Set 5 CREDIT TRANSACTIONS

II-Manresa
Atty. Jazzie Sarona

PART%VI:%GUARANTY%&SURETYSHIP%(Articles%2047=2084)%
I.%Nature%and%Extent%(continuation…)%
R.%BA%FINANCE%V%CA%
G.R.!No.!94566!July!3,!1992!
BA!FINANCE!CORPORATION,!petitioner,!vs.!HON.!COURT!OF!APPEALS!and!TRADERS!ROYAL!BANK,!respondents.!
!
FACTS:!
On!Dec!17,!1980,!Renato!Gaytano!(doing!business!under!Gebbs!International)!was!granted!a!loan!with!Traders!Royal!Bank!
(TRB)!for!60k.!As!security,!Gaytano!spouses!executed!a!deed!of!suretyship!whereby!they!agreed!to!pay!jointly!and!severally!
to!TRB!the!loan,!including!interests,!penalty!and!other!charges.!!
!
In!a!letter!addressed!to!TRB,!Philip!Wong!(credit!administrator!of!BA!Finance!Corp)!for!and!in!behalf!of!the!latter,!undertook!
to!guarantee!the!loan!of!the!Gaytano!spouses.!Partial!payments!were!made!on!the!loan!leaving!an!unpaid!balance!in!the!
amount!of!P85,807.25.!
!
Since!the!Gaytano!spouses!refused!to!pay!their!obligation,!TRB!filed!with!the!trial!court!complaint!for!sum!of!money!against!
the!Gaytano!spouses!and!petitioner!BA!Finance!Corporation!as!alternative!defendant.!The!Gaytano!spouses!did!not!present!
evidence!for!their!defense.!BA!Finance!Corporation,!on!the!other!hand,!raised!the!defense!of!lack!of!authority!of!its!credit!
administrator!to!bind!the!corporation.!
!
The!trial!court!rendered!a!decision!in!favor!of!plaintiff!and!against!defendants!Gaytano!spouses,!ordering!the!latter!to!
jointly!and!severally!pay!the!plaintiff.!Not!satisfied!with!the!decision,!Traders!Royal!Bank!appealed!with!the!Court!of!
Appeals.!Respondent!appellate!court!rendered!judgment!modifying!the!decision!of!the!trial!court.!Hence,!this!petition.!
!
ISSUE:!W/N!the!letter!of!guaranty!is!ultra!vires!(and!therefore!unenforceable)!YES%
!
HELD:!
It!is!a!rule!that!persons!dealing!with!an!assumed!agent,!whether!the!assumed!agency!be!a!general!or!special!one!are!bound!
at!their!peril,!if!they!would!hold!the!principal!liable,!to!ascertain!not!only!the!fact!of!agency!but!also!the!nature!and!extent!
of!authority,!and!in!case!either!is!controverted,!the!burden!of!proof!is!upon!them!to!establish!it.!
!
Hence,!the!burden!is!on!TRB!to!satisfactorily!prove!that!the!credit!administrator!with!whom!they!transacted!acted!within!
the!authority!given!to!him!by!his!principal,!BA!Finance!Corporation.!
!
The!only!evidence!presented!by!Traders!Royal!Bank!was!the!testimony!of!Philip!Wong,!credit!administrator,!who!testified!
that!he!had!authority!to!issue!guarantees!as!can!be!deduced!from!the!wording!of!the!memorandum!given!to!him!by!BA!
Finance!Corporation!on!his!lending!authority.!The!said!memorandum!allegedly!authorized!Wong!not!only!to!approve!and!
grant!loans!but!also!to!enter!into!contracts!of!guaranty!in!behalf!of!the!corporation.!
!
Although!Wong!was!clearly!authorized!to!approve!loans!even!up!to!350k!without!any!security!requirement,!which!is!far!
above!the!amount!subject!of!the!guaranty!in!the!amount!of!P60,000.00,!nothing!in!the!said!memorandum!expressly!vests!
on!the!credit!administrator!power!to!issue!guarantees.!We!cannot!agree!with!respondent's!contention!that!the!phrase!
"contingent!commitment"!set!forth!in!the!memorandum!means!guarantees.!
!

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Atty. Jazzie Sarona

It!has!been!held!that!a!power!of!attorney!or!authority!of!an!agent!should!not!be!inferred!from!the!use!of!vague!or!general!
words.!Guaranty!is!not!presumed,!it!must!be!expressed!and!cannot!be!extended!beyond!its!specified!limits.!In!one!case,!
where!it!appears!that!a!wife!gave!her!husband!power!of!attorney!to!loan!money,!this!Court!ruled!that!such!fact!did!not!
authorize!him!to!make!her!liable!as!a!surety!for!the!payment!of!the!debt!of!a!third!person.!
!
The!sole!allegation!of!the!credit!administrator!in!the!absence!of!any!other!proof!that!he!is!authorized!to!bind!BA!Finance!
Corporation!in!a!contract!of!guaranty!with!third!persons!should!not!be!given!weight.!The!representation!of!one!who!acts!as!
agent!cannot!by!itself!serve!as!proof!of!his!authority!to!act!as!agent!or!of!the!extent!of!his!authority!as!agent!(Velasco!v.!La!
Urbana,!58Phil.!681).!Wong's!testimony!that!he!had!entered!into!similar!transactions!of!guaranty!in!the!past!for!and!in!
behalf!of!the!BA!Finance!Corporation,!lacks!credence!due!to!his!failure!to!show!documents!or!records!of!the!alleged!past!
transactions.!
!
The!actuation!of!Wong!in!claiming!and!testifying!that!he!has!the!authority!is!understandable.!He!would!naturally!take!steps!
to!save!himself!from!personal!liability!for!damages!to!respondent!bank!considering!that!he!had!exceeded!his!authority.!The!
rule!is!clear!that!an!agent!who!exceeds!his!authority!is!personally!liable!for!damages.!
!
Anent!the!conclusion!of!respondent!appellate!court!that!BA!Finance!Corporation!is!estopped!from!alleging!lack!of!authority!
due!to!its!failure!to!cancel!or!disallow!the!guaranty,!the!Court!rules!that!said!conclusion!has!no!basis!in!fact.!Respondent!
bank!had!not!shown!any!evidence!aside!from!the!testimony!of!the!credit!administrator!that!the!disputed!transaction!of!
guaranty!was!in!fact!entered!into!the!official!records!or!files!of!petitioner!corporation,!which!will!show!notice!or!knowledge!
on!the!latter's!part!and!its!consequent!ratification!of!the!said!transaction.!In%the%absence%of%clear%proof,%it%would%be%unfair%
to%hold%BA%Finance%Corporation%guilty%of%estoppel%in%allowing%its%credit%administrator%to%act%as%though%the%latter%had%
power%to%guarantee.%
!
S.%TEXAS%%%COMPANY%V%ALONSO%
!(G.R.!No.!47495,!August!14,!1941)!
THE!TEXAS!COMPANY!(PHIL.),!INC.,!petitioner,!vs.!TOMAS!ALONSO,!respondent.!
!
FACTS:%
! On!November!1935,!Leonor!S.!Bantug!and!Tomas!Alonso!were!sued!by!the!Texas!Company,!Inc.!in!the!CFI!for!the!
recovery!of!the!sum!of!P629,!unpaid!balance!of!the!account!of!Leonora!S.!Bantug!in!connection!with!the!agency!
contract!with!the!Texas!Company!for!the!faithful!performance!of!which!Tomas!Alonso!in!August!1929,!signed!the!
following:!
!
For$value$received,$we$jointly$and$severally$do$hereby$bind$ourselves$and$each$of$us,$in$solidum,$with$Leonor$S.$Bantug$the$
agent$named$in$the$within$and$foregoing$agreement,$for$full$and$complete$performance$of$same$hereby$waiving$notice$of$
non>performance$by$or$demand$upon$said$agent,$and$the$consent$to$any$and$all$extensions$of$time$for$performance.$Liability$
under$this$undertaking,$however,$shall$not$exceed$the$sum$of$P2,000.$xxx$
! Tomas!Alonso!argued!that!Leonor!S.!Bantug!made!him!believe!that!he!was!merely!a!cofsecurity!of!one!Vicente!
Palanca!and!he!was!never!notified!of!the!acceptance!of!his!bond!by!the!Texas!Company.!
! CFI!rendered!judgment!sentencing!Leonor!S.!Bantug!and!Tomas!Alonso!to!pay!jointly!and!severally!to!the!Texas!
Company.!!!
! CA!modified!the!judgment!of!the!CFI!in!the!sense!that!Leonor!S.!Bantug!was!held!solely!liable!for!the!payment!of!
the!aforesaid!sum!of!P629!to!the!Texas!Company,!with!the!consequent!absolution!of!Tomas!Alonso.!
! CA!relied!on!SC’s!decision!in!National$Bank$vs.$Garcia!case,!while!Texas!Company!invokes!the!case!of!National$Bank$
vs.$Escueta.!

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Atty. Jazzie Sarona

o National$Bank$vs$Garcia:!It!was!held!that!there!was!merely!an!offer!to!give!bond!and,!as!there!was!no%
acceptance!of!the!offer,!so!SC!refused!to!give!effect!to!the!bond.!
o National$Bank$vs.$Escueta:!The!sureties!were!held!liable!under!their!surety!agreement!which!was!found!to!
have!been!accepted!by!the!creditor,!and!it!was!therein!ruled!that!an!acceptance!need!not!always!be!
express!or!in!writing.!!
!
ISSUE:!WON!there!was!merely!an!offer!of!guaranty!on!the!part!of!Tomas!Alonso!–!YES!
!
HELD:%
SC!invoked!National$Bank$vs.$Garcia.!The!CA!found!as!a!fact,!and!this!is!conclusive!in!this!instance,!that!the!bond!in!question!
was!executed!at!the!request!of!Texas!Company!by!virtue!of!the!following!clause!of!the!agency!contract:!
Additional$Security.$—$The$Agent$shall$whenever'requested'by'the'Company'in'addition'to'the'guaranty'herewith'
provided,$furnish$further$guaranty$or$bond,$conditioned$upon$the$Agent's$faithful$performance$of$this$contract,$in$such$
individuals$of$firms$as$joint$and$several$sureties$as$shall$be$satisfactory$to$the$Company.$
!
In!view!of!the!foregoing!clause!which!should!be!the!law!between!the!parties,!it!is!obvious!that,!before!a!bond!is!accepted!by!
Texas!Company,!it!has!to!be!in!such!form!and!amount!and!with!such!sureties!as!shall!be!satisfactory!hereto;!in!other!words,!
the!bond!is!subject!to!Texas!Company's!approval.!The!logical!implication!arising!from!this!requirement!is!that,!if!Texas!
Company!is!satisfied!with!any!such!bond,!NOTICE%of%its%acceptance%or%approval%should%necessarily%be%given%to%the%property%
party%in%interest,%namely,%the%surety%or%guarantor.!In!this!connection,!SC!is!likewise!bound!by!the!finding!of!the!CA!that!
there!is!no!evidence!in!this!case!tending!to!show!that!Tomas!Alonso,!ever!had!knowledge!of!any!act!on!the!part!of!Texas!
Company!amounting!to!an!implied!acceptance,!so!as!to!justify!the!application!of!National$Bank$vs.$Escueta.!
!
Where!there!is!merely!an!offer!of,!or!proposition!for,!a!guaranty,!or!merely!a!conditional!guaranty!in!the!sense!that!it!
requires!action!by!the!creditor!before!the!obligation!becomes!fixed,!it%does%not%become%a%binding%obligation%until%it%is%
accepted%and,%unless%there%is%a%waiver%of%notice%of%such%acceptance%is%given%to,%or%acquired%by,%the%guarantor,%or%until%he%
has%notice%or%knowledge%that%the%creditor%has%performed%the%conditions%and%intends%to%act%upon%the%guaranty.!(National$
Bank$vs.$Garcia)!The%acceptance%need%not%necessarily%be%express%or%in%writing,%but%may%be%indicated%by%acts%amounting%to%
acceptance.!(National$Bank$vs.$Escueta)!Where,!upon!the!other!hand,!the!transaction!is!not!merely!an!offer!of!guaranty!but!
amounts!to!direct!or!unconditional!promise!of!guaranty,!unless!notice!of!acceptance!is!made!a!condition!of!the!guaranty,!all!
that!is!necessary!to!make!the!promise!binding!is!that!the!promise!should!act!upon!it,!and!notice!of!acceptance!is!not!
necessary,!the!reason!being!that!the!contract!of!guaranty!is!unilateral!(Visayan$Surety$and$Insurance$Corporation$vs.$
Laperal).!
T.%VISAYAN%SURETY%V%CA%
![G.!R.!No.!127261.!!September!7,!2001]!
+
VISAYANSURETY&INSURANCECORPORATION,!petitioner,vs.$THE!!HONORABLE!!COURT!!OF!!APPEALS,!!SPOUSES!!JUNBARTOLOME !and!!SUSAN!!BARTOLOM
+!
E!!!and!!!DOMINADOR!V.!IBAJAN, respondents.!
!
FACTS:%
A!writ!of!replevin!was!filed!by!plaintiffs!spouses!Ibajan!against!spouses!Bartolome!for!the!possession!of!an!Isuzu!Jeepney.!
Spouses!Ibajan!filed!a!replevin!bond!through!Visayan!Surety!and!Insurance!Corporation.!
!The!contract!of!surety!provided!:!
“WHEREFORE,$we,$sps.$Danilo$Ibajan$and$Mila$Ibajan$and$the$VISAYAN$SURETY$&$INSURANCE$CORP.,$of$Cebu,$Cebu,$with$
branch$office$at$Manila,$jointly$and$severally$bind$ourselves$in$the$sum$of$Three$Hundred$Thousand$Pesos$(P300,000.00)$for$
the$return$of$the$property$to$the$defendant,$if$the$return$thereof$be$adjudged,$and$for$the$payment$to$the$defendant$of$such$
sum$as$he/she$may$recover$from$the$plaintiff$in$the$action.$

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Atty. Jazzie Sarona

Subsequently,!!Dominador!V.!Ibajan,!father!of!plaintiff!Danilo!Ibajan,!filed!with!the!trial!court!a!motion!for!leave!of!court!to!
intervene,!stating!that!he!has!a!right!superior!to!the!plaintiffs!over!the!ownership!and!possession!of!the!subject!vehicle.!
!
Danilo!Ibajan!was!granted!the!writ!of!replevin!but!was!returned!unsatisfied!prompting!him!to!!file!a!motion/!application!for!
judgment!against!plaintiff’s!bond.!
!
The!trial!Court!rendered!a!decision!!in!favor!of!Dominador!Ibajan!and!against!Mila!Ibajan!and!the!Visayan!Surety!and!
Insurance!Corporation!ordering!them!to!pay!the!former!jointly!and!severally!the!value!of!the!subject!jeepney!in!the!amount!
of!P150,000.00.!!
!
CA!appealed!the!decision!thus!this!petition.!!
!
ISSUE:%%
!Whether!the!surety!is!liable!to!an!intervenor!on!a!replevin!bond!posted!by!petitioner!in!favor!of!respondents!(Bartolome).!
NO!
!
HELD:%%
It!is!a!basic!principle!in!law!that!contracts!can!bind!only!the!parties!who!had!entered!into!it;!it!cannot!favor!or!prejudice!a!
third!person.!Contracts!take!effect!between!the!parties,!their!assigns,!and!heirs,!except!in!cases!where!the!rights!
and!!obligations!arising!from!the!contract!are!not!transmissible!by!their!nature,!or!by!stipulation!or!by!provision!of!law.!%
A!contract!of!surety!is!an!agreement!where!a!party!called!the!surety!guarantees!the!performance!by!another!party!called!
the!principal!or!obligor!of!an!obligation!or!undertaking!in!favor!of!a!third!person!called!the!obligee.!Specifically,!suretyship!is!
a!contractual!relation!resulting!from!an!agreement!whereby!one!person,!the!surety,!engages!to!be!answerable!for!the!debt,!
default!or!miscarriage!of!another,!known!as!the!principal.!
The!obligation!of!a!surety!cannot!be!extended!by!implication!beyond!its!specified!limits.!“When!a!surety!executes!a!bond,!it!
does!not!guarantee!that!the!plaintiff’s!cause!of!action!is!meritorious,!and!that!it!will!be!responsible!for!all!the!costs!that!
may!be!adjudicated!against!its!principal!in!case!the!action!fails.!The!extent!of!a!surety’s!liability!is!determined!only!by!the!
clause!of!the!contract!of!suretyship.”!A!contract!of!surety!is!not!presumed;!it!cannot!extend!to!more!than!what!is!
stipulated.!!
Since%the%obligation%of%the%surety%cannot%be%extended%by%implication,%it%follows%that%the%surety%cannot%be%held%liable%to%
the%intervenor%when%the%relationship%and%obligation%of%the%surety%is%limited%to%the%defendants%specified%in%the%contract%of%
surety.%
Who$is$an$intervenor$?$(Civ$Pro)$
An!intervenor!is!a!person,!not!originally!impleaded!in!a!proceeding,!who!has!legal!interest!in!the!matter!in!litigation,!or!in!
the!success!of!either!of!the!parties,!or!an!interest!against!both,!or!is!so!situated!as!to!be!adversely!affected!by!a!distribution!
or!other!disposition!of!property!in!the!custody!of!the!court!or!of!an!officer!thereof.!
!
U.%ESTATE%OF%HEMADY%V%LUZON%SURETY%
[G.R.!No.!Lf8437.!!November!28,!1956.]!
ESTATE!OF!K.!H.!HEMADY,!deceased,!vs.!LUZON!SURETY!CO.,!INC.,!claimantfAppellant.!
!
The!Luzon!Surety!Co.!had!filed!a!claim!against!the!Estate!based!on!20!different!indemnity!agreements,!or!counter!bonds,!
each!subscribed!by!a!distinct!principal!and!by!the!deceased!K.!H.!Hemady,!(a!surety!solidary!guarantor)!in!all!of!them,!in!
consideration!of!the!Luzon!Surety!Co.’s!of!having!guaranteed,!the!various!principals!in!favor!of!different!creditors.!!

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The! trial! court! dismissed! the! claim! filed! by! Luzon! on! the! ground! that! the! death! of! Hemady! extinguished! his! liability! as!
guarantor.!(NOTE:!the!contract!entered!in!this!case!is!suretyship)!
”It$should$be$noted$that$a$new$requirement$has$been$added$for$a$person$to$qualify$as$a$guarantor,$that$is:$integrity.$As$
correctly$ pointed$ out$ by$ the$ Administratrix,$ integrity$ is$ something$ purely$ personal$ and$ is$ not$ transmissible.$ Upon$ the$
death$of$Hemady,$his$integrity$was$not$transmitted$to$his$estate$or$successors.$Whatever$loss$therefore,$may$occur$after$
Hemady’s$death,$are$not$chargeable$to$his$estate$because$upon$his$death$he$ceased$to$be$a$guarantor.”!
ISSUE:!WON!the!death!of!Hemady!extinguished!his!liability!as!guarantor?!NO.!
HELD:! The$ general$ rule$ is$ that$ rights$ and$ obligations$ arising$ from$ contracts$ are$ transmissible$ except$ when$ by$ nature,$
stipulation$or$by$law$they$are$intransmissible.$By$contract,$the$articles$of$the$Civil$Code$that$regulate$guaranty$or$suretyship$
(Articles$2047$to$2084)$contain$no$provision$that$the$guaranty$is$extinguished$upon$the$death$of$the$guarantor$or$the$surety.$
The$ limitation$ under$ Article$ 2056$ (i.e.$ the$ guarantor$ must$ possess$ integrity$ etc.)$ is$ required$ only$ upon$ perfection$ of$ the$
contract.$
Under!the!present!Civil!Code!(Article!1311),!as!well!as!under!the!Civil!Code!of!1889!(Article!1257),!the!rule!is!that!—!
“Contracts! take! effect! only! as! between! the! parties,! their! assigns! and! heirs,! except! in! the! case! where! the! rights! and!
obligations!arising!from!the!contract!are!not!transmissible!by!their!nature,!or!by!stipulation!or!by!provision!of!law.”!
Under! our! law,! therefore,! the! general! rule! is! that! a! party’s! contractual! rights! and! obligations! are! transmissible! to! the!
successors.! The! rule! is! a! consequence! of! the! progressive! “depersonalization”! of! patrimonial! rights! and! duties! that,! as!
observed!by!Victorio!Polacco,!has!characterized!the!history!of!these!institutions.!!
Of!the!three!exceptions!fixed!by!Article!1311,!the!nature!of!the!obligation!of!the!surety!or!guarantor!does!not!warrant!the!
conclusion!that!his!peculiar!individual!qualities!are!contemplated!as!a!principal!inducement!for!the!contract.!What!did!the!
creditor!Luzon!Surety!Co.!expect!of!K.!H.!Hemady!when!it!accepted!the!latter!as!surety!in!the!counterbonds?!Nothing!but!
the!reimbursement!of!the!moneys!that!the!Luzon!Surety!Co.!might!have!to!disburse!on!account!of!the!obligations!of!the!
principal! debtors.! This! reimbursement! is! a! payment! of! a! sum! of! money,! resulting! from! an! obligation! to! give;!! and! to! the!
Luzon!Surety!Co.,!it!was!indifferent!that!the!reimbursement!should!be!made!by!Hemady!himself!or!by!someone!else!in!his!
behalf,!so!long!as!the!money!was!paid!to!it.!
The!second!exception!of!Article!1311,!p.!1,!is!intransmissibility!by!stipulation!of!the!parties.!Being!exceptional!and!contrary!
to! the! general! rule,! this! intransmissibility! should! not! be! easily! implied,! but! must! be! expressly! established,! or! at! the! very!
least,! clearly! inferable! from! the! provisions! of! the! contract! itself,! and! the! text! of! the! agreements! sued! upon! nowhere!
indicate!that!they!are!nonftransferable.!
Because!under!the!law!(Article!1311),!a!person!who!enters!into!a!contract!is!deemed!to!have!contracted!for!himself!and!his!
heirs!and!assigns,!it!is!unnecessary!for!him!to!expressly!stipulate!to!that!effect;!hence,!his!failure!to!do!so!is!no!sign!that!he!
intended!his!bargain!to!terminate!upon!his!death.!Similarly,!that!the!Luzon!Surety!Co.,!did!not!require!bondsman!Hemady!
to! execute! a! mortgage! indicates! nothing! more! than! the! company’s! faith! and! confidence! in! the! financial! stability! of! the!
surety,!but!not!that!his!obligation!was!strictly!personal.!
The! third! exception! to! the! transmissibility! of! obligations! under! Article! 1311! exists! when! they! are! “not! transmissible! by!
operation!of!law”.!The!provision!makes!reference!to!those!cases!where!the!law!expresses!that!the!rights!or!obligations!are!
extinguished!by!death,!as!is!the!case!in!legal!support!(Article!300),!parental!authority!(Article!327),!usufruct!(Article!603),!
contracts!for!a!piece!of!work!(Article!1726),!partnership!(Article!1830!and!agency!(Article!1919).!By!contract,!the!articles!of!
the! Civil! Code! that! regulate! guaranty! or! suretyship! (Articles! 2047! to! 2084)! contain! no! provision! that! the! guaranty! is!
extinguished!upon!the!death!of!the!guarantor!or!the!surety.!
The%law%requires%these%qualities%(integrity,%capacity%to%bind%etc.)%to%be%present%only%at%the%time%of%the%perfection%of%the%
contract%of%guaranty.%
The! lower! court! sought! to! infer! such! a! limitation! from! Art.! 2056,! to! the! effect! that! “one! who! is! obliged! to! furnish! a!
guarantor!must!present!a!person!who!possesses!integrity,!capacity!to!bind!himself,!and!sufficient!property!to!answer!for!
the!obligation!which!he!guarantees”.!It!will!be!noted,!however,!that!the!law!requires!these!qualities!to!be!present!only!at!
the!time!of!the!perfection!of!the!contract!of!guaranty.!It!is!selffevident!that!once!the!contract!has!become!perfected!and!
binding,!the!supervening!incapacity!of!the!guarantor!would!not!operate!to!exonerate!him!of!the!eventual!liability!he!has!
contracted;!! and! if! that! be! true! of! his! capacity! to! bind! himself,! it! should! also! be! true! of! his! integrity,! which! is! a! quality!
mentioned!in!the!article!alongside!the!capacity.!
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Atty. Jazzie Sarona

The!foregoing!concept!is!confirmed!by!the!next!Article!2057,!that!runs!as!follows:!
“ART.! 2057.! —! If! the! guarantor! should! be! convicted! in! first! instance! of! a! crime! involving! dishonesty! or! should! become!
insolvent,! the! creditor! may! demand! another! who! has! all! the! qualifications! required! in! the! preceding! article.! The! case! is!
excepted!where!the!creditor!has!required!and!stipulated!that!a!specified!person!should!be!guarantor.”!
From!this!article! it! should! be! immediately! apparent! that! the! supervening! dishonesty! of! the! guarantor! (that! is! to! say,! the!
disappearance!of!his!integrity!after!he!has!become!bound)!does!not!terminate!the!contract!but!merely!entitles!the!creditor!
to!demand!a!replacement!of!the!guarantor.!But!the!step!remains!optional!in!the!creditor:chanroblesvirtuallawlibrary!it!is!his!
right,!not!his!duty;!chan!roblesvirtualawlibraryhe!may!waive!it!if!he!chooses,!and!hold!the!guarantor!to!his!bargain.!Hence!
Article!2057!of!the!present!Civil!Code!is!incompatible!with!the!trial!court’s!stand!that!the!requirement!of!integrity!in!the!
guarantor! or! surety! makes! the! latter’s! undertaking! strictly! personal,! so! linked! to! his! individuality! that! the! guaranty!
automatically!terminates!upon!his!death.!
!“The!most!common!example!of!the!contingent!claim!is!that!which!arises!when!a!person!is!bound!as!surety!or!guarantor!for!
a!principal!who!is!insolvent!or!dead.!Under!the!ordinary!contract!of!suretyship!the!surety!has!no!claim!whatever!against!his!
principal!until!he!himself!pays!something!by!way!of!satisfaction!upon!the!obligation!which!is!secured.!When!he!does!this,!
there!instantly!arises!in!favor!of!the!surety!the!right!to!compel!the!principal!to!exonerate!the!surety.!But!until!the!surety!has!
contributed!something!to!the!payment!of!the!debt,!or!has!performed!the!secured!obligation!in!whole!or!in!part,!he!has!no!
right!of!action!against!anybody!—!no!claim!that!could!be!reduced!to!judgment.!!
What% the% Luzon% Surety% Co.% may% claim% from% the% estate% of% a% principal% debtor% it% may% equally% claim% from% the% estate% of%
Hemady%
For!Defendant!administratrix!it!is!averred!that!the!above!doctrine!refers!to!a!case!where!the!surety!files!claims!against!the!
estate!of!the!principal!debtor;!and!it!is!urged!that!the!rule!does!not!apply!to!the!case!before!us,!where!the!late!Hemady!was!
a! surety,! not! a! principal! debtor.! The! argument! evinces! a! superficial! view! of! the! relations! between! parties.! If! under! the!
Gaskell%ruling,!the!Luzon!Surety!Co.,!as!guarantor,!could!file!a!contingent!claim!against!the!estate!of!the!principal!debtors!if!
the!latter!should!die,!there!is!absolutely!no!reason!why!it!could!not!file!such!a!claim!against!the!estate!of!Hemady,!since!
Hemady!is!a!solidary!cofdebtor!of!his!principals.!What!the!Luzon!Surety!Co.!may!claim!from!the!estate!of!a!principal!debtor!
it!may!equally!claim!from!the!estate!of!Hemady,!since,!in!view!of!the!existing!solidarity,!the!latter!does!not!even!enjoy!the!
benefit!of!exhaustion!of!the!assets!of!the!principal!debtor.!
!
V.%BANK%OF%COMMERCE%V%FLORES%
G.R.!No.!174006!!!!!!!!!!!!!!!December!8,!2010!!
BANK!OF!COMMERCE!and!STEPHEN!Z.!TAALA,!Petitioners,!!vs.!Spouses!ANDRES!and!ELIZA!FLORES,!Respondents.!
FACTS:%
• The!sps!Flores!were!the!registered!owners!of!a!condominium!unit!in!QC,!evidenced!by!a!condominium!certificate!
of!title!(CCT).!
• In!1993,!they!borrowed!900k!from!the!Bank.!As!collateral!they!executed!a!real!estate!mortgage!(REM)!over!the!
property.!This!mortgage!was!annotated!at!the!back!of!their!CCT.!In!1995,!they!borrowed!an!additional!1.1m,!also!
secured!by!the!same!mortgage,!and!likewise!annotated!at!their!CCT.!!
• In!1996,!!they!paid!1.01m!to!the!Bank.!The!receipt!noted!that!the!payment!was!for!‘full!payment!of!the!loan!and!
interest.”!!They!then!asked!the!bank!to!cancel!the!REM.!!
• The!bank!refused,!saying!that!as!of!1998!they!had!an!outstanding!balance!of!4.6m.!The!bank!then!applied!for!extra!
judicial!foreclosure!of!the!condo!unit.!
• In!short:!the!spouses!claim!that!the!EJ!Foreclosure!was!improper!since!the!REM!did!not!include!future!loans!
incurred!by!the!spouses,!or!debts!that!are!not!annotated!at!the!back!of!the!CCT.!
!
• The!bank!claimed!that!although!there!were!only!2!mortgage!loans!annotated!at!the!back!of!the!CCT,!the!sps!Flores!
had!other!outstanding!loans!with!the!bank,!since!they!had!availed!of!an!increase!in!their!credit!line,!etc.!

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• The!RTC!ruled!in!favor!of!the!Bank,!stating!that!before!Flores!could!ask!to!cancel!the!mortgage,!they!should!prove!
that!they!have!fully!complied!with!their!obligations.!According!to!the!RTC,!the!bank!proved!that!this!was!not!the!
case.!!The!condo!was!sold!at!public!auction,!going!to!the!bank.%
• Meanwhile!the!CA!reversed!the!RTC’s!decision,!ordering!the!bank!to!cancel!the!mortgage!and!avoid!the!public!
auction.%
%
ISSUE:%WON!the!REM!over!the!condo!was!a!continuing!guaranty!for!future!loans!of!the!spouses?!YES%
%
HELD:%
Principle:$the$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$property.$
$
A'real'estate'mortgage'may'be'considered'a'continuing'guaranty'
! 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.!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.%
! A!mortgage!given!to!secure!advancements!is!a!continuing!security!and!is!not!discharged!by!repayment!of!the!
amount!named!in!the!mortgage!until!the!full!amounts!of!the!advancements!are!paid.!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.%
%
Language$of$REM$indicated$a$continuing$guaranty$
! 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.!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,!has!been!construed!to!indicate!a!continuing!guaranty.!
! The!REM!executed!by!the!parties!stated!that:!
! “…as$security$for$the$payment$of$the$same,$on$demand$or$at$maturity$as$the$case$may$be…$of'all'amounts'now'
owed'or'hereafter$owing$by$the$MORTGAGOR$to$the$MORTGAGEE$under$this$or$separate$instruments$and$agreements$…”$
!
W.%MANILA%SURETY%V%BATU%
!(G.R.!No.!Lf9353,!May!21,!1957)!
MANILA!SURETY!AND!FIDELITY,!INC.,!plaintifffappellant,!!vs.!BATU!CONSTRUCTION!AND!COMPANY,!CARLOS!N.!BAQUIRAN,!GONZALO!P.!AMBOY!and!
ANDRES!TUNAC,!defendantsfappellees.!
%
FACTS:!!
Manila!Surety!and!Fidelity,!Inc.!(hereafter!called!COMPANY),!a!domestic!corporation!engaged!in!the!bonding!business,!
alleges!that!the!Batu!Construction!&!Company!requested!it!to!post,!as!it!did,!a!surety!bond!for!P8,812!in!favor!of!the!
Government!of!the!Philippines!to!secure!the!faithful!Performance!of!the!construction!of!the!Bacarra!Bridge!undertaken!by!
the!partnership,!on!condition!that!the!defendants!would!"indemnify%the%COMPANY%for%any%damage,%loss,%costs,%or%
charges,%or%expenses%of%whatever%kind%and%nature,!including!counsel!or!attorney's!fees,!which!the!COMPANY!may,!at!any!
time,!sustain!or!incur,!as!a!consequence!of!having!become!surety!upon!the!above!mentioned!bond;!and!that!"Said%
indemnity%shall%be%paid%to%the%COMPANY%as%soon%as%it%has%become%liable%for%the%payment%of%any%amount,%under%the%

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above=mentioned%bond,!whether!or!not!it!shall!have!paid!such!sum!or!sums!of!money,!or!any!part!thereof,"!as!stipulated!in!
a!contract.!!!
!
On!30!May!1951!because!of!the!unsatisfactory!progress!of!the!work!on!the!bridge,!the!Director!of!Public!Works!annulled!
the!construction!contract!and!notified!the!plaintiff!Company!that!the!Government!would!hold!the!company!liable!for!any!
amount!incurred!by!the!Government!for!the!completion!of!the!bridge,!in!excess!of!the!contract!price.!!
!
On!23!November!1951,!Employees!of!the!partnership!brought!an!action!against!the!partnership,!the!individual!partners!and!
the!herein!plaintiff!Company!for!the!collection!of!unpaid!wages!amounting!to!P5,!960.10.!Plaintiff!alleges!that!the!
partnership!and!its!individual!partners!are!in!imminent!danger!of!becoming!insolvent,!they!are!removing!and!disposing,!or!
about!to!remove!and!dispose,!of!their!properties!with!intent!to!defraud!their!creditors,!particularly!the!plaintiff!Company;!
and!that!the!latter!has!no!other!sufficient!security!to!protect!its!rights!against!the!defendants.!!
!
Therefore,!the!plaintiff!prays!that!a!writ!attachment!be!issued!and!levied!upon!the!properties!of!the!defendants;!and!that!
after!hearing,!judgment!be!rendered!ordering!the!defendants!to!deliver!to!the!plaintiff!such!sufficient!security!as!shall!
protect!plaintiff!from!the!any!proceedings!by!the!creditors!on!the!Surety!Bond!aforementioned!and!from!the!danger!of!
insolvency!of!the!defendants.!Defendants!allege!that!the!remedy!provided!for!in!the!last!paragraph!of!article!2071!of!the!
new!Civil!Code!may!be!availed!of!by!the!guarantor!only!and!not!by!a!surety.!The!court!ruled!that!the!provisions!of!article!
2071!of!the!new!Civil!Code!may!be!availed!of!by!a!guarantor!only!and!not!by!a!surety.!!!
!
ISSUE:!W/N!the!last!paragraph!of!article!2071!of!NCC!may!be!availed!of!by!a!surety!!YES!
%
HELD:!!
A!guarantor!is!the!insurer!of!the!solvency!of!the!debtor;!a!surety!is!an!insurer!of!the!debt.!A!guarantor!binds!himself!to!pay!
if!the!principal!is!unable!to!pay;!a!surety!undertakes!to!pay!if!the!principal!does!not!pay.!The!reason!which!could!be!invoked!
for!the!nonfavailability!to!a!surety!of!the!provisions!of!the!last!paragraph!of!article!2071!of!the!new!Civil!Code!would!be!the!
fact!that!guaranty!like!commodatum!is!gratuitous.!!
!
But!guaranty!could!also!be!for!a!price!or!consideration!as!provided!for!in!article!2048.!So,!even!if!there!should!be!a!
consideration!or!price!paid!to!a!guarantor!for!him!to!insure!the!performance!of!an!obligation!by!the!principal!debtor,!the!
provisions!of!article!2071!would!still!be!available!to!the!guarantor.!!
!
In!suretyship!the!surety!becomes!liable!to!the!creditor!without!the!benefit!of!the!principal!debtor's!exclusion!of!his!
properties,!for!he!(the!surety)!maybe!sued!independently.!So,!he!is!an!insurer!of!the!debt!and!as!such!he!has!assumed!or!
undertaken!a!responsibility!or!obligation!greater!or!more!onerous!than!that!of!guarantor.!Such!being!the!case,!the!
provisions!of!article!2071,!under!guaranty,!are!applicable!and!available!to!a!surety.!!!
!
The!plaintiff's!cause!of!action,!is!not!under!Par!2!of!Art!2071!because!there!is!no!proof!of!the!defendants'!insolvency.!The!
fact!that!the!contract!was!annulled!because!of!lack!of!progress!in!the!construction!of!the!bridge!is!no!proof!of!such!
insolvency.!!
!
Not!under!Par!3,!because!the!defendants!have!not!bound!themselves!to!relieve!the!plaintiff!from!the!guaranty!within!a!
specified!period!which!already!has!expired,!because!the!surety!bond!does!not!fix!any!period!of!time!and!the!indemnity!
agreement!stipulates!one!year!extendible!or!renewable!until!the!bond!be!completely!cancelled!by!the!person!or!entity!in!
whose!behalf!the!bond!was!executed!or!by!a!Court!of!competent!jurisdiction.!!

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Atty. Jazzie Sarona

!
Not!under!Par!4,!because!the!debt!has!not!become!demandable!by!reason!of!the!expiration!of!the!period!for!payment.!!
!
Not!under!Par!5!because!of!the!lapse!of!10!years,!when!the!principal!obligation!has!no!period!for!its!maturity,!etc.,!for!10!
years!have!not!yet!elapsed.!!
!
Not!under!Par!6,!because!there!is!no!proof!that!"there!are!reasonable!grounds!to!fear!that!the!principal!debtor!intends!to!
abscond."!!
!
Not!under!Par!7,!because!the!defendants,!as!principal!debtors,!are!not!in!imminent!danger!of!becoming!insolvent,!there!
being!no!proof!to!that!effect.!!
!
Their%cause%of%action%comes%under%Par%1%of%Art%2071.!It!does!not!provide!that!the!guarantor!be!sued!by!the!creditor!for!the!
payment!of!the!debt.!It!simply!provides!that!the!guarantor!of!surety!be!sued!for!the!payment!of!an!amount!for!which!the!
surety!bond!was!put!up!to!secure!the!fulfillment!of!the!obligation!undertaken!by!the!principal!debtor.!!
!
So,!the!suit!filed!by!the!employees!for!the!collection!of!unpaid!wages!one!of!the!defendants!therein!is!the!herein!plaintiff,!is!
a!suit%for%the%payment%of%an%amount%for%which%the%surety%bond%was%put%up%or%posted%to%secure%the%faithful%performance%
of%the%obligation%undertaken%by%the%principal%debtors%(the%defendants)%in%favor%of%the%creditor,!the!Government!of!the!
Philippines.!!
!
The!Supreme!Court!reversed!and!set!aside!the!order!of!dismissal!and!the!case!was!remanded!to!the!court!below!for!
determination!of!the!amount!of!security!that!would!protect!the!plaintiff!Company!from!any!proceedings!by!the!creditor!or!
from!the!danger!of!insolvency!of!the!defendants,!the!principal!debtors,!and!direction!to!the!defendants!to!put!up!such!
amount!of!security!as!may!be!established!by!competent!evidence.!!
!
The!writ!of!attachment!(having!been!issued!improvidently),!it!was!not!proven!that!there!is!imminent!danger!of!insolvency!
and!that!they!were!removing!or!disposing,!or!about!to!remove!or!dispose,!of!their!properties,!with!intent!to!defraud!their!
creditors.!
!
X.%SECURITY%BANK%V%CUENCA%
!(341!SCRA!781,!G.R.!No.!138544,!October!3,!2000)!
SECURITY!BANK!AND!TRUST!COMPANY,!Inc.,!petitioner,!vs.!RODOLFO!M.!CUENCA,!respondent.!
!
th
[p.$299,$Credit$Transactions$Book$by$De$Leon,$11 $Edition]$
$
FACTS:%
! In!November!1980,!petitioner!Security!Bank!granted!Sta.!Ines!Melale!Corporation!(SIMC)!a!P8M!credit!line!to!assist!the!
latter!in!meeting!the!additional!capitalization!requirements!of!its!logging!operations.!The!Credit!Approval!
Memorandum!expressly!stated!that!the!P8M!Credit!Loan!Facility!shall!be!effective!until!November!30,!1981,!and!that!
Security!Bank!reserves!the!right!to!amend!any!of!the!stated!terms!and!conditions!upon%written%notice!to!the!borrower.!
! To!secure!the!payment!of!the!amounts!drawn!by!SIMC!from!the!abovefmentioned!credit!line,!SIMC!executed!a!Chattel!
Mortgage!in!favor!of!Security!Bank.!As!additional!security!for!the!payment!of!the!loan,!respondent!Rodolfo!M.!Cuenca!
executed!an!Indemnity!Agreement!dated!December!1980!in!favor!of!Security!Bank!whereby!he!solidarily!bound!himself!
with!SIMC!as!follows:!
‘Rodolfo$M.$Cuenca$x$x$x$and$in$consideration$of$the$credit$accommodation$in$the$total$amount$of$P8M$granted$by$the$
SECURITY$BANK$AND$TRUST$COMPANY$xxx!hereby$binds$himself$x$x$x$jointly'and'severally$with$the$client$(SIMC)$in$favor$of$
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the$bank$for$the$payment,$upon$demand$and$without$the$benefit$of$excussion$of$whatever$amount$x$x$x$the$client$may$be$
indebted$to$the$bank$x$x$x$by$virtue$of$aforesaid$credit$accommodation(s)$including'the'substitutions,'renewals,'extensions,'
increases,'amendments,'conversions'and'revivals'of'the'aforesaid'credit'accommodation(s)'x'x'x'.’'
! On!November!26,!1981,!four!(4)!days!prior!to!the!expiration!of!the!period!of!effectivity!of!the!P8MfCredit!Loan!Facility,!
SIMC!made!a!first!drawdown!from!its!credit!line.!To!cover!said!drawdown,!SIMC!duly!executed!PNs.!
! Sometime!in!1985,!Cuenca!resigned!as!President!and!Chairman!of!the!Board!of!Directors!of!SIMC.!Subsequently,!SIMC!
repeatedly!availed!of!its!credit!line!and!obtained!six!(6)!other!loans!from!Security!Bank.!
! SIMC,!however,!later!encountered!difficulty!in!making!the!amortization!payments!on!its!loans!and!requested!Security!
Bank!for!a!complete!restructuring!of!its!indebtedness.!Security!Bank!accommodated!SIMC’s!request!and!signified!its!
approval!in!a!letter!dated!February!18,!1988!wherein!Security!Bank!and!SIMC,!without%notice%to%or%the%prior%consent%of%
Cuenca,!agreed!to!restructure!the!past!due!obligations!of!SIMC.!!Security!Bank!agreed!to!extend!to!SMICs!loans.!!
! In!restructuring!SIMC’s!obligations!to!Security!Bank,!one!PN,!which!was!the!only!loan!incurred!prior!to!the!expiration!of!
the!P8MfCredit!Loan!Facility!on!November!30,!1981!and!the!only!one!covered!by!the!Indemnity!Agreement,!was!not!
segregated!from,!but!was!instead!lumped!together!with,!the!other!loans,!obtained!by!SIMC!which!were!not!secured!by!
said!Indemnity!Agreement.!
! Later,!SIMC!defaulted!in!the!payment!of!its!restructured!loan!obligations!to!Security!Bank!despite!demands!made!upon!
SIMC!and!Cuenca.!SIMC!and!Cuenca!individually!and!collectively!refused!to!pay!Security!Bank.!Hence,!on!June!1993,!
Security!Bank!filed!a!complaint!for!collection!of!sum!of!money!before!the!RTC.!
! The!RTC!rendered!ordering!SIMC!and!Cuenca!to!pay,!jointly!and!severally,!Security!Bank!the!sum!representing!the!
balance!of!the!loan!as!of!May!10,!1994.!CA!amended!judgment!in!the!sense!that!Cuenca!is!released!from!liability!to!pay!
any!amount!stated!in!the!judgment.!
!
ISSUE:%
1) WON!Cuenca!was!released!from!his!liability!as!surety!when!the!terms!of!the!Loan!Agreement!between!SIMC!and!
Security!Bank!was!restructured!–!YES!
2) WON!Cuenca!waived!his!right!to!be!notified!of!and!to!give!consent!to!any!substitution,!renewal,!extension,!increase,!
amendment,!conversion!or!revival!of!the!said!credit!accommodation!f!NO!!
!
HELD:%
Issues'1'&'2'(intertwined'and'explanation'sa'2'issues'eh):'
Cuenca’s'Liability'as'Surety'was'Extinguished'
Cuenca'neither'waived'his'right'to'be'notified'nor'impliedly'give'his'consent'to'the'Restructuring'of'SIMC’s'Loan'
Obligation'
Pursuing!another!course,!Security!Bank!contends!that!Cuenca!“impliedly!gave!his!consent!to!any!modification!of!the!credit!
accommodation!or!otherwise!waived!his!right!to!be!notified!of,!or!to!give!consent!to,!the!same.”!Cuenca’s!consent!or!
waiver!thereof!is!allegedly!found!in!the!Indemnity!Agreement,!in!which!he!held!himself!liable!for!the!“credit!
accommodation!including!its!substitutions,!renewals,$extensions,!increases,!amendments,!conversions!and!revival.”!It!
explains!that!the!novation!of!the!original!credit!accommodation!by!the!1989!Loan!Agreement!is!merely!its!“renewal,”!which!
“connotes!cessation!of!an!old!contract!and!birth!of!another!one!x!x!x.”!!
!
At!the!outset,!SC!emphasizes!that!an%essential%alteration%in%the%terms%of%the%Loan%Agreement%WITHOUT%THE%CONSENT%of%
the%surety%extinguishes%the%latter’s%obligation.!(Note:$There$was$novation$here.)!As!the!Court!held!in!National$Bank$v.$
Veraguth,!“it%is%fundamental%in%the%law%of%suretyship%that%any%agreement%between%the%creditor%and%the%principal%debtor%
which%essentially%varies%the%terms%of%the%principal%contract,%without%the%consent%of%the%surety,%will%release%the%surety%
from%liability.”%(cited%in%De%Leon%book)%
%
Page | 10
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

In!this!case,!Security!Bank’s!assertion!f!that!Cuenca!consented!to!the!alterations!in!the!credit!accommodation!ff!finds!no!
support!in!the!text!of!the!Indemnity!Agreement,!which!provides!that:!(stated$under$FACTS)!
!
While!Cuenca!held!himself!liable!for!the!credit!accommodation!or!any!modification!thereof,!such%clause%should%be%
understood%in%the%context%of%the!P8%million%limit%and%the%November%30,%1981%term.!It!did!not!give!the!bank!or!SIMC!any!
license!to!modify!the!nature!and!scope!of!the!original!credit!accommodation,!without!informing!or!getting!the!consent!of!
Cuenca!who!was!solidarily!liable.!Taking!the!bank’s!submission!to!the!extreme,!Cuenca!(or!his!successors)!would!be!liable!
for!loans!even!amounting!to,!say,!P100!billion!obtained!100!years!after!the!expiration!of!the!credit!accommodation,!on!the!
ground!that!he!consented!to!all!alterations!and!extensions!thereof.!
!
Indeed,!it!has!been!held!that!a!contract!of!surety!“cannot!extend!to!more!than!what!is!stipulated.!It!is!strictly!construed!
against!the!creditor,!every!doubt!being!resolved!against!enlarging!the!liability!of!the!surety.”!Likewise,!the!Court!has!ruled!
that!“it!is!a!wellfsettled!legal!principle!that!if!there!is!any!doubt!on!the!terms!and!conditions!of!the!surety!agreement,!the!
doubt!should!be!resolved!in!favor!of!the!surety!x!x!x.!Ambiguous!contracts!are!construed!against!the!party!who!caused!the!
ambiguity.”!In!the!absence!of!an!unequivocal!provision!that!Cuenca!waived!his!right!to!be!notified!of!or!to!give!consent!to!
any!alteration!of!the!credit!accommodation,!SC!cannot!sustain!Security!Bank’s!view!that!there!was!such!a!waiver.!
!
It!should!also!be!observed!that!the!Credit!Approval!Memorandum!clearly!shows!that!the!bank!did!not!have!absolute!
authority!to!unilaterally!change!the!terms!of!the!loan!accommodation.!Indeed,!it!may!do!so!only!upon%notice%to%the%
borrower,!pursuant!to!this!condition:!
!
Security!Bank’s!submission!that!only!SIMC!as!the!borrower,!not!Cuenca,!was!entitled!to!be!notified!of!any!modification!in!
the!original!loan!accommodation!is!untenable.!Following!the!bank’s!reasoning,!such!modification!would!not!be!valid!as!to!
SIMC!if!no!notice!were!given;!but!would!still!be!valid!as!to!Cuenca!to!whom!no!notice!need!be!given.!The!latter’s!liability!
would!thus!be!more!burdensome!than!that!of!the!former.!Such!untenable!theory!is!contrary!to!the!principle!that!a!surety!
cannot!assume!an!obligation!more!onerous!than!that!of!the!principal.!
!!
The!present!controversy!must!be!distinguished!from!Philamgen'v.'Mutuc,!in!which!the!Court!sustained!a!stipulation!
whereby!the!surety!consented!to!be!bound!not!only!for!the!specified!period,!“but!to!any!extension!thereafter!made,!an!
extension!x!x!x!that!could!be!had!without!his!having!to!be!notified.”!
!
In!that!case,!the!surety!agreement!contained!this!unequivocal!stipulation:!“It!is!hereby!further!agreed!that!in!case!of!any!
extension!of!renewal!of!the!bond,!we!equally!bind!ourselves!to!the!Company!under!the!same!terms!and!conditions!as!
herein!provided!without!the!necessity!of!executing!another!indemnity!agreement!for!the!purpose!and!that!we$hereby$
equally$waive$our$right$to$be$notified$of$any$renewal$or$extension$of$the$bond$which$may$be$granted$under$this$indemnity$
agreement.”!
!
In!the!present!case,!there!is!no!such!express!stipulation.!At!most,!the!alleged!basis!of!Cuenca’s!waiver!is!vague!and!
uncertain.!It!confers!no!clear!authorization!on!the!bank!or!SIMC!to!modify!or!extend!the!original!obligation!without!the!
consent!of!the!surety!or!notice!thereto.!
!
OTHER%DISCUSSION%(This%may%be%asked):%
'
Continuing'Surety!
Contending!that!the!Indemnity!Agreement!was!in!the!nature!of!a!continuing!surety,!Security!Bank!maintains!that!there!was!
no!need!for!Cuenca!to!execute!another!surety!contract!to!secure!the!1989!Loan!Agreement.!
Page | 11
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

!
This!argument!is!incorrect.!That!the!Indemnity!Agreement!is!a!continuing!surety!does!not!authorize!the!bank!to!extend!the!
scope!of!the!principal!obligation!inordinately.!In!Dino'v.'CA,!the!Court!held!that!“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.”'
'
To!repeat,!in!the!present!case,!the!Indemnity!Agreement!was!subject!to!the!two!limitations!of!the!credit!
accommodation:!(1)!that!the!obligation!should!not!exceed!P8!million,!and!(2)!that!the!accommodation!should!expire!not!
later!than!November!30,!1981.!Hence,!it!was!a!continuing!surety!only!in!regard!to!loans!obtained!on!or!before!the!
aforementioned!expiry!date!and!not!exceeding!the!total!of!P8!million.!
!
Accordingly,!the!surety!of!Cuenca!secured!only!the!first!loan!of!P6.1!million!obtained!on!November!26,!1991.!It!did!not!
secure!the!subsequent!loans,!purportedly!under!the!1980!credit!accommodation,!that!were!obtained!in!1986.!Certainly,!he!
could!not!have!guaranteed!the!1989!Loan!Agreement,!which!was!executed!after!November!30,!1981!and!which!exceeded!
the!stipulated!P8!million!ceiling.!
!
Security!Bank,!however,!cites!the!Dino!ruling!in!which!the!Court!found!the!surety!liable!for!the!loan!obtained!after!the!
payment!of!the!original!one,!which!was!covered!by!a!continuing!surety!agreement.!At!the!risk!of!being!repetitious,!SC!holds!
that!in!Dino,!the!surety!Agreement!specifically!provided!that!“each!suretyship!is!a!continuing!one!which!shall!remain!in!full!
force!and!effect!until$this$bank$is$notified$of$its$revocation.”!Since!the!bank!had!not!been!notified!of!such!revocation,!the!
surety!was!held!liable!even!for!the!subsequent!obligations!of!the!principal!borrower.!
!
No!similar!provision!is!found!in!the!present!case.!On!the!contrary,!Cuenca’s!liability!was!confined!to!the!1980!credit!
accommodation,!the!amount!and!the!expiry!date!of!which!were!set!down!in!the!Credit!Approval!Memorandum.!
!
Policy:!Being!an!onerous!undertaking,!a!surety!agreement!is!strictly!construed!against!the!creditor,!and!every!doubt!is!
resolved!in!favor!of!the!solidary!debtor.!The!fundamental!rules!of!fair!play!require!the!creditor!to!obtain!the!consent!of!the!
surety!to!any!material!alteration!in!the!principal!loan!agreement,!or!at!least!to!notify!it!thereof.!Hence,!Security!Bank!
cannot!hold!Cuenca!liable!for!loans!obtained!in!excess!of!the!amount!or!beyond!the!period!stipulated!in!the!original!
agreement,!absent!any!clear!stipulation!showing!that!the!latter!waived!his!right!to!be!notified!thereof,!or!to!give!consent!
thereto.!
!
II.%Effects%of%Guaranty%
%
A.%WISE%CO%V%TANGLAO%
!(G.R.!No.!Lf42518,!August!29,!1936)!
WISE!&!CO.,!INC.,!plaintifffappellee,!vs.!DIONISIO!P.!TANGLAO,!defendantfappellant.!
!
FACTS:%
A!case!for!!recovery!of!sum!of!money!was!!filed!by!Wise!&!Co.!against!Cornelio!C.!David.!
A!special!power!of!attorney!was!executed!by!Tanglao,!attorney!of!David!,!in!favor!of!David!which!provides:!
To!sign!for!me!as!guarantor!for!himself!in!his!indebtedness!to!Wise!&!Company!of!Manila,!which!indebtedness!appears!in!
civil!case!No.!41129,!of!the!Court!of!First!Instance!of!Manila,!and!to!mortgage%my!lot!(No.!517fF!of!the!subdivision!plan!Psdf
20,!being!a!portion!of!lot!No.!517!of!the!cadastral!survey!of!Angeles,!G.!L.!R.!O.!Cad.!Rec.!No.!124),!to!guarantee!the!said!
obligations!to!the!Wise!&!Company,!Inc.,!of!Manila.!
!
Page | 12
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

A!compromise!agreement!was!entered!into!between!Wise!&!Co.!and!David!.!By!virtue!of!the!special!power!of!attorney,!the!
agreement!!provided!that!Tanglao!pledges!several!of!his!real!estate!properties!to!Wise!&!Co!as!security!for!the!payment!of!
David’s!indebtedness!of!P640.!David!paid!the!sum!of!P343.47!to!Wise!&!Co.,!on!account!of!the!P640!which!he!bound!
himself!to!pay!under!the!compromise!,!leaving!an!unpaid!balance!of!P296.53.%
%
Wise!&!Co.!now!institutes!this!case!against!Tanglao!for!the!recovery!of!said!balance!of!P296.53.!
!
ISSUE:%%
Is!Tanglao!lliable!for!the!balance!of!the!indebtedness?!NO!
!
HELD:%%
Even!though!Tanglao!empowered!David,!in!his!name,!to!enter!into!a!contract!of!suretyship!and!a!contract!of!mortgage!of!
the!property!described!in!the!document,!with!Wise!&!Co.,!David!used!said!power!of!attorney!only!to!mortgage!the!property!
and!did!not!enter!into!contract!of!suretyship.!Nothing!is!stated!in!the!compromise!agreement!to!the!effect!that!Tanglao!
became!David's!surety!for!the!payment!of!the!sum!in!question.!Neither!is!this!inferable!from!any!of!the!clauses!thereof,!and!
even!if!this!inference!might!be!made,!it!would!be!insufficient!to!create!an!obligation!of!suretyship!which,!under!the!law,!
must!be!express!and!cannot!be!presumed.!
!
The!only!obligation!which!the!compromise!agreement!,!in!connection!with!the!special!power!of!attoryney!has!created!on!
the!part!of!Tanglao,!is!that!resulting!from!the!mortgage!of!a!property!belonging!to!him!to!secure!the!payment!of!said!P640.!
However,!a!foreclosure!suit!is!not!instituted!in!this!case!against!Tanglao,!but!a!purely!personal!action!for!the!recovery!of!the!
amount!still!owed!by!David.!
!
Even!granting!that!defendant!Tanglao!may!be!considered!as!a!surety!under!Exhibit!B,!the!action!does!not!yet!lie!against!him!
on!the!ground!that!all!the!legal!remedies!against!the!debtor!have!not!previously!been!exhausted!(art.!1830!of!the!Civil!
Code,!and!decision!of!the!Supreme!Court!of!Spain!of!March!2,!1891).!"!di$na$yata$ni$applicable$na$principle$,$kay$pag$surety$
di$na$man$kailangan$I$exhaust$$
!
B.%PRUDENTIAL%BANK%V%IAC%
G.R.!No.!74886!December!8,!1992!
PRUDENTIAL!BANK,!petitioner,!!vs.!INTERMEDIATE!APPELLATE!COURT,!PHILIPPINE!RAYON!MILLS,!INC.!and!ANACLETO!R.!
CHI,!respondents.!
!
On!August!1962,!Philippine!Rayon!Mills,!Inc.!(Rayon)!entered!into!a!contract!with!Nissho!Co.,!Ltd.!of!Japan!for!the!
importation!of!textile!machineries!under!a!fivefyear!deferred!payment!plan.!To!effect!payment!for!said!machineries,!the!
Rayon!applied!for!a!commercial!letter!of!credit!with!the!Prudential!Bank!and!Trust!Company!in!favor!of!Nissho.!By!virtue!of!
said!application,!the!Prudential!Bank!opened!Letter!of!Credit!for!$128,548.78.!
To!enable!the!Rayon!to!take!delivery!of!the!machineries,!it!executed,!by!prior!arrangement!with!the!Prudential!Bank,!a!trust!
receipt!which!was!signed!by!Anacleto!R.!Chi!in!his!capacity!as!President!of!Rayon.!
At!the!back!of!the!trust!receipt!is!a!printed!form!to!be!accomplished!by!two!sureties!who,!by!the!very!terms!and!conditions!
thereof,!were!to!be!jointly!and!severally!liable!to!the!Prudential!Bank!should!Rayon!fail!to!pay!the!total!amount!or!any!
portion!of!the!drafts!issued!by!Nissho!and!paid!for!by!Prudential!Bank.!
Rayon!ceased!operations!and!despite!repeated!demands!by!Purdential,!Rayon!failed!to!pay!the!obligation.!Hence,!
PrudentiAl!filed!an!action!for!collection!of!sum!of!money!against!Rayon!and!Chi.!
ISSUES:!WON!the!case!against!Chi!should!have!been!dismissed!on!the!ground!of!lack!of!cause!of!action!as!there!was!no!
prior!exhaustion!of!Philippine!Rayon's!properties?!NO.!
Page | 13
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

HELD:!!
SC%ruled%in%this%case%that%the%liability%of%Chi%is%that%of%a%guarantor.%%
Our!own!reading!of!the!questioned!solidary!guaranty!clause!yields!no!other!conclusion!than!that!the!obligation!of!Chi!is!
only!that!of!a!guarantor.!This!is!further!bolstered!by!the!last!sentence!which!speaks!of!waiver!of!exhaustion,!which,!
nevertheless,!is!ineffective!in!this!case!because!the!space!therein!for!the!party!whose!property!may!not!be!exhausted!was!
not!filled!up.!Under!Article!2058!of!the!Civil!Code,!the!defense!of!exhaustion!(excussion)!may!be!raised!by!a!guarantor!
before!he!may!be!held!liable!for!the!obligation.!Petitioner!likewise!admits!that!the!questioned!provision!is!a!solidary$
guaranty$clause,!thereby!clearly!distinguishing!it!from!a!contract!of!surety.!It,!however,!described!the!guaranty!as!solidary!
between!the!guarantors;!this!would!have!been!correct!if!two!(2)!guarantors!had!signed!it.!The!clause!"we!jointly!and!
severally!agree!and!undertake"!refers!to!the!undertaking!of!the!two!(2)!parties!who!are!to!sign!it!or!to!the!liability!existing!
between!themselves.!It!does!not!refer!to!the!undertaking!between!either!one!or!both!of!them!on!the!one!hand!and!the!
petitioner!on!the!other!with!respect!to!the!liability!described!under!the!trust!receipt.!Elsewise!stated,!their!liability!is!not!
divisible!as!between!them,!i.e.,!it!can!be!enforced!to!its!full!extent!against!any!one!of!them.!
Furthermore,!any!doubt!as!to!the!import,!or!true!intent!of!the!solidary!guaranty!clause!should!be!resolved!against!the!
petitioner.!The!trust!receipt,!together!with!the!questioned!solidary!guaranty!clause,!is!on!a!form!drafted!and!prepared!
solely!by!the!petitioner;!Chi's!participation!therein!is!limited!to!the!affixing!of!his!signature!thereon.!It!is,!therefore,!a!
contract!of!adhesion;!%as!such,!it!must!be!strictly!construed!against!the!party!responsible!for!its!preparation.!!
Trial%Court%erred%when%it%dismissed%the%case%against%Chi:%Excussion%is%not%a%condition%sine'qua'non%for%the%institution%of%an%
action%against%a%guarantor.%
The!trial!court!based!the!dismissal,!and!the!CA’s!affirmance!thereof,!on!the!theory!that!Chi!is!not!liable!on!the!trust!receipt!
in!any!capacity!—!either!as!surety!or!as!guarantor!—!because!his!signature!at!the!dorsal!portion!thereof!was!useless;!and!
even!if!he!could!be!bound!by!such!signature!as!a!simple!guarantor,!he!cannot,!pursuant!to!Article!2058!of!the!Civil!Code,!be!
compelled!to!pay!until!after!petitioner!has!exhausted!and!resorted!to!all!legal!remedies!against!the!principal!debtor,!
Philippine!Rayon.!The!records!fail!to!show!that!petitioner!had!done!so.!Reliance!is!thus!placed!on!Article!2058!of!the!Civil!
Code!which!provides:!
Art.!2056.!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.!
Simply!stated,!there!is!as!yet!no!cause!of!action!against!Chi.!
We!are!not!persuaded.!Excussion%is%not%a%condition%sine'qua'non%for%the%institution%of%an%action%against%a%guarantor.%
In!Southern$Motors,$Inc.$vs.$Barbosa,!this!Court!stated:!
4.!Although!an!ordinary!personal!guarantor!—!not!a!mortgagor!or!pledgor!—!may!demand!the!aforementioned!exhaustion,!
the!creditor!may,!prior!thereto,!secure!a!judgment!against!said!guarantor,!who!shall!be!entitled,!however,!to!a!deferment!
of!the!execution!of!said!judgment!against!him!until!after!the!properties!of!the!principal!debtor!shall!have!been!exhausted!to!
satisfy!the!obligation!involved!in!the!case.!
There!was!then!nothing!procedurally!objectionable!in!impleading!private!respondent!Chi!as!a!cofdefendant!in!Civil!Case!No.!
Qf19312!before!the!trial!court.!As!a!matter!of!fact,!Section!6,!Rule!3!of!the!Rules!of!Court!on!permissive!joinder!of!parties!
explicitly!allows!it.!It!reads:!
Sec.!6.!Permissive$joinder$of$parties.!—!All!persons!in!whom!or!against!whom!any!right!to!relief!in!respect!to!or!arising!out!of!
the!same!transaction!or!series!of!transactions!is!alleged!to!exist,!whether!jointly,!severally,!or!in!the!alternative,!may,!
except!as!otherwise!provided!in!these!rules,!join!as!plaintiffs!or!be!joined!as!defendants!in!one!complaint,!where!any!
question!of!law!or!fact!common!to!all!such!plaintiffs!or!to!all!such!defendants!may!arise!in!the!action;!but!the!court!may!
make!such!orders!as!may!be!just!to!prevent!any!plaintiff!or!defendant!from!being!embarrassed!or!put!to!expense!in!
connection!with!any!proceedings!in!which!he!may!have!no!interest.!
This!is!the!equity!rule!relating!to!multifariousness.!It!is!based!on!trial!convenience!and!is!designed!to!permit!the!joinder!of!
plaintiffs!or!defendants!whenever!there!is!a!common!question!of!law!or!fact.!It!will!save!the!parties!unnecessary!work,!
trouble!and!expense.!!
!However,!Chi's!liability!is!limited!to!the!principal!obligation!in!the!trust!receipt!plus!all!the!accessories!thereof!including!
judicial!costs;!with!respect!to!the!latter,!he!shall!only!be!liable!for!those!costs!incurred!after!being!judicially!required!to!

Page | 14
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

pay.!%Interest!and!damages,!being!accessories!of!the!principal!obligation,!should!also!be!paid;!these,!however,!shall!run!only!
%
from!the!date!of!the!filing!of!the!complaint.!Attorney's!fees!may!even!be!allowed!in!appropriate!cases. !
Thus,!the!trial!court!committed!grave!abuse!of!discretion!in!dismissing!the!complaint!as!against!Chi.!
!
C.%BITANGA%V%PYRAMID%
G.R.!No.!173526!August!28,!2008!
BENJAMIN!BITANGA,!petitioner, vs. PYRAMID!CONSTRUCTION!ENGINEERING!CORPORATION,%respondent.!
FACTS:%
• Benjamin!Bitanga!is!the!President!of!Macrogen!Inc.!His!wife,!Marilyn,!owns!99%!of!the!company!that!owns!
Macrogen.%
• In!1997,!Macrogen!Inc!contracted!Pyramid!Construction!to!build!a!Shoppers!Gold!bldg!in!Pque!City.!Pyramid!
started!building,!but!eventually,!Macrogen!wasn’t!able!to!pay!Pyramid’s!progress!billings.!Bitanga!reassured!
Pyramid!they!would!get!paid,!so!Pyramid!continued!to!build.!%
• Eventually!Pyramid!stopped!building!as!they!weren’t!getting!paid.!%
• In!2000,!the!parties!entered!into!a!compromise!agreement!where!Bitanga!bound!himself!to!pay!6m!in!equal!
monthly!installments.!Bitanga!guaranteed!Macrogen’s!obligation!under!the!Compromise!Agreement!by!executing!
a!Contract!of!Guaranty.%
• Macrogen,!true!to!form,!failed!to!make!any!of!the!payments!under!the!Compromise!Agreement,!leading!Pyramid!
to!file!a!case!for!specific!performance!with!the!RTC,!also!averring!that!since!Marilyn!owned!the!company!that!owns!
Macrogen,!she!was!also!liable!as!a!guarantor.%
• Marilyn!denied!liability,!stating!that!as!she!did!not!cosign!the!Contract!of!Guaranty,!!and!since!she!was!not!a!party!
to!the!compromise!agreement,!there!was!no!cause!of!action!against!her.!Benjamin!on!the!other!hand,!raised!
excussion!as!defense.%
• The!RTC!ruled!against!them,!ordering!the!spouses!to!pay!6m!jointly!and!severally.!The!CA!modified!the!judgment!
and!ruled!that!Marilyn!was!not!liable,!as!she!was!not!part!of!both!contracts.%
%
ISSUE:%WON!excussion!is!available!to!Benjamin?!NO%
%
HELD:%
PRINCIPLE:$In$order$for$excussion$to$be$available,$the$requisites$in$Article$2060$must$be$complied$with.$Benjamin$failed$in$this$
regard.$
Art.!2060.!In!order!that!the!guarantor!may!make!use!of!the!benefit!of!excussion,!he!must!set!it!up!against!the!creditor!upon!
the!latter’s!demand!for!payment!from!him,!and!point!out!to!the!creditor!available!property!of!the!debtor!within!Philippine!
territory,!sufficient!to!cover!the!amount!of!the!debt.!!
!
! The!aforefquoted!provision!imposes!a!condition!for!the!invocation!of!the!defense!of!excussion.!Article!2060!of!the!
Civil!Code!clearly!requires!that!in!order!for!the!guarantor!to!make!use!of!the!benefit!of!excussion,!he!must!set!it!up!against!
the!creditor!upon!the!latter’s!demand!for!payment!and!point!out!to!the!creditor!available!property!of!the!debtor!within!the!
Philippines!sufficient!to!cover!the!amount!of!the!debt.!
! It!must!be!stressed!that!despite!having!been!served!a!demand!letter!at!his!office,!petitioner%still%failed%to%point%out%
to%the%respondent%properties%of%Macrogen%Realty%sufficient%to%cover%its%debt%as%required%under%Article%2060%of%the%Civil%
Code.%Such%failure%on%petitioner’s%part%forecloses%his%right%to%set%up%the%defense%of%excussion.!Moreover!the!sheriff!found!
only!20k!pesos!in!Macrogen’s!bank!account.!
!

Page | 15
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

The$benefit$of$excussion$
! Under!a!contract!of!guarantee,!the!guarantor!binds!himself!to!the!creditor!to!fulfill!the!obligation!of!the!principal!
debtor!in!case!the!latter!should!fail!to!do!so.!The!guarantor!who!pays!for!a!debtor,!in!turn,!must!be!indemnified!by!the!
latter.!However,!the!guarantor!cannot!be!compelled!to!pay!the!creditor!unless!the!latter!has!exhausted!all!the!property!of!
the!debtor!and!resorted!to!all!the!legal!remedies!against!the!debtor.!This!is!what!is!otherwise!known!as!the!benefit!of!
excussion!
!
!
!
!
D.%JN%DEVT%V%PHILEXPORT%
!(468!SCRA!554,!G.R.!No.!151060,!August!31,!2005)!
JN!DEVELOPMENT!CORPORATION,!and!SPS.!RODRIGO!and!LEONOR!STA.!ANA,!petitioners,!vs.!PHILIPPINE!EXPORT!AND!
FOREIGN!LOAN!GUARANTEE!CORPORATION,!respondent.!
!
FACTS:!
Petitioner!JN!Development!Corporation!(“JN”)!and!Traders!Royal!Bank!(TRB)!entered!into!an!agreement!whereby!TRB!
would!extend!to!JN!an!Export!Packing!Credit!Line!for!P2M.!The!loan!was!covered!by!several!securities,!including!a!real!
estate!mortgage!and!a!letter%of%guarantee%from%respondent%“PhilGuarantee”.!With!PhilGuarantee!issuing!a!guarantee!in!
favor!of!TRB,!JN,!petitioner!spouses!Sta.!Ana!and!petitioner!Narciso!Cruz!executed!a!Deed!of!Undertaking!(Undertaking)!to!
assure!repayment!to!PhilGuarantee.!
!
However,!JN!failed!to!pay!the!loan!to!TRB!upon!maturity;!thus,!on!Oct.!7,!1980,!TRB!requested!PhilGuarantee!to!make!good!
its!guarantee.!!Having!received!no!response!from!JN!after!inquiring!from!the!latter!of!its!action!to!settle!of!the!loan,!on!
March!10,!1981,!PhilGuarantee!paid!TRB!P934,824.34.!Subsequently,!PhilGuarantee!made!several!demands!on!JN,!but!the!
latter!failed!to!pay.!!!
!
On!30!May!1983,!JN,!through!Rodrigo!Sta.!Ana,!proposed!to!settle!the!obligation!“by!way!of!development!and!sale”!of!the!
mortgaged!property.!PhilGuarantee,!however,!rejected!the!proposal.!PhilGuarantee!thus!filed!a!Complaint!for!collection!of!
money!and!damages!against!herein!petitioners.!
!
RTC!dismissed!PhilGuarantee’s!complaint!and!ruled!that!petitioners!are!not!liable!to!reimburse!PhilGuarantee!what!it!had!
paid!to!TRB!(TRB!was!able!to!foreclose!the!mortgage,!thus!extinguishing!petitioners’!obligation).!CA!reversed!ruling!that!JN’s!
obligation!had!become!due!and!demandable!within!the!1!year!period!of!effectivity!of!the!guarantee.!Thus,!PhilGuarantee’s!
payment!to!TRB!conformed!with!its!guarantee,!although!the!payment!itself!was!effected!1!year!after!the!maturity!date!of!
the!loan.!!
!
The!case!was!elevated!to!the!SC.!PhilGuarantee!maintains!that!the!date!of!default,!not!the!actual!date!of!payment,!
determines!the!liability!of!the!guarantor!and!that!having!paid!TRB!when!the!loan!became!due,!it!should!be!indemnified!by!
the!petitioners.!!
!
ISSUE:!W/N!petitioners!are!liable!to!reimburse!PhilGuarantee!!!YES!
!
HELD:!The!Court!finds!for!PhilGuarantee.!
!
Page | 16
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

Under!a!contract!of!guarantee,!the!guarantor!binds!himself!to!the!creditor!to!fulfill!the!obligation!of!the!principal!debtor!in!
case!the!latter!should!fail!to!do!so.!The!guarantor!who!pays!for!a!debtor,!in!turn,!must!be!indemnified!by!the!latter.!
However,!the!guarantor!cannot!be!compelled!to!pay!the!creditor!unless!the!latter!has!exhausted!all!the!property!of!the!
debtor!and!resorted!to!all!the!legal!remedies!against!the!debtor.!This!is!what!is!otherwise!known!as!the!benefit!of!
excussion.!
!
It!is!clear!that!excussion!may!only!be!invoked!after!legal!remedies!against!the!principal!debtor!have!been!expanded.!Thus,!it!
was!held!that!the!creditor!must!first!obtain!a!judgment!against!the!principal!debtor!before!assuming!to!run!after!the!alleged!
guarantor,!“for!obviously!the!‘exhaustion!of!the!principal’s!property’!cannot!even!begin!to!take!place!before!judgment!has!
been!obtained.”!The!law!imposes!conditions!precedent!for!the!invocation!of!the!defense.!!Thus,!in!order!that!the!guarantor!
may!make!use!of!the!benefit!of!excussion,!he!must!set!it!up!against!the!creditor!upon!the!latter’s!demand!for!payment!and!
point!out!to!the!creditor!available!property!of!the!debtor!within!the!Philippines!sufficient!to!cover!the!amount!of!the!debt.!
!
While!a!guarantor!enjoys!the!benefit!of!excussion,!nothing!prevents!him!from!paying!the!obligation!once!demand!is!made!
on!him.!!Excussion,!after!all,!is!a!right!granted!to!him!by!law!and!as!such!he!may!opt!to!make!use!of!it!or!waive!it.!!
PhilGuarantee’s!waiver!of!the!right!of!excussion!cannot!prevent!it!from!demanding!reimbursement!from!petitioners.!!The!
law!clearly!requires!the!debtor!to!indemnify!the!guarantor!what!the!latter!has!paid.!
!
Petitioners’!claim!that!PhilGuarantee!had!no!more!obligation!to!pay!TRB!because!of!the!alleged!expiration!of!the!contract!of!
guarantee!is!untenable.!The!guarantee!was!only!up!to!17!December!1980.!!JN’s!obligation!with!TRB!fell!due!on!30!June!
1980,!and!demand!on!PhilGuarantee!was!made!by!TRB!on!08!October!1980.!!That!payment!was!actually!made!only!on!10!
March!1981!does!not!take!it!out!of!the!terms!of!the!guarantee.!!What!is!controlling!is!that!default!and!demand!on!
PhilGuarantee!had!taken!place!while!the!guarantee!was!still!in!force.!
!
There!is!likewise!no!merit!in!petitioners’!claim!that!PhilGuarantee’s!failure!to!give!its!express!consent!to!the!alleged!
extensions!granted!by!TRB!to!JN!had!extinguished!the!guarantee.!!The!requirement!that!the!guarantor!should!consent!to!
any!extension!granted!by!the!creditor!to!the!debtor!under!Art.!2079!is!for!the!benefit!of!the!guarantor.!!As!such,!it!is!
likewise!waivable!by!the!guarantor.!!Thus,!even!assuming!that!extensions!were!indeed!granted!by!TRB!to!JN,!PhilGuarantee!
could!have!opted!to!waive!the!need!for!consent!to!such!extensions.!!Indeed,!a!guarantor!is!not!precluded!from!waiving!his!
right!to!be!notified!of!or!to!give!his!consent!to!extensions!obtained!by!the!debtor.!!Such!waiver!is!not!contrary!to!public!
policy!as!it!is!purely!personal!and!does!not!affect!public!interest.!In!the!instant!case,!PhilGuarantee’s!waiver!can!be!inferred!
from!its!actual!payment!to!TRB!after!the!latter’s!demand,!despite!JN’s!failure!to!pay!the!renewal/guarantee!fee!as!indicated!
in!the!guarantee.!
!
For!the!above!reasons,!there!is!no!basis!for!petitioner’s!claim!that!PhilGuarantee!was!a!mere!volunteer!payor!and!had!no!
legal!obligation!to!pay!TRB.!!The!law!does!not!prohibit!the!payment!by!a!guarantor!on!his!own!volition,!heedless!of!the!
benefit!of!excussion.!!In!fact,!it!recognizes!the!right!of!a!guarantor!to!recover!what!it!has!paid,!even!if!payment!was!made!
before!the!debt!becomes!due,!or!if!made!without!notice!to!the!debtor,!subject!of!course!to!some!conditions.!
!
Petitioners$invoked$ruling$in$Willex$Plastic$Industries$v$CA:$$
As!to!petitioners’!invocation!of!the!ruling!in!Willex!Plastic!Industries,!Corp.!v.!CA,!where!the!guarantor!claimed!that!it!could!
not!be!proceeded!against!without!first!exhausting!all!of!the!properties!of!the!debtor.!!The!Court,!finding!that!there!was!an!
express!renunciation!of!the!benefit!of!excussion!in!the!contract!of!guarantee,!ruled!against!the!guarantor.!
!
The!cited!case!finds!no!application!in!the!case!a!quo.!!PhilGuarantee!is!not!invoking!the!benefit!of!excussion.!!It!cannot!be!
overemphasized!that!excussion!is!a!right!granted!to!the!guarantor!and,!therefore,!only!he!may!invoke!it!at!his!discretion.!
!
Page | 17
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

The!benefit!of!excussion,!as!well!as!the!requirement!of!consent!to!extensions!of!payment,!is!a!protective!device!pertaining!
to!and!conferred!on!the!guarantor.!!These!may!be!invoked!by!the!guarantor!against!the!creditor!as!defenses!to!bar!the!
unwarranted!enforcement!of!the!guarantee.!!However,!PhilGuarantee!did!not!avail!of!these!defenses!when!it!paid!its!
obligation!according!to!the!tenor!of!the!guarantee!once!demand!was!made!on!it.!What!is!peculiar!in!the!instant!case!is!that!
petitioners,!the!principal!debtors!themselves,!are!muddling!the!issues!and!raising!the!same!defenses!against!the!guarantor,!
which!only!the!guarantor!may!invoke!against!the!creditor,!to!avoid!payment!of!their!own!obligation!to!the!guarantor.%The%
Court%cannot%countenance%their%self=seeking%desire%to%be%exonerated%from%the%duty%to%reimburse%PhilGuarantee%after%it%
had%paid%TRB%on%their%behalf%and%to%unjustly%enrich%themselves%at%the%expense%of%PhilGuarantee.%
!
E.%MIRA%HERMANOS%V%MANILA%
G.R.!No.!Lf48979,!September!29,!1943!
MIRA!HERMANOS,!INC.,!plaintifffappellee,!vs.!MANILA!TOBACCONISTS,!INC.,!ET!AL.,!defendants.!PROVIDENT!INSURANCE!CO.,!defendantfappellant.!
FACTS:%
! Mira!Hermanos,!Inc.,!and!Manila!Tobacconists,!Inc.,!entered!into!a!contract!wherein!the!former!agreed!to!deliver!to!the!
latter!merchandise!for!sale!on!consignment.!Mira!Hermanos!required!of!the!Manila!Tobacconists,!Inc.,!a!bond!of!
P3000,!which!was!executed!by!the!Provident!Insurance!Co.,!on!September!1939!to!secure!the!fulfillment!of!the!
obligation!of!the!Tobacconists!under!the!contract!up%to%the%sum%of%P3,000.!!
! In!October!1940,!the!merchandise!received!by!Manila!Tobacconists!on!consignment!from!Mira!Hermanos!exceeded!
P3,000!in!value,!so!Mira!Hermanos!required!Tobacconist!an!additional!bond!of!P2,000.!In!compliance!with!that!
requirement!Manila!Compañia!de!Seguros!executed!a!bond!of!P2000,!with!the!same!terms!and!conditions!(except!as!to!
the!amount)!as!the!bond!of!the!Provident!Insurance!Co.!
! In!June!1941,!Tobacconists!had!a!balance!due!of!P2,272.79,!which!indebtedness!the!Tobacconists!recognized!but!was!
unable!to!pay.!Thereupon!Mira!Hermanos!made!a!demand!upon!the!two!surety!companies!for!the!payment!of!said!
sum.!
! The!Provident!Insurance!Co.,!paid!only!the!sum!of!P1,363.67,!which!is!60%!of!the!amount!owed!by!the!Tobacconists!to!
Mira!Hermanos,!alleging!that!the!remaining!40%!should!be!paid!by!the!other!surety,!Manila!Compañia!de!Seguros,!in!
accordance!with!article!1837!of!the!Civil!Code.!!
! Manila!Compañia!de!Seguros!refused!to!pay!the!balance,!contending!that!so!long!as!the!liability!of!the!Tobacconists!did!
not!exceed!P3,000,!it!was!not!bound!to!pay!anything!because!its!bond!referred!only!to!the!obligation!of!the!
Tobacconists!in!excess!of!P3,000!and!up!to!P5,000.!!
! Hence,!Mira!Hermanos,!Inc.,!brought!an!action!against!the!Manila!Tobacconists,!Inc.,!Provident!Insurance!Co.,!and!
Manila!Compañia!de!Seguros!to!recover!from!them!jointly!and!severally!the!sum!of!P909.12.!
! Trial!Court!favored!the!contention!of!the!Manila!Compañia!de!Seguros!and!judgment!was!rendered!by!it!against!the!
Provident!Insurance!Co.!alone!for!the!amount!claimed!by!Mira!Hermanos.!
!
ISSUE:!WON!Provident!Insurance!Co.!is!entitled!to!the!"benefit!of!division"!provided!in!article!1837!of!the!Civil!Code!f!NO!!
!
HELD:%%
Manila'Compañia'de'Seguros'is'only'liable'to'pay'obligation'in'excess'of'P3000;'Article'1837'does'not'apply'
Art.!1837!provides:!
Art.$1837.$Should$there$be$several$sureties$of$only$one$debtor$for$the$same$debt,$the$liability$therefor$shall$be$divided$among$
them$all.$The$creditor$can$claim$from$each$surety$only$his$proportional$part$unless$liability$in$solidum$has$been$expressly$
stipulated.$
$
The$right$to$the$benefit$of$division$against$the$co>sureties$for$their$respective$shares$ceases$in$the$same$cases$and$for$the$
same$reason$as$that$to$an$exhaustion$of$property$against$the$principal$debtor.$
!
Page | 18
!
 Set 5 CREDIT TRANSACTIONS
II-Manresa
Atty. Jazzie Sarona

The!statement!of!the!trial!court!to!the!effect!that!the!bond!of!P3,000!responded!for!the!obligation!of!the!Tobacconists!up!to!
the!sum!of!P3,000!and!the!bond!of!P2,000!responded!for!the!obligation!of!the!Tobacconists!only!insofar!as!it!might!exceed!
P3,000!and!up!to!P5,000,!is!not!a!mere!theory!but!a!finding!of!fact!based!upon!the!undisputed!testimony!of!the!witnesses!
called!by!Manila!Compañia!de!Seguros!in!support!of!its!special!defense.!While!on!its!face!the!bond!given!by!the!Manila!
Compañia!de!Seguros!contains!the!same!terms!and!conditions!(except!as!to!the!amount)!as!those!of!the!bond!given!by!the!
Provident!Insurance!Co.,!nevertheless!it!was!pleaded!by!the!Manila!Compañia!de!Seguros!and!found!proven!by!the!trial!
court!"that!the!real!intention!pursued!at!least!in!regard!to!the!Manila!Tobacconists,!and!the!Compañia!de!Seguros,!was!that!
the!bond!of!P2000!would!have!to!answer!for!all!that!only!exceed!P3000.!"!
!
The!evidence!upon!which!that!finding!is!based!is!not!only!undisputed!but!perfectly!reasonable!and!convincing.!For,!as!the!
trial!court!observed,!there%would%have%been%no%need%for%the%additional%bond%of%P2,000%if%its%purpose%were%to%cover%the%
first%P2,000%already%covered%by%the%P3,000%bond%of%the%Provident%Insurance%Co.!Indeed,!to!add,!if!the!purpose!of!the!
additional!bond!of!P2,000!were!to!cover!not!the!excess!over!and!above!P3,000!but!the!first!P2,000!of!the!obligation!of!the!
principal!debtor!like!the!bond!of!P3,000!which!covered!only!the!first!P3,000!of!said!obligation,!then!it!would!result!that!had!
the!obligation!of!the!Tobacconists!exceeded!P3,000,!neither!of!the!two!bonds!would!have!responded!for!the!excess,!and!
that!was!precisely!the!event!against!which!Mira!Hermanos!wanted!to!protect!itself!by!demanding!the!additional!bond!of!
P2,000.!For!instance,!suppose!that!the!obligation!of!the!principal!debtor,!the!Tobacconists,!amounted!to!P5,000;!if!both!
bonds!were!cofextensive!up!to!P2,000!—!as!would!logically!follow!if!appellant's!contention!were!correct!—!the!result!would!
be!that!the!first!P2,000!of!the!obligation!would!have!to!be!divided!between!and!paid!equally!by!the!two!surety!companies,!
which!should!pay!P1,000!each,!and!of!the!balance!of!P3,000!the!Provident!Insurance!Co.!would!have!to!pay!only!P1,000!
more!because!its!liability!is!limited!to!the!first!P3,000,!thus!leaving!Mira!Hermanos!in!the!lurch!as!to!the!excess!of!P2,000.!
That!was!manifestly!not!the!intention!of!the!parties.!As!a!matter!of!fact,!when!the!Provident!gave!its!bond!and!fixed!the!
premiums!thereon!it%assumed%an%obligation%of%P3,000%in'solidum'with%the%Tobacconists%without%any%expectation%of%any%
benefit%of%division%with%any%other%surety.!The%additional%bond%of%P2,000%was,%more%than%a%year%later,%required%by%the%
creditor%of%the%principal%debtor%for%the%protection%of%said%creditor%and%certainly%not%for%the%benefit%of%the%original%surety,%
which%was%not%entitled%to%expect%any%such%benefit.%
!
The!foregoing!considerations,!which!fortify!the!trial!court's!conclusion!as!to!the!real!intent!and!agreement!of!the!parties!
with!regard!to!the!bond!of!P2,000!given!by!the!Manila!Compañia!de!Seguros,!destroys!at!the!same!time!the!theory!of!
Provident!Insurance!Co.!regarding!the!applicability!of!article!1837!of!the!Civil!Code.!
!
Such%article%refers%to%several%sureties%of%only%one%debtor%for%the%same%debt.!In!the!instant!case,!although!the!two!bonds!on!
their!face!appear!to!guarantee!the!same!debt!cofextensively!up!to!P2,000!—!that!of!the!Provident!Insurance!Co.!alone!
extending!beyond!that!sum!up!to!P3,000!—%it%was%pleaded%and%conclusively%proven%that%IN%REALITY%SAID%BONDS,%OR%THE%
TWO%SURETIES,%DO%NOT%GUARANTEE%THE%SAME%DEBT%because%the%Provident%Insurance%Co.%guarantees%only%the%first%
P3,000%and%the%Manila%Compañia%de%Seguros,%only%the%excess%over%and%above%said%amount%up%to%P5,000.%Article%1837%
does%not%apply%to%this%factual%situation.%
F.%TUASON%V%MACHUCA%
G.R.!No.!Lf22177!!!!!!!!December!2,!1924!
TUASON,!TUASON,!INC.,!plaintifffappellee,!vs.ANTONIO!MACHUCA,!defendantfappellant.!
%
FACTS:%
A!bond!of!P9,663.00!was!executed!by!Manila!Compania!de!Seguros!for!!Universal!Trading!Company!so!that!the!latter!may!
withdraw!from!the!customhouse!sundry!goods!imported!by!it.!!
"Manila!Compañia!de!Seguros"!obtained!from!the!Universal!Trading!Company!and!Tuason,!Tuason!&!Co.,!a!solidary!note!for!
the!sum!of!P9,663!executed!by!said!companies!in!its!favor.!
!
Tuason,!Tuason!&!Co.,!in!turn,!caused!the!Universal!Trading!Company!and!its!president!Antonio!Machuca,!personally,!to!
sign!a!document!wherein!they!bound!themselves!solidarily!to!pay,!reimburse,!and!refund!to!the!company!all!such!sums!or!
amounts!of!money!as!it,!or!its!representative,!may!pay!or!become!bound!to!pay,!upon!its!obligation!with!"Manila!Compañia!
de!Seguros,"!whether!or!not!it!shall!have!actually!paid!such!sum!or!sums!or!any!part!thereof.!!
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Atty. Jazzie Sarona

!
The!Universal!Trading!Company!having!been!declared!insolvent,!"Manila!Compañia!de!Seguros"!brought!an!action!against!
Tuason,!Tuason!&!Co.!to!recover!the!value!of!the!note!for!P9,663!and!obtained!final!judgment!therein,!which!was!affirmed!
by!this!court!on!appeal,!for!the!total!sum!of!P12,197.27,!which!includes!the!value!of!the!note!with!interest!thereon.!
!
Tuason!now!brings!the!action!aganst!Machuca!to!recover!the!amount!adjudged.!However,!the!payment!allegedly!made!by!
Tuason!!is!its!execution!of!a!document!in!favor!of!"Manila!Compañia!de!Seguros."!In!this!document!Albina!Tuason!declares!
that!she!assumes!and!makes!hers!the!obligation!to!pay!the!amount!of!said!judgment!to!"Manila!Compañia!de!Seguros"!
within!one!year!and!mortgages!a!property!described!in!the!document!as!security!for!this!obligation.!(In!other!words,!actual!
payment!was!not!yet!made!).!
!
ISSUE:%%
Is!Tuason!entitled!to!recover!from!Machuca?!YES!
!
HELD:%
Although!the!plaintiff!has!not!as!yet!paid!Manila!Compañia!de!Seguros!the!amount!of!the!judgment!against!it,!and!even!
considering!that!this!action!cannot!be!held!to!come!under!article!1843!of!the!Civil!Code,!yet!the!plaintiff!is!entitled!to!the!
relief!sought!in!view!of!the!facts!established!by!the!evidence.!The!plaintiff!became!bound,!by!virtue!of!a!final!judgment,!to!
pay!the!value!of!the!note!executed!by!it!in!favor!of!"Manila!Compañia!de!Seguros."!According!to!the!document!executed!
solidarily!by!the!defendant!and!the!Universal!Trading!Company,!the!defendant!bound!himself!to!pay!the!plaintiff!as!soon!as!
the!latter!may!have!become!bound!and!liable,!whether!or!not!it!shall!have!actually!paid.!It!is!indisputable!that!the!plaintiff!
became!bound!and!liable!by!a!final!judgment!to!pay!the!value!of!the!note!to!"Manila!Compañia!de!Seguros."!
!
The!plaintiff!has!the!right!to!recover!of!the!defendant!the!sum!of!P9,663,!the!value!of!the!note!executed!by!the!plaintiff!in!
favor!of!"Manila!Compañia!de!Seguros"!which!the!plaintiff!is!under!obligation!to!pay!by!virtue!of!final!judgment.!We!do!not!
believe,!however,!that!the!defendant!must!pay!the!plaintiff!the!expenses!incurred!by!it!in!the!litigation!between!it!and!
"Manila!Compañia!de!Seguros."!That!litigation!was!originated!by!the!plaintiff!having!failed!to!fulfill!its!obligation!with!
"Manila!Compañia!de!Seguros,"!and!it!cannot!charge!the!defendant!with!expenses!which!it!was!compelled!to!make!by!
reason!of!its!own!fault.!It!is!entitled,!however,!to!the!expenses!incurred!by!it!in!this!action!brought!against!the!defendant,!
which!are!fixed!at!P1,653.65!as!attorney's!fees.!
%
G.%KUENZLE%V%SUNCO%
G.R.!No.!Lf5208!December!1,!1909!
KUENZLE!AND!STREIFF,!plaintifffappellant,!vs.!JOSE!TAN!SUNCO!ET!AL.,!defendantsfappellees.!
%
Tan%Sunco%was%a%surety!for!Chung!Chu!Sing!for!the!payment!by!the!latter!of!the!purchase!price!of!certain!merchandise!
purchased!by!said!Chung!Chu!Sing!of!Ed.!and!A.!Keller!and!Co.,!that!the!time!within!which!said!merchandise!was!to!be!paid!
for!under!the!terms!of!its!purchase!had!expired!long!before!said!four!judgments!were!obtained,!and!that!the!debt!remained!
unpaid;!that!the!total!debt!was!composed!of!four!invoices!of!varying!amounts!—!P395.50,!P450,!P565,!and!P320.20.!
An!action!had!been!commenced!against!the!said!debtor,!Chung!Chu!Sing,!by!the!Sunco!for!the!recovery!of!the!indebtedness!
due!it;!that!shortly!before!judgment!was!secured!in!that!action!the!said!Tan!Sunco!began!four!separate!action!against!the!
Sing!upon!the!said!invoices!in!the!Trial!Court;!that!soon!thereafter!the!Sunco!and!the!said!debtor!appeared!before!the!said!
court,!and!the!said!debtor!then!and!there!confessed!judgment!in!favor!of!said!Tan!Sunco!in!each!one!of!said!actions,!Tan!
Sunco!thereby!obtaining!against!the!said!debtor!four!separate!judgments;!that!immediately!upon!the!recovery!of!said!
judgments!by!Sunco!in!those!actions,!Sunco!caused!to!be!levied!thereunder!executions!upon!all!of!the!property!of!said!
debtor,!which!property!was!not!more!than!sufficient!to!pay!to!the!judgments!under!which!the!levies!were!made;!that!
thereupon!the!action!at!bar!was!begun!and!the!sales!under!said!executions!were!enjoined!pending!the!determination!
thereof.!!
Chung!Chu!Sing!contends!that!said!four!judgments!ought!to!be!set!wholly!aside!on!account!of!their!having!been!obtained,!
as!he!claims,!by!collusion!and!fraud,!because!the!debtor!did!not!owe!anything!to!Sunco!at!the!time!the!four!judgments!
were!secured,!basing!that!contention!on!the!fact,!which!is!admitted,!that!Sunco!and!not!yet!paid!the!sums!for!which!he!had!
become!surety!and!in!connection!with!which!he!obtained!the!judgments.!

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 Set 5 CREDIT TRANSACTIONS
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Atty. Jazzie Sarona

ISSUE:!WON!the!trial!court!was!correct!in!holding!Sing!liable!to!Sunco!(Surety)!even!though!the!latter!has!not!yet!paid!the!
creditor?!YES,!but!the!judgment!shall!not!be!executed!against!Sing!until!Sunco!has!paid!the!debt!for!which!he!stands!surety.!!
HELD:!SC!thinks!that!the!article!1843!of!the!Civil!Code!is!applicable!to!this!case.!In!their!purposes!articles!1838!and!1843!are!
quite!distinct,!although!in!perfect!harmony,!the!latter!making!more!clearly!effective!the!purpose!of!the!former.!Article!1838!
provides!for!the!enforcement!of!the!right!of!the!surety!against!the!debtor!after!he!has!paid!the!debt.!Article!1843!provides!
for!his!protection!before!he!has!paid!but!after!he!has!become!liable!to!do!so.!The!one!gives!a!right!of!action!after!payment,!
the!other!a!protective!remedy!before!payment.!The!one!is!a!substantive!right,!the!other!of!the!nature!of!a!preliminary!
remedy.!The!one!gives!a!right!of!action!which,!without!the!provisions!of!the!of!the!other,!might!be!worthless.!The!remedy!
given!in!article!1843!purposes!to!obtain!for!the!surety!"relief!from!the!burden!of!his!suretyship!or!a!guaranty!to!defend!him!
against!any!proceedings!of!the!creditor!and!from!the!danger!of!insolvency!of!the!debtor."!(Last!paragraph!of!art.!1843.)!
article!1838,!speaking!under!this!article!become!available,!he!is!past!the!point!where!a!preliminary!protective!remedy!is!of!
any!value!to!!
It!being!evident!that!the!purpose!of!article!1843!is!to!give!to!the!surety!a!remedy!in!anticipation!of!the!payment!of!the!debt,!
which!debt,!being!due,!he!could!be!called!upon!to!pay!at!any!time,!it!remains!only!to!say,!in!this!connection,!that!the!only!
procedure!known!under!our!present!practice!to!enforce!that!right!is!by!action.!(Manresa,!Civil!Code,!vol.!12,!p.!320.)!The!
defendant!Sunco!availed!himself!of!that!right!against!the!debtor.!The!methods!employed!by!him!to!realize!his!end!were!
unusual!but!not!of!themselves!fraudulent.!We!agree!with!the!trial!court!that!the!evidence!adduced!is!entirely!insufficient!to!
establish!such!fraud!and!collusion!as!would!justify!a!decision!setting!aside!the!judgment!assailed.!!
But!while!the!surety!has!the!right!to!obtain!as!he!did!the!judgments!against!the!principal!debtor,!he!ought!not!to!be!allowed!
to!realize!the!said!judgments!to!the!point!of!actual!collection!of!the!same!until!he!has!satisfied!or!caused!to!be!satisfied!the!
obligation!the!payment!of!which!he!assures.!Otherwise,!a!great!opportunity!for!collusion!and!improper!practices!between!
the!surety!and!his!principal!would!be!offered!which!might!result!to!the!injury!and!prejudice!of!the!creditor!who!holds!the!
claim!against!them.!
The!judgement!of!the!court!below!is,!therefore,!affirmed,!with!costs!against!the!appellant.!But!the!said!Sunco!shall!not!
execute!said!judgments!against!the!property!of!the!judgment!debtor!until!he!has!paid!the!debt!for!which!he!stands!surety.!
So!ordered.!
!
III.%Extinguishment%
a.PNB%V%MANILA%SURETY%
B.%STRONGHOLD%V%REPUBLIC%
492!SCRA!179,!G.R.!No.!147561,!June!22,!2006!
STRONGHOLD!INSURANCE!COMPANY,!INC.,!Petitioner,!vs.!REPUBLICfASAHI!GLASS!CORPORATION,!Respondent.!
!
FACTS:!
On!May!24,!1989,!RepublicfAsahi!entered!into!a!contract!with!Jose!D.!Santos,!Jr.,!the!proprietor!of!JDS!Construction!(JDS),!
for!the!construction!of!roadways!and!a!drainage!system!in!RepublicfAsahi’s!compound.!In!order!to!guarantee!the!faithful!
and!satisfactory!performance!of!its!undertakings!JDS,!shall!post!a!performance!bond!of!seven!hundred!ninety!five!thousand!
pesos!(P795,000.00).!Hence,!JDS!executed,!jointly!and!severally!with![petitioner]!Stronghold!Insurance!Co.,!Inc.!(SICI).!
!
RepublicfAsahi’s!engineers!called!the!attention!of!JDS!to!the!alleged!alarmingly!slow!pace!of!the!construction.!However,!
said!reminders!went!unheeded!by!JDS.!Dissatisfied!with!the!progress!of!the!work!undertaken!by,!RepublicfAsahi!
extrajudicially%rescinded%the%contract!pursuant!to!Article!XIII!of!said!contract,!and!wrote!a!letter!to!JDS!informing!the!latter!
of!such!rescission.!Such!rescission,!according!to!Article!XV!of!the!contract!shall!not!be!construed!as!a!waiver!of!Asahi’s!right!
to!recover!damages!from!JDS!and!the!latter’s!sureties.!
!
RepublicfAsahi!alleged!that,!as!a!result!of!JDS’s!failure!to!comply!with!the!provisions!of!the!contract,!which!resulted!in!the!
said!contract’s!rescission,!it!had!to!hire!another!contractor!to!finish!the!project,!for!which!it!incurred!an!additional!expense.!
!
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Atty. Jazzie Sarona

Subsequently,!RepublicfAsahi!sent!a!letter!to!Stronghold!SICI!filing!its!claim!under!the!bond!for!not!less!than!P795k.!On!
January!6,!1990,!RepublicfAsahi!again!sent!another!letter!reiterating!its!demand!for!payment!under!the!aforementioned!
bond.!Both!letters!allegedly!went!unheeded.!
!
RepublicfAsahi!then!filed!a!complaint!against!JDS!and!SICI.!It!sought!from!JDS!payment!of!P3,256,874.00!representing!the!
additional!expenses!for!the!completion!of!the!project!using!another!contractor,!and!from!JDS!and!SICI,!jointly!and!severally,!
payment!of!P750,000.00!as!damages!in!accordance!with!the!performance!bond.!!
!
SICI!filed!its!answer,!alleging!that!the!RepublicfAsahi’s!money!claims!against!SICI!and!JDS!have!been!extinguished!by!the!
death!of!Jose!D.!Santos,!Jr.!!
!
ISSUE:!WON!Stronghold’s!liability!was!extinguished!by!the!death!of!the!principal!!!!NO%
!
HELD:!
As!a!general!rule,!the!death!of!either!the!creditor!or!the!debtor!does!not!extinguish!the!obligation.!!Obligations!are!
transmissible!to!the!heirs,!except!when!the!transmission!is!prevented!by!the!law,!the!stipulations!of!the!parties,!or!the!
nature!of!the!obligation.!Only!obligations!that!are!personal!or!are!identified!with!the!persons!themselves!are!extinguished!
by!death.!
!
Section!5!of!Rule!86!of!the!Rules!of!Court!expressly!allows!the!prosecution!of!money!claims!arising!from!a!contract!against!
the!estate!of!a!deceased!debtor.!Evidently,!those!claims!are!not!actually!extinguished.!What!is!extinguished!is!only!the!
obligee’s!action!or!suit!filed!before!the!court,!which!is!not!then!acting!as!a!probate!court.!!
!
In!the!present!case,!whatever!monetary!liabilities!or!obligations!Santos!had!under!his!contracts!with!respondent!were!not!
intransmissible!by!their!nature,!by!stipulation,!or!by!provision!of!law.!Hence,!his!death!did!not!result!in!the!extinguishment!
of!those!obligations!or!liabilities,!which!merely!passed!on!to!his!estate.!Death!is!not!a!defense!that!he!or!his!estate!can!set!
up!to!wipe!out!the!obligations!under!the!performance!bond.!Consequently,!petitioner!as!surety!cannot!use!his!death!to!
escape!its!monetary!obligation!under!its!performance!bond.!!
!
As!a!surety,!petitioner!is!solidarily!liable!with!Santos!in!accordance!with!the!Civil!Code,!which!provides!as!follows:!
"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."!
x!x!x!x!x!x!x!x!x!
!
"Art.!1216.!The!creditor!may!proceed!against!any!one!of!the!solidary!debtors!or!some!or!all!of!them!simultaneously.!The!
demand!made!against!one!of!them!shall!not!be!an!obstacle!to!those!which!may!subsequently!be!directed!against!the!
others,!so!long!as!the!debt!has!not!been!fully!collected."!
!
Thus,!the!surety’s!obligation!is!not!an!original!and!direct!one!for!the!performance!of!his!own!act,!but!merely!accessory!or!
collateral!to!the!obligation!contracted!by!the!principal.!Nevertheless,!although!the!contract!of!a!surety!is!in!essence!

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Atty. Jazzie Sarona

secondary!only!to!a!valid!principal!obligation,!his!liability!to!the!creditor!or!promisee!of!the!principal!is!said!to!be!direct,!
primary!and!absolute;!in!other!words,!he!is!directly!and!equally!bound!with!the!principal.!!
!
Under!the!law!and!jurisprudence,!respondent!may!sue,!separately!or!together,!the!principal!debtor!and!the!petitioner!
herein,!in!view!of!the!solidary!nature!of!their!liability.!The!death!of!the!principal!debtor!will!not!work!to!convert,!decrease!
or!nullify!the!substantive!right!of!the!solidary!creditor.!Evidently,!despite!the!death!of!the!principal!debtor,!respondent!may!
still!sue!petitioner!alone,!in!accordance!with!the!solidary!nature!of!the!latter’s!liability!under!the!performance!bond.!
!
C.%SPOUSES%TOH%V%SOLID%BANK%
%
IV.%Legal%and%Judicial%Bonds%
!
!

Page | 23
!