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GR No.

80078 May 18, 1993 Atok Finance vs Court of Appeals

Facts:

On July 27, 1979, private respondents Sanyu Chemical Corporation as principal and Sanyu Trading Corporation
along with private individual private stock holders of Sanyu Chemical as sureties, executed a Continuing
Suretyship Agreement in favor of Atok Finance as creditor.

In 1981, Sanyu Chemical assigned its trade receivables outstanding to Atok Finance in consideration of receipt
from Atok Finance of the amount of 105,000. The assigned receivables carried a standard term for thirty days; it
appeared; however that the standard commercial practice was to grant an extension of up to 120 days without
penalties. In 1984, the petitioner commence an action against private respondents before the RTC of Manila to
collect a sum of money plus penalty charges starting from September 1, 1983. The Finance Corporation alleged
that he failed to collect and remit the amounts due under the trade receivables.

Private respondents sought the dismissal of the claim on the ground that such claim had prescribed under Art.
1629 and lack of cause of action. They contended that the Continuing Suretyship Agreement , being an
accessory contract ,was null and void since, at the time of its execution, Sanyu Chemical had no pre existing
obligation due to Atok Finance. The trial court ruled in favor of the petitioners. On appeal reversed and set aside
the decision of the trial and court and dismiss the complaint of Atok Finance.

Issues: Whether the individual private respondents may be held solidarity liable with Sanyu Chemical under the
provisions of the Continuing Suretyship Agreement, or whether that Agreement must be held null and void as
having been executed without consideration and without a pre-existing principal obligation to sustain it.

Whether private respondents are liable under the Deed of Assignment which they, along with principal debtor
Sanyu Chemical, executed in favor of the petitioner , on the receivables thereby assigned.

Ruling : I. No. the Continuing Suretyship Agreement must not be held null and void. (di ko sure unsaon pag
interpret) Article 2053. — A guarantee 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. the "future debts" referred to in that Article relate to "debts already existing at the time of
the constitution of the agreement but the amount [of which] is unknown," and not to debts not yet incurred

and existing at that time. Of course, a surety is not bound under any particular principal obligation until that
principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the
suretyship agreement itself is valid and binding even before the principal obligation intended to be secured
thereby is born, any more that there would be in saying that obligations which are subject to a condition
precedent are valid and binding before the occurrence of the condition precedent. Ps. Pwede ra di ninyo
kopyahon ang red just for the sake of comprehension lang.TY Comprehensive or continuing surety agreements
are in fact quite common place in present day financial and commercial practice. A bank or a financing
company which anticipates entering into a series of credit transactions with a particular company, commonly
requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By
executing such an agreement, the principal places itself in a position to enter into the projected series of
transactions with its creditor; with such surety agreement, there would be no need to execute a separate surety
contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand
it, this is precisely what happened in the case at bar.

II. Yes respondents are liable under receivables assigned to atok finance under the terms of such receivable.
Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of Appeals is not, in
the case at bar, material.
The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of solvency; the
liability of Sanyu Chemical was not ex lege (ex Article 1629) but rather ex contractu. Under the Deed of
Assignment, the effect of non-payment by the original trade debtors was breach of warranty of solvency by
Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables
assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the
receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu
Chemical became, under the terms of the Deed of Assignment, solidary obligor under each of the assigned
receivables, the other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became
solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship
Agreement. Put a little differently, the obligations of individual private respondent officers and stockholders of
Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of
Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the
Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in
Article 1629 of the Civil Code.

ONGSIAKO vs. THE WORLD WIDE INSURANCE AND SURETY CO., INC. G.R. NO. L- 12077, JUNE 27,
1958 BAUTISTA ANGELO, J.

FACTS: Catalina de Leon executed in favor of Augusto Ongsiako a promissory note in the amount of
P1,200.00, payable in 90 days after date, with interest at 1% per month. Thereafter, a surety bond was executed
by the principal debtor, and the World Wide Insurance & Surety Co., Inc., as surety, whereby they bound to pay
said amount jointly and severally to the creditor. Having the obligation unpaid on the date of its maturity
notwithstanding the demands made upon the principal debtor and the surety, the creditor brought an action to
recover the same from them. Judgment was rendered in favor of the creditor. In the judgment, the principal
debtor was ordered to pay the creditor. The surety was likewise ordered to pay the creditor but with the proviso
that “execution should not issue against [the surety] until a return is made by the Sheriff upon execution against
[the principal debtor] showing that the judgment against her remained unsatisfied in whole or in part; and
provided, further, that [the principal debtor] shall reimburse to [the surety] whatever amount the latter might pay
under this judgment together with such expenses as may be necessary to effectuate said reimbursement.”

ISSUE:Whether or not the surety only acted as a guarantor and as such its liability cannot be exacted until after
the property of the principal shall have been exhausted.

HELD: NO. The surety has no justification whatever to resist the claim of the creditor for in the judgment
appealed from it is precisely provided that execution of judgment should not issue against the surety until after
it is shown that the execution of the judgment against the principal debtor has been returned by the sheriff
unsatisfied, which was the only excuse given by said surety in not fulfilling its commitment under the bond.
And yet, the surety appealed from said judgment just to put up the additional defense that its liability under the
bond has already expired because of the condition that its liability shall expire on February 10, 1952. The Court
considers this stipulation as unfair and unreasonable for it practically nullifies the nature of the undertaking
assumed by the surety. It should be noted that the principal obligation is payable 90 days from date of issue,
which falls on February 10, 1952. Only on this date can demand for payment be made on the principal debtor. If
the principal debtor should fail to pay and resort is made to the surety for payment on the next day, it would be
unfair for the surety to allege that its liability has already expired. As the terms of the bond should be given a
reasonable interpretation, it is logical to hold that the liability of the surety attaches as soon as the principal
debtor defaults, and notice thereof is given the surety within reasonable time to enable it to take steps to protect
its interest. After all, the surety has a remedy under the law, which is to foreclose the counterbond put up by the
principal debtor.

CITIZENS SURETY AND INSURANCE COMPANY, INC. vs. COURT OF APPEALS G.R. NO. L-48958,
JUNE 28, 1988 GUTIERREZ, JR., J.
FACTS: Citizens Surety and Insurance Company, Inc. issued 2 surety bonds to guarantee compliance by the
principal Pascual M. Perez Enterprises of its obligation under a Contract of Sale of Goods entered into with
Singer Sewing Machine Co. In consideration of the issuance of the aforesaid bonds, the principal debtor
executed indemnity agreements wherein he obligated himself and the Enterprises to indemnify the surety jointly
and severally, whatever payments advances and damage it may suffer or pay as a result of the issuance of the
surety bonds. In addition, the principal debtor put up a collateral security by executing a deed of assignment of
his stock lumber and thereafter, by executing a second real estate mortgage in favor of the surety to guarantee
the fulfillment of said obligation. The principal debtor failed to comply with its obligation with the creditor.
Consequently, the surety was compelled to pay, as it did pay. The principal debtor was able to partially
indemnify the surety leaving an unpaid balance. Notwithstanding several demands for the unpaid portion, the
principal debtor failed to reimburse the surety. The surety filed a money claim against the estate of the late
Nicasia Sarmiento which was being administered by the principal debtor. In opposing the money claim, the
principal debtor asserts that the surety bonds and the indemnity agreements had been extinguished by the
execution of the deed of assignment.

ISSUE: Whether or not the surety bonds are extinguished by virtue of the execution of the deed of assignment.

HELD: No. The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation
under the surety bonds was automatically extinguished. The subsequent acts of the principal debtor bolster the
fact that the deed of assignment was intended merely as a security for the issuance of the 2 surety bonds. Partial
payments were made after the execution of the deed of assignment to satisfy the obligation under the 2 surety
bonds. Since later payments were made to pay the indebtedness, it follows that no debt was extinguished upon
the execution of the deed of assignment. Moreover, a second real estate mortgage was executed and eventually
cancelled. If indeed the deed of assignment extinguished the obligation, there was no reason for a second
mortgage to still have to be executed. The proper procedure was for the surety to collect the remaining unpaid
portion of the surety from the sales of lumber and to return whatever remained to the principal debtor. The
Court cannot order the return because the estate of the spouse of the principal debtor has not asked for any
return of excess lumber or its value.

G.R. No. 187403


February 12, 2014
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES
(Formerly PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION.)
vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C.
BALDERRAMA, SIDDCOR INSURANCE CORPORATION (now MEGA PACIFIC
INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY AND INSURANCE, INC.,
PARAMOUNT INSURANCE CORPORATION,*
AND FORTUNE LIFE AND GENERAL
INSURANCE COMPANY
FACTS:
Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered into a sub-contracting
agreement with the Electrical Projects Company of Libya (ELPCO for the construction and erection of a double
circuit bundle phase conductor transmission line in the country of Libya. To finance its working capital
requirements, ASPAC obtained loans from foreign banks Banque Indosuez and PCI Capital (Hong Kong)
Limited (PCI Capital) which were secured by several Letters of Guarantee issued by Trade and Investment
Development Corporation of the Philippines (TIDCORP), then Philippine Export and Foreign Loan Guarantee
Corp. Under the Letters of Guarantee, TIDCORP irrevocably and unconditionally guaranteed full payment of
ASPAC’s loan obligations to Banque Indosuez and PCI Capital in the event of default by the latter. As a
condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO, and ASPAC’s
President, Nicolas C. Balderrama (Balderrama) had to execute several Deeds of Undertaking, binding
themselves to jointly and severally pay TIDCORP for whatever damages or liabilities it may incur under the
aforementioned letters. In the same light, ASPAC, as principal debtor, entered into surety agreements (Surety
Bonds) with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as sureties, also holding
themselves solidarily liable to TIDCORP, as creditor, for whatever damages or liabilities the latter may incur
under the Letters of Guarantee. ASPAC eventually defaulted on its loan obligations to Banque Indosuez and
PCI Capital. Demand letters to the bonding companies were sent but to no avail. Taking into account the
moratorium request issued by the Minister of Finance of the Republic of the Philippines, TIDCORP and its
various creditor banks, such as Banque Indosuez and PCI Capital, forged a Restructuring Agreement extending
the maturity dates of the Letters of Guarantee. The bonding companies were not privy to the Restructuring
Agreement and, hence, did not give their consent to the payment extensions. Nevertheless, following new
payment schedules, TIDCORP fully settled its obligations. Seeking payment for the damages and liabilities it
had incurred under the Letters of Guarantee and with its previous demands therefore left
unheeded, TIIDCORP filed a collection case against: (a) ASPAC, PICO, and Balderrama on account of their
obligations under the deeds of undertaking; and (b) the bonding companies on account of their obligations under
the Surety Bonds. The RTC partially granted TIDCORP’s complaint and thereby found ASPAC, PICO, and
Balderrama jointly and severally liable to TIDCORP but absolved the bonding companies from liability on the
ground that the moratorium request and the consequent payment extensions granted by Banque Indosuez and
PCI Capital in TIDCORP’s favor without their consent extinguished their obligations under the Surety Bonds.
On appeal, the CA upheld the ruling of RTC. Hence, this appeal filed by TIDCORP.

ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP under the Surety Bonds have been
extinguished by the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the
Restructuring Agreement.

HELD: NO. The Court finds that the payment extensions granted by Banque Indosuez and PCI Capital to
TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding companies’
obligations to TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions were made
without their consent. This is because Article 2079 of the Civil Code refers to a payment extension granted
by the creditor to the principal debtor without the consent of the guarantor or surety. In this case, the Surety
Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the Deeds of
Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the Letters of
Guarantee, within the bounds of the bonds’ respective coverage periods and amounts. No payment extension
was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil
Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP under the Surety
Bonds. The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt
under the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment
of ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In other words, the Letters of
Guarantee secured ASPAC’s loan agreements to the banks. Under this arrangement, TIDCORP therefore acted
as a guarantor, with ASPAC as the principal debtor, and the banks as creditors. Proceeding from the foregoing
discussion, it is quite clear that there are two sets of transactions that should be treated separately and distinctly
from one another following the civil law principle of relativity of contracts "which provides that contracts can
only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of
such contract and has acted with knowledge thereof." Verily, as the Surety Bonds concern ASPAC’s debt to
TIDCORP and not TIDCORP’s debt to the banks, the payments extensions would not deprive the bonding
companies of their right to pay their creditor (TIDCORP) and to be immediately subrogated to the latter’s
remedies against the principal debtor (ASPAC) upon the maturity date. It must be stressed that these payment
extensions did not modify the terms of the Letters of Guarantee but only provided for a new payment scheme
covering TIDCORP’s liability to the banks. In fine, considering the inoperability of Article 2079 of the Civil
Code in this case, the bonding companies’ liabilities to TIDCORP under the Surety Bonds – except those issued
by Paramount and covered by its Compromise Agreement with TIDCORP – have not been extinguished.
MARIANO LIM, petitioner,
vs.
SECURITY BANK CORPORATION, respondent.
G.R. No. 188539. March 12, 2014

DOCTRINE
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called
the obligee. A bank or financing company, which anticipates entering into a series of credit transactions with a
particular company, normally requires the projected principal debtor to execute a continuing surety agreement
along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the
projected series of transactions with its creditor; with such suretyship agreement, there would be no need to
execute a separate surety contract or bond for each financing or credit accommodation extended to the principal
debtor.

FACTS
Mariano Lim executed a Continuing Suretyship in favor of Security Bank to secure “any and all types of credit
accommodation that may be granted by the bank hereinto and hereinafter” in favor of Raul Arroyo for the
amount of P2,000,000 which is covered by a Credit Agreement/Promissory Note. The Continuing Suretyship
has the following stipulations:

3. Liability of the Surety. — The liability of the Surety is solidary and not contingent upon the pursuit of the
Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of the
Guaranteed Obligations is not paid or performed on due date (at stated maturity or by acceleration),
the Surety shall, without need for any notice, demand or any other act or deed, immediately become
liable therefor and the Surety shall pay and perform the same.

xxx

a) "Guaranteed Obligations"

the obligations of the Debtor arising from all credit accommodations extended by the Bank to the Debtor,
including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well
as
(i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts,
books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank
may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as
defined hereinbelow.

Debtor, Raul Arroyo, defaulted on his loan obligation. Lim received a Notice of Final Demand informing
him that he was liable to pay the loan obtained by Raul and Edwin Arroyo. Security Bank filed a complaint
for sum of money against Lim and Arroyo for failure of Lim to comply with the demand.

ISSUE
Whether or not Lim may validly be held liable for Arroyo’s (principal debtor) loan obtained six months
after the execution of the Continuing Suretyship

HELD
YES. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance
by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called
the obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. The terms of the Continuing Suretyship executed by
petitioner, quoted earlier, are very clear. It states that petitioner, as surety, shall, without need for any notice,
demand or any other act or deed, immediately become liable and shall pay "all credit accommodations extended
by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or
novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as
appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses
which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as
defined hereinbelow." Such stipulations are valid and legal and constitute the law between the parties, as Article
2053 of the Civil Code provides that "[a] guaranty may also be given as security for future debts, the amount
of which is not yet known; . . . ." Thus, petitioner is unequivocally bound by the terms of the Continuing
Suretyship. There can be no cavil then that petitioner is liable for the principal of the loan, together with the
interest and penalties due thereon, even if said loan was obtained by the principal debtor even after the date of
execution of the Continuing Suretyship.

Bank of Commerce vs Flores G.R. No. 174006 December 8, 2010

Facts: Spouse Flores borrowed money from petitioner bank in the amount of Nine Hundred Thousand Pesos
(P900,000.00) on Oct 1993. Respondents executed a Real Estate Mortgage5 over the condominium unit as
collateral, and the same was annotated at the back of CCT No. 2130. Two years later again the spouses
borrowed One Million One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also
secured by a mortgage over the same property annotated at the back of CCT No. 2130. On Jan 1996
respondents paid One Million Eleven Thousand Five Hundred Fifty-Five Pesos and 54 centavos
(P1,011,555.54), as evidenced by Official Receipt No. 1477417 issued by petitioner bank. On the face of the
receipt, it was written that the payment was "in full payment of the loan and interest." Respondents then asked
petitioner bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by the real estate
mortgage were already paid in full. However, the bank refused to cancel the same and demanded payment of
Four Million Six Hundred Thirty-Three Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos
(P4,633,916.67), then petitioner bank applied for extra-judicial foreclosure of the mortgages over the
condominium unit. The public auction sale was scheduled on September 4, 1998. Respondents filed suit with
the RTC, Quezon City, assailing the validity of the foreclosure and auction sale of the property. RTC granted
respondents’ prayer for issuance of a writ of preliminary injunction, restraining petitioner bank from foreclosing
on the mortgage and ordered that specific performance with damages and injunction filed by plaintiffs, Sps.
Andres and Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is hereby DISMISSED.
Likewise, the counterclaim filed by defendants, Bank of Commerce and Stephen Z. Taala against plaintiffs, Sps.
Andres and Eliza Flores is DISMISSED for insufficiency of evidence. Upon appeal, CA rendered a Decision
reversing the decision and the resolution of the RTC entering a new order:
(a) ordering the cancellation of the real estate mortgage annotations on the dorsal side of CCT No. 2130 of the
Registry of Deeds of Quezon City;
(b) ordering appellee Bank to issue a corresponding release of mortgages to plaintiffs-appellants’ CCT No.
2130;
(c) declaring null and void the challenged extra-judicial foreclosure and public auction sale held on March 25,
2004 together with the Certificate of Sale dated April 14, 2004 issued in favor of appellee Bank; and,
(d) appellees’ counterclaims are ordered dismissed, for lack
of sufficient basis therefor.
Issue: WON the real estate mortgage over the subject condominium unit is a continuing guaranty for the future
loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject
property.
Held: Yes, A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage
must be limited to the amount mentioned in the mortgage contract.23 Under Article 2053 of 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 not limited to a single transaction, but contemplates a future course of dealing, covering
a series of transactions, generally for an indefinite time or until revoked. It is 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. In other words, a continuing
guaranty is one that 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. The
language of the real estate mortgage unambiguously reveals that the security provided in the real estate
mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the
back of CCT No. 2130, and as security for all amounts that respondents may owe petitioner bank. It is well
settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the amounts
named as consideration in said contracts do not limit the amount for which the mortgage may stand as security
if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.
Respondents’ full payment of the loans annotated on the title of the property shall not effect the release of the
mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses
and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the
amounts that they have incurred from petitioner bank, the property is burdened by the mortgage. Decision of the
CA is REVERSED and SET ASIDE. The decision of the Regional Trial Court dated December 4, 2002 is
hereby REINSTATED

FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L. SANTIA, Respondent.

FACTS: Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a
promissory note. Allegedly as a guaranty for the payment of the note, Aglibot issued and delivered to Santia
eleven (11) post-dated personal checks drawn from her own account maintained at Metrobank. Upon
presentment of the checks for payment, they were dishonored by the bank for having been drawn against
insufficient funds or closed account. Santia thus demanded payment from PLCC and Aglibot of the face value
of the checks, but neither of them heeded his demand. Consequently, eleven (11) Informations for violation of
B.P. 22 were filed before the MTCC.

MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving Aglibot and dismissing the civil
aspect of the case on the ground of “failure to fulfill a condition precedent of exhausting all means to collect
from the principal debtor.”

On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the civil aspect of the case. Hence,
the CA ruled that Aglibot is personally liable for the loan.

Thus, Aglibot filed this instant petition for certiorari. She argued that she was merely a guarantor of the
obligation and therefore, entitled to the benefit of excussion under Article of the 2058 of the Civil Code. She
further posited that she is not personally liable on the checks since she merely contracted the loan in behalf of
PLCC.

ISSUES:

Is Aglibot entitled to the benefit of excussion?


Is Aglibot personally liable on the checks?
HELD: FIRST ISSUE: Aglibot cannot invoke the benefit of excussion. It is settled that the liability of the
guarantor is only subsidiary, and all the properties of the principal debtor, the PLCC in this case, must first be
exhausted before the guarantor may be held answerable for the debt. Thus, the creditor may hold the guarantor
liable only after judgment has been obtained against the principal debtor and the latter is unable to pay, “for
obviously the ‘exhaustion of the principal’s property’ — the benefit of which the guarantor claims — cannot
even begin to take place before judgment has been obtained.” This rule is contained in Article 2062 of the Civil
Code, which provides that the action brought by the creditor must be filed against the principal debtor alone,
except in some instances mentioned in Article 2059 when the action may be brought against both the guarantor
and the principal debtor.

The Court must, however, reject 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. Under the above
provision, concerning a guaranty agreement, which is a promise to answer for the debt or default of another, the
law clearly requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified, although under Article 1358 of the Civil Code, a contract of guaranty does not
have to appear in a public document. Contracts are generally obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present, and the Statute of Frauds simply
provides the method by which the contracts enumerated in Article 1403(2) may be proved, but it does not
declare them invalid just because they are not reduced to writing. Thus, the form required under the Statute is
for convenience or evidentiary purposes only.

On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated therein. This is the obvious rationale why a contract
of guarantee is unenforceable unless made in writing or evidenced by some writing.

***

SECOND ISSUE: Aglibot is an accommodation party and therefore liable to Santia. The appellate court
ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally and solidarily to pay
Santia, and dismissed her claim that she issued her said checks in her official capacity as PLCC’s manager
merely to guarantee the investment of Santia. The facts present a clear situation where Aglibot, as the manager
of PLCC, agreed to accommodate its loan to Santia by issuing her own post-dated checks in payment thereof.
She is what the Negotiable Instruments Law calls an accommodation party.

The relation between an accommodation party and the party accommodated is, in effect, one of principal and
surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promisor and debtor from the beginning. The liability is
immediate and direct. It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument; nor is it correct to say that the holder for value is not a holder in
due course merely because at the time he acquired the instrument, he knew that the indorser was only an
accommodation party. Unlike in a contract of suretyship, the liability of the accommodation party remains not
only primary but also unconditional to a holder for value, such that even if the accommodated party receives an
extension of the period for payment without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far as a holder for value is concerned,
he is a solidary co-debtor.

DENIED

GR No. 201417, January 13, 2016


Orix Metro Leasing and Finance Corp (Petitioner) v Cardline Inc. et al (Respondents)
Second Division
Ponente: Brion, J.

Nature of Action: Determination of solidary liability of individual respondents.


FACTS:
Cardline leased four machines from Orix as evidenced by three similarly-worded lease agreements. Cardline’s
principal stockholders and officers (individual respondents) – signed the suretyship agreements in their personal
capacities to guarantee Cardline’s obligations under each lease agreement. Cardline defaulted in paying the rent
and Orix formally demanded payment from Cardline but the latter refused to pay. Orix filed a complaint for
replevin, sum of money, and damages with an application for a writ of seizure against Cardline and the
individual respondents before the RTC. The RTC issued a writ of seizure allowing Orix to recover the machines
from Cardline. The RTC declared the respondents in default for failing to file an answer, and allowed Orix to
present evidence ex parte. The RTC rendered judgment in Orix’s favor and ordered the respondents to pay Orix.
Orix filed a motion for the issuance of a writ of execution which the RTC granted. Respondents assailed the
issuance of the order before the Court of Appeals, arguing that their rental obligations were offset by the market
value of the returned machines and by the guaranty deposit. The CA granted the petition, annulled the RTC’s
order and prohibited the sheriff from executing the judgment. The CA ruled that the respondents’ debt had been
satisfied when Orix recovered the machines and received the security deposit. Considering that the judgment
had been satisfied in full, the RTC’s issuance of a writ of execution was no longer necessary. In its petition,
Orix argues that the individual respondents are solidarily liable to Orix and are not entitled to the benefit of
excussion while respondents contend that they merely acted as guarantors and not as sureties.

ISSUE:
Whether the individual respondents are entitled to the benefit of excussion.

RULING:
No. Even assuming that a party is liable only as a guarantor, he can be held immediately liable without the
benefit of excussion if the guarantor agreed that his liability is direct and immediate.
The terms of a contract govern the parties’ rights and obligations. When a party undertakes to be "jointly and
severally" liable, it means that the obligation is solidary. Furthermore, even assuming that a party is liable only
as a guarantor, he can be held immediately liable without the benefit of excussion if the guarantor agreed that
his liability is direct and immediate. In effect, the guarantor waived the benefit of excussion pursuant to Article
2059(1) of the Civil Code.
In the present case, the records show that the individual respondents bound themselves solidarily with Cardline.
Section 31.1 of the lease agreements states that the persons who sign separate instruments to secure Cardline’s
obligations to Orix shall be jointly and severally liable with Cardline. Even assuming arguendo that the
individual respondents signed the continuing surety agreements merely as guarantors, they still cannot invoke
the benefit of excussion. The surety agreements provide that the individual respondents’ liability is "solidary,
direct, and immediate and not contingent upon" Orix’s remedies against Cardline. The continuing suretyship
agreements also provide that the individual respondents "individually and collectively waive(s) in advance the
benefit of excussion xxx under Articles 2058 and 2065 of the Civil Code."
Without any doubt, the individual respondents can no longer avail of the benefit of excussion.

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