed by the Bank. It contends the power of attorney obtained from ATACO was
merely in additional security in its favor, and that it was the duty of the surety, and not that of the
creditor, owed see to it that the obligor fulfills his obligation, and that the creditor owed the surety no
duty of active diligence to collect any, sum from the principal debtor, citing Judge Advocate General
vs. Court of Appeals, G.R. No. L-10671, October 23, 1958.

This argument of appellant Bank misses the point. The Court of Appeals did not hold the Bank
answerable for negligence in failing to collect from the principal debtorbut for its neglect in collecting
the sums due to the debtor from the Bureau of Public Works, contrary to its duty as holder of an
exclusive and irrevocable power of attorney to make such collections, since an agent is required to act
with the care of a good father of a family (Civ. Code, Art. 1887) and becomes liable for the damages
which the principal may suffer through his non-performance (Civ. Code, Art. 1884). Certainly, the Bank
could not expect that the Bank would diligently perform its duty under its power of attorney, but
because they could not have collected from the Bureau even if they had attempted to do so. It must
not be forgotten that the Bank's power to collect was expressly made irrevocable, so that the Bureau
of Public Works could very well refuse to make payments to the principal debtor itself, and
a fortiori reject any demands by the surety.

Even if the assignment with power of attorney from the principal debtor were considered as mere
additional security still, by allowing the assigned funds to be exhausted without notifying the surety,
the Bank deprived the former of any possibility of recoursing against that security. The Bank thereby
exonerated the surety, pursuant to Article 2080 of the Civil Code:

ART. 2080. The guarantors, even though they be solidary, are released from their obligation
whenever by come act of the creditor they cannot be subrogated to the rights, mortgages and
preferences of the latter. (Emphasis supplied.)

The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of Public Works,
on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the debtor that as of its date, October
31, 1949, its outstanding balance was P156,374.83. Said Exhibit "G" has no bearing on the issue
whether the Bank has exercised due diligence in collecting from the Bureau of Public Works, since the
letter was addressed to ATACO, and the funds were to come from elsewhere. As to the letter of
demand on the Public Works office, it does not appear that any reply thereto was made; nor that the
demand was pressed, nor that the debtor or the surety were ever apprised that payment was not
being made. The fact remains that because of the Bank's inactivity the other creditors were enabled to
collect P173,870.31, when the balance due to appellant Bank was only P158,563.18. The finding of
negligence made by the Court of Appeals is thus not only conclusive on us but fully supported by the
evidence.

Even if the Court of Appeals erred on the second reason it advanced in support of the decision now
under appeal, because the rules on application of payments, giving preference to secured obligations
are only operative in cases where there are several distinct debts, and not where there is only one that
is partially secured, the error is of no importance, since the principal reason based on the Bank's
negligence furnishes adequate support to the decision of the Court of Appeals that the surety was
thereby released.

WHEREFORE, the appealed decision is affirmed, with costs against appellant Philippine National Bank.

Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Bautista Angelo and Barerra, JJ., took no part.

III.

E. ZOBEL, INC. CS. CA

[G.R. No. 113931. May 6, 1998]

E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST
CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA, respondents.
DECISION
MARTINEZ, J.:
This petition for review on certiorari seeks the reversal of the decision [1] of the Court of Appeals
dated July 13, 1993 which affirmed the Order of the Regional Trial Court of Manila, Branch 51, denying
petitioner's Motion to Dismiss the complaint, as well as the Resolution [2]dated February 15, 1994
denying the motion for reconsideration thereto.
The facts are as follows:
Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers,"
applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) in the
amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2, 875,000.00) to finance the
purchase of two (2) maritime barges and one tugboat [3] which would be used in their molasses
business. The loan was granted subject to the condition that respondent spouses execute a chattel
mortgage over the three (3) vessels to be acquired and that a continuing guarantee be executed by
Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc. in favor of SOLIDBANK. The
respondent spouses agreed to the arrangement. Consequently, a chattel mortgage and a Continuing
Guaranty[4] were executed.
Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, on
January 31,1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary
attachment, against respondents spouses and petitioner. The case was docketed as Civil Case No. 9155909 in the Regional Trial Court of Manila.
Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan
was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost
its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the
chattel mortgage with the appropriate government agency.
SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner
is not a guarantor but a surety.
On February 18, 1993, the trial court issued an Order, portions of which reads:
"After a careful consideration of the matter on hand, the Court finds the ground of the motion to
dismiss without merit. The document referred to as 'Continuing Guaranty' dated August 21,1985 (Exh.
7) states as follows:
'For and in consideration of any existing indebtedness to you of Agro Brokers, a single proprietorship
owned by Mr. Raul Claveria for the payment of which the undersigned is now obligated to you as surety
and in order to induce you, in your discretion, at any other manner, to, or at the request or for the
account of the borrower, x x x '
"The provisions of the document are clear, plain and explicit.
"Clearly therefore, defendant E. Zobel, Inc. signed as surety. Even though the title of the document is
'Continuing Guaranty', the Court's interpretation is not limited to the title alone but to the contents and
intention of the parties more specifically if the language is clear and positive. The obligation of the
defendant Zobel being that of a surety, Art. 2080 New Civil Code will not apply as it is only for those
acting as guarantor. In fact, in the letter of January 31, 1986 of the defendants (spouses and Zobel) to
the plaintiff it is requesting that the chattel mortgage on the vessels and tugboat be waived and/or
rescinded by the bank inasmuch as the said loan is covered by the Continuing Guaranty by Zobel in
favor of the plaintiff thus thwarting the claim of the defendant now that the chattel mortgage is an
essential condition of the guaranty. In its letter, it said that because of the Continuing Guaranty in
favor of the plaintiff the chattel mortgage is rendered unnecessary and redundant.
"With regard to the claim that the failure of the plaintiff to register the chattel mortgage with the
proper government agency, i.e. with the Office of the Collector of Customs or with the Register of
Deeds makes the obligation a guaranty, the same merits a scant consideration and could not be taken

by this Court as the basis of the extinguishment of the obligation of the defendant corporation to the
plaintiff as surety. The chattel mortgage is an additional security and should not be considered as
payment of the debt in case of failure of payment. The same is true with the failure to register,
extinction of the liability would not lie.
"WHEREFORE, the Motion to Dismiss is hereby denied and defendant E. Zobel, Inc., is ordered to file its
answer to the complaint within ten (10) days from receipt of a copy of this Order." [5]
Petitioner moved for reconsideration but was denied on April 26,1993. [6]
Thereafter, petitioner questioned said Orders before the respondent Court of Appeals, through a
petition for certiorari, alleging that the trial court committed grave abuse of discretion in denying the
motion to dismiss.
On July 13,1993, the Court of Appeals rendered the assailed decision the dispositive portion of
which reads:
"WHEREFORE, finding that respondent Judge has not committed any grave abuse of discretion in
issuing the herein assailed orders, We hereby DISMISS the petition."
A motion for reconsideration filed by petitioner was denied for lack of merit on February 15,1994.
Petitioner now comes to us via this petition arguing that the respondent Court of Appeals erred in
its finding: (1) that Article 2080 of the New Civil Code which provides: "The guarantors, even though
they be solidary, 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," is not applicable to petitioner;
(2) that petitioner's obligation to respondent SOLIDBANK under the continuing guaranty is that of a
surety; and (3) that the failure of respondent SOLIDBANK to register the chattel mortgage did not
extinguish petitioner's liability to respondent SOLIDBANK.
We shall first resolve the issue of whether or not petitioner under the "Continuing Guaranty"
obligated itself to SOLIDBANK as a guarantor or a surety.
A contract of surety is an accessory promise by which a person binds himself for another already
bound, and agrees with the creditor to satisfy the obligation if the debtor does not. [7] A contract of
guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter
does not pay the debt.[8]
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common
to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with
his principal by the same instrument, executed at the same time, and on the same consideration. He is
an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of
his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the
principal, or by want of notice of the default of the principal, no matter how much he may be injured
thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in
which the principal does not join. It is usually entered into before or after that of the principal, and is
often supported on a separate consideration from that supporting the contract of the principal. The
original contract of his principal is not his contract, and he is not bound to take notice of its nonperformance. He is often discharged by the mere indulgence of the creditor to the principal, and is
usually not liable unless notified of the default of the principal. [9]
Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the
solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is
the insurer of the debt, and he obligates himself to pay if the principal does not pay.[10]
Based on the aforementioned definitions, it appears that the contract executed by petitioner in
favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms
of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to
respondent spouses. This can be seen in the following stipulations.
"For and in consideration of any existing indebtedness to you of AGRO BROKERS, a single
proprietorship owned by MR. RAUL P. CLAVERIA, of legal age, married and with business address x x x
(hereinafter called the Borrower), for the payment of which theundersigned is now obligated to
you as surety and in order to induce you, in your discretion, at any time or from time to time
hereafter, to make loans or advances or to extend credit in any other manner to, or at the request or
for the account of the Borrower, either with or without purchase or discount, or to make any loans or
advances evidenced or secured by any notes, bills receivable, drafts, acceptances, checks or other
instruments or evidences of indebtedness x x upon which the Borrower is or may become liable as

maker, endorser, acceptor, or otherwise, the undersigned agrees to guarantee, and does
hereby guarantee, the punctual payment, at maturity or upon demand, to you of any and
all such instruments, loans, advances, credits and/or other obligations herein before
referred to, and also any and all other indebtedness of every kind which is now or may
hereafter become due or owing to you by the Borrower, together with any and all expenses
which may be incurred by you in collecting all or any such instruments or other indebtedness or
obligations hereinbefore referred to, and or in enforcing any rights hereunder, and also to make or
cause any and all such payments to be made strictly in accordance with the terms and provisions of
any agreement (g), express or implied, which has (have) been or may hereafter be made or entered
into by the Borrower in reference thereto, regardless of any law, regulation or decree, now or hereafter
in effect which might in any manner affect any of the terms or provisions of any such agreements(s) or
your right with respect thereto as against the Borrower, or cause or permit to be invoked any alteration
in the time, amount or manner of payment by the Borrower of any such instruments, obligations or
indebtedness; x x x " (Italics Ours)
One need not look too deeply at the contract to determine the nature of the undertaking and the
intention of the parties. The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as
a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly
and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all
other legal remedies or exhaust respondent spouses' properties before it can hold petitioner liable for
the obligation. This can be gleaned from a reading of the stipulations in the contract, to wit:
'x x x If default be made in the payment of any of the instruments, indebtedness or other
obligation hereby guaranteed by the undersigned, or if the Borrower, or the undersigned
should die, dissolve, fail in business, or become insolvent, x x x , or if any funds or other
property of the Borrower, or of the undersigned which may be or come into your possession
or control or that of any third party acting in your behalf as aforesaid should be attached
of distrained, or should be or become subject to any mandatory order of court or other
legal process, then, or any time after the happening of any such event any or all of the
instruments of indebtedness or other obligations hereby guaranteed shall, at your option
become (for the purpose of this guaranty) due and payable by the undersigned forthwith
without demand of notice, and full power and authority are hereby given you, in your discretion, to
sell, assign and deliver all or any part of the property upon which you may then have a lien hereunder
at any broker's board, or at public or private sale at your option, either for cash or for credit or for
future delivery without assumption by you of credit risk, and without either the demand, advertisement
or notice of any kind, all of which are hereby expressly waived. At any sale hereunder, you may, at
your option, purchase the whole or any part of the property so sold, free from any right of redemption
on the part of the undersigned, all such rights being also hereby waived and released. In case of any
sale and other disposition of any of the property aforesaid, after deducting all costs and
expenses of every kind for care, safekeeping, collection, sale, delivery or otherwise, you
may apply the residue of the proceeds of the sale and other disposition thereof, to the
payment or reduction, either in whole or in part, of any one or more of the obligations or
liabilities hereunder of the undersigned whether or not except for disagreement such
liabilities or obligations would then be due, making proper allowance or interest on the
obligations and liabilities not otherwise then due, and returning the overplus, if any, to the
undersigned; all without prejudice to your rights as against the undersigned with respect
to any and all amounts which may be or remain unpaid on any of the obligations or
liabilities aforesaid at any time (s)"
xxx

xxx

xxx

'Should the Borrower at this or at any future time furnish, or should be heretofore have
furnished, another surety or sureties to guarantee the payment of his obligations to you,
the undersigned hereby expressly waives all benefits to which the undersigned might be
entitled under the provisions of Article 1837 of the Civil Code (beneficio division), the
liability of the undersigned under any and all circumstances being joint and several;" (Italics
Ours)
The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty.
Authorities recognize that the word "guarantee" is frequently employed in business transactions to
describe not the security of the debt but an intention to be bound by a primary or independent
obligation.[11] As aptly observed by the trial court, the interpretation of a contract is not limited to the
title alone but to the contents and intention of the parties.
Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by
petitioner, finds no application to the case at bar. In Bicol Savings and Loan Association vs. Guinhawa,
[12]
we have ruled that Article 2080 of the New Civil Code does not apply where the liability is as a
surety, not as a guarantor.

But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel
mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed in favor
of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of any collateral. It
even released SOLIDBANK from any fault or negligence that may impair the contract. The pertinent
portions of the contract so provides:
"x x x the undersigned (petitioner) who hereby agrees to be and remain bound upon this
guaranty, irrespective of the existence, value or condition of any collateral, and
notwithstanding any such change, exchange, settlement, compromise, surrender, release, sale,
application, renewal or extension, and notwithstanding also that all obligations of the Borrower to you
outstanding and unpaid at any time (s) may exceed the aggregate principal sum herein above
prescribed.
'This is a Continuing Guaranty and shall remain in full force and effect until written notice shall have
been received by you that it has been revoked by the undersigned, but any such notice shall not be
released the undersigned from any liability as to any instruments, loans, advances or other obligations
hereby guaranteed, which may be held by you, or in which you may have any interest, at the time of
the receipt of such notice. No act or omission of any kind on your part in the premises shall in
any event affect or impair this guaranty,nor shall same be affected by any change which may
arise by reason of the death of the undersigned, of any partner (s) of the undersigned, or of the
Borrower, or of the accession to any such partnership of any one or more new partners." (Italics
supplied)
In fine, we find the petition to be without merit as no reversible error was committed by
respondent Court of Appeals in rendering the assailed decision.
WHEREFORE, the decision of the respondent Court of Appeals is hereby AFFIRMED. Costs against
the petitioner.
SO ORDERED.
Regalado, Melo, and Puno, JJ., concur.
Mendoza, J., no part, having concurred in the decision of the Court of Appeals when he was a
member of the Court.