JOSE C. TUPAZ v. CAG.R. No.

145578, November 18, 2005

FACTS:
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President for
Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation
(“El Oro Corporation”). El Oro Corporation had acontract with the Philippine Army to
supply the latter with “survival bolos.”

To finance the purchase of the raw materials for the survival bolos,petitioners, on behalf
of El Oro Corporation, applied with respondent Bank ofthe Philippine Islands for
two commercial letters of credit. The letters of credit were in favor of El Oro
Corporation’s suppliers, Tanchaoco Manufacturing Incorporated (“Tanchaoco
Incorporated”) and Maresco Rubber and Retreading Corporation (“Maresco
Corporation”).

Respondent bank granted petitioners’ application and issued letters of credit in their
favor. Petitioners also signed trust receipts in favor of respondent bank. On 30
September 1981, petitioner Jose C. Tupaz IV signed, in his personal capacity, a trust
receipt corresponding to Letter of Credit No. 2-00896-3(for P564,871.05). Petitioner
Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit
the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before
29 December 1981.On 9 October 1981, petitioners signed, in their capacities as officers
of ElOro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for
P294,000). Petitioners bound themselves to sell the goods covered by that letter of
credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not
sold, on or before 8 December 1981.

After Tanchaoco Incorporated and Maresco Corporation delivered theraw materials to

El Oro Corporation, respondent bank paid theformer P564,871.05 and P294,000,
respectively. Petitioners did not comply with their undertaking under the trust receipts.
Respondent bank made several demands for payments but El Oro Corporation made
partial payments only. On 27 June 1983 and 28 June1983, respondent bank’s counsel
and its representative respectively sent final demand letters to El Oro Corporation. El
Oro Corporation replied that it could not fully pay its debt because the Armed Forces of
the Philippines had delayed paying for the survival bolos. Respondent bank charged
petitioners with estafa under Section 13, Presidential Decree No. 115 (“Section 13”) or
Trust Receipts Law (“PD115”).

The RTC acquitted petitioners of estafa based on reasonable doubtbut found them
solidarily liable with El Oro Corporation for the balance of ElOro Corpoarations principal
debt under the trust receipts. The CA affirmed
the RTC’s ruling. Hence, this petition.

ISSUES:
1) Whether petitioners bound themselves personally liable for El Oro Corporation’s
 debts under the trust receipts or that any of them has bound himself personally liable
for El Oro Corporation’s debt under any of the trust receipts;
2) If so, what is the extent of the petitioner’/s’ liability?

HELD:
1) In the trust receipt dated 9 October 1981, petitioners signed belowthis clause as
officers of El Oro Corporation. Thus, under petitioner Petronila Tupaz’s signature are
the words “Vice-Pres–Treasurer” andunder petitioner Jose Tupaz’s signature are
the words “Vice-Pres –Operations.” By so signing that trust receipt, petitioners did not
bind themselves personally liable for El Oro Corporation’s obligation.
Hence, for the trust receipt dated 9 October 1981, the SC sustained
the petitioners’ claim that they are not personally liable for El Oro Corporation’s
obligation.

However, for the trust receipt dated 30 September 1981, the dorsalportion of which
petitioner Jose Tupaz signed alone, we find that hedid so in his personal capacity.
Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporation’s Vice
-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable
for El Oro Corporation’s debts. Not being a party to the trust receipt dated 30
September 1981, petitioner Petronila Tupaz is notliable under such trust receipt.

2) Tupaz is liable as a guarantor. Respondent bank’s suit against petitioner Jose Tupaz
stands despite the Court’s finding that he is liable as guarantor only. First, excussion is
not a pre-requisite tosecure judgment against a guarantor. The guarantor can still
demand deferment of the execution of the judgment against him untilafter the assets of
the principal debtor shall have been exhausted.

Second, the benefit of excussion may be waived. Under the trust receipt dated
30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that
his “liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any
need whatsoever onxxx [the] part [of respondent bank] to take any steps or exhaust any
legal remedies xxx.” The clear import of this stipulation is that petitioner Jose Tupaz
waived the benefit of excussion under his guarantee.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation’s principal debt and
other accessory liabilities (as stipulated in the trust receipt and as provided by law)
under the trust receipt dated 30 September 1981.
PRUDENTIAL GUARANTEE AND ASSURANCE CORP v. ANSCOR LAND

Facts:

On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered into a Construction
Contract for the construction of an 8-unit townhouse (project) located in Capitol
Hills, Quezon City. Under the contract, KRDC was to build and complete the project
within 275 continuous calendar days from the date of receipt of a notice to proceed for
the consideration of P18,800,000.00.

As part of its undertaking, KRDC submitted a surety bond amounting to P4,500,000.00

to secure the reimbursement of the down payment paid by ALI in case of failure to finish
the project and a performance bond amounting to P4,700,000.00 to guarantee the
supply of labor, materials, tools, equipment, and necessary supervision to complete the
project. The said bonds were issued in favor of ALI by herein petitioner PGAI.

As part of its undertaking, KRDC submitted a surety bond amounting

to P4,500,000.00 to secure the reimbursement of the down payment paid by ALI in case
of failure to finish the project and a performance bond amounting to P4,700,000.00 to
guarantee the supply of labor, materials, tools, equipment, and necessary supervision to
complete the project. The said bonds were issued in favor of ALI by herein petitioner
PGAI. Under the Performance Bond,[4] the parties agreed on a time-bar provision which
states.

PRUDENTIAL GUARANTEE AND ASSURANCE INC., shall not be liable

for any claim not discovered and presented to the company within ten
days from the expiration of this bond or from the occurrence of the default
or failure of the principal, whichever is the earliest, and that the obligee
hereby waives his right to file any claim against the Surety after the
termination of the period of ten days above mentioned after which time
this bond shall definitely terminate and be deemed absolutely cancelled.

KRDC then received a notice to proceed 325 days after KRDC received the
notice to proceed, and 50 days beyond the contract date of completion, ALI sent PGAI a
letter[5] notifying the latter that the contract with KRDC was terminated due to very
serious delays. The letter also informed PGAI that ALI may be making claims against
the said bonds.
 KRDC, through a letter asked ALI to reconsider its decision to terminate the
contract and requested that it be allowed to continue with the project. On October 27,
2000, ALI replied[6] with regrets that it stands by its earlier decision to terminate the
construction contract.

Through a letter or exactly one (1) year after the expiration date in the performance
bond, ALI reiterated its claim against the performance bond issued by PGAI amounting
to P3,852,800.84. PGAI however did not respond to the letter. ALI commenced
arbitration proceedings against KRDC and PGAI in the CIAC. PGAI answered with
cross-claim contending that it was not a party to the construction contract and that the
claim of ALI against the bonds was filed beyond the expiration period. CIAC rendered
judgment[8] awarding a total of P7,552,632.74 to ALI and a total of P1,292,487.81 to
KRDC.CIAC also allowed the offsetting of the awards to both parties which resulted to a
net amount due to ALI of P6,260,144.93 to be paid by KRDC.Meanwhile, the CIAC
found PGAI liable for the reimbursement of the unliquidated portion of the down
payment as a solidary liability under the surety bond in the amount of P1,771,264.06.

CIAC ruled that letter of ALI to PGAI did not constitute a proper claim under the
performance bond. In so ruling, the CIAC relied on the tenor of the letter which used the
phrase may be making claims against the said bonds. The CIAC interpreted this phrase
as tentative at best and far from a positive claim against PGAI. According to the CIAC,
the letter merely informed PGAI of the termination of the construction contract between
ALI and KRDC and in no sense did such letter present a valid claim against the
performance bond issued by PGAI.

ISSUE:

Whether or not the respondent made its claim on the performance bond within the
period allowed by the time-bar provision

HELD:

The time-bar provision in the Performance Bond provides that any claim against the
bond should be discovered and presented to the company within ten days from the
expiration of this bond or from the occurrence of the default or failure of the principal,
whichever is the earliest. The purpose of this provision in the performance bond is to
give the issuer, in this case PGAI, notice of the claim at the earliest possible time and to
afford the issuer sufficient time to evaluate, and examine the validity of the claim while
the evidence or indicators of breach are fresh. In the construction industry, time is
precious, delay costs money and postponement in making a claim could cause
additional expenses.

In line with the rationale behind the time-bar provision, we rule that the letter
dated October 16, 2000 was a sufficient claim. The tenor of the letter adequately put
PGAI on notice that ALI has terminated the contract because of serious delays
tantamount to breach by KRDC of its obligations. The letter timely informed PGAI that
ALI was in fact terminating the construction contract and thereby giving rise to the
obligation of PGAI under the performance bond. PGAI was informed within the time-bar
provision and had all the opportunity to conduct its evaluation and examination as to the
validity of the termination.

In interpreting the time-bar provision, the absence of any ambiguity in the words used
would lead to the conclusion that the generally accepted meaning of the words shall
control. In the time-bar provision, the word claim does not give rise to any ambiguity in
interpretation and does not call for a stretched understanding.

In the case at bar, the claim of ALI against PGAI arose from the failure of KRDC to
perform its obligation under the construction contract. ALI therefore already had the
claim or right to payment against PGAI in the maximum amount of P4,700,000.00 from
the moment KRDC failed to comply with its obligation. According to the time-bar
provision, in order to enforce such claim or recover the said amount, ALI
shall present its claim within ten (10) days from the occurrence of the default or failure
of KRDC.
The October 16, 2000 letter was the presentation of the claim. ALIs intent to recover its
claim was communicated clearly to PGAI. By informing PGAI of the termination of the
contract with KRDC, ALI in effect presented a situation where PGAI is put on notice that
ALI in fact has a right to payment by virtue of the performance bond and it intends to
recover it. Undeniably, ALI has substantially complied with the time-bar provision of the
performance bond.
E. Zobel, Inc. vs. CA, Consolidated Bank and Trust Corporation (SOLIDBANK) and
Sps. Raul and Elea Claveria [G.R. No. 113931; May 6, 1998, Martinez, J. ]

TOPIC: Guaranty/ Surety AUTHOR:

FACTS:

1. 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 P2, 875,000.00 to finance the purchase of two (2)
maritime barges and one tugboat which would be used in their molasses business.

2. 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 were
executed.

3. The 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.

4. Petitioner: (Motion to Dismiss) Its liability as guarantor of the loan was extinguished
pursuant to Article 2080 of the Civil Code of the Philippines. 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.

5. SOLIDBANK: E. Zobel, Inc. is not a guarantor but a surety.

6. RTC: Denied Motion to Dismiss. Basis of RTC: '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. 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. · Art. 2080 New Civil Code will not apply as it is only for those
acting as guarantor. · In the letter 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. · 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 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. · 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.

7. CA Affirmed RTC decision.

ISSUE: Whether or not petitioner under the "Continuing Guaranty" obligated itself to
SOLIDBANK as a guarantor or a surety.

HELD/ RATIO: E. Zobel, Inc. obligated itself as a surety.

Thus, Art 2080 of the Civil Code does not apply to it. Contract of Surety Contract of
Guaranty Accessory promise by which a person binds himself for another already
bound Collateral undertaking to pay the debt of another in case the latter does not pay
the debt. Surety agrees with the creditor to satisfy the obligation if the debtor does not.
Guarantor's own separate undertaking, in which the principal does not join. A surety is
usually bound with his principal by the same instrument, executed at the same time, and
on the same consideration. 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.

He is an original promissor and debtor from the beginning, and is held, ordinarily, to
know every default of his principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its non-performance. 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. 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. Surety is the insurer of the debt,
and he obligates himself to pay if the principal does not pay. Guarantor is the insurer of
the solvency of the debtor and thus binds himself to pay if the principal is unable to pay.
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. 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 discloses 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. 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. 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, 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.

CASE LAW/ DOCTRINE: Art. 2080 applies only to guarantors not sureties. (See table
above for the comparison of Contract of guaranty and Contract of surety)
DISSENTING/CONCURRING OPINION(S): (if applicable)

STRONGHOLD INSURANCE COMPANY, INC., vs. REPUBLIC-ASAHI GLASS

CORPORATION

Facts: Republic-Asahi entered with Jose Santos Jr., proprietor of JDS Construction, for
the construction of roadways and drainage system, which was supposed to be
completed within a period of 240 days. In order to guarantee the faithful and satisfactory
performance of its undertakings’ JDS post a performance bond of P795,000.00 with
Petitioner Stronghold Insurance Co., Inc. (SICI). Respondent called the attention of JDS
to the alleged alarmingly slow pace of the construction, which resulted in the fear that
the construction will not be finished within the stipulated period. However, such was
unheeded by JDS. Dissatisfied with the progress of the work, Republic-Asahi
extrajudicially rescinded the contract, but such rescission shall not be construed as a
waiver of respondents right to recover damages from JDS and latter’s sureties.

Thus, because of the failure to comply with the provisions of the contract, it had to hire
another contractor to finish the project, for which it incurred additional expenses.
Thereafter, respondent sent a letter to petitioner SICI filing its claim under the bond.
Respondent then sent again another letter reiterating the same demand but was
unheeded. This prompted respondent to file a complaint against JDS and SICI for
payment representing additional expenses and damages. According to the Sheriff’s
Return, summons were duly served on SICI, however, Jose Santos Jr. died the
previous year, and JDS was no longer at its address, and such whereabouts were
unknown. SICI filed its answer, alleging that the respondent’s money claims have been
extinguished by the death of Santos. Even if this were not the case, it had been
released from liability under the performance bond because there was no liquidation,
with the active participation and involvement, pursuant to procedural due process, of
herein surety and Santos, hence there was no ascertainment of the corresponding
liabilities of Santos and SICI under the performance bond. Thus, such liquidation would
be impossible since Santos is already dead.

The complaint against JDS and SICI was dismissed on the ground that the claim
against JDS did not survive the death of Santos. On Motion for Reconsideration, the
dismissal of the case was reconsidered and the case was reinstated, however, the case
against Santos remains undisturbed. On appeal, the Court of Appeals ruled that SICI’s
obligation under the surety agreement was not extinguished by the death of Santos.
Consequently Respondent could still go after SICI for the bond. Hence, this petition.

Issue: Whether or not the claims against SICI was extinguished from the death of
Santos

Held:

As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation. Obligations are transmissible to the heirs, except when the transmission is
prevented by the law, the stipulations of the parties, or the nature of the obligation. Only
obligations that are personal or are identified with the persons themselves are
extinguished by death. Section 5 of Rule 8612 of the Rules of Court expressly allows
the prosecution of money claims arising from a contract against the estate of a
deceased debtor.

Evidently, those claims are not actually extinguished. What is extinguished is only the
obligee’s action or suit filed before the court, which is not then acting as a probate court.
In the present case, whatever monetary liabilities or obligations Santos had under his
contracts with respondent were not intransmissible by their nature, by stipulation, or by
provision of law. Hence, his death did not result in the extinguishment of those
obligations or liabilities, which merely passed on to his estate. Death is not a defense
that he or his estate can set up to wipe out the obligations under the performance bond.
Consequently, petitioner as surety cannot use his death to escape its monetary
obligation under its performance bond.