Guaranty and Suretyship (2047 – 2084)

Concept – 2047
Guaranty vs. Suretyship – 2047, 2nd Paragraph

Agro vs. CA – 348 SCRA 450

G.R. No. 117660. December 18, 2000.*AGRO CONGLOMERATES, INC. and MARIO SORIANO,
petitioners, vs. THE HON. COURT OF APPEALS and REGENT SAVINGS and LOAN BANK, INC,
respondents.QUISUMBING, J.:

Doctrine:
An accommodation party is a person who has signed the instrument as maker, acceptor,
or indorser,without receiving value therefor, and for the purpose of lending his name to some other
person and is liable on the instrument to a holder for value, notwithstanding such holder at the time of
taking the instrument knew (the signatory) to be an accommodation party.

Facts:
Petitioner Agro-Conglomerates, Inc. as vendor, sold two parcels of land to Wonderland Food Industries,
Inc. The vendor, the vendee, and the respondent bank Regent Savings & Loan Bank, executed an
Addendum4 to the previous Memorandum of Agreement. It provided, among others, that the vendee
undertakes to pay the loan procured in the name of the VENDOR, the VENDEE will be the one liable to
pay the entire proceeds thereof including interest and other charges. Consequently, petitioner Mario
Soriano signed as maker several promissory notes, payable to the respondent bank. Thereafter, the bank
released the proceeds of the loan to petitioners. However, petitioners failed to meet their obligations as
they fell due Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor
submit his formal written request.

Issue:
Whether or not petitioner is liable as an accommodation party.

Held:
By this time, we note a subsidiary contract of suretyship had taken effect since petitioners signed
thepromissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners
became liable as accommodation party. He has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation between them has in effect become
one of principal and surety, the accommodation party being the surety. The surety’s 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. And the creditor may proceed against any one of the
solidary debtors.

FACTS:
Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under a
Memorandum of Agreement that the terms of payment
would be P1,000,000 in cash, P2,000,000 in shares of stock, and the
balance would be payable in monthly installments. Thereafter, an
addendum was executed between them, qualifying the cash payment. Instead of cash payment, the v
endee authorized the vendor to obtain a loan from the financier on which the vendee bound itself to pay
for. This loan was to cover for the payment of P1,000,000. This addendum was not notarized.

Petitioner Soriano signed as maker the promissory notes payable to the bank. However, the petitioners
failed to pay the obligations as they were
due. During that time, the bank was in financial distress and this prompted it to endorse the promissory
notes for collection. The bank gave ample time to petitioners then to satisfy their obligations.

The trial court held in favor of the bank. It didn't find merit to the
contention that Wonderland was the one to be held liable for the promissory notes.
HELD:

First, there was no contract of sale that materialized. The original

agreement was that Wonderland would pay cash and petitioner would
deliver possession of the farmlands. But this was changed through an addendum, that petitioner would
instead secure a loan and the settlement
of the same would be shouldered by Wonderland.

Petitioners became liable as accommodation parties. They have the right

after paying the instrument to seek reimbursement from the party accommodated, since the relation
between them has in effect became one of principal and surety.

Furthermore, as it turned out, the contract of surety between Woodland and petitioner was extinguished
by the rescission of the contract of sale of the farmland. With the rescission, there was confusion in the
persons of the principal debtor and surety. The addendum thereon likewise lost its
efficacy.

Palmares vs. CA – 288 SCRA 422

Palmares vs. CA
(288 SCRA 422)Facts:

Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña andMerlyn Azarraga,
together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on orbefore May 12, 1990,
with compounded interest at the rate of 6% per annum to be computed every 30days from the date thereof.
1 On four occasions after the execution of the promissory note and evenafter the loan matured, petitioner and
the Azarraga spouses were able to pay a total of P16,300.00,thereby leaving a balance of P13,700.00. No
payments were made after the last payment onSeptember 26, 1991. 2Consequently, on the basis of
petitioner's solidary liability under the promissory note, respondentcorporation filed a complaint 3 against
petitioner Palmares as the lone party-defendant, to theexclusion of the principal debtors, allegedly by reason of
the insolvency of the latter.
Issue: WON Palmares is liable

Held:
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter3, Title I of
this Book shall be observed. In such case the contract is called a suretyship. It is a cardinalrule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt uponthe intention of
the contracting parties, the literal meaning of its stipulation shall control. 13 In thecase at bar, petitioner
expressly bound herself to be jointly and severally or solidarily liable with theprincipal maker of the note. The
terms of the contract are clear, explicit and unequivocal thatpetitioner's liability is that of a surety.

People vs. Maniego – 148 SCRA 30

Towers vs. Ororama – 80 SCRA 262

G.R. No. L-45848 November 9,1977

TOWERS ASSURANCE CORPORATION, petitioner,

vs.
ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and JUDGE BENJAMIN K. GOROSPE,
Presiding Judge, Court of First Instance of Misamis Oriental, Branch I, respondents.

Benjamin Tabique & Zosimo T. Vasalla for petitioner.

Rodrigo F. Lim, Jr. for private respondent.

AQUINO, J.:

This case is about the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment.

On February 17, 1976 See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses
Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection of the sum of P
58,400 plus litigation expenses and attorney's fees (Civil Case No. 4930).

See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of
attachment. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan
de Oro City.

To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond in 'the amount of P 58,400 with
Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation
bound themselves to pay solidarity to See Hong the sum of P 58,400.

On March 24, 1976 the Ong spouses filed an answer with a counterclaim. For non-appearance at the pre- trial, the
Ong spouses were declared in default.

On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their surety,
Towers Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also ordered the Ong
spouses to pay P 10,000 as litigation expenses and attorney's fees.

Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a motion for
execution. The lower court granted that motion. The writ of execution was issued on March 14 against the judgment
debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari
where it assails the decision and writ of execution.

We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety
without first giving it an opportunity to be heard as required in Rule 57 of tie Rules of Court which provides:

SEC. 17. When execution returned unsatisfied, recovery had upon bound. — If the execution be
returned unsatisfied in whole or in part, the surety or sureties on any counterbound given pursuant to
the provisions of this rule to secure the payment of the judgment shall become charged on such
counterbound, and bound to pay to the judgment creditor upon demand, the amount due under the
judgment, which amount may be recovered from such surety or sureties after notice and summary
hearing in the same action.

Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is
necessary (1) that execution be first issued against the principal debtor and that such execution was returned
unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the satisfaction of the
judgment, and (3) that the surety be given notice and a summary hearing in the same action as to his liability for the
judgment under his counterbond.

The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed
a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of
the principal debtor (Art. 2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May 15, 1969, 28 SCRA 58,
63).

But certainly, the surety is entitled to be heard before an execution can be issued against him since he is not a party
in the case involving his principal. Notice and hearing constitute the essence of procedural due process. (Martinez
vs. Villacete 116 Phil. 326; Insurance & Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192, 1200, Luzon Surety Co.,
Inc. vs. Beson, L-26865-66, January 30. 1970. 31 SCRA 313).

WHEREFORE, the order and writ of execution, insofar as they concern Towers Corporation, are set aside. The
lower court is directed to conduct a summary hearing on the surety's liability on its counterbound. No costs.

SO ORDERED.

Fernando (Chairman), Barredo, Antonio, Concepcion, Jr. and Santos, JJ., concur.
TOWERS ASSURANCE CORPORATION vs. ORORAMA SUPERMART

Case: liability of a surety in a counterbond for the lifting of a writ of preliminary attachment

FACTS: See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto Ong and Conching Ong in
the Court of First Instance of Misamis Oriental for the collection of the sum of P58,400 plus litigation expenses and attorney's fees (Civil
Case No. 4930).
He asked for a writ of preliminary attachment and the lower court issued an order of attachment. The deputy sheriff attached the
properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City.
To lift the attachment, the Ong spouses filed a counterbond in the amount of P58,400 with Towers Assurance Corporation as surety. In
that undertaking, the Ong spouses and Towers Assurance Corporation bound themselves to pay solidarily to See Hong the sum of
P58,400.
Ong Spouses failed to appearduring pre-trial, they were declared in default.
The lower court ordered the spouse and the surety to pay solidarily See Hong the sum of P58,400 plus P10,000 as litigation expenses
and attorney's fees. Ernesto Ong manifested that he did not want to appeal. Ororama Supermart filed a motion for execution. It was
granted by the lower court. The writ of execution was issued against the judgment debtors and their surety. The,
Towers Assurance Corporation filed the instant petition for certiorari where it assails the decision and writ of execution.
ISSUE: WON surety is liable absence of showing that it was given opportunity to be heard.
HELD:
Lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without first giving it an opportunity to
be heard as required in Rule 57 of the Rules of Court which provides:
"SEC. 17. When execution returned unsatisfied, recovers had upon bond. — If the execution be returned unsatisfied
in whole or in part, the surety or sureties on any counterbond given pursuant to the provisions of this rule to secure
the payment of the judgment shall become charged on such counterbond, and bound to pay to the judgment creditor
upon demand, the amount due under the judgment, which amount may be recovered from such surety or
sureties after notice and summary hearing in the action."
Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary
(1) that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in part; (2)
that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be given notice and a
summary hearing in the same action as to his liability for the judgment under his counterbond.
The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a solidary liability for
the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor (Art.
2959) But certainly, the surety is entitled to be, heard before an execution can be issued against him since he is not a
party in the case involving his principal. The writ of is set aside. The lower court is directed to conduct a summary hearing on the
surety's liability on its counterbond.
Machetti vs. Hospicio 43 Phil 297

Nature and Extent of Guaranty – 2048-2057

RCBC vs. Cerro – 115 SCRA 777

Rizal Commercial Banking Corporation, petitioner, vs. Hon. Jose P. Arro, Judge of the Court of First
Instance of Davao, and Residoro Chua, respondents. Date:31 July 1982 Ponente:De Castro,J
.Facts:
Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive surety agreement
to guaranty,above all, any existing or future indebtedness of Davao Agricultural Industries Corporation
(Daicor), and/or induce the bank at anytime or from time to time to make loans or advances or to extend
credit to saidDaicor, provided that theliability shall not exceed ay any time Php100,000.00.A promissory
note for Php100,000.00 (for additional capital to the charcoal buy andsell and the activated carbon
importation business) was issued in favor of petitionerRCBC payable a month after execution. This was
signed by Go inhis personal capacity and in behalf of Daicor. Respondent Chua did not sign in said
promissory note. As the note was not paid despite demands, RCBC filed a complaint for a sum of money
against Daicor, Go and Chua.The complaint against Chua was dismissed upon his motion, alleging that the
complaint states no cause of actionagainst him as he was not a signatory to the note and hence he cannot
be held liable. This was s
o despite RCBC’s
opposition, invoking the comprehensive surety agreement which it holds to cover not just the note
inquestion but alsoevery other indebtedness that Daicor may incur from petitioner bank. RCBC moved for
reconsideration of the dismissal but to no avail. Hence, this petition.
Issue:
WON respondent Chua may be held liable with Go and Daicor under the promissory note, even if he was
not asignatory to it, in light of the provisions of the comprehensive surety agreement wherein he bound
himself with Go and Daicor, as solidary debtors, to pay existing and future debts of said corporation.
Held:
Yes, he may be held liable. Order dismissing the complaint against respondent Chua reversed and set
aside. Case remanded to court of origin with instruction to set aside motion to dismiss and to require
defendant Chua to answer the complaint.
Ratio:
The comprehensive surety agreement executed by Chua and Go, as president and general manager,
respectively,of Daicor, was to cover existing as well as future obligations which Daicor may incur with
RCBC. This was only subject tothe provisothat their liability shall not exceed at any one time the
aggregate principal amount of Php100,000.00. (Par.1of said agreement).

The agreement was executed to induce petitioner Bank to grant any application for aloan Daicor would
request for.According to said agreement, the guaranty iscontinuing and shall remain in full force or
effect until the bank is notified of its termination. During the time the loan under the promissory note
was incurred, the agreement was still in full force and effect and is thus covered by the latter
agreement. Thus, even if Chua did not sign the promissory note, he is still liable by virtue of the surety
agreement. The only condition necessary for him to be
liable under the agreement was that Daicor “is or may become liable as maker, endorser, acceptor or otherwise.”
The comprehensive surety agreement signed by Go and Chua was as an accessory obligation dependent
upon the principal obligation, i.e., the loan obtained by Daicoras evidenced by the promissory note.
The surety agreement unequivocally shows that it was executed to guarantee future debts that may be
incurred by Daicor with petitioner, as allowed under NCC Art.2053.
“A guaranty may also be given as se
curity for future debts, the amount of which isnot yet known; there can be no claim
against the guarantor until the debt isl iquidated. A conditional obligation may also be secured.”

Fortune vs. CA – 267 SCRA 653

Atok vs. CA – 2222 SCRA 232

BA Finance vs. CA – 211 SCRA 112

PNB vs. CA – 198 SCRA vs. 767

Willex vs. CA – 256 SCRA 478

Security vs. Cuenca – 341 SCRA 781

E. Zobel, Inc. vs. CA, Consolidated Bank and Trust Corporation AUTHOR:
(SOLIDBANK) and Sps. Raul and Elea Claveria NOTES: (if applicable)
[G.R. No. 113931; May 6, 1998, Martinez, J. ]
TOPIC: Guaranty/ Surety
NATURE OF THE CASE: Petition for Review on Certiorari

FACTS:

1. Spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent
Consolidated Bank and Trust Corporation (now SOLIDBANK) in the amount of P2, 875,000.00 to finance the purchase
of two (2) maritime barges and one tugboat which would be used in their molasses business.
2. The loan was granted subject to the condition that respondent spouses execute a chattel mortgage over the three (3)
vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein
petitioner E. Zobel, Inc. in favor of SOLIDBANK. The respondent spouses agreed to the arrangement. Consequently, a
chattel mortgage and a Continuing Guaranty were executed.
3. The spouses defaulted in the payment of the entire obligation upon maturity. Hence, on January 31,1991, SOLIDBANK
filed a complaint for sum of money with a prayer for a writ of preliminary attachment, against respondents spouses
and petitioner.
 4. Petitioner: (Motion to Dismiss) Its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the
Civil Code of the Philippines. It has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's
failure to register the chattel mortgage with the appropriate government agency.
5. SOLIDBANK: E. Zobel, Inc. is not a guarantor but a surety.
6. RTC: Denied Motion to Dismiss.
Basis of RTC: 'For and in consideration of any existing indebtedness to you of Agro Brokers, a single proprietorship
owned by Mr. Raul Claveria for the payment of which the undersigned is now obligated to you as surety and in order
to induce you, in your discretion, at any other manner, to, or at the request or for the account of the borrower, x x x '
- The provisions of the document are clear, plain and explicit. E. Zobel, Inc. signed as surety.
- Even though the title of the document is 'Continuing Guaranty', the Court's interpretation is not limited to the title
alone but to the contents and intention of the parties more specifically if the language is clear and positive.
- Art. 2080 New Civil Code will not apply as it is only for those acting as guarantor.
- In the letter of the defendants (spouses and Zobel) to the plaintiff it is requesting that the chattel mortgage on
the vessels and tugboat be waived and/or rescinded by the bank inasmuch as the said loan is covered by the
Continuing Guaranty by Zobel in favor of the plaintiff thus thwarting the claim of the defendant now that the
chattel mortgage is an essential condition of the guaranty.
- Failure of the plaintiff to register the chattel mortgage with the proper government agency, i.e. with the Office of
the Collector of Customs or with the Register of Deeds could not be taken by this Court as the basis of the
extinguishment of the obligation of the defendant corporation to the plaintiff as surety.
- Chattel mortgage is an additional security and should not be considered as payment of the debt in case of failure
of payment. The same is true with the failure to register, extinction of the liability would not lie.
7. CA Affirmed RTC decision.

ISSUE: Whether or not petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a surety.

HELD/ RATIO: E. Zobel, Inc. obligated itself as a surety. Thus, Art 2080 of the Civil Code does not apply to it.

Contract of Surety Contract of Guaranty

Accessory promise by which a person binds himself for
another already bound
Surety agrees with the creditor to satisfy the obligation if the
debtor does not.
A surety is usually bound with his principal by the same
instrument, executed at the same time, and on the same
consideration.
He is an original promissor and debtor from the beginning,
and is held, ordinarily, to know every default of his principal.
He will not be discharged, either by the mere indulgence of
the creditor to the principal, or by want of notice of the
default of the principal, no matter how much he may be
injured thereby.
Surety is the insurer of the debt, and he obligates himself to
pay if the principal does not pay.
Collateral undertaking to pay the debt of another in case the
latter does not pay the debt.
Guarantor's own separate undertaking, in which the
principal does not join.
Usually entered into before or after that of the principal, and
is often supported on a separate consideration from that
supporting the contract of the principal.
The original contract of his principal is not his contract, and
he is not bound to take notice of its non-performance.
He is often discharged by the mere indulgence of the
creditor to the principal, and is usually not liable unless
notified of the default of the principal.
Guarantor is the insurer of the solvency of the debtor and
thus binds himself to pay if the principal is unable to pay.

The contract executed by petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of
surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to
respondent spouses.

One need not look too deeply at the contract to determine the nature of the undertaking and the intention of the parties. The
contract clearly discloses that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated
itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. In fact,
SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses' properties before it can hold petitioner
liable for the obligation.

The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the
word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to
be bound by a primary or independent obligation.

Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by petitioner, finds no application
to the case at bar. In Bicol Savings and Loan Association vs. Guinhawa, we have ruled that Article 2080 of the New Civil Code
does not apply where the liability is as a surety, not as a guarantor.
 But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not release
petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the
contract irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or negligence that may
impair the contract.

CASE LAW/ DOCTRINE: Art. 2080 applies only to guarantors not sureties. (See table above for the comparison of Contract of
guaranty and Contract of surety)

DISSENTING/CONCURRING OPINION(S): (if applicable)

RP vs. Palfox 43 SCRA 365

Effects of Guaranty – 2076-2081

Between the guarantor and creditor

Wise vs. Tanglao – 63 Phil 372
Facts: Atty. Dionisio Tanglao (Cornelio David’s atty) by power of attorneymortgaged two real properties belonging to
him to secure the payment of a judgment credit of P640 obtained by Wise & Co. against Cornelio David (agentof W&C).
As Cornelio David paid only a part of the indebtedness, Wise & Co.filed an action against Atty. Tanglao to recover the
unpaid balance.

Issue: WON atty. Dionisio Tanglao is liable for the balance?

Held: No, Nothing is stated in the compromise agreement to the effect thatAtty. Tanglao become David’s surety for the
payment of the judgment debt.

(1)

Tanglao did not contract any personal responsibility for the payment of the sum of P640. The only obligation which
he contracted was
thatresulting from the mortgage. However, a foreclosure suit was notinstituted against Atty. Tanglao but a purely
personal action for therecovery of the amount still owned by Atty. Tanglao.

(2)

Even granting that Atty. Tanglao may be considered a surety (orguarantor), the action does not lie against him on the
ground that all thelegal remedies against him
have not previously been asked for andDavid has property sufficient to pay the balance of the debt thepayment of which
is sought of Tanglao in his alleged capacity as surety. A guaranty or surety must be expressed and cannot be
presumed.Art 2058 the guarantor cannot be compelled to pay the creditor unless thelatter has exhausted all the
property of the debtor, and has resorted to alllegal remedies against the debtor.

Southern vs. Barbosa – 99 Phil 263

Prudential vs. IAC – 216 SCRA 257

Imperial vs. Delos Angeles – 111 SCRA 257

Saavedra vs. Price – 68 Phil 699

Vda de Syquia vs. Jacinto – 60 Phil 861

Malayan vs. Salas 90 SCRA 252

Between debtor and guarantor - 2066-2072

Tuason vs. Machuca – 46 Phil 561

G.R. No. L-22177 December 2, 1924

TUASON, TUASON, INC., plaintiff-appellee,

vs.
ANTONIO MACHUCA, defendant-appellant.

Marcaida, Capili & Ocampo for appellant.

Antonio M. Opisso for appellee.

AVANCEÑA, J.:

By giving a bond in the sum of P9,663 executed by "Manila Compañia de Seguros," the Universal Trading Company
was allowed by the Insular Collector of Custom to withdraw from the customhouse sundry goods imported by it and
consigned through the bank of the Philippine Islands. Subsequently, the Bank of the Philippine Islands claimed the
value of the goods, and the Insular Collector of Customs obligated the "Manila Compañia de Seguros" to pay the
sum of P9,663, the amount of the bond. Before paying this amount to the Insular Collector of Customs, the "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. Before signing said note, Tuason, Tuason & Co., in
turn, caused the Universal Trading Company and its president Antonio Machuca, personally, to sign a document
(Exhibit B), 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. The
Universal Trading Company having been declared insolvent, "Manila Compañia de Seguros" brought an action in
the lower court 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. 1 Subsequently, all the rights of Tuason, Tuason & Co. were transferred to
the plaintiff Tuason, Tuason, Inc.

Later on Tuason, Tuason, Inc., brought this action to recover of Antonio Machuca the sum of P12,197.27 which it
was sentenced to pay in the case filed against it by "Manila Compañia de Seguros," plus P3,000 attorney's fees,
and P155.92 court's costs and sheriff's fees, that is, a total of P15,353.19, together with P1,180.46 as interest upon
the sum of P15,353.19 at the rate of 10 per cent per annum from October 8, 1922, to July 8, 1923, and interest on
the sum of P16,535.65 at the rate of 10 per cent from July 8, 1923, until this sum was paid, and, in addition the sum
of P1,653.65 for attorney's fees in this case. For its cause of action, the plaintiff alleges that it had paid "Manila
Compañia de Seguros" the sum of P12,197.27, the amount of the judgment against it. The dispositive part of the
judgment appealed from is as follows: itc-a1f

Judgment is rendered against the defendant Antonio Machuca, and he is hereby ordered to pay the plaintiff
company the sum of fifteen thousand three hundred fifty-three pesos and nineteen centavos (15,353.19),
with compound interest thereon at the rate of ten per cent (10%) per annum, to be computed quarterly, that
is, one thousand one hundred eighty pesos and forty-six centavos (1,180.46), which is ten per cent interest
on the amount of fifteen thousand three hundred fifty-three pesos and nineteen centavos (P15,353.19) from
October 8, 1922, to July 8, 1923, and ten per cent on the sum of sixteen thousand five hundred thirty-three
pesos and sixty-five centavos (P16,533.65) from July 8, 1923, until full payment, to be computed quarterly,
besides the sum of one thousand six hundred fifty-three pesos and sixty-five centavos (P1,653.65), which is
ten per cent (10%) on the amount due and the interest thereon, which said defendant promised to pay as
penalty and attorney's fees in the event of a suit being necessary to recover the debt, and the costs. So
ordered.

It appears from the evidence that what the plaintiff alleged to be a payment made to "Manila Compañia de Seguros",
for the satisfaction of the judgment rendered in favor of the latter is the execution by Albina Tuason of a document
Exhibit D 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. This obligation of Albina
Tuason was accepted by the "Manila Compañia de Seguros," in the following terms: "I accept the foregoing security
executed by Miss Albina Tuason in favor of `Manila Compañia de Seguros.'" It, thus, appears that the plaintiff has
not in fact paid the amount of the judgment to "Manila Compañia de Seguros." The action brought by the plaintiff is
that which surety, who pays the debt of the debtor, is entitled to bring to recover the amount thus paid (art. 1823,
Civil Code). It is evidence that such a payment not having been made the alleged cause of action does not exist.

The plaintiff company argues that, at all events, it is entitled to bring this action under article 1843 of the Civil Code,
which provides that the surety may, even before making payment, bring action against the principal debtor. This
contention of the plaintiff is untenable. The present action, according to the terms of the complaint, is clearly based
on the fact of payment. It is true that, under article 1843, an action lies against the principal debtor even before the
surety pays the debt, but it clearly appears in the complaint that this is not the action brought by the plaintiff.
Moreover this article 1843 provided several cumulative remedies in favor of the surety, at his election, and the
surety who brings an action under this article must choose the remedy and apply for it specifically. At any rate this
article does not provide for the reimbursement of any amount, as is sought by the plaintiff. lawphi 1.net

But 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 defendant also contends that the document executed by Albina Tuason in favor of "Manila Compañia de
Seguros" assuming and making hers the obligation of Tuason, Tuason & Co., was a novation of the contract by
substitution of the debtor, and relieved Tuason, Tuason & Co. from all obligation in favor of "Manila Compañia de
Seguros." As to this, it is enough to say that if this was what Albina Tuason contemplated in signing the document,
evidently it was not what "Manila Compañia de Seguros" accepted. As above stated, "Manila Compañia de
Seguros" accepted this document only as additional security for its credit and not as a novation of the contract.

Our conclusion is that 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.

The judgment appealed from is modified, and the defendant is sentenced to pay the plaintiff the sum of P9,663, with
interest thereon at the rate of 10 per cent per annum from July 19, 1923, when the complaint was filed until full
payment thereof, plus the sum of P1,653.65 for attorney's fees, without special pronouncement as to costs. So
ordered.

Johnson, Street, Malcolm, Villamor, Ostrand and Romualdez, JJ., concur.

Footnotes

1 R. G. No. 18101, promulgated July 10, 1922, not reported.

Between co-guarantors
Extinguishment of guaranty
Mc Conn vs, Associated – 4 SCRA 251

Security Bank vs. Cuenca – 341 SCRA 781

G.R. No. L-16550 January 31, 1962

ALLEN McCONN, plaintiff-appellant,

vs.
PAUL HARAGAN, ET AL., defendants,
ASSOCIATE INSURANCE and SURETY CO., INC., defendant-appellee.

Jose Desiderio, Jr., Andres E. Matias and Juan C. Nabong, Jr. for plaintiff-appellant.
M. Perez Cardenas for defendant-appellee.

CONCEPCION, J.:

On June 30, 1955 — pending hearing of Civil Case No. 24790 of the Court of First Instance of Manila, entitled
"Morris McConn v. Paul Haragan", which was scheduled to take place on September 16, 1955 — the Bureau of
Immigration advised said court that defendant Paul Haragan had applied for an immigration clearance and a re-
entry permit to enable him to leave the Philippines for 15 days only and requested information whether the court had
any objection thereto. By an order dated July 11, 1955, the court required Haragan to file a bond of P4,000 "to
answer for his return to the Philippines and the prosecution of his case against him, with the understanding, that
upon his failure to return, said bond will answer pro tanto for any judgment that may be rendered against him".
Thereupon, or on July 12, 1955, Haragan submitted a bond, subcribed by him and the Associated Insurance &
Surety Co., as principal and surety, respectively, reading: .

WHEREAS, the above-bounden PRINCIPAL, is intending to leave the Philippines on a business trip to
Hongkong and Tokyo, Japan, for a period of thirty (30) days from date of his departure, in connection with
his business;

WHEREAS, the above-bounden PRINCIPAL, has a pending case before the Court of First Instance of
Manila, Branch III, entitled: "Allen McConn, Plaintiff, vs. Paul Haragan, Defendant", Civil Case No. 24790,
which is scheduled for hearing on September 16, 1955;

WHEREAS, before the above-bounden PRINCIPAL could leave the Philippines for Hongkong and Tokyo,
Japan, the above-mentioned Court has required him to post a Surety Bond, in the amount of PESOS FOUR
THOUSAND ONLY (P4,000.00) Philippine Currency, the guarantee that he will return to the Philippines on
or before September 16, 1955;

NOW, THEREFORE, for and in consideration of the above premises, the PRINCIPAL and the SURETY,
hereby bind themselves, jointly and severally, in favor of the Republic of the Philippines, or its authorized
representatives, in the sum of PESOS FOUR THOUSAND ONLY (P4,000.00) Philippine Currency, that the
herein PRINCIPAL will return to the Philippines on or before September 16, 1955 and that should he fail to
do so, said bond will answer pro tanto for any judgment that may be rendered against him.

Soon thereafter, or on July 19, 1955, the court issued an order stating that "in view of said bond, it would have no
objection" to Haragan's "departure from the Philippines for a short stay abroad" and that "formal leave" was thereby
given him. On the date set for the hearing of the case, Haragan's counsel moved for continuance, whereupon, the
hearing was postponed to November 14, 1955. On the date last mentioned, the same counsel informed the court
that Haragan had been unable to return to the Philippines because the Philippine Consulate in Hongkong had
advised Haragan of a communication from our Department of Foreign Affairs banning him from returning to the
Philippines. The court then postponed the hearing to January 6, 1956. Subsequently, Herbert T. Fallis was
impleaded as defendant and, later on, one Inocencio Ortiz Luis Jr. was allowed to intervene. In due course,
thereafter, or on February 19, 1959, the court rendered judgment, which, inter alia, sentenced Haragan to pay to
plaintiff the sum of P5,500, with 6% interest thereon from December 8, 1954, until full payment, plus P1,000 as
attorney's fees and costs. After this judgment had become final and executory, plaintiff moved for the execution of
the aforementioned bond to satisfy said judgment against Haragan. The surety company objected thereto upon
several grounds and, after due hearing, the lower court issued an order dated October 13, 1959, releasing said
company from liability under the bond aforementioned and denying plaintiff's motion. A reconsideration of this order
having been denied, the case is now before us on record on appeal filed by the plaintiff. 1äwphï1.ñët

The issue is whether the Surety Company is liable to plaintiff under the bond quoted above, in view of the failure of
Haragan to return to the Philippines. The lower court decided the issue in the negative upon the following ground: .

... A careful reading of the surety bond, Exhibit F, indicates that the surety's principal commitment is 'to
guarantee that he (Haragan) will return to the Philippines on or before September 16, 1955' (See the third
'Whereas'). In the last paragraph of said surety bond, Exhibit F, it appears that said bond was executed in
favor of the Republic of the Philippines or its duly authorized representatives to guarantee 'thatthe herein
principal (Haragan) will return to the Philippines on or before September 16, 1955 and that should he fail to
do so, said bond will answer pro tanto for any judgment that may be rendered against him.' As the terms of
the bond so state, it appears clearly that the bond will only answer for the judgment which may be rendered
against defendant, should he (defendant Haragan) fail to return to the Philippines. In other words, if
defendant Haragan should return to the Philippines on or before September 16, 1955, said bond will not
answer for the judgment. It is now the contention of the Associated Insurance that since it was the Republic
of the Philippines (obligee under the bond) who rendered the return of defendantHaragan to the Philippines
impossible, said surety company is thereby released from its obligation, and cites in support thereof Articles
1266 and 2076 of the New Civil Code. Upon a consideration of this contention, the Court finds it tenable and
well grounded, for as the surety company has so well stated 'where the principal obligation (of returning to
the Philippines) has been extinguished by the action of the obligee, Philippine Government in preventing
such return, the accessory obligation of the surety is likewise extinguished and the bond released of its
liability.' Paraphrasing the last paragraph of the bond in a negative way, it will read thus: 'should he (not) fail
to do so, said bond will (not) answer pro tanto for any judgment that may be rendered against him.

We are fully in agreement with the foregoing view, which is in accord with the principle that:

The debtor in obligation to do shall also be released when the prestationbecomes legally or physically
impossible without the fault of the obligor. (Article 1266, Civil Code of the Philippines.).

Thus, in Tabora vs. Lazatin, (G.R. No. L-5245, May 29, 1953), we said:

This Court finds that despite his efforts to secure the necessary building permit for the reconstruction, he
failed because of the disapproval or unfavorable attitude of the Urban Planning Commission toward
reconstruction unless they conformed to the plan of widening the city streets. Finding that defendant had
done all he could to secure the permit and to comply with his obligations, but because of the refusal of the
government authorities to issue said permit, he failed to fulfill his undertaking, he should be absolved and
released from said obligation.

To same effect, substantially, is the decision of this Court in House vs. De La Costa (40 Off. Gaz. [3 S] 47).

WHEREFORE, the order appealed from is hereby affirmed, with the costs of this instance against plaintiff-appellant.
It is so ordered.

Padilla, Bautista Angelo, Labrador, Reyes, J.B.L. Barrera, Paredes, Dizon and De Leon, JJ., concur.
Bengzon, C.J., took no part.

NASSCO vs. Torrento – 20 SCRA 427

PNB vs. CA – 147 SCRA 273

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and AMBROSIO PADILLA, Respondents. G.R.
No. 88880. April 30, 1991.

DOCTRINE: Removal of Usury Law Ceiling on interest rates does not authorize banks to unilaterally and successively
increase interest rates.
FACTS: Ambrosio Padilla, private respondents, was granted by petitioner Philippine National Bank, a credit line, secured
by a real estate mortgage, for a term of 2 years, with 18% interest per annum. Private respondent executed in favor of
the PNB a Credit Agreement, 2 promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage
Contract. Stipulations in the PN authorizes PNB to increase the stipulated 18% interest per annum "within the limits
allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the interest
rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced
by law or by the Monetary Board." Padilla requested to the increase in the rate of interest from 18% be fixed at 21% or
24% but was denied by PNB.

ISSUE: Whether PNB, within the term of the loan which it granted to the private respondent, may unilaterally change or
increase the interest rate stipulated therein at will and as often as it pleased.

HELD: No. Central Bank Circular No. 905, Series of 1982 removed the Usury law ceiling on interest rates, however, it did
not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates
from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to "once every
twelve months."

PNB vs. Macapanga – 99 Phil 180

National Bank vs. Escueta – 50 Phil 991

Radio Corp vs. Roa – 62 Phil 112

Radio Corp. v. Roa

CFI Manila ruled in favor of Radio Corp. against defendants Jesus Roa, Ramon Chavez, Andres Roa and Manuel Roa.

- Jesus Roa – 22,935

- Upon failure – chattel mortgage to be sold at a public auction
- Jesus Roa, Ramon Chavez, Andres Roa and Manuel Roa to pay solidarily 22,935
Facts:

- Jesus Roa became indebted to Philippine Theater Enterprises 28,400 payable in 71 monthly installment
at P400/month.
- PET assigned its rights to Radio Corp.
- There was an accelerating clause:
- In case Roa fails to pay, the whole amount shall immediately become due and demandable and the
mortgage and the Luzon Surety bond may be foreclosed by the vendor/mortgagee
- Radio Corp, through its attorney in fact Erlanger and Galinger, Inc. wrote a letter to Jesus saying that it
has no objection to the extension requested by Roa to pay the Feb installment on April.
Issue:

W/N the extension granted, without the consent of the guarantors, extinguishes the liability not only to the installments
due at that time but also to the whole amount of their obligation?

Held:

Whole amount.

Ratio:

In the stipulation between Roa and PET, the creditor is given the right to treat and declare all said installments as
immediately due when there is nonpayment.

Under the express provision of the contract, the whole unpaid balance becomes due and payable upon to failure to pay
one installment. The act of Radio Corp extending payment, without the consent of the guarantors, constituted in fact an
extension of the payment of the whole amount of indebtedness.
Zobel vs. CA – 290 SCRA 1
Catholic Vicar Vs. CA
Date: September 31, 1988

Facts:
- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the court an
application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet, said
lots being used as sites of the Catholic Church, building, convents, high school building, school
gymnasium, dormitories, social hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership over
lots 1, 2 and 3. (2 separate civil cases)
- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4. Upon
appeal by the private respondents (heirs), the decision of the lower court was reversed. Title for lots 2
and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of
Appeals dismissing his application for registration of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his written demand
to Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000
per month. On the other hand, Vicar presented the Register of Deeds for the Province of Benguet, Atty.
Sison, who testified that the land in question is not covered by any title in the name of Egmidio
Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons. Brasseur when the heirs
admitted that the witness if called to the witness stand, would testify that Vicar has been in possession
of Lot 3, for 75 years continuously and peacefully and has constructed permanent structures thereon.

Issue: WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum,
a gratuitous loan for use.

Held: YES.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They never asked for the return of the house, but
when they allowed its free use, they became bailors in commodatum and the petitioner the bailee.

The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The appellate court
did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and
Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.