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Part II. Deposit Bank's representative, the box yielded no such certificate.

of the delay in the reconstitution of the title, Mrs Ramos withdrew
Voluntary Deposit her earlier offer to purchase.

23. BPI v. The Intermediate Appellate Court & Zshornack, G.R. No. Hence this petition.
L-66826, August 19, 1998

Facts: Issue:

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar Whether or not the contractual relation between a commercial
savings account and a peso current account. An application for a bank and another party in the contract of rent of a safety deposit
dollar drat was accomplished by Virgillo Garcia branch manager of box is one of bailor and bailee.
COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion,
Garcia indicated that the amount was to be charged to the dolar Ruling:
savings account of the Zshornacks. There wasa no indication of the
name of the purchaser of the dollar draft. Comtrust issued a check Yes.
payable to the order of Dizon. When Zshornack noticed the
withdrawal from his account, he demanded an explainaiton from the The contract in the case at bar is a special kind of deposit. It
bank. In its answer, Comtrust claimed that the peso value of the
cannot be characterized as an ordinary contract of lease under
withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy.
Article 1643 because the full and absolute possession and control of
When he encashed with COMTRUST a cashiers check for P8450
issued by the manila banking corporation payable to Ernesto. the safety deposit box was not given to the joint renters – the
petitioner and Pugaos.
Issue: Whether the contract between petitioner and respondent
bank is a deposit? American Jurisprudence:

Held: The document which embodies the contract states that the The prevailing rule is that the relation between a bank renting
US$3,000.00 was received by the bank for safekeeping. The out safe-deposit boxes and its customer with respect to the contents
subsequent acts of the parties also show that the intent of the of the box is that of a bail or bailee, the bailment being for hire and
parties was really for the bank to safely keep the dollars and to
mutual benefit.
return it to Zshornack at a later time. Thus, Zshornack demanded the
return of the money on May 10, 1976, or over five months later.
Our provisions on safety deposit boxes are governed by
The above arrangement is that contract defined under Article 1962, Section 72 (a) of the General Banking Act, and this primary function
New Civil Code, which reads: is still found within the parameters of a contract of deposit like the
Art. 1962. A deposit is constituted from the moment a person receiving in custody of funds, documents and other valuable objects
receives a thing belonging to another, with the obligation of safely for safekeeping. The renting out of the safety deposit boxes is not
keeping it and of returning the same. If the safekeeping of the thing independent from, but related to or in conjunction with, this
delivered is not the principal purpose of the contract, there is no principal function. Thus, depositary’s liability is governed by our civil
deposit but some other contract.
code rules on obligation and contracts, and thus the SBTC would be
liable if, in performing its obligation, it is found guilty of fraud,
24. Agro-Industrial Development Corporation v. Ca and Security negligence, delay or contravention of the tenor of the agreement.
Bank & Trust Company, G.R. No. 90027, March 3, 1993, 219 SCRA
25. Roman Catholic Bishop of Jaro v. Dela Pena, G.R. No. L-6913,
On July 3, 1979, petitioner (through its President- Sergio Aguirre) November 21, 1913, 26 Phil 144
and the Spouses Ramon and Paula Pugao entered into an agreement
whereby the former purchase two parcel of lands from the latter. It FACTS : The plaintiff is the trustee of a charitable bequest made for
was paid of downpayment while the balance was covered by there the construction of a leper hospital and that father Agustin de la
postdated checks. Among the terms and conditions embodied in the Peña was the duly authorized representative of the plaintiff to
agreement were the titles shall be transferred to the petitioner upon receive the legacy. The defendant is the administrator of the estate
full payment of the price and the owner's copies of the certificate of of Father De la Peña.
titles shall be deposited in a safety deposit box of any bank.
Petitioner and the Pugaos then rented Safety Deposit box of private In the year 1898 the books Father De la Peña, as trustee, showed
respondent Security Bank and Trust Company. that he had on hand as such trustee the sum of P6,641, collected by
him for the charitable purposes aforesaid. In the same year he
Thereafter, a certain Margarita Ramos offered to buy from the deposited in his personal account P19,000 in the Hongkong and
petitioner. Mrs Ramos demand the execution of a deed of sale Shanghai Bank at Iloilo. Shortly thereafter and during the war of the
which necessarily entailed the production of the certificate of titles. revolution, Father De la Peña was arrested by the military
In view thereof, Aguirre, accompanied by the Pugaos, then proceed authorities as a political prisoner, and while thus detained made an
to the respondent Bank to open the safety deposit box and get the order on said bank in favor of the United States Army officer under
certificate of titles. However, when opened in the presence of the whose charge he then was for the sum thus deposited in said bank.
The arrest of Father De la Peña and the confiscation of the funds in midnight, and its parking attendant, Justimbaste got the key to said
the bank were the result of the claim of the military authorities that Vitara from See to park it. On May 1, 2002, at about 1:00 am, See
he was an insurgent and that the funds thus deposited had been received a phone call where the Hotel Chief Security Officer
collected by him for revolutionary purposes. The money was taken
informed him that his Vitara was carnapped while it was parked
from the bank by the military authorities by virtue of such order,
was confiscated and turned over to the Government. unattended at the parking area of Equitable PCI Bank See went to
see the Security Officer, thereafter reported the incident to the
While there is considerable dispute in the case over the question Operations Division of the Makati City Police Anti-Carnapping Unit,
whether the P6,641 of trust funds was included in the P19,000 and a flash alarm was issued. The police investigated Hotel Security
deposited as aforesaid, nevertheless, a careful examination of the Officer, Ernesto T. Horlador, Jr. and Justimbaste. See gave his
case leads us to the conclusion that said trust funds were a part of Sinumpaang Salaysay to the police investigator, and filed a
the funds deposited and which were removed and confiscated by Complaint Sheet with the PNP Traffic Management Group in Camp
the military authorities of the United States. Crame. it paid the P1,163,250.00 money claim of See and mortgagee
ABN AMRO Savings Bank, Inc. as indemnity for the loss of the Vitara.
ISSUE : Whether or not Father de la Peña is liable for the loss of the
money under his trust?

RULINGS : The court, therefore, finds and declares that the money The Vitara was lost due to the negligence of Durban Apartments and
which is the subject matter of this action was deposited by Father Justimbaste because it was discovered during the investigation that
De la Peña in the Hongkong and Shanghai Banking Corporation of this was the second time that a similar incident of carnapping
Iloilo; that said money was forcibly taken from the bank by the
happened in the valet parking service and no necessary precautions
armed forces of the United States during the war of the insurrection;
and that said Father De la Peña was not responsible for its loss. were taken to prevent its repetition. Durban Apartments was
wanting in due diligence in the selection and supervision of its
Father De la Peña's liability is determined by those portions of the employees particularly defendant Justimbaste. Both failed and
Civil Code which relate to obligations. (Book 4, Title 1.) refused to pay its valid, just, and lawful claim despite written
Although the Civil Code states that "a person obliged to give
something is also bound to preserve it with the diligence pertaining ISSUE: Is petitioner liable for the loss of See’s vehicle?
to a good father of a family" (art. 1094), it also provides, following
the principle of the Roman law, major casus est, cui humana RULING: Yes.
infirmitas resistere non potest, that "no one shall be liable for events
which could not be foreseen, or which having been foreseen were Article 1962, in relation to Article 1998, of the Civil Code defines a
inevitable, with the exception of the cases expressly mentioned in contract of deposit and a necessary deposit made by persons in
the law or those in which the obligation so declares." (Art. 1105.) hotels or inns:

By placing the money in the bank and mixing it with his personal Art. 1962. A deposit is constituted from the moment a person
funds De la Peña did not thereby assume an obligation different receives a thing belonging to another, with the obligation of safely
from that under which he would have lain if such deposit had not keeping it and returning the same. If the safekeeping of the thing
been made, nor did he thereby make himself liable to repay the
delivered is not the principal purpose of the contract, there is no
money at all hazards. If the had been forcibly taken from his pocket
or from his house by the military forces of one of the combatants deposit but some other contract.
during a state of war, it is clear that under the provisions of the Civil
Code he would have been exempt from responsibility. The fact that Art. 1998. The deposit of effects made by travelers in hotels or inns
he placed the trust fund in the bank in his personal account does not shall also be regarded as necessary. The keepers of hotels or inns
add to his responsibility. Such deposit did not make him a debtor shall be responsible for them as depositaries, provided that notice
who must respond at all hazards. was given to them, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised
relative to the care and vigilance of their effects.
Necessary Deposit

26. Durban Apartments Corp. v. Pioneer Insurance and Surety

Corp, G.R. No. 179419, January 12, 2011, 639 SCRA 441 Plainly, from the facts found by the lower courts, the insured See
deposited his vehicle for safekeeping with petitioner, through the
FACTS: July 22, 2003, Pioneer Insurance and Surety Corp, by right of latter’s employee, Justimbaste. In turn, Justimbaste issued a claim
subrogation, filed with the RTC of Makati a Complaint for Recovery stub to See. Thus, the contract of deposit was perfected from See’s
of Damages against Durban Apartments Corp. (or City Garden Hotel) delivery, when he handed over to Justimbaste the keys to his
and defendant before the RTC, Vicente Justimbaste. Respondent vehicle, which Justimbaste received with the obligation of safely
averred that it is the insurer for loss and damage of Jeffrey S. See’s keeping and returning it. Ultimately, petitioner is liable for the loss
2001 Suzuki Grand Vitara in the amount of P1,175,000.00. On April of See’s vehicle.
30, 2002, See arrived and checked in at the City Garden Hotel before
undertaking was intended to bar any claim against Tropicana for any
loss of the contents of the safety deposit box whether or not
27. YHT Realty Corporation v. CA, G.R. No. 126780, February 17, negligence was incurred by Tropicana or its employees. The New
2005, 451 SCRA 638 Civil Code is explicit that the responsibility of the hotel-keeper shall
extend to loss of, or injury to, the personal property of the guests
FACTS: even if caused by servants or employees of the keepers of hotels or
Respondent McLoughlin would always stay at Tropicana inns as well as by strangers, except as it may proceed from any force
Hotel every time he is here in the Philippines and would rent a majeure.41 It is the loss through force majeure that may spare the
safety deposit box. The safety deposit box could only be opened hotel-keeper from liability. In the case at bar, there is no showing
through the use of 2 keys, one of which is given to the registered that the act of the thief or robber was done with the use of arms or
guest, and the other remaining in the possession of the through an irresistible force to qualify the same as force majeure.
management of the hotel.
McLoughlin allegedly placed the following in his safety
deposit box – 2 envelopes containing US Dollars, one envelope Part III.
containing Australian Dollars, Letters, credit cards, bankbooks and a
checkbook. Guaranty
On 12 December 1987, before leaving for a brief trip,
McLoughlin took some items from the safety box which includes the 28. American Home Insurance Co. of New York v. F.F. Cruz & Co.,
ff: envelope containing Five Thousand US Dollars (US$5,000.00), the Inc., G.R. No. 174926, August 10, 2011
other envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00), his passports and his credit cards. The other items 29. Salvador P. Escano, et al v. Rafael Ortigas Jr., G.R. No. 151953,
were left in the deposit box. Upon arrival, he found out that a few June 29, 2007
dollars were missing and the jewelry he bought was likewise
missing. Facts:
Eventually, he confronted Lainez and Paiyam who
admitted that Tan opened the safety deposit box with the key On April 28, 1980, Private Development Corporation of the
assigned to him. McLoughlin went up to his room where Tan was
Philippines (PDCP) entered into a loan agreement with Falcon
staying and confronted her. Tan admitted that she had stolen
McLouglin’s key and was able to open the safety deposit box with Minerals, Inc. (Falcon) amounting to $320,000.00 subject to terms
the assistance of Lopez, Paiyam and Lainez. Lopez also told and conditions. [“Nagpautang ang PDCP sa Falcon ng $320K]
McLoughlin that Tan stole the key assigned to McLouglin while the
latter was asleep.
McLoughlin insisted that it must be the hotel who must
assume responsibility for the loss he suffered. Lopez refused to On the same day, 3 stockholders-officers of Falcon: Ortigas Jr.,
accept responsibility relying on the conditions for renting the safety George A. Scholey, and George T. Scholey executed an Assumption
deposit box entitled “Undertaking For the Use of Safety Deposit of Solidary Liability “to assume in [their] individual capacity, solidary
Box” liability with [Falcon] for due and punctual payment” of the loan
contracted by Falcon with PDCP.
ISSUE: WON the "Undertaking for the Use of Safety Deposit Box"
admittedly executed by private respondent is null and void.

Article 2003 was incorporated in the New Civil Code as an Two (2) separate guaranties were executed to guarantee payment of
expression of public policy precisely to apply to situations such as the same loan by other stockholders and officers of Falcon, acting in
that presented in this case. The hotel business like the common their personal and individual capacities. One guaranty was executed
carrier’s business is imbued with public interest. Catering to the by Escaño, Silos, Silverio, Inductivo and Rodriguez.
public, hotelkeepers are bound to provide not only lodging for hotel
guests and security to their persons and belongings. The twin duty
constitutes the essence of the business. The law in turn does not
allow such duty to the public to be negated or diluted by any Two years later, an agreement developed to cede control of Falcon
contrary stipulation in so-called “undertakings” that ordinarily to Escaño, Silos and Matti. Contracts were executed whereby
appear in prepared forms imposed by hotel keepers on guests for
Ortigas, George A. Scholey, Inductivo and the heirs of then already
their signature.
In an early case (De Los Santos v. Tan Khey), CA ruled that deceased George T. Scholey assigned their shares of stock in Falcon
to hold hotelkeepers or innkeeper liable for the effects of their to Escaño, Silos and Matti. An Undertaking dated June 11, 1982 was
guests, it is not necessary that they be actually delivered to the executed by the concerned parties, namely: with Escaño, Silos and
innkeepers or their employees. It is enough that such effects are Matti as “SURETIES” and Ortigas, Inductivo and Scholeys as
within the hotel or inn. With greater reason should the liability of “OBLIGORS”
the hotelkeeper be enforced when the missing items are taken
without the guest’s knowledge and consent from a safety deposit
box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the “undertaking” manifestly
Falcon eventually availed of the sum of $178,655.59 from the credit
contravene Article 2003, CC for they allow Tropicana to be released
line extended by PDCP. It would also execute a Deed of Chattel
from liability arising from any loss in the contents and/or use of the
safety deposit box for any cause whatsoever. Evidently, the Mortgage over its personal properties to further secure the loan.
However, Falcon subsequently defaulted in its payments. After PDCP right to full reimbursement falls within the other rights, actions and
foreclosed on the chattel mortgage, there remained a subsisting benefits which pertain to the surety by reason of the subsidiary
deficiency of Php 5,031,004.07 which falcon did not satisfy despite obligation assumed by the surety.

*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of
Issue: Whether the obligation to repay is solidary, as contended by P1.3M; Legal interest of 12% per annum on P 1.3M computed from
respondent and the lower courts, or merely joint as argued by March 14, 1994. Assailed rulings are affirmed. Costs against
petitioners. petitioners

Held/Ruling: 30. Atok Finance Corporation v. CA, G.R. No. 80078, May 18, 1993

In case, there is a concurrence of two or more creditors or FACTS:

of two or more debtors in one and the same obligation, Article 1207  Sanyu Chemical Corporation (Sanyu Chemical) as Principal
of the Civil Code states that among them, “[t]here is a solidary  Sanyu Trading Corporation (Sanyu Trading) along with Private
liability only when the obligation expressly so states, or when the Stockholders (as sureties):
law or the nature of the obligation requires solidarity.” Article 1210 o Sps. Danilo E. Arrieta & Nenita B. Arrieta
o Leopoldo G. Halili
supplies further caution against the broad interpretation of
o Pablito Bermindo
solidarity by providing: “The indivisibility of an obligation does not They Executed a Continuing Suretyship Agreement1 in favor of
necessarily give rise to solidarity. Nor does solidarity of itself imply Atok Finance Corporation (Atok Finance) as creditor.
indivisibility.” These Civil Code provisions establish that in case of
concurrence of two or more creditors or of two or more debtors in  Under this Agreement, Sanyu Trading and the individual private
one and the same obligation, and in the absence of express and respondents who were officers and stockholders of Sanyu
indubitable terms characterizing the obligation as solidary, the Chemical did:
presumption is that the obligation is only joint. It thus becomes (1) For Valuable and/or other consideration x x x, jointly and
severally unconditionally guarantee to ATOK FINANCE
incumbent upon the party alleging that the obligation is indeed
CORPORATION (hereinafter called Creditor), the full, faithful
solidary in character to prove such fact with a preponderance of and prompt payment and discharge of any and all indebtedness
evidence. of [Sanyu Chemical] x x x (hereinafter called Principal) to the

The word ‘indebtedness’ is used herein in its most comprehensive

Note that Article 2047 itself specifically calls for the sense and includes any and all advances, debts, obligations and
application of the provisions on joint and solidary obligations to liabilities of Principal or any one or more of them, here[to]fore, now
suretyship contracts. Article 1217 of the Civil Code thus comes into or hereafter made, incurred or created, whether voluntary or
play, recognizing the right of reimbursement from a co-debtor (the involuntary and however arising, whether direct or acquired by the
principal debtor, in case of suretyship) in favor of the one who paid Creditor by assignment or succession, whether due or not due,
(i.e., the surety).[However, a significant distinction still lies between absolute or contingent, liquidated or unliquidated, determined or
a joint and several debtor, on one hand, and a surety on the other. undetermined and whether the Principal may be liable individually
Solidarity signifies that the creditor can compel any one of the joint or jointly with others, or whether recovery upon such indebtedness
and several debtors or the surety alone to answer for the entirety of may be or hereafter become barred by any statute of limitations, or
the principal debt. The difference lies in the respective faculties of whether such indebtedness may be or otherwise become
the joint and several debtor and the surety to seek reimbursement unenforceable.”

for the sums they paid out to the creditor. In the case of joint and
several debtors, Article 1217 makes plain that the solidary debtor  27 November 1981: Sanyu Chemical assigned its trade
who effected the payment to the creditor “may claim from his co- receivables outstanding as of 27 November 1981 with a total
debtors only the share which corresponds to each, with the interest face value of P125,871.00 to Atok Finance in consideration of
for the payment already made.” Such solidary debtor will not be receipt from Atok Finance of the amount of P105,000.00.
able to recover from the co-debtors the full amount already paid to o The assigned receivables carried a standard term of 30 days;
the creditor, because the right to recovery extends only to the o It appeared, however, that the standard commercial practice
was to grant an extension of up to 120 days without
proportional share of the other co-debtors, and not as to the
particular proportional share of the solidary debtor who already  13 January 1984: Atok Finance commenced action against
paid. In contrast, even as the surety is solidarily bound with the
principal debtor to the creditor, the surety who does pay the
creditor has the right to recover the full amount paid, and not just
any proportional share, from the principal debtor or debtors. Such
Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and performance of a viodable or an unenforceable contract. It may
Leopoldo Halili before the RTC-Manila to: also guarantee a natural obligation.
o Collect the sum of P120,240.00  In Rizal Commercial Banking Corporation and the NARIC cases4
o Plus penalty charges amounting to P0.03 for every peso due rejected the distinction which the CA in the case at bar sought
and payable for each month starting from 1 September 1983. to make with respect to Article 2053, that is, that the “future
 Atok Finance alleged that Sanyu Chemical had failed to collect debts” referred to in that Article relate to “debts already
and remit the amounts due under the trade receivables. existing at the time of the constitution of the agreement but
 Sanyu Chemical and individual private respondents sought the amount [of which] is unknown,” and not to debts not yet
dismissal of Atok’s claim upon the ground that: incurred and existing at that time.
o Such claim had prescribed under Article 1629 of the Civil  A surety is not bound under any particular principal obligation
Code and until that principal obligation is born. But there is no theoretical
o Lack of cause of action or doctrinal difficulty inherent in saying that the suretyship
o Also contended that the Continuing Suretyship Agreement, agreement itself is valid and binding even before the principal
being an accessory contract, was null and void since, at the obligation intended to be secured thereby is born, any more
time of its execution, Sanyu Chemical had no pre-existing than there would be in saying that obligations which are
obligation due to Atok Finance. subject to a condition precedent are valid and binding before
 The trial court rendered a decision in favor of Atok Finance. the occurrence of the condition precedent.
(Respondents had no evidence)  Comprehensive or continuing surety agreements are common
o Private Respondents appealed before the IAC but was in present day financial and commercial practice. A bank or a
dismissed financing company which anticipates entering into a series of
o Dismissed the appeal upon the ground of abandonment, credit transactions with a particular company, commonly
since the private respondents had failed to file their appeal requires the projected principal debtor to execute a
brief continuing surety agreement along with its sureties.
o CA granted petition for relief of judgment  By executing such an agreement, the principal places itself in a
 Held that a surety agreement is an accessory contract and position to enter into the projected series of transactions with
therefore cannot exist without a principal contract, which its creditor; with such suretyship agreement, there would be no
was not proven to have existed when the time the surety need to execute a separate surety contract or bond for each
agreement was constituted.2 financing or credit accommodation extended to the principal
 Cited Article 2052 which states that a guarantee cannot debtor. This is precisely what happened in the case at bar.
exist without a valid obligation.
 Cited Art. 1629, which made Sanyu Chemical free from In the Second Issue: (Not so Relevant)
 The contention of Sanyu Chemical was that Atok Finance had
ISSUE (S): no cause of action under the Deed of Assignment for the
reason that Sanyu Chemical’s warranty of the debtors’
1)WoN that Agreement must be held null and void as having been solvency had ceased.
executed without consideration and without a pre-existing principal o In submitting this contention, Sanyu Chemical relied on
obligation to sustain it and would then hold private respondents and Article 16295
Sanyu Chemical solidarily liable.  Assignment of receivables is a commonplace commercial
transaction today. It is an activity or operation that permits the
assignee to monetize or realize the value of the receivables
2) WoN private respondents are liable under the Deed of
before the maturity thereof. In other words, Sanyu Chemical
Assignment on the receivables thereby assigned. received from Atok Finance the value of its trade receivables it
had assigned; Sanyu Chemical obviously benefitted from the
RATIO: Petition for Review is hereby GRANTED DUE COURSE, and assignment. The payments due in the first instance from the
the Decision of the CA are hereby REVERSED and SET ASIDE. RTC trade debtors of Sanyu Chemical would represent the return of
decision reinstated but modified. Penalty is reduced to 18% per the investment which Atok Finance had made when it paid
annum (instead of P0.03 for every peso monthly or 36% per annum. Sanyu Chemical the transfer value of such receivables.
 the assignor Sanyu Chemical becomes a solidary debtor under
the terms of the receivables covered and transferred by virtue
In the First Issue: (Relevant to DOCTRINE) of the Deed of Assignment. And because assignor Sanyu
Chemical became, under the terms of the Deed of Assignment,
 Article 2052 is not to be read in an absolute and literal manner solidary obligor under each of the assigned receivables, the
and carried to the limit of its logic. other private respondents (the Arrieta spouses, Pablito
 This is clear from Article 2052 and 20533 of the Civil Code itself:
“Art. 2052. A guaranty cannot exist without a valid obligation.
4 See notes
Nevertheless, a guaranty may be constituted to guarantee the
5 “Art. 1629. In case the assignor in good faith should have made
himself responsible for the solvency of the debtor, and the
Article 2052; NCC contracting parties should not have agreed upon the duration of the
“A guaranty may also be given as security for future debts, the liability, it shall last for one year only, from the time of the
amount of which is not yet known; there can be no claim against assignment if the period had already expired. If the credit should be
the guarantor until the debt is liquidated. A conditional obligation payable within a term or period which has not yet expired, the
may also be secured.” 
 liability shall cease one year after the maturity.”

Bermundo and Leopoldo Halili), became solidarily liable for that “The surely agreement which was earlier signed by Enrique Go., Sr.
obligation of Sanyu Chemical, by virtue of the operation of the and private respondent, is an accessory obligation, it being
Continuing Suretyship Agreement. dependent upon a principal one which, in this case is the loan
 Put a little differently, the obligations of individual private obtained by Diacor as evidence by a promissory note. What
respondent officers and stockholders of Sanyu Chemical under
obviously induced petitioner bank to grant the loan was the surety
the Continuing Suretyship Agreement were activated by the
resulting obligations of Sanyu Chemical as solidary obligor agreement whereby Go and Chua bound themselves solidarily to
under each of the assigned receivables by virtue of the guaranty the punctual payment of the loan at maturity. By terms
operation of the Deed of Assignment. That solidary liability of that are unequivocal, it can be clearly seen that the surety
Sanyu Chemical is not subject to the limiting period set out in agreement was executed to guarantee future debts which Daicor
Article 1629 of the Civil Code. may incur with petitioner, as is legally allowable under the Civil Code.
 It follows that at the time the original complaint was filed by
Atok Finance in the trial court, it had a valid and enforceable
Relevant provision of deed of assignment:
cause of action against Sanyu Chemical and the other private
respondents. We also agree with the Court of Appeals that the
original obligors under the receivables assigned to Atok Finance “2. To induce the ASSIGNEE [Atok Finance] to purchase the above
remain liable under the terms of such receivables. contracts, the ASSIGNOR [Sanyu Chemical] does hereby certify,
warrant and represent that x x x
Notes: (For your reference.)
(g) the debtor/s under the assigned contract/s are solvent and
In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and his/its/theirfailure to pay the assigned contract/s and/or any
Alto Surety Co., Inc: installment thereon upon maturity thereof shall be conclusively
considered as a violation of this warranty; and x x x
Mr. Justice J.B.L. Reyes, made short shrift of the private
respondents’ doctrinaire argument: The foregoing warranties and representations are in addition to
those provided for in the Negotiable Instruments Law and other
“Under his third assignment of error, appellant Fojas questions the
applicable laws. Any violation thereof shall render the ASSIGNOR
validity of the additional bonds on the theory that when they were
immediately and unconditionally liable to pay the ASSIGNEE jointly
executed, the principal obligation referred to in said bonds had not
and severally with the debtors under the assigned contracts, the
yet been entered into, as no copy thereof was attached to the deeds
amounts due thereon.
of suretyship.

This defense is untenable, because in its complaint the NARIC

averred, and the appellant did not deny that these bonds were 31. Bank of Commerce, et al. v. Sps. Andres and Eliza Flores, G.R.
posted to secure the additional credit that Fojas has applied for, and No. 174006, December 8, 2010
the credit increase over his original contract was sufficient
consideration for the bonds. That the latter were signed and filed Facts:
before the additional credit was extended by the NARIC is no ground
for complaint. Article 1825 of the Civil Code of 1889, in force in Spouse Flores borrowed money from petitioner bank in the amount
1948,expressly recognized that ‘a guaranty may also be given as of Nine Hundred Thousand Pesos (P900,000.00) on Oct 1993.
security for future debts the amount of which is not yet known.’ ” Respondents executed a Real Estate Mortgage5 over the
(Italics supplied) condominium unit as collateral, and the same was annotated at the
back of CCT No. 2130. Two years later again the spouses borrowed
In Rizal Commercial Banking Corporation v. Arro: One Million One Hundred Thousand Pesos (P1,100,000.00) from
petitioner bank, which was also secured by a mortgage over the
The Court was confronted again with the same issue, that is, same property annotated at the back of CCT No. 2130.
whether private respondent was liable to pay a promissory note
dated 29 April 1977 executed by the principal debtor in the light of
the provisions of a comprehensive surety agreement which
On Jan 1996 respondents paid One Million Eleven Thousand Five
petitioner bank and the private respondent had earlier entered into
Hundred Fifty-Five Pesos and 54 centavos (P1,011,555.54), as
on 19 October 1976.
evidenced by Official Receipt No. 1477417 issued by petitioner bank.
On the face of the receipt, it was written that the payment was "in
Under the comprehensive surety agreement, the private
full payment of the loan and interest." Respondents then asked
respondents had bound themselves as solidary debtors of the Diacor
petitioner bank to cancel the mortgage annotations on CCT No. 2130
Corporation not only in respect of existing obligations but also in
since the loans secured by the real estate mortgage were already
respect of future ones. In holding private respondent surety
paid in full. However, the bank refused to cancel the same and
(Residoro Chua) liable under the comprehensive surety agreement,
demanded payment of Four Million Six Hundred Thirty-Three
the Court said:
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 contemplation of the contract of guaranty, until the expiration or
auction sale was scheduled on September 4, 1998. termination thereof.

Respondents filed suit with the RTC, Quezon City, assailing the
validity of the foreclosure and auction sale of the property.
The language of the real estate mortgage unambiguously reveals
RTC granted respondents’ prayer for issuance of a writ of that the security provided in the real estate mortgage is continuing
preliminary injunction, restraining petitioner bank from foreclosing in nature. Thus, it was intended as security for the payment of the
on the mortgage and ordered that specific performance with loans annotated at the back of CCT No. 2130, and as security for all
damages and injunction filed by plaintiffs, Sps. Andres and Eliza amounts that respondents may owe petitioner bank. It is well
Flores against defendants, Bank of Commerce and Stephen Z. Taala, settled that mortgages given to secure future advance or loans are
is hereby DISMISSED. Likewise, the counterclaim filed by defendants, valid and legal contracts, and that the amounts named as
Bank of Commerce and Stephen Z. Taala against plaintiffs, Sps. consideration in said contracts do not limit the amount for which the
Andres and Eliza Flores is DISMISSED for insufficiency of evidence. mortgage may stand as security if from the four corners of the
instrument the intent to secure future and other indebtedness can
Upon appeal, CA rendered a Decision reversing the decision and the be gathered.
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 Respondents’ full payment of the loans annotated on the title of the
Quezon City; property shall not effect the release of the mortgage because, by the
express terms of the mortgage, it was meant to secure all future
(b) ordering appellee Bank to issue a corresponding release of debts of the spouses and such debts had been obtained and remain
mortgages to plaintiffs-appellants’ CCT No. 2130; unpaid. Unless full payment is made by the spouses of all the
amounts that they have incurred from petitioner bank, the property
(c) declaring null and void the challenged extra-judicial foreclosure
is burdened by the mortgage.
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,
Decision of the CA is REVERSED and SET ASIDE. The decision of the
(d) appellees’ counterclaims are ordered dismissed, for lack of Regional Trial Court dated December 4, 2002 is hereby REINSTATED.
sufficient basis therefor.

32. Philippine Blooming Mills, Inc. v. CA, G.R. No. 142381, October
Issue: 15, 2003

WON the real estate mortgage over the subject condominium unit is FACTS: Ching was the Senior Vice President of PBM. In his personal
a continuing guaranty for the future loans of respondent spouses capacity and not as a corporate officer, Ching signed a Deed of
despite the full payment of the principal loans annotated on the title Suretyship for trust receipts and bound himself as a co-maker of a
of the subject property. promissory note to cover a trust loan. All of which were loaned from
Held: PBM defaulted in its payment of the three liabilities. PBM and
Ching filed a petition for suspension of payments with the Securities
Yes, A continuing guaranty is a recognized exception to the rule that and Exchange Commission. The petition sought to suspend payment
of PBMs obligations and prayed that the SEC allow PBM to continue
an action to foreclose a mortgage must be limited to the amount
its normal business operations free from the interference of its
mentioned in the mortgage contract.23 Under Article 2053 of the creditors. One of the listed creditors of PBM was TRB.
Civil Code, a guaranty may be given to secure even future debts, the PBM and Ching moved to dismiss the complaint on the ground
amount of which may not be known at the time the guaranty is that the trial court had no jurisdiction over the subject matter of the
executed. This is the basis for contracts denominated as a continuing case. PBM and Ching invoked the assumption of jurisdiction by the
guaranty or suretyship. A continuing guaranty is not limited to a SEC over all of PBMs assets and liabilities. TRB filed an opposition to
single transaction, but contemplates a future course of dealing, the Motion to Dismiss. TRB argued that (1) Ching is being sued in his
personal capacity as a surety for PBM; (2) the SEC decision declaring
covering a series of transactions, generally for an indefinite time or
PBM in suspension of payments is not binding on TRB; and (3)
until revoked. It is prospective in its operation and is generally Presidential Decree No. 1758 (PD No. 1758), which Ching relied on
intended to provide security with respect to future transactions to support his assertion that all claims against PBM are suspended,
within certain limits, and contemplates a succession of liabilities, for does not apply to Ching as the decree regulates corporate activities
which, as they accrue, the guarantor becomes liable. In other words, only.
a continuing guaranty is one that covers all transactions, including The trial court denied the motion to dismiss with respect to
Ching and affirmed its dismissal of the case with respect to PBM. The
those arising in the future, which are within the description or
trial court stressed that TRB was holding Ching liable under the Deed
of Suretyship. As Ching’s obligation was solidary, the trial court ruled its operation and is generally intended to provide security with
that TRB could proceed against Ching as surety upon default of the respect to future transactions within certain limits, and
principal debtor PBM. The trial court also held that PD No. 1758 contemplates a succession of liabilities, for which, as they accrue,
applied only to corporations, partnerships and associations and not the guarantor becomes liable. Otherwise stated, a continuing
to individuals. guaranty is one which covers all transactions, including those arising
Upon the trial courts denial of his Motion for Reconsideration, in the future, which are within the description or contemplation of
Ching filed a Petition for Certiorari and Prohibition before the Court the contract of guaranty, until the expiration or termination
of Appeals. The appellate court granted Chings petition and ordered thereof. A guaranty shall be construed as continuing when by the
the dismissal of the case. The appellate court ruled that the SEC terms thereof it is evident that the object is to give a standing credit
assumed jurisdiction over Ching and PBM to the exclusion of courts to the principal debtor to be used from time to time either
or tribunals of coordinate rank. indefinitely or until a certain period; especially if the right to recall
TRB assailed the Court of Appeals Decision before this the guaranty is expressly reserved. Hence, where the contract states
Court. In Traders Royal Bank v. Court of Appeals, this Court upheld that the guaranty is to secure advances to be made from time to
TRB and ruled that Ching was merely a nominal party in SEC Case time, it will be construed to be a continuing one.
No. 2250. Creditors may sue individual sureties of debtor In other jurisdictions, it has been held that the use of particular
corporations, like Ching, in a separate proceeding before regular words and expressions such as payment of any debt, any
courts despite the pendency of a case before the SEC involving the indebtedness, or any sum, or the guaranty of any transaction, or
debtor corporation. money to be furnished the principal debtor at any time, or on such
In his Answer dated 6 November 1989, Ching denied liability as time that the principal debtor may require, have been construed to
surety and accommodation co-maker of PBM. He claimed that the indicate a continuing guaranty.
SEC had already issued a decision approving a revised rehabilitation
plan for PBMs creditors, and that PBM obtained the credit
accommodations for corporate purposes that did not redound to his 33. Security Bank & Trust Company v. Cuenca, G.R. No. 138544,
personal benefit. He further claimed that even as a surety, he has October 3, 2000, 341 SCRA 781
the right to the defenses personal to PBM. Thus, his liability as
surety would attach only if, after the implementation of payments I. Facts
scheduled under the rehabilitation plan, there would remain a
* Creditor: Sccurity Bank and Trust Co.
balance of PBMs debt to TRB.
Debtor: Sta. Ines Melale Corp.
ISSUE: Whether Ching can be sued separately and whether Ching is Surety: Rodolfo Cuenca
liable for obligations PBM contracted after execution of the Deed of
Suretyship. A. Sta. Ines is a corporation engaged in logging operations. In
1980, it was granted by Security Bank a credit line in the amount of
RULING: Yes, Ching can be sued separately to enforce his liability as Php 8M. To secure payment, it executed a chattel mortgage over
surety for PBM, as expressly provided by Article 1216 of the New some of its machineries and equipments. And as an additional
Civil Code. It is elementary that a corporation has a personality security, its President and Chairman of the Board of Directors
distinct and separate from its individual stockholders and
Rodolfo Cuenca, executed an Indemnity agreement in favor of
members. Being an officer or stockholder of a corporation does not
make ones property the property also of the corporation, for they Security Bank whereby he bound himself jointly and severally with
are separate entities. Ching’s act of joining as a co-petitioner with Sta. Ines. After Cuenca resigned, Sta. Ines obtained a Php 6M loan.
PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over Because of its difficulty in making the amortization payments, in
his person or property, for jurisdiction does not depend on the 1989 it requested Security Bank a complete restructure of its
consent or acts of the parties but upon express provision of law. indebtedness, which was approved without prior notice to, or prior
consent of Cuenca. Still it was unable to pay.
Also, Ching is liable for credit obligations contracted by PBM against
TRB before and after the execution of the 21 July 1977 Deed of
B. Contention of the Petitioner
Suretyship. This is evident from the tenor of the deed itself, referring
Security Bank insists that the 1989 Loan Agreement was a
to amounts PBM may now be indebted or may hereafter become
indebted to TRB. The law expressly allows a suretyship for future mere renewal or extension of the Php 8M original accommodation,
debts. Article 2053 of the Civil Code provides: that Cuenca waived his right to be notified of and to give consent to
A guaranty may also be given as security for future debts, the any substitution, renewal, extension, increase, amendment,
amount of which is not yet known; there can be no claim against the conversion or revival of the same, and that it was a continuing
guarantor until the debt is liquidated. A conditional obligation may surety.
also be secured. (Emphasis supplied)
C. Contention of the Respondent
Furthermore, this Court has ruled in Dio v. Court of Appeals
that: Cuenca argues that the 1989 agreement extinguished the
Under the Civil Code, a guaranty may be given to secure even future obligation under the 1980 credit accommodation by novation.
debts, the amount of which may not be known at the time the
guaranty is executed. This is the basis for contracts denominated as II. Issues
continuing guaranty or suretyship. A continuing guaranty is one WON the 1989 Loan Agreement novated the original credit
which is not limited to a single transaction, but which contemplates accommodation and Cuenca’s liability under the Indemnity
a future course of dealing, covering a series of transactions, Agreement.
generally for an indefinite time or until revoked. It is prospective in III. Ruling
Yes. The 1989 Loan Agreement is extinguished by novation
the obligation under the 1980 P8 million credit accommodation. It is
essential in the law of suretyship that any agreement between the
creditor and the principal debtor that essentially varies the terms of
the principal contract without the consent of the surety, will release
the surety from liability. The 1989 Loan Agreement expressly
stipulated that its purpose was to liquidate, not to renew or extend,
the outstanding indebtedness. Moreover, respondent did not sign or
consent to the 1989 Loan Agreement, which had allegedly extended
the original P8 million credit facility.

Indeed, the stipulation in the 1989 Loan Agreement

providing for the surety of respondent, without even informing him,
smacks of negligence on the part of the bank and bad faith on that
of the principal debtor. Since that Loan Agreement constituted a
new indebtedness, the old loan having been already liquidated, the
spirit of fair play should have impelled Sta. Ines to ask somebody
else to act as a surety for the new loan.