Palmares vs CA

E. Zobel vs CA
Paramount Insurance vs CA
Security Bank vs Cuenca

ESTRELLA PALMARES​ vs. ​COURT OF APPEALS

Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally
liable with the principal debtor in case the latter defaults in the payment of the loan, is such
undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a guarantor
who warrants the solvency of the debtor?

FACTS: Pursuant to a promissory note, private respondent M.B. Lending Corporation extended a
loan to the spouses Azarraga together with petitioner Palmares as a co-maker. The Azarraga
spouses defaulted. ​Consequently, on the basis of petitioner's solidary liability under the promissory
note, respondent corporation filed a complaint against petitioner Palmares as the lone
party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of
the latter.

Petitioner posits that her liability is that of a guarantor and not of a surety in view of the conflicting
provisions of the promissory note. In addition, petitioner argues that respondent corporation should
have proceeded first against the principal before suing on her obligation as surety.

ISSUES: Whether petitioner as a co-maker assumes the liability of a guarantor and not of a surety in
case principal maker defaults.

Whet

RULING: ​Art. 2047 par. 2 of the Civil Code provides: “If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such
case the contract is called a suretyship.”

Petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal
maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's
liability is that of a surety.

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A
suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor
shall pay.

Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a
guarantor agrees that the creditor, after proceeding against the principal, may proceed against the
guarantor if the principal is unable to pay.
A surety binds himself to perform if the principal does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able
to do so.

In other words, a surety undertakes directly for the payment and is so responsible at once if the
principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the
debt cannot be made out of the principal debtor.

E. ZOBEL, INC.​ vs. ​THE COURT OF APPEALS

FACTS: Spouses Claveria obtained a loan with respondent SOLIDBANK to finance the purchase of
three vessels which would be used in their molasses business. The said loan was granted subject to
the condition that a continuing guarantee be executed by E. Zobel in favor of SOLIDBANK. The
respondent spouses agreed and a chattel mortgage and a Continuing Guaranty were executed.

Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence,
SOLIDBANK filed a complaint for sum of money against respondents spouses and petitioner.

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. SOLIDBANK opposed the
motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a
surety.

ISSUE: Whether petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK as a
guarantor or a surety.

RULING: 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.

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.

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. 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.

PARAMOUNT INSURANCE CORPORATION​ vs. ​COURT OF APPEALS

FACTS: McADORE commenced a suit against DECORP where McADORE posted injunction bonds
from several sureties, including petitioner PARAMOUNT, which issued an injunction bond. The RTC
held that the bonding companies, including Paramount, jointly and severally liable with McAdore to
the extent of the value of their bonds, to pay the damages adjudged to DECORP.

On appeal, PARAMOUNT argued that assuming it is liable on its injunction bond, its liability should
be limited only to the amount of damages accruing from the time the injunction bond was issued until
the termination of the case, and not from the time the suit was commenced. In short, it claims that
the injunction bond is prospective and not retroactive in application.

ISSUE: Whether petitioner’s liability is limited only to the amount of damages accruing from the time
the injunction bond was issued until the termination of the case, and not from the time the suit was
commenced.

RULING: The Rules of Court clearly provides that the injunction bond is answerable for ​all damages.
Thus, PARAMOUNT is liable, jointly and severally, for actual damages, moral damages, exemplary
damages, attorney's fees and costs of the suit, to the extent of the amount of the bond.

Petitioner's Indemnity Agreement with McADORE shows that the former agreed "to become surety"
for the stated amount "in favor of Dagupan Electric Corp." By the contract of suretyship, it is not for
the obligee to see to it that the principal pays the debt or fulfills the contract, but for the surety to see
to it that the principal pay or perform. Thus, the bondsmen are obligated to account to the defendant
in the injunction suit for all damages, or costs and reasonable counsel's fees, incurred or sustained
by the latter in case it is determined that the injunction was wrongfully issued.

SECURITY BANK AND TRUST COMPANY ​ vs. ​RODOLFO M. CUENCA

FACTS: Security Bank granted Sta. Ines Melale Corporation [SIMC] a credit line to assist the latter
in meeting the additional capitalization requirements of its logging operations. As additional security,
SIMC’s President Cuenca bound himself jointly and severally with SIMC in favor of the bank for the
payment, upon demand and without the benefit of excussion of whatever amount the client may be
indebted to the bank by virtue of aforesaid credit accommodation(s) including the substitutions,
renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit
accommodation(s).

Sometime in 1985, Cuenca resigned as President and Chairman of the Board of Directors of SIMC.
Subsequently, the shareholdings of Cuenca in SIMC were sold at a public auction.
​
In 1988, SIMC encountered difficult in making the amortization payments on its loans and requested
SBTC for a complete restructuring of its indebtedness. SBTC agreed. To formalize their agreement
to restructure the loan obligations of Sta. Ines, Security Bank and SIMC executed a Loan Agreement
dated 31 October 1989.
Appellant SIMC defaulted in the payment of its restructured loan obligations to SBTC despite
demands made upon appellant SIMC and CUENCA. Thus, SBTC filed a complaint for collection of
sum of money on against SIMC and Cuenca.

ISSUE: Whether the 1989 Loan Agreement novated the original credit accommodation and
Cuenca’s liability under the Indemnity Agreement.

RULING: YES. The 1989 Loan Agreement expressly stipulated that its purpose was to "liquidate,"
not to renew or extend, the outstanding indebtedness. Moreover, respondent did not sign or consent
to the 1989 Loan Agreement, which had allegedly extended the original credit facility. Hence, his
obligation as a surety should be deemed extinguished, pursuant to Article 2079 of the Civil Code,
which specifically states that "[a]n extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty. x x x." In an earlier case, the Court explained the
rationale of this provision in this wise:

The theory behind Article 2079 is that an extension of time given to the principal debtor by the
creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to
be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity
date. The surety is said to be entitled to protect himself against the contingency of the principal
debtor or the indemnitors becoming insolvent during the extended period.