1

CONSUELO P. PICZON, RUBEN O. PICZON and AIDA P. ALCANTARA, plaintiffs-appellants, vs. ESTEBAN
PICZON and SOSING-LOBOS & CO., INC., defendants-appellees.

Vicente C. Santos for plaintiff-appellants.

Jacinto R. Bohol for defendant-appellee Sosing-Lobos & Co., Inc.
Vicente M. Macabidang for defendant-appellee Esteban Piczon.

DECISION

BARREDO, J p:

Appeal from the decision of the Court of First Instance of Samar in its Civil Case No. 5156, entitled Consuelo P. Piczon, et. al. vs.
Esteban Piczon, et al., sentencing defendants-appellees, Sosing Lobos and Co., Inc., as principal, and Esteban Piczon, as guarantor,
to pay plaintiffs-appellants "the sum of P12,500.00 with 12% interest from August 6, 1964 until said principal amount of P12,500.00
shall have been duly paid, and the costs."
After issues were joined and at the end of the pre-trial held on August 22, 1967, the trial court issued the following order:

"When this case was called for pre-trial, plaintiffs and defendants through their lawyers, appeared and entered into
the following agreement:
1. That defendants admit the due execution of Annexes 'A' and 'B' of the complaint;

2. That consequently defendant Sosing-Lobos and Co., Inc. binds itself to the plaintiffs for P12,600.00, the same to
be paid on or before October 31, 1967 together with the interest that this court may determine.
That the issues in this case are legal ones namely:
(a) Will the payment of twelve per cent interest of P12,500.00 commence to run from August 6, 1964 when plaintiffs
made the first demand or from August 29, 1956 when the obligation becomes due and demandable?
(b) Is defendant Esteban Piczon liable as a guarantor or a surety?

That the parties are hereby required to file their respective memorandum if they so desire on or before September
15, 1967 to discuss the legal issues and therewith the case will be considered submitted for decision.

WHEREFORE, the instant case is hereby considered submitted based on the aforesaid facts agreed upon and
upon submission of the parties of their respective memorandum on or before September 15, 1967.
SO ORDERED." 1 (Record on Appeal pp. 28-30.)

Annex "A", the actionable document of appellants reads thus:

"AGREEMENT OF LOAN
KNOW YE ALL MEN BY THESE PRESENTS:

That I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of and with postal address in the
municipality of Catbalogan, Province of Samar, Philippines, in my capacity as the President of the corporation
known as the 'SOSING-LOBOS and CO., INC.,' as controlling stockholder, and at the same time as guarantor for
the same, do by these presents contract a loan of Twelve Thousand Five Hundred Pesos (P12,500.00), Philippine
Currency, the receipt of which is hereby acknowledged, from the 'Piczon and Co., Inc.' another corporation, the
main offices of the two corporations being in Catbalogan, Samar, for which I undertake, bind and agree to use the
loan as surety cash deposit for registration with the Securities and Exchange Commission of the incorporation
papers relative to the 'Sosing-Lobos and Co., Inc.,' and to return or pay the same amount with Twelve Per Cent
(12%) interest per annum, commencing from the date of execution hereof, to the 'Piczon and Co., Inc., as soon as
the said incorporation papers are duly registered and the Certificate of Incorporation issued by the aforesaid
Commission.

IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan, Samar, Philippines, this 28th day of
September, 1956.
(Sgd.) ESTEBAN PICZON"
(Record on Appeal, pp. 6-7.)
The trial court having rendered judgment in the tenor aforequoted, appellants assign the following alleged errors:
"I

THE TRIAL COURT ERRED IN ORDERING THE PAYMENT OF 12% INTEREST ON THE PRINCIPAL OF
P12,500.00 FROM AUGUST 6, 1964, ONLY, INSTEAD OF FROM SEPTEMBER 28, 1956, WHEN ANNEX 'A'
WAS DULY EXECUTED.
"II

THE TRIAL COURT ERRED IN CONSIDERING DEFENDANT ESTEBAN PICZON AS GUARANTOR ONLY AND
NOT AS SURETY.
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"III

THE TRIAL COURT ERRED IN NOT ADJUDICATING DAMAGES IN FAVOR OF THE PLAINTIFFS-
APPELLANTS." (Appellants' Brief, pp. a to b.)

Appellants' first assignment of error is well taken. Instead of requiring appellees to pay interest at 12% only from August 6, 1964, the
trial court should have adhered to the terms of the agreement which plainly provides that Esteban Piczon had obligated Sosing-Lobos
and Co., Inc. and himself to "return or pay (to Piczon and Co., Inc.) the same amount (P12,500.00) with Twelve Per Cent (12%) interest
per annum commencing from the date of the execution hereof", Annex A, which was on September 28, 1956. Under Article 2209 of the
Civil Code "(i)f the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum." In the case at bar, the "interest agreed upon" by the parties in Annex A was to commence
from the execution of said document.

Appellees' contention that the reference in Article 2209 to delay incurred by the debtor which can serve as the basis for liability for
interest is to that defined in Article 1169 of the Civil Code reading thus:

"Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins."

is untenable. In Quiroz vs. Tan Guinlay, 5 Phil. 675, it was held that the article cited by appellees (which was Article 1100 of the
Old Civil Code read in relation to Art. 1101) is applicable only when the obligation is to do something other than the payment of
money. And in Firestone Tire & Rubber Co. (P.I.) vs. Delgado, 104 Phil. 920, the Court squarely ruled that if the contract stipulates
from what time interest will be counted, said stipulated time controls, and, therefore interest is payable from such time, and not
from the date of the filing of the complaint (at p. 925). Were that not the law, there would be no basis for the provision of Article
2212 of the Civil Code providing that "(I)nterest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point." Incidentally, appellants would have been entitled to the benefit of this article, had they not
failed to plead the same in their complaint. Their prayer for it in their brief is much too late. Appellees had no opportunity to meet
the issue squarely at the pre-trial.
As regards the other two assignments of error, appellants' pose cannot be sustained. Under the terms of the contract, Annex A,
Esteban Piczon expressly bound himself only as guarantor, and there are no circumstances in the record from which it can be deduced
that his liability could be that of a surety. A guaranty must be express, (Article 2055, Civil Code) and it would be violative of the law to
consider a party to be bound as a surety when the very word used in the agreement is "guarantor."

Moreover, as well pointed out in appellees' brief, under the terms of the pre-trial order, appellants accepted the express assumption of
liability by Sosing-Lobos & Co., Inc. for the payment of the obligation in question, thereby modifying their original posture that inasmuch
as that corporation did not exist yet at the time of the agreement, Piczon necessarily must have bound himself as insurer.
As already explained earlier, appellants' prayer for payment of legal interest upon interest due from the filing of the complaint can no
longer be entertained, the same not having been made an issue in the pleadings in the court below. We do not believe that such a
substantial matter can be deemed included in a general prayer for "any other relief just and equitable in the premises", especially when,
as in this case, the pre-trial order does not mention it in the enumeration of the issues to be resolved by the court.

PREMISES CONSIDERED, the judgment of the trial court is modified so as to make appellees liable for the stipulated interest of 12%
per annum from September 28, 1956, instead of August 6, 1964. In all other respects, said judgment is affirmed. Costs against
appellees.
Fernando (Chairman), Antonio, Fernandez and Aquino, JJ., concur.

||| (Piczon v. Piczon, G.R. No. L-29139, [November 15, 1974____________

FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees, vs.

GUILLERMO SEVERINO ET AL., defendants. ENRIQUE ECHAUS, appellant.
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R. Nepomuceno, for appellant.
Jacinto E. Evidente, for appellees.

SYLLABUS

1. CONTRACT; CONSIDERATION; SURETY OR GUARANTOR. — It is not necessary that a surety or guarantor should
participate in the benefit which constitutes the consideration as between the principal parties to the contract.

DECISION

STREET, J p:

This action was instituted in the Court of First Instance of the Province of Iloilo by Fabiola Severino, with whom is joined
her husband Ricardo Vergara, for the purpose of recovering the sum of P20,000 from Guillermo Severino and Enrique Echaus, the
latter in the character of guarantor for the former. Upon hearing the cause the trial court gave judgment in favor of the plaintiff's to
recover the sum of P20,000 with lawful interest from November 15, 1929, the date of the filing of the complaint, with costs. But it
was declared that execution of this judgment should issue first against the property of Guillermo Severino, and if no property
should be found belonging to said defendant sufficient to satisfy the judgment in whole or in part, execution for the remainder
should be issued against the property of Enrique Echaus as guarantor. From this judgment the defendant Echaus appealed, but his
principal, Guillermo Severino, did not.
The plaintiff Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, former resident of
Occidental Negros. Upon the death of Melecio Severino a number of years ago, he left considerable property and litigation ensued
between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs of the deceased on the other part.
In order to make an end of this litigation a compromise was effected by which Guillermo Severino, a son of Melecio Severino, took
over the property pertaining to the estate of his father at the same time agreeing to pay P100,000 to Felicitas Villanueva and
Fabiola Severino. This sum of money was made payable, first, P40,000 in cash upon the execution of the document of
compromise, and the balance in three several payments of P20,000 at the end of one year, two years, and three years
respectively. To this contract the appellant Enrique Echaus affixed his name as guarantor. The first payment of P40,000 was made
on July 11, 1924, the date when the contract of compromise was executed; and of this amount the plaintiff Fabiola Severino
received the sum of P10,000. Of the remaining P60,000, all as yet unpaid, Fabiola Severino is entitled to the sum of P20,000.
It appears that at the time the compromise agreement above- mentioned was executed Fabiola Severino had not yet been
judicially recognized as the natural daughter of Melecio Severino, and it was stipulated that the last P20,000 corresponding to
Fabiola and the last P5,000 corresponding to Felicitas Villanueva should be retained on deposit until the definite status of Fabiola
Severino as natural daughter of Melecio Severino should be established. The judicial decree to this effect was entered in the Court
of First Instance of Occidental Negros on June 16, 1925, and as the money which was contemplated to be held in suspense has
never in fact been paid to the parties entitled thereto, it results that the point respecting the deposit referred to has ceased to be of
moment.
The proof shows that the money claimed in this action has never been paid and is still owing to the plaintiff; and the only
defense worth noting in this decision is the assertion on the part of Enrique Echaus that he received nothing for affixing his
signature as guarantor to the contract which is the subject of suit and that in effect the contract was lacking in consideration as to
him.
The point is not well taken. A guarantor or surety is bound by the same consideration that makes the contract effective
between the principal parties thereto. (Pyle vs. Johnson, 9 Phil., 249.) The compromise and dismissal of a lawsuit is recognized in
law as a valuable consideration; and the dismissal of the action which Felicitas Villanueva and Fabiola Severino had instituted
against Guillermo Severino was an adequate consideration to support the promise on the part of Guillermo Severino to pay the
sums of money stipulated in the contract which is the subject of this action. The promise of the appellant Echaus as guarantor is
therefore binding. It is never necessary that a guarantor or surety should receive any part of the benefit, if such there be, accruing
to his principal. But the true consideration of this contract was the detriment suffered bythe plaintiffs in the former action in
dismissing that proceeding, andit is immaterial that no benefit may have accrued either to the principal or his guarantor.
The judgment appealed from is in all respects correct, and the same will be affirmed, with costs against the appellant. So
ordered.
||| (Severino v. Echaus, G.R. No. 34642, [September 24, 1931], 56 PHIL 185-188)

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. HON. JOSE P. ARRO, Judge of the Court of
First Instance of Davao, and RESIDORO CHUA, respondents.

Laurente C. Ilagan for petitioner.

Victor A. Clapano for respondents.

SYNOPSIS

Residoro Chua and Enrique Go, Sr. jointly executed a comprehensive surety agreement to guaranty any existing or future obligation of
Davao Agricultural Industries Corporation (DAICOR) with petitioner bank. Thereafter, a promissory note in the amount of P100,000.00
was issued in favor of petitioner bank which was signed solely by Enrique Go, Sr. in his personal capacity and in behalf of DAICOR.
When despite repeated demands the note was not fully paid, petitioner bank filed a complaint against Daicor, respondent Chua and
Enrique Go, Sr. The trial court, sustaining the private respondent, dismissed the complaint on the ground that it states no cause of
 4
action as against him since he did not sign the subject promissory note, which is a necessary corollary to the comprehensive surety
agreement as evidence of indebtedness, and without which the said agreement served no purpose. Hence, this petition.

The Supreme Court held that DAICOR being liable on the promissory note, private respondent was likewise liable thereon even if he
did not sign it, since under the subsisting comprehensive surety agreement, he jointly bound himself to guaranty existing and future
obligations of DAICOR subject only to the condition that their obligation will not at any one time exceed the aggregate principal sum of
P100,000.00.
Petition granted. Assailed decision set aside and case remanded to the court of origin with instruction to set aside the motion to dismiss
and to require Residoro Chua to answer the complaint.

SYLLABUS

1. CIVIL LAW; GUARANTY; EFFECTS OF GUARANTY; PRIVATE RESPONDENT IN CASE AT BAR LIABLE UNDER
COMPREHENSIVE SURETY AGREEMENT, ALTHOUGH NOT A SIGNATORY TO PROMISSORY NOTE. — Where the
comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager,
respectively of DAICOR, on October 19, 1976 to cover existing as well as future obligation which DAICOR may incur with the petitioner
bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00,
respondent Chua is liable on a P100,000.00 promissory note in favor of petitioner bank, signed only by Go in his personal capacity and
in behalf of DAICOR, to cover a loan of P100,000.00 obtained from petitioner by DAICOR. The surety agreement is an accessory
obligation, it being dependent upon a principal one which, in this case is the loan obtained by DAICOR as evidenced by a promissory
note.
2. ID.; ID.; ID.; GUARANTY TO SECURE FUTURE DEBTS, ALLOWABLE UNDER THE CIVIL CODE: CASE AT BAR. — By terms that
are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which DAICOR may incur
with petitioner, as is legally allowable under Article 2053 of the Civil Code.

DECISION

DE CASTRO, J p:

Petition for certiorari to annul the orders of respondent judge dated October 6, 1978 and November 7, 1978 in Civil Case No. 11-154 of
the Court of First Instance of Davao, which granted the motion filed by private respondent to dismiss the complaint of petitioner for a
sum of money, on the ground that the complaint states no cause of action as against private respondent.

After the petition had been filed, petitioner, on December 14, 1978 mailed a manifestation and motion requesting the special civil action
for certiorari be treated as a petition for review. 1 Said manifestation and motion was noted in the resolution of January 10, 1979. 2

It appears that on October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreement 3 to guaranty
among others, any existing indebtedness of Davao Agricultural Industries Corporation (referred to therein as Borrower, and as Daicor in
this decision), and/or induce the bank at any time or from time to time thereafter, to make loans or advances or to extend credit in other
manner to, or at the request, or for the account of the Borrower, either with or without security, and or to purchase on discount, or to
make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or other evidences of
indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable, provided that the liability shall not
exceed at any one time the aggregate principal sum of P100,000.00. llcd
On April 29, 1977 a promissory note 4 in the amount of P100,000.00 was issued in favor of petitioner payable on June 13, 1977. Said
note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was not fully paid despite
repeated demands; hence, on June 30, 1978, petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and
Residoro Chua. A motion to dismiss dated September 23, 1978 was filed by respondent Residoro Chua on the ground that the
complaint states no cause of action as against him. 5 It was alleged in the motion that he can not be held liable under the promissory
note because it was only Enrique Go, Sr. who signed the same in behalf of Daicor and in his own personal capacity.
In an opposition dated September 26, 1978 6 petitioner alleged that by virtue of the execution of the comprehensive surety agreement,
private respondent is liable because said agreement covers not merely the promissory note subject of the complaint, but is continuing;
and it encompasses every other indebtedness the Borrower may, from time to time incur with petitioner bank.
On October 6, 1978 respondent court rendered a decision granting private respondent's motion to dismiss the complaint. 7 Petitioner
filed a motion for reconsideration dated October 12, 1978 and on November 7, 1978 respondent court issued an order denying the said
motion. 8

The sole issue resolved by respondent court was the interpretation of the comprehensive surety agreement, particularly in reference to
the indebtedness evidenced by the promissory note involved in the instant case, said comprehensive surety agreement having been
signed by Enrique Go, Sr. and private respondent, binding themselves as solidary debtors of said corporation not only to existing
obligations but to future ones. Respondent court said that corollary to that agreement must be another instrument evidencing the
obligation in a form of a promissory note or any other evidence of indebtedness without which the said agreement serves no purpose;
that since the promissory notes, which is primarily the basis of the cause of action of petitioner, is not signed by private respondent, the
latter can not be liable thereon.

Contesting the aforecited decision and order of respondent judge, the present petition was filed before this Court assigning the following
as errors committed by respondent court: LibLex
"1. That the respondent court erred in dismissing the complaint against Chua simply on the reasons that 'Chua is
not a signatory to the promissory note' of April 29, 1977, or that Chua could not be held liable on the note under the
provisions of the comprehensive surety agreement of October 29, 1976; and/or

"2. That the respondent court erred in interpreting the provisions of the Comprehensive Surety Agreement towards
the conclusion that respondent Chua is not liable on the promissory note because said note is not comfortable to
the Comprehensive Surety Agreement; and/or
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"3. That the respondent court erred in ordering that there is no cause of action against respondent Chua in the
petitioner's complaint."

The main issue involved in this case is whether private respondent is liable to pay the obligation evidence by the promissory note dated
April 29, 1977 which he did not sign, in the light of the provisions of the comprehensive surety agreement which petitioner and private
respondent had earlier executed on October 19, 1976.

We find for the petitioner. The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President
and General Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as future obligations which Daicor may
incur with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum
of P100,000.00. Thus, paragraph 1 of the agreement provides:

"For and in consideration of any existing indebtedness to you of Davao Agricultural Industries Corporation with
principal place of business and postal address at 530 J. P. Cabaguio Ave., Davao City (hereinafter called the
"Borrower), and/or 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 security, and/or to purchase or discount or to make any loans or advances evidenced or
secured by any notes, bills, receivables, drafts, acceptances, checks or other instruments or evidences of
indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable as maker,
endorser, acceptor, or otherwise) the undersigned agrees to guarantee, and does hereby guarantee in joint and
several capacity, the punctual payment at maturity 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 covecting all such instruments or other indebtedness or obligations hereinbefore referred to . .
., provided, however, that the liability of the undersigned shall not exceed at any one time the aggregate principal
sum of P100,000.00 . . ."

The agreement was executed obviously to induce petitioner to grant any application for a loan Daicor may desire to obtain from
petitioner bank. The guaranty is a continuing one which shall remain in full force and effect until the bank is notified of its
termination. cdll
"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, . . ." 9

At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose of having an additional capital for buying
and selling coco-shell charcoal and importation of activated carbon, 10 the comprehensive surety agreement was admittedly in full force
and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promisory note,
is liable by virtue of the surety agreement. The only condition that would make him liable thereunder is that the Borrower "is or may
become liable as maker, endorser, acceptor or otherwise". There is no doubt that Daicor is liable on the promissory note evidencing the
indebtedness.
The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being
dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously
induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the
punctual payment of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the surety agreement was executed
to guarantee future debts which Daicor may incur with petitioner, as is legally allowable under the Civil Code. Thus —

"Article 2053. — A guaranty may also be given as security for future debts, the amount of which is not yet known;
there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be
secured."
In view of the foregoing, the decision (which should have been a mere "order"), dismissing the complaint is reversed and set side. The
case is remanded to the court of origin with instructions to set aside the motion to dismiss, and to require defendant Residoro Chua to
answer the complaint, after which the case shall proceed as provided by the Rules of Court. No costs.
SO ORDERED.
||| (RCBC v. Arro, G.R. No. L-49401, [July 30, 1982], 201 PHIL 362-368)

PHILIPPINE NATIONAL BANK, petitioner, vs. LUZON SURETY CO., INC. and THE HONORABLE COURT
APPEALS, respondent.

Conrado S. Medina Esgardo M. Magtalas & Virgilio U. Gongon for petitioner.

Tolentino, Garcia, Cruz & Reyes for respondent.

SYNOPSIS
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To guarantee the P32,400-crop loan obtained from the Philippine National Bank (PNB) by Augusto R. Villarosa, the latter, as principal,
and Luzon Surety, as surety, executed a P10,000-bond in favor of said bank. Later Villarosa executed a chattel mortgage in favor of
PNB in consideration of periodical sums of money received by him. The chattel mortgage stipulated that the "mortgagee may increase
or decrease the amount of the loan as well as the installments as it may deem convenient," and that "in the event the loan is increased
such increase shall likewise be secured by Mortgage." The bond executed by Luzon Surety undertook to "comply with all the terms and
conditions stipulated in said crop loan contract," the same being incorporated in the bond as essential part thereof. The credit line of
P32,400 was later increased, so that as of September, 1953, there was a balance of P63,222.75. For failure of Villarosa to pay the
obligation, PNB sued him and his sureties, including the Luzon Surety.
The trial court adjudged in favor of the PNB, but the Court of Appeals reversed the judgment, and absolved the surety on the ground
that PNB's evidence did not establish a cause of action, since the bond made references to a crop loan contract executed in February,
1952, and therefore the chattel mortgage dated March 6, 1962 could not have been the obligation guaranteed by the surety bond; and
that there had been material alterations in the principal obligation, if any, guaranteed by it.

The Supreme Court reversed the appealed judgment and held that the Court of Appeals erred in not considering the unrebutted
testimony of PNB's witness that the chattel mortgage was the only contract executed by Villarosa evidencing the crop loan and upon
which Luzon Surety agreed to assume liability up to the amount of P10,000. And as to the alteration, the Court held that the defense is
untenable because as a surety, said bonding company is charged as an original promissor and is an insurer of debt, and that the
increases were made with the full consent of Luzon Surety.

SYLLABUS

1. SURETY EVIDENCE SHOWING THAT LIABILITY OF PARTY IS THAT OF SURETY AND NOT AS GUARANTOR. — Where the
surety bond executed between the creditor on one hand and the debtor and the bonding company of the other stipulated that the debtor
and the bonding company "are held and firmly bound unto" the creditor "in the sum of ten Thousand Pesos (P10,000)" for payment of
which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns jointly and
severally, firmly," to comply with all the terms and conditions stipulated in said crop loan contract which are hereby incorporated as
essential part hereof" the liability of the bonding company to the creditor is not merely as a guarantor but as surety — liable as a regular
party to the undertaking.
2. ID.; BONDING COMPANY NOT ENTITLED TO A RULE OF STRICTISSIMI JURIS. — A bonding company engaged in the business
of furnishing guarantees, for a consideration, is not entitled to a rule ofstrictissimi juris or a strained and over-strict interpretation of its
undertaking. The presumption indulged in by the law in favor of guarantors was premised on the fact that guarantees were originally
gratuitous obligations, which is not true at present, at least in the great majority of cases.
3. ID.; WHEN ALTERATION OF TERMS AND CONDITIONS OF SURETY CONTRACT RELEASES SURETY. — As a surety, a
bonding company is charged as an original promissor and is an insurer of the debt. While it is an accepted rule in our jurisdiction that an
alteration of the contract is a ground for release, this alteration must be material. Alterations in the form of increases in the credit line
made with the full consent of the bonding company cannot be the basis of the company's claim for release.

4. ID.; INTEREST; SURETY LIABLE TO PAY INTEREST IF HE FAILS TO PAY ON DEMAND. — If a surety upon demand fails to pay,
he can be held liable for interest, even if in thus paying, the liability becomes more than in the principal obligation. The increased liability
is not because of the contract but because of the default and the necessity of judicial collection. The interest however, runs from the
time the complaint is filed, not from the time the debt becomes due and demandable.

DECISION

ESGUERRA, J p:

Petitioner Philippine National Bank seeks a review and reversal of the decision dated June 26, 1968, of the Court of Appeals in its case
CA-G.R. No. 30282-R, absolving Luzon Surety Co., Inc. of its liability to said, petitioner and thus reversing the decision of the Court of
First Instance of Negros Occidental, the dispositive portion of which reads as follows:

"IN VIEW THEREOF, judgment is hereby rendered ordering defendant Augusto R. Villarosa to pay plaintiff
PHILIPPINE NATIONAL BANK the sum of P81,200.00 plus accrued interest of 5% per annum on
P63,222.78 from August 31, 1959; to pay 10% of said amount as attorney's fees and to pay the costs.
Defendant Luzon Surety Co., Inc. is hereby ordered to pay jointly and severally with defendant Villarosa to
the plaintiff the sum of P10,000.00; defendant Central Surety and Insurance Company jointly and severally
with defendant Villarosa the sum of P20,000 to the plaintiff, and Associated Surety And Insurance Co. jointly
and severally with defendant Villarosa the sum of P15,000.00 to the plaintiff, with the understanding that
should said bonding companies pay the aforementioned amounts of their respective bonds to the plaintiff,
said amounts should be deducted from the total outstanding obligation of defendant Villarosa in favor of the
plaintiff."

Above-quoted decision was modified in an order of the Court of First Instance dated June 5, 1961, granting petitioner Philippine
National Bank (PNB) the right to recover accrued interest at the rate of 5% per annum from December 24, 1953 from the defendants
bonding companies.
The facts as found by the Court of Appeals are as follows:

". . . sometime prior to 27 November 1951, defendant Augusto R. Villarosa, a sugar planter
adhered to the Lopez Sugar Central Milling Company, Inc. applied for a crop loan with the plaintiff,
Philippine National Bank, Exhibit A; this application was approved on 6 March, 1952 in the amount of
P32,400, according to the complaint; but the document of approval has not been exhibited; at any rate, the
planter Villarosa executed a Chattel Mortgage on standing crops to guarantee the crop loan, Exhibit B and
as shown in Exhibits C to C-30 on various dates from 28 January, 1952 to 9 January, 1953, in consideration
of periodical sums of money by him received from PNB, planter Villarosa executed these promissory notes
from which will be seen that the credit line was that the original amount of P32,400 and was thus maintained
 7
up to the promissory note Exhibit C-9 dated 30 May, 1952 but afterwards it was increased and promissory
notes Exhibits C-10 to C-30 were based on the increased credit line; and as of 27 September, 1953 as
shown in the accounts, Exhibits D and D-1, there was a balance of P63,222.78 but as of the date when the
complaint was filed on 8 June, 1960, because of the interest accrued, it had reached a much higher sum;
that was why due to its non-payment, plaintiff filed this complaint, as has been said, on 8 June, 1960; now
the complaint sought relief not only against the planter but also against the three (3) bondsmen, Luzon
Surety, Central Surety and Associated Surety because Luzon Surety had filed the bond Exhibit E dated 18
February, 1952 in the sum of P10,000; Central Surety Exhibit F dated 24 February, 1952 in the sum of
P20,000 and Associated Surety the bond Exhibit G dated 11 September, 1952 in the sum of P15,000; in
gist, the obligation of each of the bondsmen being to guarantee the faithful performance of the obligation of
the planter with PNB; now each of the defendants in their answers raised various defenses but as far as
principal defendant Augusto R. Villarosa and other defendants Central Surety and Associated Surety are
concerned, their liability is no longer material because they have not appealed; and in the trial of the case,
plaintiff submitted Exhibits A to J-1 and witness Romanito Brillantes; but the defense of Luzon Surety thru its
witness Jose Arroyo and Exhibits 1 to 3 being 1st that the evidence of the plaintiff did not establish a cause
of action to make Luzon Surety liable and 2ndly, in any case that there had been material alteration in the
principal obligation, if any, guaranteed by it; . . ."
Unable to obtain reconsideration of the decision of the Appellate Court, PNB came to this Court and alleged the following errors.
1. The Court of Appeals erred in the application of the law involved by invoking Article 2055 of the
New Civil Code, which properly should have been the law on suretyship which are covered by Section 4,
Chapter 3, Title 1, Book IV of the New Civil Code;
2. Consequently, when the Court of Appeals released the surety from liability, it committed a grave
or gross misappreciation of facts amounting to an error of law;
3. The Court of Appeals erred when it held that there must have been a principal crop loan
contract, guaranteed by the surety bonds;
4. The Court of Appeals erred when it released the surety from liability.

The above assigned errors boil down to the single question of whether or not the Court of Appeals was justified in absolving Luzon
Surety Co., Inc. from liability to petitioner Philippine National Bank. We have examined the record thoroughly and found the appealed
decision to be erroneous.
Excerpt of the Chattel Mortgage executed to guarantee the crop loan clearly provided as follows:

xxx xxx xxx

1. That the Mortgagor does by these presents grant, cede and convey unto the Mortgagee by way
of First Mortgage free from any encumbrances, all the crops of the absolute property of the Mortgagor,
corresponding to the 1952-53 and subsequent yearly sugar crops agricultural season at present growing in
the Hda. known as San Antonio, Washington (P) Audit 24-124 and 24-16 1a and Hda. Aliwanay (non-quota
land); milling with LSMC and CAD, Municipality of Sagay, and Escalante, Province of Negros Occidental
covered by cadastral lots no. Various of the Cadastral Survey at the Municipality of Sagay, Escalante
particularly bounded and described in Transfer Certificate of Title No. Various issued by the Register of
Deeds of said province. The said mortgage crops consist of all the Mortgagor's first available entire net
share of the 1952-53 and subsequent yearly sugar crops thereafter conservatively estimated at but not less
than Three Thousand Four Hundred Twenty and 14/00 (3,420.14) piculs of export and domestic sugar,
including whatever addition thereto, and such aids, subsidies, indemnity payments and other benefits as
maybe awarded to the Mortgagor, coming from any source, governmental or otherwise.
xxx xxx xxx
"4. This Mortgage is executed to secure payment by the Mortgagor to the Mortgagee at the latter's
office of a loan herein granted to the Mortgagor in the sum of Thirty Two Thousand Four Hundred
(P32,400.00) Pesos, Philippine Currency, with interest at the rate of five per cent per annum, which loan
shall be given to the Mortgagor either in lump sum or in installments as the mortgagee may determine.
The Mortgagee may increase or decrease the amount of the loan as well as the installments as it may deem
convenient, and the Mortgagor shall submit such periodical reports on the crops mortgaged as the
Mortgagee may require. In the event that the loan is increased such increase shall likewise be secured by
Mortgage. This Mortgage shall also secure any other loans or advances that the Mortgagee may extend to
the Mortgagor, including interest and expenses or any other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary, as appears in the account books and records of the Mortgagee.
xxx xxx xxx
Likewise an extract from the Surety Bond executed by and between the PNB on one hand and Augusto Villarosa and respondent Luzon
Surety Company, Inc. on the other, is hereby reproduced, viz:
"That we Augusto Villarosa of Bacolod City, as principal and Luzon Surety Company, Inc. a
corporation duly organized and existing under and by virtue of the laws of the Philippines, as surety, are
held and firmly bound unto the Philippine National Bank, Bacolod City, Philippines, in the sum of Ten
Thousand Pesos (P10,000.00), Philippine Currency, for the payment of which sum, well and truly to be
made, we bind ourselves, our heirs, executors, administrators, successors, and assigns jointly and
severally, firmly by these presents:
The condition of the obligation are as follows:

"WHEREAS, the above bounden principal, on the — day of February, 1952, entered into a crop
loan contract with obligee Philippine National Bank, Bacolod Branch of Bacolod City, Philippines to fully and
faithfully —
 8
Comply with all the terms and conditions stipulated in said crop loan contract which are hereby
incorporated as essential parts hereof, and principally to meet and pay from the proceeds of the sugar
produced from his Hda. Antonio and Hda. Aliwanay, Escalante, Occidental Negros credit advances made by
the Philippine National Bank Bacolod Branch not to exceed P32,800 as stated in said contract. Provided
further that the liability under this bond shall not exceed the amount of P10,000.00.

"WHEREAS, said Philippine National Bank Bacolod Branch requires said principal to give a good
and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said
crop loan contract.

"NOW, THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings,
covenants, terms and conditions and agreement stipulated in said crop loan contract then, this obligation
shall be null and void, otherwise it shall remain in full force and effect.
xxx xxx xxx

The foregoing evidences clearly the liability of Luzon Surety to petitioner Philippine National Bank not merely as a guarantor but as
surety-liable as a regular party to the undertaking (Castelvi de Higgins vs. Sellner 41 Phil. 142). The Court of Appeals, however, in
absolving the bonding company ratiocinates that the Surety Bond executed on February 18, 1952, made specific references to a crop
loan contract executed by Augusto Villarosa sometime in February 1952. And, therefore, the Chattel Mortgage, Exhibit B dated March
6, 1952, could not have been the obligations guaranteed by the surety bond. Thus the Court of Appeals stated:

". . . one is really at a loss to impose any liability upon Luzon Surety in the absence of the principal
obligation which was a crop loan contract executed in February, 1952, and to which there was made an
express reference in the surety bond, Exhibit E; let it not be overlooked further that one can secure a crop
loan without executing a Chattel Mortgage on his crops because the crop loan is the principal obligation
while the Chattel Mortgage is only an ancillary and secondary contract to guarantee fulfillment of a crop
loan; stated otherwise and as Luzon Surety never intervened in the execution of the Chattel Mortgage,
Exhibit B, there is no way under the evidence from which it can be made to answer for liability to Augusto
Villarosa under Exhibit E; . . ."

The Court of Appeals, to Our mind did not give credence to an otherwise significant and unrebutted testimony of petitioner's witness,
Romanito Brillantes, that Exhibit B was the only chattel mortgage executed by Augusto Villarosa evidencing the crop loan contract and
upon which Luzon Surety agreed to assume liability up to the amount of P10,000 by posting the said surety bond. Moreover Article
1354 of our New Civil Code which provides:
"Art. 1354. — Although the cause is not stated in the contract, it is presumed that it exists and is
lawful, unless the debtor proves the contrary."
bolsters petitioner's stand. Considering too that Luzon Surety Company is engaged in the business of furnishing guarantees, for a
consideration, there is no reason that it should be entitled to a rule ofstrictissimi juris or a strained and over-strict interpretation of
its undertaking. The presumption indulged in by the law in favor of guarantors was premised on the fact that guarantees were
originally gratuitous obligations, which is not true at present, at least in the great majority of cases. (Aurelio Montinola vs. Alejo
Gatila, et al. G.R. No. L-7558, October 31, 1955)
We have likewise gone over the answer of Luzon Surety Company dated June 17, 1960 (p. 73 Record on Appeal) and noted the
following:
xxx xxx xxx
"3. Defendant LUZON admits the portion of paragraph 3 referring to the grant of P32,400 secured
by a Chattel Mortgage dated March 6, 1952, copy of which is attached as Annex "A" of the complaint.

xxx xxx xxx

As special defenses:
"8. The terms and conditions of the surety bond as well as the contract it guaranteed was materially
altered and or novated without the knowledge and consent of the surety, thereby releasing the latter from
liability.
"11. The maximum liability, if any, of defendant LUZON is P10,000.00.
The principal obligation, therefore, has never been put in issue by then defendant now respondent Luzon Surety Co., Inc. On the
other hand it raised as its defense the alleged material alteration of the terms and conditions of the contract as the basis of its
prayer for release. Even this defense of respondent Luzon Surety Co., Inc. is untenable under the facts obtaining. As a surety, said
bonding company is charged as an original promissor and is an insurer of the debt. While it is an accepted rule in our jurisdiction
that an alteration of the contract is a ground for release, this alteration, We stress must be material. A cursory examination of the
record shows that the alterations in the form of increases were made with the full consent of Luzon Surety Co., Inc. Paragraph 4 of
the Chattel Mortgage explicitly provided for this increase(s), viz:
". . . the Mortgagee may increase or decrease the amount of the loan as well as the installment as
it may deem convenient . . ."

and this contract, Exhibit "B", was precisely referred to and mentioned in the Surety Bond itself. In the case of Lim Julian vs.
Tiburcio Lutero et al No. 25235, 49 Phil. 703, 717, 718, this Court held:
"It has been decided in many cases that the consideration named in a mortgage for future
advancements does not limit the amount for which such contract may stand as security, if from the four
corners of the document, the intent to secure future indebtedness is apparent. Where, by the plain terms of
the contract, such an intent is evident, it will control. . . ."
The next question to take up is the liability of Luzon Surety Co. for interest which, it contends, would increase its liability to more than
P10,000 which is the maximum of its bond. We cannot agree to this reasoning. In the cases of Tagawa vs. Aldanese, 43 Phil. 852, 859;
Plaridel Surety Insurance Co. vs. P. L. Galang Machinery Co., 100 Phil. 679, 682, cited in Paras Civil Code of the Philippines, Vol. V,
7th Ed. 1972, p. 772, it was held:
 9
"If a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, the
liability becomes more than that in the principal obligation. The increased liability is not because of the
contract but because of the default and the necessity of judicial collection. It should be noted, however, that
the interest runs from the time the complaint is filed, not from the time the debt becomes due and
demandable."

PREMISES CONSIDERED, the judgment appealed from is reversed and set aside. In lieu thereof another is rendered reinstating the
judgment of the Court of First Instance of Negros Occidental, 12th Judicial District, dated March 29, 1961, holding Luzon Surety liable
for the amount of P10,000.00 with the modification that interest thereon shall be computed at the legal rate from June 8, 1960 when the
complaint was filed.
SO ORDERED.
Teehankee, Makasiar, Muñoz Palma and Martin, JJ., concur.

||| (Philippine National Bank v. Luzon Surety Co., Inc., G.R. No. L-29587, [November 28, 1975], 160-A PHIL 854-863)

JACINTO UY DIÑO and NORBERTO UY, petitioners, vs. HON. COURT OF APPEALS and METROPOLITAN
BANK AND TRUST COMPANY, respondents.

Guillermo B. Ilagan for petitioners.

Jorge, Perez & Associates for private respondent.

SYLLABUS

1. CIVIL LAW; GUARANTY; CONTINUING GUARANTY; DEFINED; BASIS AND NATURE THEREOF; WHEN GUARANTY
CONSTRUED AS CONTINUING; CASE AT BAR. — Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing
guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future
course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It s prospective in its operation and
is generally intended to provide security with respect to future transactions within certain limits, and contemplates a
succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which
covers all transactions, including those arising in the future, which are within the description or contemplation of the
contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it
is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a
certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the
same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. In other jurisdictions,
it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," "any deficiency,"
or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the
principal debtor may require, have been construed to indicate a continuing guaranty. . . . Petitioners maintain, however, that their
Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in existence when
the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We
cannot agree. First of all, the succeeding article provides that "[a] guaranty may also be given as security for future debts, the
 10
amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation,
and not anexisting or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads:
"Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also
guarantee a natural obligation."
2. ID.; ID.; GUARANTOR MAY BIND HIMSELF FOR LESS, BUT NOT FOR MORE THAN PRINCIPAL DEBTOR; CASE AT BAR. —
The limit of the petitioners' respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly
true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot
be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his
obligation, he is bound, and no farther. Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and petitioner Uy fix
the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a
guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous
nature of the conditions.

3. ID.; ID.; GUARANTOR'S LIABILITY FOR PRINCIPAL OBLIGATION, ITS ACCESSORIES AND ATTORNEY'S FEES; BASIS AND
RATIONALE; ITEMS INCLUDED IN TERM "ACCESSORIES"; CASE AT BAR. — by express mandate of the Continuing Suretyship
Agreements which they had signed, petitioners separately bound themselves to pay interests, expenses, attorney's fees and costs. The
last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would,
nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: "ART. 2055. A guaranty is not
presumed; it must be express and cannot extend to more than what is stipulated therein. If it be simple or indefinite, it shall comprise
not only the principal obligation, but also all its accessories, including the judicial costs, provided with respect to the latter, that the
guarantor shall only be liable for those costs incurred after he has been judicially required to pay." Interests and damages are included
in the term accessories. However, such interest should run only from the date when the complaint was filed in court. Even attorney's
fees may be imposed whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus; in Plaridel Surety & Insurance Co.,
Inc. vs. P.L. Galang Machinery Co., Inc., this Court held: "Petitioner objects to the payment of interest and attorney's fees because: (1)
they were not mentioned in the bond; and (2) the surety would become liable for more than the amount stated in the
contract of suretyship. . . . The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa vs.
Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover from the surety as part of their damages, interest at the
legal rate even if the surety would thereby become liable to pay more than the total amount stipulated in the bond. 'The theory is that
interest is allowed only by way of damages for delay upon the part of the sureties in making payment after they should have done so. In
some states, the interest has been charged from the date of the judgment of the appellate court. In this jurisdiction, we rather prefer to
follow the general practice, which is to order that interest begin to run from the date when the complaint was filed in court, . . . .' Such
theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently recognized in the Rules of Court (Rule 53, section
6) and with Article 1108 of the Civil Code (now Art. 2209 of the New Civil Code). In other words the surety is made to pay interest, not
by reason of the contract, but by reason of its failure to pay when demanded and for having compelled the plaintiff to resort to the courts
to obtain payment. It should be observed that interest does not run from the time the obligation became due, but from the filing of the
complaint. As to attorney's fees. Before the enactment of the New Civil Code, successful litigants could not recover attorney's fees as
part of the damages they suffered by reason of the litigation. Even if the party paid thousandsof pesos to his lawyers, he could not
charge the amount to his opponent (Tan Ti vs. Alvear, 26 Phil. 566). However the New Civil Code permits recovery of attorney's fees in
eleven cases enumerated in Article 2208, among them, 'where the court deems it just and equitable that attorney's (sic) fees and
expenses of litigation should be recovered' or 'when the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim'. This gives the courts discretion in apportioning attorney's fees."

DECISION

DAVIDE, JR., J p:

Continuing Suretyship Agreements signed by the petitioners set off this present controversy.
Petitioners assail the 22 June 1989 Decision of the Court of Appeals in CA-G.R. CV No. 17729 2 denying their motion for the
reconsideration of the former.
The impugned decision of the respondent Court summarizes the antecedent facts as follows:

"It appears that in 1977, Uy Tiam Enterprises and Freight Services (hereinafter referred to as UTEFS), thru its
representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt
accommodations) from the Metropolitan Bank and Trust Company (hereinafter referred to as METROBANK) in the
sum of P700,000.00 (Original Records, p. 333). To secure the aforementioned credit accommodations, Norberto
Uy and Jacinto Uy Diño executed separate Continuing Suretyships (Exhibits "E" and "F" respectively), dated 25
February 1977, in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay METROBANK
any indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Jacinto Uy Diño agreed to be bound up
to the aggregate sum of P800,000.00. LLjur
Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam, obtained another
credit accommodation from METROBANK in 1978, which credit accommodation was fully settled before an
irrevocable letter of credit was applied for and obtained by the abovementioned business entity in 1979 (September
8, 1987, tsn, pp. 14- 15).

The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of P815,600.00, covered
UTEFS' purchase of '8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0.' It was applied for and obtained by
UTEFS without the participation of Norberto Uy and Jacinto Uy Diño as they did not sign the document
denominated as 'Commercial Letter of Credit and Application.' Also, they were not asked to execute any suretyship
to guarantee its payment. Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has
been opened and that the Continuing Suretyships separately executed in February, 1977 shall guarantee its
payment (Appellees' brief, pp. 2-3; Rollo, p. 28).
 11
The 1979 letter of credit (Exhibit "B") was negotiated. METROBANK paid Planters Products the
amount of P815,600.00 which payment was covered by a Bill of Exchange (Exhibit "C"), dated 4 June 1979, in
favor ofthe former, drawn on and accepted by UTEFS (Original Records, p. 331).

Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK a Trust Receipt
(Exh. "D"), dated 4 June 1979, whereby the former acknowledged receipt in trust from the latter of the
aforementioned goods from Planters Products which amounted to P815,600.00. Being the entrustee, the former
agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale
thereof, on or before September 2, 1979.

However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence,
METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Diño,
demanding payment of the amount due. Informed of the amount due, UTEFS made partial payments to the Bank
which were accepted by the latter.
Answering one of the demand letters, Diño, thru counsel, denied his liability for the amount demanded and
requested METROBANK to send him copies of documents showing the source of his liability. In its reply, the bank
informed him that the source of his liability is the Continuing Suretyship which he executed on February 25, 1977.

As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit accommodation because it is a
new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed
has been fully paid.

Having sent the last demand letter to UTEFS, Diño and Uy and finding resort to extrajudicial remedies to be futile,
METROBANK filed a complaint for collection of a sum of money (P613,339.32, as of January 31, 1982,
inclusive of interest, commission penalty and bank charges) with a prayer for the issuance of a writ of preliminary
attachment, against Uy Tiam, representative of UTEFS and impleaded Diño and Uy as parties-defendants.

The court issued an order, dated 29 July 1983, granting the attachment writ, which writ was returned unserved and
unsatisfied as defendant Uy Tiam was nowhere to be found at his given address and his commercial enterprise
was already non-operational (Original Records, p. 37).
On April 11, 1984, Norberto Uy and Jacinto Uy Diño (sureties-defendants herein) filed a motion to dismiss the
complaint on the ground of lack of cause of action. They maintained that the obligation which they guaranteed in
1977 has been extinguished since it has already been paid in the same year. Accordingly, the Continuing
Suretyships executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit obtained in 1979 because a
guaranty cannot exist without a valid obligation. It was further argued that they can not be held liable for the
obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation
(Records, pp. 42-46).

On April 24, 1984, METROBANK filed its opposition to the motion to dismiss. Invoking the terms and conditions
embodied in the comprehensive suretyships separately executed by sureties-defendants, the bank argued that
sureties-movants bound themselves as solidary obligors of defendant Uy Tiam to both existing obligations and
future ones. It relied on Article 2053 of the new Civil Code which provides: 'A guaranty may also be given as
security for future debts, the amount of which is not yet known; . . . .' It was further asserted that the agreement was
in full force and effect at the time the letter of credit was obtained in 1979 as sureties-defendants did not exercise
their right to revoke it by giving notice to the bank. (Ibid., pp. 51-54).

Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pending the
introduction of evidence by the parties as per order dated February 21, 1986 (Ibid., p. 71).

Having been granted a period of fifteen (15) days from receipt of the order dated March 7, 1986 within which to file
the answer, sureties-defendants filed their responsive pleading which merely rehashed the arguments in their
motion to dismiss and maintained that they are entitled to the benefit of excussion (Original Records, pp. 88-93).

On February 23, 1987, plaintiff filed a motion to dismiss the complaint against defendant Uy Tiam on the ground
that it has no information as to the heirs or legal representatives of the latter who died sometime in December,
1986, which motion was granted on the following day (Ibid., pp 180-182).
After trial, . . . the court a quo, on December 2, 1987, rendered its judgment, a portion of which reads:

'The evidence and the pleadings, thus, pose the querry (sic):

'Are the defendants Jacinto Uy Diño and Norberto Uy liable for the obligation contracted by Uy
Tiam under the Letter of Credit (Exh. B) issued on March 30, 1979 by virtue of the Continuing Suretyships
they executed on February 25, 1977?
'Under the admitted proven facts, the Court finds that they are not.

'a) When Uy and Diño executed the continuing suretyships, exhibits E and F, on February 25,
1977, Uy Tiam was obligated to the plaintiff in the amount of P700,000.00 — and this was the obligation
which both defendants guaranteed to pay. Uy Tiam paid this 1977 obligation — and such payment
extinguished the obligation they assumed as guarantors/sureties.
'b) The 1979 Letter of Credit (Exh. B) is different from the 1977 Letter of Credit which covered the
1977 account of Uy Tiam. Thus, the obligation under either is apart and distinct from the obligation
created in the other — as evidenced by the fact that Uy Tiam had to apply anew for the 1979 transaction
(Exh. A). And Diño and Uy, being strangers thereto, cannot be answerable thereunder.

'c) The plaintiff did not serve notice to the defendants Diño and Uy when it extended to Uy Tiam
the 1979 Letter of Credit — at least to inform them that the continuing suretyships they executed on
February 25, 1977 will be considered by the plaintiff to secure the 1979 transaction of Uy Tiam.

'd) There is no sufficient and credible showing that Diño and Uy were fully informed of the
import of the Continuing Suretyships when they affixed their signatures thereon — that they are thereby
securing all future obligations which Uy Tiam may contract with the plaintiff. On the contrary, Diño and Uy
categorically testified that they signed the blank forms in the office of Uy Tiam at 623 Asuncion Street,
 12
Binondo, Manila, in obedience to the instruction of Uy Tiam, their former employer. They denied having
gone to the office of the plaintiff to subscribe to the documents (October 1, 1987, tsn, pp. 5-7, 14; October
15, 1987, tsn, pp. 3-8, 13-16). (Records, pp. 333-334).'" 3

xxx xxx xxx

In its Decision, the trial court decreed as follows:
"PREMISES CONSIDERED, judgment is hereby rendered:
'a) dismissing the COMPLAINT against JACINTO UY DIÑO and NORBERTO UY;
'b) ordering the plaintiff to pay to Diño and Uy the amount of P6,000.00 as attorney's fees and
expenses of litigation; and
'c) denying all other claims of the parties for want of legal and/or factual basis.' LLphil
'SO ORDERED'. (Records, p. 336)." 4

From the said Decision, the private respondent appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 17724.
In support thereof, it made the following assignment of errors in its Brief:

"I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT DEFENDANTS-
APPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE SOLIDARILY LIABLE TO PLAINTIFF-APPELLANT
FOR THE OBLIGATION OF DEFENDANT UY TIAM UNDER THE LETTER OF CREDIT ISSUED ON MARCH 30,
1979 BY VIRTUE OF THE CONTINUING SURETYSHIPS THEY EXECUTED ON FEBRUARY 25, 1977.

II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS ANSWERABLE TO

DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY FOR ATTORNEY'S FEES AND
EXPENSES OFLITIGATION." 5

On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of which reads:

"WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu
thereof, another one is rendered:

1) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and severally, to appellant
METROBANK the amount of P2,397,883.68 which represents the amount due as of July 17, 1987
inclusive of principal, interest and charges;
2) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and severally, appellant
METROBANK the accruing interest, fees and charges thereon from July 18, 1987 until the whole
monetary obligation is paid; and

3) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and severally, to plaintiff
P20,000.00 as attorney's fees.
With costs against appellees.
SO ORDERED." 6

In ruling for the herein private respondent (hereinafter METROBANK), public respondent held that the Continuing Suretyship
Agreements separately executed by the petitioners in 1977 were intended to guarantee payment of Uy Tiam's outstanding as well as
future obligations; each suretyship arrangement was intended to remain in full force and effect until METROBANK would have been
notified of its revocation. Since no such notice was given by the petitioners, the suretyships are deemed outstanding and hence, cover
even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam.

Petitioners filed a motion to reconsider the foregoing Decision. They questioned the public respondent's construction of the suretyship
agreements and its ruling with respect to the extent of their liability thereunder. They argued that even if the agreements were in full
force and effect when METROBANK granted Uy Tiam's application for a letter of credit in 1979, the public respondent nonetheless
seriously erred in holding them liable for an amount over and above their respective face values.

In its Resolution of 21 August 1989, public respondent denied the motion:

". . . considering that the issues raised were substantially the same grounds utilized by the lower court in rendering
judgment for defendants-appellees which We upon appeal found and resolved to be untenable, thereby reversing
and setting aside said judgment and rendering another in favor of plaintiff, and no new or fresh issues have been
posited to justify reversal of Our decision herein, . . . ." 7

Hence, the instant petition which hinges on the issue of whether or not the petitioners may be held liable as sureties for the obligation
contracted by Uy Tiam with METROBANK on 30 May 1979 under and by virtue of the Continuing Suretyship Agreements signed on 26
February 1977. LexLib
Petitioners vehemently deny such liability on the ground that the Continuing Suretyship Agreements were automatically extinguished
upon payment of the principal obligation secured thereby, i.e., this letter ofcredit obtained by Uy Tiam in 1977. They further claim that
they were not advised by either METROBANK or Uy Tiam that the Continuing Suretyship Agreements would stand as security for the
1979 obligation. Moreover, it is posited that to extend the application of such agreements to the 1979 obligation would amount to a
violation of Article 2052 of the Civil Code which expressly provides that a guaranty cannot exist without a valid obligation. Petitioners
further argue that even granting, for the sake of argument, that the Continuing Suretyship Agreements still subsisted and thereby also
secured the 1979 obligations incurred by Uy Tiam, they cannot be held liable for more than what they guaranteed to pay because it is
axiomatic that the obligations of a surety cannot extend beyond what is stipulated in the agreement.
On 12 February 1990, this Court resolved to give due course to the petition after considering the allegations, issues and arguments
adduced therein, the Comment thereon by the private respondent and the Reply thereto by the petitioners; the parties were required to
submit their respective Memoranda.
The issues presented for determination are quite simple:
 13
1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by virtue of the
Continuing Suretyship Agreements they separately signed in 1977; and
2. On the assumption that they are, what is the extent of their liabilities for said 1979 obligations.

Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the
guaranty is executed. 9 Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the
future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. 10 A
guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the
principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is
expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time"
the guaranty will be construed to be a continuing one. 11

In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any
indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any
time," or "on such time" that the principal debtor may require, have been construed to indicate a continuing guaranty. 12

In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by petitioner Uy provides thus:

"I. For and in consideration of any existing indebtedness to the BANK of UY TIAM (hereinafter called the
'Borrower'), for the payment of which the SURETY is now obligated to the BANK, either as guarantor or
otherwise, and/or in order to induce the BANK, in its 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, of for the accountof the Borrower,
either with or without security, and/or to purchase or discount, or to make any loans or advances evidenced or
secured by any notes, bills, receivables, drafts, acceptances, checks, or other instruments or
evidences of indebtedness (all hereinafter called 'instruments') upon which the Borrower is or may become liable
as maker, endorser, acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, the
punctual payment at maturity to the BANK of any and all such instruments, loans, advances credits and/or other
obligations hereinbefore referred to, and also any and all other indebtedness of every kind which is now or may
hereafter become due or owing to the BANK by the Borrower, together with any and all expenses which may be
incurred by the BANK in collecting all or any such instruments or other indebtedness or obligations hereinbefore
referred to, and/or in enforcing any rights hereunder, and the SURETY also agrees that the BANK may make or
cause any and all such payments to be made strictly in accordance with the terms and provisions of any
agreement(s) express or implied, which has (have) been or may hereafter be made or entered into by the Borrower
in reference thereto, regardlessof any law, regulation or decree, unless the same is mandatory and non-waivable in
character, nor or hereafter in effect, which might in any manner affect any of the terms or provisions of any such
agreement(s) or the BANK's rights 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; provided, however, that the liability of the SURETY hereunder shall not exceed at any one time the
aggregate principal sum of PESOS: THREE HUNDRED THOUSAND ONLY (P300,000.00) (irrespectiveof the
currency(ies) in which the obligations hereby guaranteed are payable), and such interest as may accrue thereon
either before or after any maturity(ies) thereof and such expenses as may be incurred by the BANK as referred to
above." 13

Paragraph I of the Continuing Suretyship Agreement executed by petitioner Diño contains identical provisions
except with respect to the guaranteed aggregate principal amount which is EIGHT HUNDRED THOUSAND
PESOS (P800,000.00). 14

Paragraph IV of both agreements stipulate that: LLpr

"VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall have been
received by the BANK that it has been revoked by the SURETY, but any such notice shall not release the
SURETY from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which
may be held by the BANK, or in which the BANK may have any interest at the time of the recept (sic) of such
notice. No act or omission of any kind on the BANK's part in the premises shall in any event affect or impair this
guaranty, nor shall same (sic) be affected by any change which may arise by reason of the death of the SURETY,
or of any partner(s) of the SURETY, or of the Borrower, or of the accession to any such partnership of any one or
more new partners." 15

The foregoing stipulations unequivocally reveal that the suretyship agreements in the case at bar are continuing in nature. Petitioners
do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked the suretyship
agreements. Accordingly, as correctly held by the public respondent:

"Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce appellant to grant any
application for credit accommodation (letter of credit/trust receipt) UTEFS may desire to obtain from appellant bank.
By its terms, each suretyship is a continuing one which shall remain in full force and effect until the bank is
notified of its revocation.
xxx xxx xxx
When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant bank, for the
purpose of obtaining goods (covered by a trust receipt) from Planters Products, the continuing suretyships were in
full force and effect. Hence, even if sureties-appellees did not sign the 'Commercial Letter of Credit and Application,
they are still liable as the credit accommodation (letter of credit/trust receipt) was covered by the said suretyships.
What makes them liable thereunder is the condition which provides that the Borrower 'is or may become liable as
maker, endorser, acceptor or otherwise.' And since UTEFS which (sic) was liable as principal obligor for having
failed to fulfill the obligatory stipulations in the trust receipt, they as insurers of its obligation, are liable
thereunder." 16

Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because
the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty
"cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article provides that "[a] guaranty may also be
given as security for future debts, the amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as
distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second
paragraph of Article 2052 which reads:
 14

"Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable

contract. It may also guarantee a natural obligation."

As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend that the public respondent gravely
erred in finding them liable for more than the amount specified in their respective agreements, to wit: (a) P800,000.00 for
petitioner Diño and (b) P300,000.00 for petitioner Uy.

The limit of the petitioners' respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly
true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot
be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his
obligation, he is bound, and no farther. 17

Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and petitioner Uy fix the aggregate amount of their liability,
at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bind himself for less, but not for
more than the principal debtor, both as regards the amount and the onerous nature of the conditions. 18 In the case at bar, both
agreements provide for liability for interest and expenses, to wit:

". . . and such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as
may be incurred by the BANK referred to above." 19

They further provide that:

"In the event of judicial proceedings being instituted by the BANK against the SURETY to enforce any of the terms
and conditions of this undertaking, the SURETY further agrees to pay the BANK a reasonable compensation for
and as attorney's fees and costs of collection, which shall not in any event be less than ten per cent (10%) of the
amount due (the same to be due and payable irrespective of whether the case is settled judicially or
extrajudicially)." 20

Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves
to pay interests, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount
due.
Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil
Code provides: 21

"ARTICLE 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated
therein.
If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its accessories, including
the judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred
after he has been judicially required to pay."
Interests and damages are included in the term accessories. However, such interest should run only from the date when the complaint
was filed in court. Even attorney's fees may be imposed whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus;
in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., 22 this Court held: cdphil

"Petitioner objects to the payment of interest and attorney's fees because: (1) they were not mentioned in the bond;
and (2) the surety would become liable for more than the amount stated in the contract ofsuretyship.

xxx xxx xxx

The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa vs. Aldanese,
43 Phil. 852, that creditors suing on a suretyship bond may recover from the surety as part of their damages,
interest at the legal rate even if the surety would thereby become liable to pay more than the total amount
stipulated in the bond. 'The theory is that interest is allowed only by way of damages for delay upon the part of the
sureties in making payment after they should have done so. In some states, the interest has been charged from the
date of the judgment of the appellate court. In this jurisdiction, we rather prefer to follow the general practice, which
is to order that interest begin to run from the date when the complaint was filed in court, . . . .'

Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently recognized in the
Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil Code (now Art. 2209 of the New Civil Code).

In other words the surety is made to pay interest, not by reason of the contract, but by reason of its failure to pay
when demanded and for having compelled the plaintiff to resort to the courts to obtain payment. It should be
observed that interest does not run from the time the obligation became due, but from the filing of the complaint.

As to attorney's fees. Before the enactment of the New Civil Code, successful litigants could not recover attorney's
fees as part of the damages they suffered by reason of the litigation. Even if the party paid thousands of pesos to
his lawyers, he could not charge the amount to his opponent (Tan Ti vs. Alvear, 26 Phil. 566).
However the New Civil Code permits recovery of attorney's fees in eleven cases enumerated in Article 2208,
among them, 'where the court deems it just and equitable that attorney's (sic) fees and expenses oflitigation should
be recovered' or 'when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim'. This gives the courts discretion in apportioning attorney's fees."

The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy Tiam to METROBANK under
Irrevocable Letter of Credit No. SN-Loc-309 dated 30 March 1979. In referring to the last demand letter to Mr. Uy Tiam and the
complaint filed in Civil Case No. 82-9303, the public respondent mentions the amount of "P613,339.32, as of January 31, 1982,
inclusive of interest commission penalty and bank charges." 23 This is the same amount stated by METROBANK in its
Memorandum. 24

However, in summarizing Uy Tiam's outstanding obligation as of 17 July 1987, public respondent states:
"Hence, they are jointly and severally liable to appellant METROBANK of UTEFS' outstanding obligation in the
sum of P2,397,883.68 (as of July 17, 1987) — P651,092.82 representing the principal amount, P825,133.54, for
 15
past due interest (5-31-82 to 7-17-87) and P921,657.32, for penalty charges at 12% per annum (5-31-82 to 7-17-
87) as shown in the Statement of Account (Exhibit I)." 25

Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding principal obligation of Uy Tiam, secured
by the petitioners' Continuing Suretyship Agreements, was less than P613,339.32. Such amount may be fully covered by the
Continuing Suretyship Agreement executed by petitioner Diño which stipulates an aggregate principal sum of not exceeding
P800,000.00, and partly covered by that of petitioner Uy which pegs his maximum liability at P300,000.00.
Consequently, the judgment of the public respondent shall have to be modified to conform to the foregoing exposition, to which extent
the instant petition is impressed with partial merit.
WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged decision has to be modified with respect to the
extent of petitioners' liability. As modified, petitioners JACINTO UY DIÑO and NORBERTO UY are hereby declared liable for and are
ordered to pay, up to the maximum limit only of their respective Continuing Suretyship Agreement, the remaining unpaid balance of the
principal obligationof UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under Irrevocable Letter of Credit No. SN-Loc-309,
dated 30 March 1979, together with the interest due thereon at the legal rate commencing from the date of the filing of the complaint in
Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court of Manila, as well as the adjudged attorney's fees and costs.
All other dispositions in the dispositive portion of the challenged decision not inconsistent with the above are affirmed.
SO ORDERED.
Gutierrez, Jr., Bidin, Romero and Melo, JJ ., concur.

||| (Diño v. Court of Appeals, G.R. No. 89775, [November 26, 1992], 290 PHIL 405-424)

ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M.B. LENDING

CORPORATION, respondents.

Roco, Bunag, Kapunan & Magallos for petitioner.

Angelo E. Grasparail for private respondent.

SYNOPSIS

Petitioner signed as co-maker in a loan. A promissory note was executed whereby she acknowledged her joint and several (solidary)
liability with the principal, that the creditor may demand payment in case of default, and that she fully understood the contents thereof.
Petitioner, when informed that the debtors defaulted, requested that creditor try to collect from her principal first and offered to settle the
obligation in case the creditor fails to collect. She also offered a parcel of land to settle the obligation which the creditor refused.
Thereafter, a complaint was filed against petitioner to the exclusion of the principal debtors. Again petitioner offered to pay but the
amount offered was way below the amount computed. The trial court dismissed the complaint and ruled that the complaint against the
petitioner amounted to a discharge of a prior party, that the offer to pay made by petitioner who is secondarily liable to the instrument
discharged petitioner. The Court of Appeals, reversing the trial court, ruled that petitioner is solidarily liable with the principal debtors
and may be sued for the entire obligation. Hence, this recourse. aTEScI

The Supreme Court held that it is a cardinal rule in interpretations of contracts that if the terms of a contract are clear and leave no
doubt upon the intention of the parties, the literal meaning of its stipulation shall control. Hence, where petitioner expressly binds herself
to be jointly and severally or solidarily liable with the principal maker of the note, her liability is that of a surety and is bound equally and
absolutely with the principal.
Having entered into a contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so in
ignorance of their legal effect.
The obligee is entitled to demand fulfillment of the obligation or performance stipulated, hence, an offer to pay obligation in an amount
less or different from that due does not discharge liability. SECIcT
 16
SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF ADHESION; NOT PER SE INVALID. — Contracts of adhesion
are not invalid per se and that on numerous occasions the binding effects thereof have been upheld. The peculiar nature of such
contracts necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply. Hence, just as consistently and
unhesitatingly, but without categorically invalidating such contracts, the Court has construed obscurities and ambiguities in the
restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the
operative facts and surrounding circumstances. The factual scenario obtaining in the case before us warrants a liberal application of the
rule in favor of respondent corporation.
2. ID.; ID.; INTERPRETATION OF CONTRACTS; LITERAL MEANING OF ITS PROVISION SHALL CONTROL IF THE TERMS
THEREOF ARE CLEAR AND LEAVE NO DOUBT UPON THE INTENTION OF THE PARTIES. — It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control. aEAcHI

3. ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable
with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a
surety. Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph of her contract are
technical and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her
manifestation in the contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary
liability with the principal maker. Petitioner admits that she voluntary affixed her signature thereto; ergo, she cannot now be heard to
claim otherwise. Any reference to the existence of fraud is unavailing. Fraud must be established by clear and convincing evidence,
mere preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced
only by her own uncorroborated and, expectedly, self-serving allegations.
4. ID.; ID.; PARTY IS ESTOPPED TO ASSERT MISAPPREHENSION OF LEGAL EFFECT OF UNDERTAKING WHERE SHE
ENTERED INTO IT WITH FULL KNOWLEDGE OF ITS TERMS AND CONDITIONS. — Having entered into the contracts with full
knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their
legal effect, or as to the legal effect of the undertaking. The rule that ignorance of the contents of an instrument does not ordinarily
affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the legal effect of her
obligation is ordinarily no reason for relieving her of liability. CScaDH
5. ID.; ID.; SURETY DIFFERENTIATED FROM GUARANTY. — 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.

6. ID.; ID.; INTENTION OF CONTRACTING PARTIES; JUDGED BY THEIR CONTEMPORANEOUS AND SUBSEQUENT ACTS. — It
is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall
also be principally considered.
7. ID.; ID.; SURETYSHIP; SURETY IS BOUND EQUALLY AND ABSOLUTELY WITH THE PRINCIPAL. — A surety is bound equally
and absolutely with the principal, and as such is deemed an original promisor and debtor from the beginning. This is because in
suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. In essence, the contract
of a surety starts with the agreement, which is precisely the situation obtaining in this case before the Court.

8. ID.; ID.; ID.; ID.; SURETY IS AN ORIGINAL DEBTOR AND HIS LIABILITY IS IMMEDIATE AND DIRECT. — A surety is usually
bound with his principal by the same instrument, executed at the same time and upon the same consideration; he is an original debtor,
and his liability is immediate and direct. Thus, it has been held that where a written agreement on the same sheet of paper with and
immediately following the principal contract between the buyer and seller is executed simultaneously therewith, providing that the
signers of the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly liable with the buyer. A surety
usually enters into the same obligation as that of his principal, and the signatures of both usually appear upon the same instrument, and
the same consideration usually supports the obligation for both the principal and the surety. ASDCaI

9. ID.; ID.; ID.; SURETY BOUND BY WAIVER EXECUTED BY PRINCIPAL. — There is no merit in petitioner's contention that the
complaint was prematurely filed because the principal debtors cannot as yet be considered in default, there having been no judicial or
extrajudicial demand made by respondent corporation. Petitioner has agreed that respondent corporation may demand payment of the
loan from her in case the principal maker defaults, subject to the same conditions expressed in the promissory note. Significantly,
paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule of payment, I hereby waive my right to
notice and demand." Hence, demand by the creditor is no longer necessary in order that delay may exist since the contract itself
already expressly so declares. As a surety, petitioner is equally bound by such waiver.

10. ID.; ID.; ID.; DEMAND ON SURETIES, NOT NECESSARY BEFORE BRINGING SUIT AGAINST THEM; NOR ENTITLED TO BE
GIVEN NOTICE OF PRINCIPAL'S DEFAULT. — Even if it were otherwise, demand on the sureties is not necessary before bringing
suit against them, since the commencement of the suit is a sufficient demand. On this point, it may be worth mentioning that a surety is
not even entitled, as a matter of right, to be given notice of the principal's default. Inasmuch as the creditor owes no duty of active
diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the
principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal's default and to perform the
obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract
of surety. In the absence of a statutory or contractual requirement, it is not necessary that payment or performance of his obligation be
first demanded of the principal, especially where demand would have been useless; nor is it a requisite, before proceeding against the
sureties, that the principal be called on to account.

11. ID.; ID.; ID.; ID.; RATIONALE BEHIND. — The underlying principle therefor is that suretyship is a direct contract to pay the debt of
another. A surety is liable as much as his principal is liable, and absolutely liable as soon as default is made, without any demand upon
the principal whatsoever or any notice of default. As an original promisor and debtor from the beginning, he is held ordinarily to know
every default of his principal. TIDcEH
 17
12. ID.; ID.; ID.; CREDITOR, NOT REQUIRED TO EXHAUST REMEDIES AGAINST THE PRINCIPAL BEFORE HE CAN
PROCEED AGAINST THE SURETY. — A creditor's right to proceed against the surety exists independently of his right to proceed
against the principal. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even
against the surety alone. Since, generally, it is not necessary for a creditor to proceed against the principal in order to hold the surety
liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then as soon as the principal
in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal,
then as soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings
are had against the principal. Perforce, in accordance with the rule that, in the absence of statute or agreement otherwise, a surety is
primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety
cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the
creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where
both principal and surety are equally bound.

13. ID.; ID.; ID.; ID.; REASON. — Where a creditor refrains from proceeding against the principal, the surety is not exonerated. In other
words, mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by
appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given at
the principal's request or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the
principal, or is only the result of passiveness. The neglect of the creditor to sue the principal at the time the debt falls due does not
discharge the surety, even if such delay continues until the principal becomes insolvent. And, in the absence of proof of resultant injury,
a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, or that he need not trouble
himself. The consequences of the delay, such as the subsequent insolvency of the principal, or the fact that the remedies against the
principal may be lost by lapse of time, are immaterial. The raison d' etre for the rule is that there is nothing to prevent the creditor from
proceeding against the principal at any time. At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor
in the pursuit of his principal, he may pay the debt himself and become subrogated to all the right and remedies of the creditor.

14. ID.; ID.; ID.; EXTENSION DISCHARGING SURETY, CONSTRUED. — It may not be amiss to add that leniency shown to a debtor
in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an
extension of the time of payment, which would release the surety. In order to constitute an extension discharging the surety, it should
appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor, and
that it was made without the consent of the surety or with a reservation of rights with respect to him. The contract must be one which
precludes the creditor from, or at least hinders him in, enforcing the principal contract within the period during which he could otherwise
have enforced it, and which precludes the surety from paying the debt.

15. ID.; ID.; ID.; ID.; CASE AT BAR. — None of these elements are present in the instant case. Verily, the mere fact that respondent
corporation gave the principal debtors an extended period of time within which to comply with their obligation did not effectively absolve
herein petitioner from the consequences of her undertaking. Besides, the burden is on the surety, herein petitioner, to show that she
has been discharged by some act of the creditor, herein respondent corporation, failing in which we cannot grant the relief prayed
for. EHSITc

16. ID.; ID.; ID.; DELAY IN DISCHARGING SURETY; THERE MUST BE ACTUAL OFFER OF PAYMENT. — Respondent corporation
cannot be faulted for not immediately demanding payment from petitioner. It was petitioner who initially requested that the creditor try to
collect from her principal first, and she offered to pay only in case the creditor fails to collect. The delay, if any, was occasioned by the
fact that respondent corporation merely acquiesced to the request of petitioner. At any rate, there was here no actual offer of payment
to speak of but only a commitment to pay if the principal does not pay.
17. ID.; ID.; DEBTOR OF A THING CANNOT COMPEL THE CREDITOR TO RECEIVE A DIFFERENT ONE; CASE AT BAR. —
Petitioner made a second attempt to settle the obligation by offering a parcel of land which she owned. Respondent corporation was
acting well within its rights when it refused to accept the offer. The debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value, or more valuable than that which is due. The obligee is entitled to demand fulfillment
of the obligation or performance as stipulated. A change of the object of the obligation would constitute novation requiring the express
consent of the parties.
18. ID.; ID.; A PERSON ENTERING INTO A CONTRACT HAS A RIGHT TO INSIST ON ITS PERFORMANCE IN ALL PARTICULARS.
— After the complaint was filed against her, petitioner reiterated her offer to pay the outstanding balance of the obligation in the amount
of P30,000.00 but the same was likewise rejected. Again, respondent corporation cannot be blamed for refusing the amount being
offered because it fell way below the amount it had computed, based on the stipulated interests and penalty charges, as owing and due
from herein petitioner. A debt shall be understood to have been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be. In other words, the prestation must be fulfilled completely. A person
entering into a contract has a right to insist on its performance in all particulars. Petitioner cannot compel respondent corporation to
accept the amount she is willing to pay because the moment the latter accept the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, then the obligation shall be deemed fully complied with. Precisely, this is
what respondent corporation wanted to avoid when it continually refused to settle with petitioner at less than what was actually due
under their contract. ATHCac
19. ID.; ID.; LOAN; PAYMENT OF INTEREST AS PENALTY; AMOUNT MAY BE EQUITABLY REDUCED. — It must be remembered
that from the principal loan of P30,000.00, the amount of P16,300.00 had already been paid even before the filing of the present case.
Article 1229 of the Civil Code provides that the court shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. And, even if there has been no performance, the penalty may also be reduced if it is iniquitous
or leonine. In a case previously decided by this Court which likewise involved private respondent M.B. Lending Corporation, and which
is substantially on all fours with the one at bar, we decided to eliminate altogether the penalty interest for being excessive and
unwarranted. Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be eliminated.

20. ID.; ID.; PAYMENT OF ATTORNEY'S FEES; MAY BE REDUCED IF THE AMOUNT APPEARS UNCONSCIONABLE OR
UNREASONABLE; 25% OF THE TOTAL AMOUNT DUE, UNCONSCIONABLE. — Finally, with respect to the award of attorney's fees,
this Court has previously ruled that even with an agreement thereon between the parties, the court may nevertheless reduce such
attorney's fees fixed in the contract when the amount thereof appears to be unconscionable or unreasonable. To that end, it is not
necessary to show, as in other contracts, that it is contrary to morals or public policy. The grant of attorney's fees equivalent to 25% of
the total amount due is, in our opinion, unreasonable and immoderate, considering the minimal unpaid amount involved and the extent
of the work involved in this simple action for collection of a sum of money. We, therefore, hold that the amount of P10,000.00 as and for
attorney's fee would be sufficient in this case. CAHTIS
 18
DECISION

REGALADO, J p:

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? cdasia
Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses
Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12,
1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. 1 On four occasions
after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a
total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26,
1991. 2

Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint 3 against
petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the
latter.
In her Amended Answer with Counterclaim, 4 petitioner alleged that sometime in August 1990, immediately after the loan matured, she
offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses
Azarraga and that she need not worry about it; that there has already been a partial payment in the amount of P17,010.00; that the
interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and
unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, respondent corporation
acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of
the loan.
During the pre-trial conference, the parties submitted the following issues for the resolution of the trial court: (1) what the rate of interest,
penalty and damages should be; (2) whether the liability of the defendant (herein petitioner) is primary or subsidiary; and (3) whether
the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker with primary liability. 5

Thereafter, the parties agreed to submit the case for decision based on the pleadings filed and the memoranda to be submitted by
them. On November 26, 1992, the Regional Trial Court of Iloilo City, Branch 23, rendered judgment dismissing the complaint without
prejudice to the filing of a separate action for a sum of money against the spouses Osmeña and Merlyn Azarraga who are primarily
liable on the instrument.6 This was based on the findings of the court a quo that the filing of the complaint against herein petitioner
Estrella Palmares, to the exclusion of the Azarraga spouses, amounted to a discharge of a prior party; that the offer made by petitioner
to pay the obligation is considered a valid tender of payment sufficient to discharge a person's secondary liability on the instrument; that
petitioner, as co-maker, is only secondary liable on the instrument; and that the promissory note is a contract of adhesion.

Respondent Court of Appeals, however, reversed the decision of the trial court, and rendered judgment declaring herein petitioner
Palmares liable to pay respondent corporation:

1. The sum of P13,700.00 representing the outstanding balance still due and owing with interest at six percent (6%)
per month computed from the date the loan was contracted until fully paid;
2. The sum equivalent to the stipulated penalty of three percent (3%) per month, of the outstanding balance;
3. Attorney's fees at 25% of the total amount due per stipulations;
4. Plus costs of suit. 7

Contrary to the findings of the trial court, respondent appellate court declared that petitioner Palmares is a surety since she bound
herself to be jointly and severally or solidarity liable with the principal debtors, the Azarraga spouses, when she signed as a co-maker.
As such, petitioner is primarily liable on the note and hence may be sued by the creditor corporation for the entire obligation. It also
adverted to the fact that petitioner admitted her liability in her Answer although she claims that the Azarraga spouses should have been
impleaded. Respondent court ordered the imposition of the stipulated 6% interest and 3% penalty charges on the ground that the Usury
Law is no longer enforceable pursuant to Central Bank Circular No. 905. Finally, it rationalized that even if the promissory note were to
be considered as a contract of adhesion, the same is not entirely prohibited because the one who adheres to the contract is free to
reject it entirely; if he adheres, he gives his consent.
Hence this petition for review on certiorari wherein it is asserted that:

A. The Court of Appeals erred in ruling that Palmares acted as surety and is therefore solidarily liable to pay the
promissory note.
1. The terms of the promissory note are vague. Its conflicting provisions do not establish Palmares' solidary liability.
2. The promissory note contains provisions which establish the co-maker's liability as that of a guarantor.
3. There is no sufficient basis for concluding that Palmares' liability is solidary.
4. The promissory note is a contract of adhesion and should be construed against M.B. Lending Corporation.
5. Palmares cannot be compelled to pay the loan at this point.

B. Assuming that Palmares' liability is solidary, the Court of Appeals erred in strictly imposing the interests and
penalty charges on the outstanding balance of the promissory note.
The foregoing contentions of petitioner are denied and contradicted in their material points by respondent corporation. They are further
refuted by accepted doctrines in the American jurisdiction after which we patterned our statutory law on suretyship and guaranty. This
case then affords us the opportunity to make an extended exposition on the ramifications of these two specialized contracts, for such
guidance as may be taken therefrom in similar local controversies in the future.
The basis of petitioner Palmares' liability under the promissory note is expressed in this wise:
 19
ATTENTION TO CO-MAKERS: PLEASE READ WELL

I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this
Promissory Note for Short-Term Loan:

That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above principal
maker of this note;

That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above loan from me
in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note subject to the same
conditions above-contained. 8

Petitioner contends that the provisions of the second and third paragraph are conflicting in that while the second paragraph seems to
define her liability as that of a surety which is joint and solidary with the principal maker, on the other hand, under the third paragraph
her liability is actually that of a mere guarantor because she bound herself to fulfill the obligation only in case the principal debtor should
fail to do so, which is the essence of a contract of guaranty. More simply stated, although the second paragraph says that she is liable
as a surety, the third paragraph defines the nature of her liability as that of a guarantor. According to petitioner, these are two conflicting
provisions in the promissory note and the rule is that clauses in the contract should be interpreted in relation to one another and not by
parts. In other words, the second paragraph should not be taken in isolation, but should be read in relation to the third paragraph.

In an attempt to reconcile the supposed conflict between the two provisions, petitioner avers that she could be held liable only as a
guarantor for several reasons. First, the words "jointly and severally or solidarily liable" used in the second paragraph are technical and
legal terms which are not fully appreciated by an ordinary layman like herein petitioner, a 65-year old housewife who is likely to enter
into such transactions without fully realizing the nature and extent of her liability. On the contrary, the wordings used in the third
paragraph are easier to comprehend. Second, the law looks upon the contract of suretyship with a jealous eye and the rule is that the
obligation of the surety cannot be extended by implication beyond specified limits, taking into consideration the peculiar nature of a
surety agreement which holds the surety liable despite the absence of any direct consideration received from either the principal obligor
or the creditor. Third, the promissory note is a contract of adhesion since it was prepared by respondent M.B. Lending Corporation. The
note was brought to petitioner partially filled up, the contents thereof were never explained to her, and her only participation was to sign
thereon. Thus, any apparent ambiguity in the contract should be strictly construed against private respondent pursuant to Art. 1377 of
the Civil Code. 9

Petitioner accordingly concludes that her liability should be deemed restricted by the clause in the third paragraph of the promissory
note to be that of a guarantor. cdasia

Moreover, petitioner submits that she cannot as yet be compelled to pay the loan because the principal debtors cannot be considered in
default in the absence of a judicial or extrajudicial demand. It is true that the complaint alleges the fact of demand, but the purported
demand letters were never attached to the pleadings filed by private respondent before the trial court. And, while petitioner may have
admitted in her Amended Answer that she received a demand letter from respondent corporation sometime in 1990, the same did not
effectively put her or the principal debtors in default for the simple reason that the latter subsequently made a partial payment on the
loan in September, 1991, a fact which was never controverted by herein private respondent.

Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of P2,745,483.39 in favor of private respondent
when, in truth and in fact, the outstanding balance of the loan is only P13,700.00. Where the interest charged on the loan is exorbitant,
iniquitous or unconscionable, and the obligation has been partially complied with, the court may equitable reduce the penalty 10 on
grounds of substantial justice. More importantly, respondent corporation never refuted petitioner's allegation that immediately after the
loan matured, she informed said respondent of her desire to settle the obligation. The court should, therefore, mitigate the damages to
be paid since petitioner has shown a sincere desire for a compromise. 11

After a judicious evaluation of the arguments of the parties, we are constrained to dismiss the petition for lack of merit, but to except
therefrom the issue anent the propriety of the monetary award adjudged to herein respondent corporation.
At the outset, let it here be stressed that even assuming arguendo that the promissory note executed between the parties is a contract
of adhesion, it has been the consistent holding of the Court that contracts of adhesion are not invalid per se and that on numerous
occasions the binding effects thereof have been upheld. The peculiar nature of such contracts necessitate a close scrutiny of the factual
milieu to which the provisions are intended to apply. Hence, just as consistently and unhesitatingly, but without categorically invalidating
such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly albeit
not unreasonably against the drafter thereof when justified in light of the operative facts and surrounding circumstances. 12 The factual
scenario obtaining in the case before us warrants a liberal application of the rule in favor of respondent corporation.
The Civil Code pertinently provides:

Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this
Book shall be observed. In such case the contract is called a suretyship.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control. 13 In the case at bar, petitioner expressly bound herself to be
jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal
that petitioner's liability is that of a surety.

Her pretension that the terms "jointly and severally or solidarity liable" contained in the second paragraph of her contract are technical
and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her manifestation in the
contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the
principal maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she cannot now be heard to claim otherwise.
Any reference to the existence of fraud is unavailing. Fraud must be established by clear and convincing evidence, mere
preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only
by her own uncorroborated and, expectedly, self-serving allegations. 14

Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a
misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the
 20
contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. And the
mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. 16

Petitioner would like to make capital of the fact that although she obligated herself to be jointly and severally liable with the principal
maker, her liability is deemed restricted by the provisions of the third paragraph of her contract wherein she agreed "that M.B. Lending
Corporation may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the
payment of the note," which makes her contract one of guaranty and not suretyship. The purported discordance is more apparent than
real.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. 17 A suretyship is an undertaking that
the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. 18 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. 19 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. 20 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. 21

Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a
contract of suretyship. The second and third paragraphs of the aforequoted portion of the promissory note do not contain any other
condition for the enforcement of respondent corporation's right against petitioner. It has not been shown, either in the contract or the
pleadings, that respondent corporation agreed to proceed against herein petitioner only if and when the defaulting principal has become
insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's obligation, so as to
render himself directly and primarily responsible with him, and without reference to the solvency of the principal. 22

In a desperate effort to exonerate herself from liability, petitioner erroneously invokes the rule on strictissimi juris, which holds that when
the meaning of a contract of indemnity or guaranty has once been judicially determined under the rule of reasonable construction
applicable to all written contracts, then the liability of the surety, under his contract, as thus interpreted and construed, is not to be
extended beyond its strict meaning. 23 The rule, however, will apply only after it has been definitely ascertained that the contract is one
of suretyship and not a contract of guaranty. It cannot be used as an aid in determining whether a party's undertaking is that of a surety
or a guarantor.

Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation contained in the third paragraph of the
controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the
second paragraph thereof. Resultantly, the theory advanced by petitioner, that she is merely a guarantor because her liability attaches
only upon default of the principal debtor, must necessarily fail for being incongruent with the judicial pronouncements adverted to
above.
It is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall also be principally considered. 24 Several attendant factors in that genre lend support to our finding that petitioner is a surety. For
one, when petitioner was informed about the failure of the principal debtor to pay the loan, she immediately offered to settle the account
with respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal.
For another, and this is most revealing, petitioner presented the receipts of the payments already made, from the time of initial payment
up to the last, which were all issued in her name and of the Azarraga spouses. 25 This can only be construed to mean that the
payments made by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring
to the benefit of petitioner. The concomitant and simultaneous compliance of petitioner's obligation with that of her principals only goes
to show that, from the very start, petitioner considered herself equally bound by the contract of the principal makers. cdasia
In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, 26 and as such is
deemed an original promisor and debtor from the beginning. 27 This is because in suretyship there is but one contract, and the surety is
bound by the same agreement which binds the principal. 28 In essence, the contract of a surety starts with the agreement, 29 which is
precisely the situation obtaining in this case before the Court.

It will further be observed that petitioner's undertaking as co-maker immediately follows the terms and conditions stipulated between
respondent corporation, as creditor, and the principal obligors. A surety is usually bound with his principal by the same instrument,
executed at the same time and upon the same consideration; he is an original debtor, and his liability is immediate and direct. 30 Thus,
it has been held that where a written agreement on the same sheet of paper with and immediately following the principal contract
between the buyer and seller is executed simultaneously therewith, providing that the signers of the agreement agreed to the terms of
the principal contract, the signers were "sureties" jointly liable with the buyer. 31 A surety usually enters into the same obligation as that
of his principal, and the signatures of both usually appear upon the same instrument, and the same consideration usually supports the
obligation for both the principal and the surety. 32

There is no merit in petitioner's contention that the complaint was prematurely filed because the principal debtors cannot as yet be
considered in default, there having been no judicial or extrajudicial demand made by respondent corporation. Petitioner has agreed that
respondent corporation may demand payment of the loan from her in case the principal maker defaults, subject to the same conditions
expressed in the promissory note. Significantly, paragraph (G) of the note states that "should I fail to pay in accordance with the above
schedule of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer necessary in order
that delay may exist since the contract itself already expressly so declares. 33 As a surety, petitioner is equally bound by such waiver.

Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the commencement of the
suit is a sufficient demand. 34 On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be
given notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety,
his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the
surety. The surety is bound to take notice of the principal's default and to perform the obligation. He cannot complain that the creditor
has not notified him in the absence of a special agreement to that effect in the contract of suretyship. 35

The alleged failure of respondent corporation to prove the fact of demand on the principal debtors, by not attaching copies thereof to its
pleadings, is likewise immaterial. In the absence of a statutory or contractual requirement, it is not necessary that payment or
performance of his obligation be first demanded of the principal, especially where demand would have been useless; nor is it a
requisite, before proceeding against the sureties, that the principal be called on to account. 36 The underlying principle therefor is that a
suretyship is a direct contract to pay the debt of another. A surety is liable as much as his principal is liable, and absolutely liable as
soon as default is made, without any demand upon the principal whatsoever or any notice of default. 37 As an original promisor and
debtor from the beginning, he is held ordinarily to know every default of his principal. 38
 21
Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the principal debtors who allegedly
were the only ones who benefited from the proceeds of the loan. What petitioner is trying to imply is that the creditor, herein respondent
corporation, should have proceeded first against the principal before suing on her obligation as surety. We disagree.
A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. 39 Under Article 1216
of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule,
therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. 40 Since,
generally, it is not necessary for a creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the
contract, the obligation of the surety is the same as that of the principal, then as soon as the principal is in default, the surety is likewise
in default, and may be sued immediately and before any proceedings are had against the principal. 41 Perforce, in accordance with the
rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay
the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any
agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and
exhaust his remedies against the principal, particularly where both principal and surety are equally bound. 42

We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from
liability. Where a creditor refrains from proceeding against the principal, the surety is not exonerated. In other words, mere want of
diligence or forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice to
sue on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request
or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal, or is only the result
of passiveness. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such
delay continues until the principal becomes insolvent. 43 And, in the absence of proof of resultant injury, a surety is not discharged by
the creditor's mere statement that the creditor will not look to the surety, 44 or that he need not trouble himself. 45 The consequences
of the delay, such as the subsequent insolvency of the principal, 46 or the fact that the remedies against the principal may be lost by
lapse of time, are immaterial. 47

The raison d'êtrefor the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. 48 At any
rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt
himself and become subrogated to all the rights and remedies of the creditor. 49

It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor without change in the time
when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. 50 In
order to constitute an extension discharging the surety, it should appear that the extension was for a definite period , pursuant to an
enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a
reservation of rights with respect to him. The contract must be one which precludes the creditor from, or at least hinders him in,
enforcing the principal contract within the period during which he could otherwise have enforced it, and which precludes the surety from
paying the debt. 51

None of these elements are present in the instant case. Verily, the mere fact that respondent corporation gave the principal debtors an
extended period of time within which to comply with their obligation did not effectively absolve herein petitioner from the consequences
of her undertaking. Besides, the burden is on the surety, herein petitioner, to show that she has been discharged by some act of the
creditor, 52herein respondent corporation, failing in which we cannot grant the relief prayed for. LLjur

As a final issue, petitioner claims that assuming that her liability is solidary, the interests and penalty chargers on the outstanding
balance of the loan cannot be imposed for being illegal and unconscionable. Petitioner additionally theorizes that respondent
corporation intentionally delayed the collection of the loan in order that the interests and penalty charges would accumulate. The
statement, likewise traversed by said respondent, is misleading.
In an affidavit 53 executed by petitioner, which was attached to her petition, she stated, among others, that:

8. During the latter part of 1990, I was surprised to learn that Merlyn Azarraga's loan has been released and that
she has not paid the same upon its maturity. I received a telephone call from Mr. Augusto Banusing of MB Lending
informing me of this fact and of my liability arising from the promissory note which I signed.
9. I requested Mr. Banusing to try to collect first from Merlyn and Osmeña Azarraga. At the same time, I offered to
pay MB Lending the outstanding balance of the principal obligation should he fail to collect from Merlyn and
Osmeña Azarraga. Mr. Banusing advised me not to worry because he will try to collect first from Merlyn and
Osmeña Azarraga.

10. A year thereafter, I received a telephone call from the secretary of Mr. Banusing who reminded that the loan of
Merlyn and Osmeña Azarraga, together with interest and penalties thereon, has not been paid. Since I had no
available funds at that time, I offered to pay MB Lending by delivering to them a parcel of land which I own. Mr.
Banusing's secretary, however, refused my offer for the reason that they are not interested in real estate.
11. In March 1992, I received a copy of the summons and of the complaint filed against me by MB Lending before
the RTC-Iloilo. After learning that a complaint was filed against me, I instructed Sheila Gatia to go to MB Lending
and reiterate my first offer to pay the outstanding balance of the principal obligation of Merlyn Azarraga in the
amount of P30,000.00.
12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to Atty. Venus, counsel of MB Lending.
13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my offer to pay the outstanding balance of
the principal obligation loan (sic) of Merlyn and Osmeña Azarraga is acceptable. Later, Atty. Venus informed Ms.
Gatia that my offer is not acceptable to Mr. Banusing.

The purported offer to pay made by petitioner can not be deemed sufficient and substantial in order to effectively discharge her from
liability. There are a number of circumstances which conjointly inveigh against her aforesaid theory.

1. Respondent corporation cannot be faulted for not immediately demanding payment from petitioner. It was petitioner who initially
requested that the creditor try to collect from her principal first, and she offered to pay only in case the creditor fails to collect. The
delay, if any, was occasioned by the fact that respondent corporation merely acquiesced to the request of petitioner. At any rate, there
was here no actual offer of payment to speak of but only a commitment to pay if the principal does not pay.

2. Petitioner made a second attempt to settle the obligation by offering a parcel of land which she owned. Respondent corporation was
acting well within its rights when it refused to accept the offer. The debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value, or more valuable than that which is due. 54 The obligee is entitled to demand
 22
fulfillment of the obligation or performance as stipulated. A change of the object of the obligation would constitute novation requiring
the express consent of the parties. 55

3. After the complaint was filed against her, petitioner reiterated her offer to pay the outstanding balance of the obligation in the amount
of P30,000.00 but the same was likewise rejected. Again, respondent corporation cannot be blamed for refusing the amount being
offered because it fell way below the amount it had computed, based on the stipulated interests and penalty charges, as owing and due
from herein petitioner. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be. 56 In other words, the prestation must be fulfilled completely. A person
entering into a contract has a right to insist on its performance in all particulars. 57

Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because the moment the latter accepts the
performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, then the obligation shall be
deemed fully complied with. 58 Precisely, this is what respondent corporation wanted to avoid when it continually refused to settle with
petitioner at less than what was actually due under their contract.

This notwithstanding, however, we find and so hold that the penalty charge of 3% per month and attorney's fees equivalent to 25% of
the total amount due are highly inequitable and unreasonable.

It must be remembered that from the principal loan of P30,000.00, the amount of P16,300.00 had already been paid even before the
filing of the present case. Article 1229 of the Civil Code provides that the court shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. And, even if there has been no performance, the penalty may also
be reduced if it is iniquitous or leonine.

In a case previously decided by this Court which likewise involved private respondent M.B. Lending Corporation, and which is
substantially on all fours with the one at bar, we decided to eliminate altogether the penalty interest for being excessive and
unwarranted under the following rationalization:

Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact of the penalty
interest of three percent (3%) per month on total amount due but unpaid should be equitably reduced. The purpose
for which the penalty interest is intended — that is, to punish the obligor — will have been sufficiently served by the
effects of compounded interest. Under the exceptional circumstances in the case at bar, e.g., the original amount
loaned was only P15,000.00; partial payment of P8,600.00 was made on due date; and the heavy (albeit still
lawful) regular compensatory interest, the penalty interest stipulated in the parties' promissory note is iniquitous and
unconscionable and may be equitably reduced further by eliminating such penalty interest altogether. 59

Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be eliminated.
Finally, with respect to the award of attorney's fees, this Court has previously ruled that even with an agreement thereon between the
parties, the court may nevertheless reduce such attorney's fees fixed in the contract when the amount thereof appears to be
unconscionable or unreasonable. 60 To that end, it is not even necessary to show, as in other contracts, that it is contrary to morals or
public policy. 61 The grant of attorney's fees equivalent to 25% of the total amount due is, in our opinion, unreasonable and
immoderate, considering the minimal unpaid amount involved and the extent of the work involved in this simple action for collection of a
sum of money. We, therefore, hold that the amount of P10,000.00 as and for attorney's fee would be sufficient in this case. 62

WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the penalty interest of 3% per
month is hereby deleted and the award of attorney's fees is reduced to P10,000.00.
SO ORDERED. LLjur
Melo, Puno, Mendoza and Martinez, JJ .,concur.
||| (Palmares v. Court of Appeals, G.R. No. 126490, [March 31, 1998], 351 PHIL 664-691)

_________________________________________________-

FIDELIZA J. AGLIBOT, petitioner, vs. INGERSOL L. SANTIA, respondent.

 23
DECISION

REYES, J p:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure seeking to annul and set
aside the Decision 1 dated March 18, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 100021, which reversed the
Decision 2 dated April 3, 2007 of the Regional Trial Court (RTC) of Dagupan City, Branch 40, in Criminal Case Nos. 2006-0559-D to
2006-0569-D and entered a new judgment. The fallo reads as follows:
WHEREFORE, the instant petition is GRANTED and the assailed Joint Decision dated April 3, 2007 of the RTC of
Dagupan City, Branch 40, and its Order dated June 12, 2007 are REVERSED AND SET ASIDE and a new one is
entered ordering private respondent Fideliza J. Aglibot to pay petitioner the total amount of [P]3,000,000.00 with
12% interest per annum from the filing of the Informations until the finality of this Decision, the sum of which,
inclusive of interest, shall be subject thereafter to 12% annual interest until fully paid.
SO ORDERED. 3

On December 23, 2008, the appellate court denied herein petitioner's motion for reconsideration. TADCSE
Antecedent Facts
Private respondent-complainant Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a Promissory Note dated
July 1, 2003, issued by Aglibot in behalf of PLCC, payable in one year subject to interest at 24% per annum. Allegedly as a guaranty or
security for the payment of the note, Aglibot also issued and delivered to Santia eleven (11) post-dated personal checks drawn from her
own demand account maintained at Metrobank, Camiling Branch. Aglibot is a major stockholder of PLCC, with headquarters at 27
Casimiro Townhouse, Casimiro Avenue, Zapote, Las Piñas, Metro Manila, where most of the stockholders also reside. 4

Upon presentment of the aforesaid checks for payment, they were dishonored by the bank for having been drawn against insufficient
funds or closed account. Santia thus demanded payment from PLCC and Aglibot of the face value of the checks, but neither of them
heeded his demand. Consequently, eleven (11) Informations for violation of Batas Pambansa Bilang 22 (B.P. 22), corresponding to the
number of dishonored checks, were filed against Aglibot before the Municipal Trial Court in Cities (MTCC), Dagupan City, Branch 3,
docketed as Criminal Case Nos. 47664 to 47674. Each Information, except as to the amount, number and date of the checks, and the
reason for the dishonor, uniformly alleged, as follows:

That sometime in the month of September, 2003 in the City of Dagupan, Philippines and within the jurisdiction of
this Honorable Court, the above-named accused, FIDELIZA J. AGLIBOT, did then and there, willfully, unlawfully
and criminally, draw, issue and deliver to one Engr. Ingersol L. Santia, a METROBANK Check No. 0006766,
Camiling Tarlac Branch, postdated November 1, 2003, in the amount of [P]50,000.00, Philippine Currency, payable
to and in payment of an obligation with the complainant, although the said accused knew full[y] well that she did not
have sufficient funds in or credit with the said bank for the payment of such check in full upon its presentment, such
[t]hat when the said check was presented to the drawee bank for payment within ninety (90) days from the date
thereof, the same was dishonored for reason "DAIF", and returned to the complainant, and despite notice of
dishonor, accused failed and/or refused to pay and/or make good the amount of said check within five (5) days
banking days [sic], to the damage and prejudice of one Engr. Ingersol L. Santia in the aforesaid amount of
[P]50,000.00 and other consequential damages. 5 CcEHaI

Aglibot, in her counter-affidavit, admitted that she did obtain a loan from Santia, but claimed that she did so in behalf of PLCC; that
before granting the loan, Santia demanded and obtained from her a security for the repayment thereof in the form of the aforesaid
checks, but with the understanding that upon remittance in cash of the face amount of the checks, Santia would correspondingly return
to her each check so paid; but despite having already paid the said checks, Santia refused to return them to her, although he gave her
assurance that he would not deposit them; that in breach of his promise, Santia deposited her checks, resulting in their dishonor; that
she did not receive any notice of dishonor of the checks; that for want of notice, she could not be held criminally liable under B.P.
22 over the said checks; and that the reason Santia filed the criminal cases against her was because she refused to agree to his
demand for higher interest.
On August 18, 2006, the MTCC in its Joint Decision decreed as follows:
WHEREFORE, in view of the foregoing, the accused, FIDELIZA J. AGLIBOT, is hereby ACQUITTED of all counts
of the crime of violation of the bouncing checks law on reasonable doubt. However, the said accused is ordered to
pay the private complainant the sum of [P]3,000,000.00 representing the total face value of the eleven checks plus
interest of 12% per annum from the filing of the cases on November 2, 2004 until fully paid, attorney's fees
of [P]30,000.00 as well as the cost of suit.
SO ORDERED. 6

On appeal, the RTC rendered a Decision dated April 3, 2007 in Criminal Case Nos. 2006-0559-D to 2006-0569-D, which further
absolved Aglibot of any civil liability towards Santia, to wit: aEACcS
WHEREFORE, premises considered, the Joint Decision of the court a quo regarding the civil aspect of these cases
is reversed and set aside and a new one is entered dismissing the said civil aspect on the ground of failure to fulfill,
a condition precedent of exhausting all means to collect from the principal debtor.
SO ORDERED. 7
Santia's motion for reconsideration was denied in the RTC's Order dated June 12, 2007. 8 On petition for review to the CA docketed as
CA-G.R. SP No. 100021, Santia interposed the following assignment of errors, to wit:
"In brushing aside the law and jurisprudence on the matter, the Regional Trial Court seriously erred:

1. In reversing the joint decision of the trial court by dismissing the civil aspect of these cases;
2. In concluding that it is the Pacific Lending and Capital Corporation and not the private respondent which
is principally responsible for the amount of the checks being claimed by the petitioner;
 24
3. In finding that the petitioner failed to exhaust all available legal remedies against the principal debtor
Pacific Lending and Capital Corporation;
4. In finding that the private respondent is a mere guarantor and not an accommodation party, and thus,
cannot be compelled to pay the petitioner unless all legal remedies against the Pacific Lending
and Capital Corporation have been exhausted by the petitioner;
5. In denying the motion for reconsideration filed by the petitioner." 9 ASEcHI
In its now assailed decision, the appellate court rejected the RTC's dismissal of the civil aspect of the aforesaid B.P. 22 cases based on
the ground it cited, which is that the "failure to fulfill a condition precedent of exhausting all means to collect from the principal debtor."
The appellate court held that since Aglibot's acquittal by the MTCC in Criminal Case Nos. 47664 to 47674 was upon a reasonable
doubt 10 on whether the prosecution was able to satisfactorily establish that she did receive a notice of dishonor, a requisite to hold her
criminally liable under B.P. 22, her acquittal did not operate to bar Santia's recovery of civil indemnity.

It is axiomatic that the "extinction of penal action does not carry with it the eradication of civil liability, unless the
extinction proceeds from a declaration in the final judgment that the fact from which the civil liability might arise did
not exist. Acquittal will not bar a civil action in the following cases: (1) where the acquittal is based on reasonable
doubt as only preponderance of evidence is required in civil cases; (2) where the court declared the accused's
liability is not criminal but only civil in nature[;] and (3) where the civil liability does not arise from or is not based
upon the criminal act of which the accused was acquitted." 11 (Citation omitted)

The CA therefore ordered Aglibot to personally pay Santia P3,000,000.00 with interest at 12% per annum, from the filing of the
Informations until the finality of its decision. Thereafter, the sum due, to be compounded with the accrued interest, will in turn be subject
to annual interest of 12% from the finality of its judgment until full payment. It thus modified the MTCC judgment, which simply imposed
a straight interest of 12% per annum from the filing of the cases on November 2, 2004 until the P3,000,000.00 due is fully paid, plus
attorney's fees of P30,000.00 and the costs of the suit.
Issue
Now before the Court, Aglibot maintains that it was error for the appellate court to adjudge her personally liable for issuing her own
eleven (11) post-dated checks to Santia, since she did so in behalf of her employer, PLCC, the true borrower and beneficiary of the
loan. Still maintaining that she was a mere guarantor of the said debt of PLCC when she agreed to issue her own checks, Aglibot
insists that Santia failed to exhaust all means to collect the debt from PLCC, the principal debtor, and therefore he cannot now be
permitted to go after her subsidiary liability.
Ruling of the Court
The petition is bereft of merit.
Aglibot cannot invoke the benefit of
excussion
The RTC in its decision held that, "It is obvious, from the face of the Promissory Note . . . that the accused-appellant signed the same
on behalf of PLCC as Manager thereof and nowhere does it appear therein that she signed as an accommodation party." 12 The RTC
further ruled that what Aglibot agreed to do by issuing her personal checks was merely to guarantee the indebtedness of PLCC. So now
petitioner Aglibot reasserts that as a guarantor she must be accorded the benefit of excussion — prior exhaustion of the property of the
debtor — as provided under Article 2058 of the Civil Code, to wit: SCEHaD

Art. 2058. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property
of the debtor, and has resorted to all the legal remedies against the debtor.

It is settled that the liability of the guarantor is only subsidiary, and all the properties of the principal debtor, the PLCC in this case, must
first be exhausted before the guarantor may be held answerable for the debt. 13 Thus, the creditor may hold the guarantor liable only
after judgment has been obtained against the principal debtor and the latter is unable to pay, "for obviously the 'exhaustion of the
principal's property' — the benefit of which the guarantor claims — cannot even begin to take place before judgment has been
obtained." 14 This rule is contained in Article 2062 15 of the Civil Code, which provides that the action brought by the creditor must be
filed against the principal debtor alone, except in some instances mentioned in Article 2059 16 when the action may be brought against
both the guarantor and the principal debtor.

The Court must, however, reject Aglibot's claim as a mere guarantor of the indebtedness of PLCC to Santia for want of proof, in view of
Article 1403 (2) of the Civil Code, embodying the Statute of Frauds, which provides:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx xxx xxx

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of its contents: SDTcAH

a) An agreement that by its terms is not to be performed within a year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or
some of them, or such things in action, or pay at the time some part of the purchase money; but
when a sale is made by auction and entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold, terms of sale, price, names of
purchasers and person on whose account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an
interest therein;
f) A representation to the credit of a third person. (Italics ours)
 25
Under the above provision, concerning a guaranty agreement, which is a promise to answer for the debt or default of another, 17 the
law clearly requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless
ratified, 18 although under Article 1358 19 of the Civil Code, a contract of guaranty does not have to appear in a public
document. 20 Contracts are generally obligatory in whatever form they may have been entered into, provided all the essential requisites
for their validity are present, and the Statute of Frauds simply provides the method by which the contracts enumerated in Article 1403
(2) may be proved, but it does not declare them invalid just because they are not reduced to writing. Thus, the form required under the
Statute is for convenience or evidentiary purposes only. 21

On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be express, and cannot
extend to more than what is stipulated therein. This is the obvious rationale why a contract of guarantee is unenforceable unless made
in writing or evidenced by some writing. For as pointed out by Santia, Aglibot has not shown any proof, such as a contract, a secretary's
certificate or a board resolution, nor even a note or memorandum thereof, whereby it was agreed that she would issue her pers onal
checks in behalf of the company to guarantee the payment of its debt to Santia. Certainly, there is nothing shown in the Promissory
Note signed by Aglibot herself remotely containing an agreement between her and PLCC resembling her guaranteeing its debt to
Santia. And neither is there a showing that PLCC thereafter ratified her act of "guaranteeing" its indebtedness by issuing her own
checks to Santia. caHCSD

Thus did the CA reject the RTC's ruling that Aglibot was a mere guarantor of the indebtedness of PLCC, and as such could not "be
compelled to pay [Santia], unless the latter has exhausted all the property of PLCC, and has resorted to all the legal remedies against
PLCC . . . ." 22

Aglibot is an accommodation party

and therefore liable to Santia
Section 185 of the Negotiable Instruments Law defines a check as "a bill of exchange drawn on a bank payable on demand," while
Section 126 of the said law defines a bill of exchange as "an unconditional order in writing addressed by one person to another, signed
by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum
certain in money to order or to bearer."
The appellate court ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally and solidarily to pay
Santia, and dismissed her claim that she issued her said checks in her official capacity as PLCC's manager merely to guarantee the
investment of Santia. It noted that she could have issued PLCC's checks, but instead she chose to issue her own checks, drawn
against her personal account with Metrobank. It concluded that Aglibot intended to personally assume the repayment of the loan,
pointing out that in her Counter-Affidavit, she even admitted that she was personally indebted to Santia, and only raised payment as her
defense, a clear admission of her liability for the said loan.
The appellate court refused to give credence to Aglibot's claim that she had an understanding with Santia that the checks would not be
presented to the bank for payment, but were to be returned to her once she had made cash payments for their face values on maturity.
It noted that Aglibot failed to present any proof that she had indeed paid cash on the above checks as she claimed. This is precisely
why Santia decided to deposit the checks in order to obtain payment of his loan. cCTIaS

The facts below present a clear situation where Aglibot, as the manager of PLCC, agreed to accommodate its loan to Santia by issuing
her own post-dated checks in payment thereof. She is what the Negotiable Instruments Law calls an accommodation
party. 23 Concerning the liability of an accommodation party, Section 29 of the said law provides:

Sec. 29. Liability of an accommodation party. — An accommodation party is one who has signed the instrument
as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his
name to some other person. Such a person is liable on the instrument to a holder for value notwithstanding such
holder at the time of taking the instrument knew him to be only an accommodation party.
As elaborated in The Phil. Bank of Commerce v. Aruego: 24

An accommodation party is one who has signed the instrument as maker, drawer, indorser, without receiving value
therefor and for the purpose of lending his name to some other person. Such person is liable on the instrument to a
holder for value, notwithstanding such holder, at the time of the taking of the instrument knew him to be only an
accommodation party. In lending his name to the accommodated party, the accommodation party is in effect a
surety for the latter. He lends his name to enable the accommodated party to obtain credit or to raise money. He
receives no part of the consideration for the instrument but assumes liability to the other parties thereto because he
wants to accommodate another. . . . . 25 (Citation omitted) TSaEcH

The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the
accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed
an original promisor and debtor from the beginning. The liability is immediate and direct. 26 It is not a valid defense that the
accommodation party did not receive any valuable consideration when he executed the instrument; nor is it correct to say that the
holder for value is not a holder in due course merely because at the time he acquired the instrument, he knew that the indorser was
only an accommodation party. 27

Moreover, it was held in Aruego that unlike in a contract of suretyship, the liability of the accommodation party remains not only primary
but also unconditional to a holder for value, such that even if the accommodated party receives an extension of the period for payment
without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release
him because as far as a holder for value is concerned, he is a solidary co-debtor.

The mere fact, then, that Aglibot issued her own checks to Santia made her personally liable to the latter on her checks without the
need for Santia to first go after PLCC for the payment of its loan. 28 It would have been otherwise had it been shown that Aglibot was a
mere guarantor, except that since checks were issued ostensibly in payment for the loan, the provisions of the Negotiable Instruments
Law must take primacy in application.
WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED and the Decision dated March 18, 2008 of the
Court of Appeals in CA-G.R. SP No. 100021 is hereby AFFIRMED.
SO ORDERED. HTSIEa

||| (Aglibot v. Santia, G.R. No. 185945, [December 5, 2012], 700 PHIL 404-418)