Ong vs PCIB creditor banks pertain only to the property of BMC.
Firstly, in the
Facts: - In 1991, Baliwag Mahogany Corp needed additional
capital for its business and applied for various loans, amounting
to a total of five million pesos, with the respondent bank. Alfredo
(President) and Susana Ong (Treasurer) acted as sureties for
these loans and issued 3 promissory notes for the purpose. It
was stipulated in the notes that the bank may consider BMC in
default and demand payment of the remaining balance of the
loan upon the levy, attachment or garnishment of any of its
properties, or upon BMC’s insolvency, or if it is declared to be in
a state of suspension of payments. Thereafter, BMC filed a
petition for rehabilitation and suspension of payments with SEC
after the creditors attached its properties. The bank then sought
the collection of the payment of the debt from the petitioners as
sureties.
- On April 20, 1992, PCIB filed a case for collection of a sum of
money against petitioners-spouses. On October 13, 1992, a
MOA was executed by BMC, the petitioners, and the consortium
of creditor banks of BMC (including PBIC). Petitioners then
moved to dismiss the complaint arguing that the MOA
suspended any pending civil action against BMC. Hence, the
benefits of the MOA should also be extended to the petitioners
as sureties. The trial court denied the motion to dismiss. The CA
affirmed the trial court’s ruling that a creditor can proceed against
petitioners as surety independently of its right to proceed against
BMC.
Issue: WON the suit against the spouses should be dismissed
Held: No
Ratio: - Reliance of petitioners on Articles 2063 and 2081 CC
is misplaced as these provisions refer to contracts of guaranty.
They do not apply to suretyship contracts. Petitioners are not
guarantors but sureties of BMC’s debts. There is a sea of
difference in the rights and liabilities of a guarantor and a surety.
A guarantor insures the solvency of the debtor while a surety is
an insurer of the debt itself. A contract of guaranty gives rise to a
subsidiary obligation on the part of the guarantor. It is only after
the creditor has proceeded against the properties of the principal
debtor and the debt remains unsatisfied that a guarantor can be
held liable to answer for any unpaid amount. This is the principle
of excussion. In a suretyship contract, however, the benefit of
excussion is not available to the surety as he is principally liable
for the payment of the debt. As the surety insures the debt
itself, he obligates himself to pay the debt if the principal debtor
will not pay, regardless of whether or not the latter is financially
capable to fulfill his obligation. Thus, a creditor can go directly
against the surety although the principal debtor is solvent and is
able to pay or no prior demand is made on the principal debtor.
A surety is directly, equally and absolutely bound with the
principal debtor for the payment of the debt and is deemed as an
original promissor and debtor from the beginning.
- Under the suretyship contract entered into by petitioners with
the bank, the former obligated themselves to be solidarily bound
with BMC for the payment of its debts to the bank. Under Article
1216 CC, the bank as creditor may proceed against petitioners
as sureties despite the execution of the MOA which provided for
the suspension of payment and filing of collection suits against
BMC. The bank’s right to collect payment from the surety exists
independently of its right to proceed directly against the principal
debtor. In fact, the bank may go against the surety alone without
prior demand for payment on the principal debtor.
- The provisions of the MOA regarding the suspension of
payments by BMC and the non-filing of collection suits by the
1
rehabilitation receivership filed by BMC, only the properties of
BMC were mentioned in the petition with the SEC. Secondly,
there is nothing in the MOA that involves the liabilities of the
sureties whose properties are separate and distinct from that of
the debtor BMC. Lastly, it bears to stress that the MOA executed
by BMC and signed by the creditor-banks was approved by the
SEC whose jurisdiction is limited only to corporations and
corporate assets. It has no jurisdiction over the properties of
BMC’s officers or sureties.
Civil Law; Guaranty; Suretyship; Difference in the Rights
and Liabilities of a Guarantor and a Surety.—There is a sea of
difference in the rights and liabilities of a guarantor and a surety.
A guarantor insures the solvency of the debtor while a surety is
an insurer of the debt itself. A contract of guaranty gives rise to
a subsidiary obligation on the part of the guarantor. It is only after
the creditor has proceeded against the properties of the principal
debtor and the debt remains unsatisfied that a guarantor can be
held liable to answer for any unpaid amount. This is the principle
of excussion. In a suretyship contract, however, the benefit of
excussion is not available to the surety as he is principally liable
for the payment of the debt.As the surety insures the debt itself,
he obligates himself to pay the debt if the principal debtor will not
pay, regardless of whether or not the latter is financially capable
to fulfill his obligation. Thus, a creditor can go directly against the
surety although the principal debtor is solvent and is able to pay
or no prior demand is made on the principal debtor. A surety is
directly, equally and absolutely bound with the principal debtor
for the payment of the debt and is deemed as an original
promissor and debtor from the beginning.
Same; Same; Same; Respondent bank’s right to collect
payment from the surety exists independently of its right to
proceed directly against the principal debtor.—Under Article
1216 of the Civil Code, respondent bank as creditor may proceed
against petitioners-spouses as sureties despite the execution of
the MOA which provided for the suspension of payment and filing
of collection suits against BMC. Respondent bank’s right to
collect payment from the surety exists independently of its right
to proceed directly against the principal debtor. In fact, the
creditor bank may go against the surety alone without prior
demand for payment on the principal debtor.
International Finance Corporation v. Imperial Textile Mills,
Inc
Facts: On Dec. 17, 1974, Philippine Polyamide Industrial
Corporation (PPIC) made a loan agreement with International
Finance Corporation (IFC) in the amount of $7,000,000.00
payable in 16 semi-annual installments beginning June 1, 1977
to Dec. 1, 1984 with an interest rate of 10% per annum. On the
same date, a “Gaurantee Agreement” was executed with
Imperial Textile Mills, Inc.(ITM), Grand Textile Manufacturing
Corp (Grandtex) and IFC as parties thereto. ITM and Grandtex
agreed to guarantee PPIC’s obligations under the loan
agreement. PPIC paid the first 3 installments and asked for a
rescheduling of the next installments but despite the reschedule,
PPIC defaulted. On April 1, 1985, IFC served a written notice of
default to PPIC demanding the latter to pay the outstanding
principal and all the accrued interests. Despite the notice, PPIC
failed to pay.
IFC then applied for the extrajudicial foreclosure of
mortgages on the real estate, properties, etc. owned by PPIC
located at Calamba, Laguna. The sheriff then issued a notice of
extrajudicial sale and IFC and DBP were the only bidders. IFC’s
bid was P99,269,100 which was equivalent to $5,250,000. The
outstanding loan however amounted to $8,083,967 thus leaving
a balance of $2,833,967. PPIC failed to pay the remaining
balance. Consequently, IFC demanded ITM and Grandtex, as
guarantors of PPIC, to pay the outstanding balance but no
payment was made. On May 20, 1988, IFC filed a complaint
against PPIC and ITM for the payment of the outstanding
balance plus interests and attorney’s fees. The trial court held
PPIC liable for the payment of the outstanding loan plus interest
but the trial court relieved ITM of its obligation as guarantor,
dismissing IFC’s complaint against ITM. The CA reversed the
decision of the trial court in so far as the latter exonerated ITM
from any obligation to IFC. Accdg. to the CA, ITM bound itself
under the “Guarantee Agreement” to pay PPIC’s obligation upon
default. ITM’s liability as guarantor would arise only if and when
PPIC could not pay and since PPIC’s inability to comply with the
obligation is not sufficiently established, ITM could not be made
to assume the liability. CA denied reconsideration, hence the
petition.
Issue: Whether ITM is a surety, and thus solidarily liable with
PPIC for the payment of the loan.
Held: While referring to ITM as a guarantor, the Agreement
specifically stated that the corporation was “jointly and severally”
liable. To put emphasis on the nature of that liability, the Contract
further stated that ITM was a primary obligor, not a mere surety.
Those stipulations meant only one thing: that at bottom, and to
all legal intents and purposes, it was a surety. Therefore, ITM
bound itself to be solidarily liable with PPIC for the latter’s
obligations under the Loan Agreement with IFC. ITM thereby
brought itself to the level of PPIC and could not be deemed
merely secondarily liable. ITM’s liability commenced only when it
guaranteed PPIC’s obligation. It became a surety when it bound
itself solidarily with the principal obligor. Thus, Art. 2047 applies,
“by guaranty, a person, called the guarantor binds himself to the
creditor to fulfill the obligation of the principal in case the latter
should fail to do so.xxx” and Art. 1216, “the creditor may proceed
against any one of the solidary debtors….” Contracts have the
force of law between the parties who are free to stipulate any
matter not contrary to law, morals, etc. so the Court cannot give
a different meaning to the plain language of the Guarantee
Agreement. Wherefore, the petition was granted and the assailed
decision and resolution modified in the sense that ITM is
declared a surety to PPIC and ITM is ordered to pay IFC the
same amounts adjudged against PPIC in the assailed decision.
Obligations and Contracts;  Suretyship;  Guarantee;  Where if
the agreement referred to a corporation as a guarantor but
at the same time specifically stated that the corporation was
“jointly and severally liable,” further stating that it was a
primary obligor, not a mere surety, at bottom, and to all
intents and purposes, it means it was a surety.—While
referring to ITM as a guarantor, the Agreement specifically stated
that the corporation was “jointly and severally” liable. To put
emphasis on the nature of that liability, the Contract further
stated that ITM was a primary obligor, not a mere surety. Those
stipulations meant only one thing: that at bottom, and to all legal
intents and purposes, it was a surety. Indubitably therefore, ITM
bound itself to be solidarily liable with PPIC for the latter’s
obligations under the Loan Agreement with IFC. ITM thereby
brought itself to the level of PPIC and could not be deemed
merely secondarily liable.
Same; Same;  Same; Words and Phrases; Jointly and
Severally; When qualified by the term “jointly and
severally,” the use of the word “guarantor” to refer to a
“surety” does not violate the law.—The Court does not find
any ambiguity in the provisions of the Guarantee Agreement.
2
When qualified by the term “jointly and severally,” the use of the
word “guarantor” to refer to a “surety” does not violate the law.
As Article 2047 provides, a suretyship is created when a
guarantor binds itself solidarily with the principal obligor.
Likewise, the phrase in the Agreement—“as primary obligor and
not merely as surety”—stresses that ITM is being placed on the
same level as PPIC. Those words emphasize the nature of their
liability, which the law characterizes as a suretyship.
Same;  Same; Same;  Same; The use of the word “guarantee”
does not ipso facto make the contract one of guaranty.—The
use of the word “guarantee” does not ipso facto make the
contract one of guaranty. This Court has recognized that the
word is frequently employed in business transactions to describe
the intention to be bound by a primary or an independent
obligation. The very terms of a contract govern the obligations of
the parties or the extent of the obligor’s liability. Thus, this Court
has ruled in favor of suretyship, even though contracts were
denominated as a “Guarantor’s Undertaking” or a “Continuing
Guaranty.” Contracts have the force of law between the parties,
who are free to stipulate any matter not contrary to law, morals,
good customs, public order or public policy. None of these
circumstances are present, much less alleged by respondent.
Hence, this Court cannot give a different meaning to the plain
language of the Guarantee Agreement.
Same;  Same; Same;  Same; The literal meaning of the
stipulations control when the terms of the contract are clear
and there is no doubt as to intention of the parties.—The
finding of solidary liability is in line with the premise provided in
the “Whereas” clause of the Guarantee Agreement. The
execution of the Agreement was a condition precedent for the
approval of PPIC’s loan from IFC. Consistent with the position of
IFC as creditor was its requirement of a higher degree of liability
from ITM in case PPIC committed a breach. ITM agreed with the
stipulation in Section 2.01 and is now estopped from feigning
ignorance of its solidary liability. The literal meaning of the
stipulations control when the terms of the contract are clear and
there is no doubt as to the intention of the parties.
Same;  Same; Although a surety contract is secondary to the
principal obligation, the liability of the surety is direct,
primary and absolute, or equivalent to that of the regular
party to the undertaking—a surety becomes liable to the
debt and the duty of the principal obligor even without
possessing a direct or personal interest in the obligations
constituted by the latter.—We note that the CA denied solidary
liability, on the theory that the parties would not have executed a
Guarantee Agreement if they had intended to name ITM as a
primary obligor. The appellate court opined that ITM’s
undertaking was collateral to and distinct from the Loan
Agreement. On this point, the Court stresses that a suretyship is
merely an accessory or a collateral to a principal obligation.
Although a surety contract is secondary to the principal
obligation, the liability of the surety is direct, primary and
absolute; or equivalent to that of a regular party to the
undertaking. A surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal
interest in the obligations constituted by the latter.
ASTRO ELECTRONICS CORP. and PETER ROXAS
vs
 PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE
CORPORATION
FACTS: Astro was granted several loans by the Philippine Trust
Company (Philtrust) amounting to P3,000,000.00 with interest
and secured by three promissory notes: PN NO. PFX-254 dated
December 14, 1981 for P600,000.00, PN No. PFX-258 also
dated December 14, 1981 for P400,000.00 and PN No. 15477
dated August 27, 1981 for P2,000,000.00. In each of these
promissory notes, it appears that petitioner Roxas signed twice,
as President of Astro and in his personal capacity. [2] Roxas also
signed a Continuing Surety ship Agreement in favor of Philtrust
Bank, as President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed
in favor of Philtrust the payment of 70% of Astros loan, subject to
the condition that upon payment by Philguanrantee of said
amount, it shall be proportionally subrogated to the rights of
Philtrust against Astro.
As a result of Astros failure to pay its loan obligations, despite
demands, Philguarantee paid 70% of the guaranteed loan to
Philtrust. Subsequently, Philguarantee filed against Astro and
Roxas a complaint for sum of money with the RTC of Makati.
In his Answer, Roxas disclaims any liability on the instruments,
alleging, inter alia, that he merely signed the same in blank and
the phrases in his personal capacity and in his official capacity
were fraudulently inserted without his knowledge.
ISSUE: WON Roxas should be jointly and severally liable
(solidary) with Astro for the sum of payment?
HELD: YES
Astros loan with Philtrust Bank is secured by three promissory
notes. These promissory notes are valid and binding against
Astro and Roxas. As it appears on the notes, Roxas signed
twice: first, as president of Astro and second, in his personal
capacity. In signing his name aside from being the President of
Asro, Roxas became a co-maker of the promissory notes and
cannot escape any liability arising from it. 
Under the Negotiable Instruments Law, persons who write their
names on the face of promissory notes are makers, promising
that they will pay to the order of the payee or any holder
according to its tenor. Thus, even without the phrase personal
capacity, Roxas will still be primarily liable as a joint and several
debtor under the notes considering that his intention to be liable
as such is manifested by the fact that he affixed his signature on
each of the promissory notes twice which necessarily would
imply that he is undertaking the obligation in two different
capacities, official and personal.
The three promissory notes uniformly provide: FOR VALUE
RECEIVED, I/We jointly, severally and solidarily, promise to pay
to PHILTRUST BANK or order... An instrument which begins with
I, We, or Either of us promise to pay, when signed by two or
more persons, makes them solidarily liable. Also, the phrase joint
and several binds the makers jointly and individually to the payee
so that all may be sued together for its enforcement, or the
creditor may select one or more as the object of the suit.  Having
signed under such terms, Roxas assumed the solidary liability of
a debtor and Philtrust Bank may choose to enforce the notes
against him alone or jointly with Astro.
Philguarantee has all the right to proceed against petitioner, it is
subrogated to the rights of Philtrust to demand for and collect
3
payment from both Roxas and Astro since it already paid the
value of 70% of Roxas and Astro Electronics Corp.s loan
obligation. In compliance with its contract of Guarantee in favor
of Philtrust.
Subrogation is the transfer of all the rights of the creditor to a
third person, who substitutes him in all his rights. It may either be
legal or conventional. Legal subrogation is that which takes place
without agreement but by operation of law because of certain
acts.  Instances of legal subrogation are those provided in Article
1302 of the Civil Code. Conventional subrogation, on the other
hand, is that which takes place by agreement of the parties.
Roxas acquiescence is not necessary for subrogation to take
place because the instant case is one of the legal subrogation
that occurs by operation of law, and without need of the debtors
knowledge. Further, Philguarantee, as guarantor, became the
transferee of all the rights of Philtrust as against Roxas and Astro
because the guarantor who pays is subrogated by virtue thereof
to all the rights which the creditor had against the debtor.
Negotiable Instruments Law; Promissory
Note;  Parties;  Maker;  Persons writing their names on face
of promissory notes are makers.—Under the Negotiable
Instruments Law, persons who write their names on the face of
promissory notes are makers, promising that they will pay to the
order of the payee or any holder according to its tenor.
Civil Law;  Obligations; Subrogation;  Legal
Subrogation;  Legal subrogation is that which takes place by
operation of law.—Subrogation is the transfer of all the rights of
the creditor to a third person, who substitutes him in all his rights.
It may either be legal or conventional. Legal subrogation is that
which takes place without agreement but by operation of law
because of certain acts. Instances of legal subrogation are those
provided in Article 1302 of the Civil Code. Conventional
subrogation, on the other hand, is that which takes place by
agreement of the parties.
Same;  Same; Same;  Same; Knowledge of debtor not
necessary.—Roxas’ acquiescence is not necessary for
subrogation to take place because the instant case is one of
legal subrogation that occurs by operation of law, and without
need of the debtor’s knowledge.
SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs.
SOLID BANK CORPORATION, FIRST BUSINESS PAPER
CORPORATION (FBPC)
Facts:
RESPONDENT SOLID BANK CORPORATION AGREED TO
EXTEND an "omnibus line" credit facility worth P10 million in
favor of (FBPC). The terms and conditions of the agreement as
well as the checklist of documents necessary to open the credit
line were stipulated in a "letter-advise" of the Bank. The
documents essential for the credit facility and submitted for this
purpose were the
xxx(c) Continuing Guaranty for any and all amounts signed by
petitioner-spouses Luis Toh and Vicky Tan Toh, and respondent-
spouses Kenneth and Ma. Victoria Ng Li xxx
The spouses Toh were then Chairman of the Board and Vice-
President, of FBPC, while respondent-spouses Ng Li were
President and General Manager of the same corporation.5
The Continuing Guaranty set forth no maximum limit on the
indebtedness that respondent FBPC may incur and contained a
de facto acceleration clause. So as to strengthen this security,
the Continuing Guaranty waived rights of the sureties against
delay or absence of notice or demand on the part of respondent
Bank, and gave future consent to the Bank's action to "extend or
change the time payment, and/or the manner, place or terms of
payment," including renewal, of the credit facility or any part
thereof in such manner and upon such terms as the Bank may
deem proper without notice to or further assent from the sureties.
On 16 June 1993 respondent FBPC started to avail of the credit
facility and secured letters of credit.7 FBPC opened thirteen (13)
letters of credit and executed a series of trust receipts over the
goods allegedly purchased from the proceeds of the loans.9
On 13 January 1994 respondent Bank received information that
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had
fraudulently departed from their conjugal home.10 On 14
January 1994 the Bank served a demand letter upon FBPC and
petitioner Luis Toh invoking the acceleration clause11 in the trust
receipts of FBPC and claimed payment for P10,539,758.68 as
unpaid overdue accounts on the letters of credit plus interests
and penalties within twenty-four (24) hours from receipt
thereof.12 The Bank also invoked the Continuing Guaranty
executed by petitioner-spouses Luis Toh and Vicky Tan Toh.
On 17 January 1994 respondent Bank filed a complaint for sum
of money.
Petitioners also contended that through FBPC Board Resolution,
petitioner Luis Toh was removed as an authorized signatory for
FBPC and replaced by respondent-spouses Ng Li and Padilla for
all the transactions of FBPC with respondent Bank.24 They even
resigned from their respective positions in FBPC. Finally,
petitioners averred that sometime in June 1993 they obtained
from respondent Kenneth Ng Li their exclusion from the several
surety agreements they had entered into .
ISSUE: WON spouses TOH are discharged as sureties under
the Continuing Guaranty.
HELD This Court holds that the Continuing Guaranty is a valid
and binding contract of petitioner-spouses as it is a public
document that enjoys the presumption of authenticity and due
execution. Similarly, there is no basis for petitioners to limit their
responsibility so long as they were corporate officers and
stockholders of FBPC. Nothing in the Continuing Guaranty
restricts their contractual undertaking to such condition or
eventuality.
But as we bind the spouses Luis Toh and Vicky Tan Toh to the
surety agreement they signed so must we also hold respondent
Bank to its representations in the "letter-advise" of 16 May 1993.
Particularly, as to the extension of the due dates of the letters of
credit, we cannot exclude from the Continuing Guaranty the
preconditions of the Bank that were plainly stipulated in the
"letter-advise."
Insofar as petitioners stipulate in the Continuing Guaranty that
respondent Bank "may at any time, or from time to time, in [its]
discretion x x x extend or change the time payment," this
provision even if understood as a waiver is confined per se to the
grant of an extension and does not surrender the prerequisites
therefor as mandated in the "letter-advise." In other words, the
authority of the Bank to defer collection contemplates only
authorized extensions, that is, those that meet the terms of the
"letter-advise."
4
Certainly, while the Bank may extend the due date at its
discretion pursuant to the Continuing Guaranty, it should
nonetheless comply with the requirements that domestic letters
of credit be supported by fifteen percent (15%) marginal deposit
extendible three (3) times for a period of thirty (30) days for each
extension, subject to twenty-five percent (25%) partial payment
per extension.
Furthermore, the assurance of the sureties in the Continuing
Guaranty that "[n]o act or omission of any kind on [the Bank's]
part in the premises shall in any event affect or impair this
guaranty"51 must also be read "strictissimi juris" for the reason
that petitioners are only accommodation sureties, i.e., they
received nothing out of the security contract they signed.5 An
extension of the period for enforcing the indebtedness does not
by itself bring about the discharge of the sureties unless the extra
time is not permitted within the terms of the waiver, i.e., where
there is no payment or there is deficient settlement of the
marginal deposit and the twenty-five percent (25%)
consideration, in which case the illicit extension releases the
sureties. Under Art. 2055 of the Civil Code, the liability of a
surety is measured by the terms of his contract, and while he is
liable to the full extent thereof, his accountability is strictly limited
to that assumed by its terms.
It is admitted by respondent Bank before the trial court that
several letters of credit were irrevocably extended for ninety (90)
days with alarmingly flawed and inadequate consideration - the
indispensable marginal deposit of fifteen percent (15%) and the
twenty-five percent (25%) prerequisite for each extension of thirty
(30) days.
The foregoing extensions of the letters of credit made by
respondent Bank without observing the rigid restrictions for
exercising the privilege are not covered by the waiver stipulated
in the Continuing Guaranty. Evidently, they constitute illicit
extensions prohibited under Art. 2079 of the Civil Code, "[a]n
extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty."
As a result of these illicit extensions, petitioner-spouses Luis Toh
and Vicky Tan Toh are relieved of their obligations as sureties of
respondent FBPC under Art. 2079 of the Civil Code.
By the same token, there is no explanation on record for the utter
worthlessness of the trust receipts in favor of the Bank when
these documents ought to have added more security to the
indebtedness of FBPC. To be sure, the goods subject of the trust
receipts were not entirely lost since the security officer of
respondent Bank who conducted surveillance of FBPC even had
the chance to intercept the surreptitious transfer of the items
under trust. In addition, the attached properties of FBPC were
perfunctorily abandoned by respondent Bank although the bonds
therefor were considerably reduced by the trial court.58
The consequence of these omissions is to discharge the surety,
petitioners herein, or at the very least, mitigate the liability of the
surety up to the value of the property or lien released – If the
creditor has acquired a lien upon the property of a principal, the
creditor at once becomes charged with the duty of retaining such
security, or maintaining such lien in the interest of the surety, and
any release or impairment of this security as a primary resource
for the payment of a debt, will discharge the surety to the extent
of the value of the property or lien released x x x x [for] there
immediately arises a trust relation between the parties, and the
creditor as trustee is bound to account to the surety for the value
of the security in his hands.60
For the same reason, the grace period granted by respondent
Bank represents unceremonious abandonment and forfeiture of
the fifteen percent (15%) marginal deposit and the twenty-five
percent (25%) partial payment as fixed in the "letter-advise."
These payments are unmistakably additional securities intended
to protect both respondent Bank and the sureties in the event
that the principal debtor FBPC becomes insolvent during the
extension period. Compliance with these requisites was not
waived by petitioners in the Continuing Guaranty. For this
unwarranted exercise of discretion, respondent Bank bears the
loss; due to its unauthorized extensions to pay granted to FBPC,
petitioner-spouses Luis Toh and Vicky Tan Toh are discharged
as sureties under the Continuing Guaranty.
Civil Law;  Contracts;  Suretyship;  Extension;  Liability; An
extension of the period for enforcing the indebtedness does
not by itself bring about the discharge of the sureties.—
Stated otherwise, an extension of the period for enforcing the
indebtedness does not by itself bring about the discharge of the
sureties unless the extra time is not permitted within the terms of
the waiver, i.e., where there is no payment or there is deficient
settlement of the marginal deposit and the twenty-five percent
(25%) consideration, in which case the illicit extension releases
the sureties. Under Art. 2055 of the Civil Code, the liability of a
surety is measured by the terms of his contract, and while he is
liable to the full extent thereof, his accountability is strictly limited
to that assumed by its terms.
Same; Same;  Same; Same;  Same; An extension granted to
the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty.—Evidently, they
constitute illicit extensions prohibited under Art. 2079 of the Civil
Code, “[a]n extension granted to the debtor by the creditor
without the consent of the guarantor extinguishes the guaranty.”
This act of the Bank is not mere failure or delay on its part to
demand payment after the debt has become due, as was the
case in unpaid five (5) letters of credit which the Bank did not
extend, defer or put off, but comprises conscious, separate and
binding agreements to extend the due date, as was admitted by
the Bank itself.
Same; Same;  Same; Same;  Same; Any release or
impairment of the security as a primary source for the
payment of a debt, will discharge the surety to the extent of
the value of the property or lien released.—If the creditor x x x
has acquired a lien upon the property of a principal, the creditor
at once becomes charged with the duty of retaining such
security, or maintaining such lien in the interest of the surety, and
any release or impairment of this security as a primary resource
for the payment of a debt, will discharge the surety to the extent
of the value of the property or lien released x x x x [for] there
immediately arises a trust relation between the parties, and the
creditor as trustee is bound to account to the surety for the value
of the security in his hands.
Corporation Law; Corporation Code;  Liability; There is no
law that prohibits a corporate officer from binding himself
personally to answer for a corporate debt.—There is no law
that prohibits a corporate officer from binding himself personally
to answer for a corporate debt. While the limited liability doctrine
is intended to protect the stockholder by immunizing him from
personal liability for the corporate debts, he may nevertheless
divest himself of this protection by voluntarily binding himself to
the payment of the corporate debts. The petitioner cannot
therefore take refuge in this doctrine that he has by his own acts
effectively waived.
5
FILIPINAS TEXTILE MILLS, INC. and BERNARDINO
VILLANUEVA, Petitioners, vs. COURT OF APPEALS and
STATE INVESTMENT HOUSE, INC. respondents
Doctrine: In order to constitute an extension discharging the
surety, it should appear that the extension was for a definite
period, pursuant to an enforceable agreement between the
principal and the creditor, and that it was made without the
consent of the surety or with a reservation of rights with respect
to him. The contract must be one which precludes the creditor
from, or at least hinders him in, enforcing the principal contract
within the period during which he could otherwise have enforced
it, and precludes the surety from paying the debt.
Facts: Filtex applied to SIHI for domestic letters of credit to
finance the purchase of raw materials for its textile business.
SIHI accepted.
Villanueva executed a comprehensive surety agreement, where
he guaranteed, jointly and severally with Filtex, the payment at
maturity to SIHI of all the indebtedness of Filtex.
To ensure payment of the sight drafts, Filtex issued to SIHI
several trust covering the merchandise sold. Under the trust
receipts, Filtex agreed to hold the merchandise in trust for SIHI,
with liberty to sell the same for SIHIs account but without
authority to make any other disposition of the said goods.
Because of Filtex’s failure to pay its outstanding obligation
despite demand, SIHI filed a Complaint praying that the
petitioners be ordered to pay, jointly and severally, the principal
amount.
Filtex: trust receipts and surety agreement don’t reflect true
intention of parties; obligation was fully paid; no cause of action
Villanueva: same special and affirmative defenses and added
that the comprehensive surety agreement is null and void
 The petitioners, however, failed to specifically deny under
oath the genuineness and due execution of the actionable
documents upon which the Complaint was based
RTC: Filtex and Villanueva jointly and severally liable to SIHI
On appeal to CA, Filtex and Villanueva argued that they have
fully paid their indebtedness to SIHI and asserting that the
letters of credit, sight drafts, trust receipts and
comprehensive surety agreement upon which
the Complaint  is based are inadmissible in evidence
supposedly because of non-payment of documentary stamp
taxes as required by the Internal Revesue Code. In addition,
Villanueva asserted that the comprehensive surety agreement
which he executed is null and void, inadmissible in evidence and
contains material alterations. Thus, he claimed that he should not
be held solidarily liable with Filtex.
CA: Upheld RTC. Petitioners had in effect, admitted the
genuineness and due execution of said documents because of
their failure to have their answers placed under oath, the
complaint being based on actionable documents in line with
Section 7, Rule 8 of the Rules of Court. The CA also ruled that
there remained an unpaid balance for which Filtex and
Villanueva are solidarily liable. (MR denied)
Issues: WON the letters of credit, sight drafts, trust receipts and
comprehensive surety agreement shouldn’t have been admitted
as evidence because of lack of the requisite documentary
stamps
Held: NO, they should be admitted. The Answer with
Counterclaim  and Answer  of Filtex and Villanueva, respectively,
did not contain any specific denial under oath of the said
documents upon which SIHIs Complaint  was based, thus giving
rise to the implied admission of the genuineness and due
execution of these documents. Under Sec. 8, Rule 8 of the
Rules of Court, when an action or defense is founded upon a
written instrument, copied in or attached to the corresponding
pleading as provided in the preceding section, the genuineness
and due execution of the instrument shall be deemed admitted
unless the adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts.
Moreover, under Section 173 of the Internal Revenue Code the
liability for payment of the stamp taxes is imposed on the person
making, signing, issuing, accepting, or transferring the document.
As correctly pointed out by SIHI, Filtex was the issuer and
acceptor of the trust receipts and sight drafts, respectively, while
the letters of credit were issued upon its application. On the other
hand, Villanueva signed the comprehensive surety agreement.
Thus, being among the parties obliged to pay the documentary
stamp taxes, the petitioners are estopped from claiming that the
documents are inadmissible in evidence for non-payment thereof
Petitioners questioned the admissibility of these documents
rather belatedly, at the appeal stage even. The rule is well-
settled that points of law, theories, issues and arguments not
adequately brought to the attention of the trial court need not,
and ordinarily will not, be considered by a reviewing court as they
cannot be raised for the first time on appeal because this would
be offensive to the basic rules of fair play, justice and due
process.
Issue: WON the obligation has been fully paid
Yes. This Court shall not depart from the findings of the TC and
the CA, supported by the preponderance of evidence and
unsatisfactorily refuted by the petitioners, as they are
Issue: WON Villanueva should be held to the comprehensive
surety agreement
Villanueva: comprehensive surety agreement is null and void
for lack of consent of Filtex and SIHI. Also, SIHI materially
altered the terms and conditions of the comprehensive surety
agreement by granting Filtex an extension of the period for
payment thereby releasing him from his obligation as surety.
Held: The consent of Filtex to the surety may be assumed from
the fact that Villanueva was the signatory to the sight drafts and
trust receipts on behalf of Filtex. Moreover, Filtex admitted the
execution of the comprehensive surety agreement with the only
qualification that it was not a means to induce SIHI to issue the
domestic letters of credit. SIHIs consent to the surety is also
understood from the fact that it demanded payment from both
Filtex and Villanueva.
The extension of time granted to Filtex to pay its obligation did
not release Villanueva from his liability
The neglect of the creditor to sue the principal at the time the
debt falls due does not discharge the surety, even if such delay
continues until the principal becomes insolvent
The raison detre for the rule is that there is nothing to prevent
the creditor from proceeding against the principal at any time. At
any rate, if the surety is dissatisfied with the degree of activity
6
displayed by the creditor in the pursuit of his principal, he may
pay the debt himself and become subrogated to all the rights and
remedies of the creditor.
It may not be amiss to add that leniency shown to a debtor in
default, by delay permitted by the creditor without change in the
time when the debt might be demanded, does not constitute an
extension of the time of payment, which would release the
surety. In order to constitute an extension discharging the surety,
it should appear that the extension was for a definite period,
pursuant to an enforceable agreement between the principal and
the creditor, and that it was made without the consent of the
surety or with a reservation of rights with respect to him. The
contract must be one which precludes the creditor from, or at
least hinders him in, enforcing the principal contract within the
period during which he could otherwise have enforced it, and
precludes the surety from paying the debt.
Dispositive: Petition denied, CA decision affirmed
Actions;  Evidence;  Pleadings and Practice; Documentary
Stamps;Where the answer does not contain any specific
denial under oath of the letters of credit, sight drafts, trust
receipts and comprehensive surety agreement upon which
the complaint is based, the same gives rise to the implied
admission of the genuineness and due execution of said
documents, which documents are also admissible in
evidence despite absence of documentary stamps thereon.
—The threshold issue in this case is whether or not the letters of
credit, sight drafts, trust receipts and comprehensive surety
agreement are admissible in evidence despite the absence of
documentary stamps thereon as required by the Internal
Revenue Code. We rule in the affirmative. As correctly noted by
the respondent, the Answer with Counterclaim and Answer, of
Filtex and Villanueva, respectively, did not contain any specific
denial under oath of the letters of credit, sight drafts, trust
receipts and comprehensive surety agreement upon which
SIHI’s Complaint was based, thus giving rise to the implied
admission of the genuineness and due execution of these
documents. Under Sec. 8, Rule 8 of the Rules of Court, when an
action or defense is founded upon a written instrument, copied in
or attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse party,
under oath, specifically denies them, and sets forth what he
claims to be the facts.
Same;  Same; Same;  Words and Phrases;  “Admission of the
Genuineness and Due Execution of a Document,”
Explained.—In Benguet Exploration, Inc. vs. Court of
Appeals, this Court ruled that the admission of the genuineness
and due execution of a document means that the party whose
signature it bears admits that he voluntarily signed the document
or it was signed by another for him and with his authority; that at
the time it was signed it was in words and figures exactly as set
out in the pleading of the party relying upon it; that the document
was delivered; and that any formalities required by law, such as
a seal, an acknowledgment, or revenue stamp, which it lacks,
are waived by him.
Same;  Same; Documentary Stamps; A party who is among
those obliged to pay the documentary stamp taxes is
estopped from claiming that the documents are
inadmissible in evidence for non-payment thereof.—Under
Section 173 of the Internal Revenue Code the liability for
payment of the stamp taxes is imposed on “the person making,
signing, issuing, accepting, or transferring” the document. As
correctly pointed out by SIHI, Filtex was the issuer and acceptor
of the trust receipts and sight drafts, respectively, while the
letters of credit were issued upon its application. On the other
hand, Villanueva signed the comprehensive surety agreement.
Thus, being among the parties obliged to pay the documentary
stamp taxes, the petitioners are estopped from claiming that the
documents are inadmissible in evidence for non-payment
thereof.
Same; Obligations and Contracts;  Loans; Suretyship; The
neglect of the Creditor to sue the principal at the time the
debt falls due does not discharge the surety, even if such
delay continues until the principal becomes insolvent.—As
regards the purported material alteration of the terms and
conditions of the comprehensive surety agreement, we rule that
the extension of time granted to Filtex to pay its obligation did not
release Villanueva from his liability. As this Court held
in Palmares vs. Court of Appeals. “The neglect of the creditor to
sue the principal at the time the debt falls due does not discharge
the surety, even if such delay continues until the principal
becomes insolvent . . . The raison d’etre for the rule is that there
is nothing to prevent the creditor from proceeding against the
principal at any time. At any rate, if the surety is dissatisfied with
the degree of activity displayed by the creditor in the pursuit of
his principal, he may pay the debt himself and become
subrogated to all the rights and remedies of the creditor. It may
not be amiss to add that leniency shown to a debtor in default, by
delay permitted by the creditor without change in the time when
the debt might be demanded, does not constitute an extension of
the time of payment, which would release the surety. In order to
constitute an extension discharging the surety, it should appear
that the extension was for a definite period, pursuant to an
enforceable agreement between the principal and the creditor,
and that it was made without the consent of the surety or with a
reservation of rights with respect to him. The contract must be
one which precludes the creditor from, or at least hinders him in,
enforcing the principal contract within the period during which he
could otherwise have enforced it, and precludes the surety from
paying the debt.”
FABIOLA SEVERINO, accompanied by her husband
RICARDO VERGARA, plaintiffs-appellees, 
vs.
GUILLERMO SEVERINO, ET AL., defendants.  same consideration that makes the contract effective between
ENRIQUE ECHAUS, appellant.
R. Nepomuceno for appellant.
Jacinto E. Evidente for appellees.
STREET, J.:
This action was instituted in the Court of First Instance of the
Province of Iloilo by Fabiola Severino, with whom is joined her
husband Ricardo Vergara, for the purpose of recovering the sum
of P20,000 from Guillermo Severino and Enrique Echaus, the
latter in the character of guarantor for the former. Upon hearing
he cause the trial court gave judgment in favor of the plaintiffs to
recover the sum of P20,000 with lawful from November 15, 1929,
the date of the filing of the complaint, with costs. But it was
declared that execution of this judgment should issue first
against the property of Guillermo Severino, and if no property
should be found belonging to said defendant sufficient to satisfy
the judgment in whole or in part, execution for the remainder
should be issued against the property of Enrique Echaus as
guarantor. From this judgment the defendant Echaus appealed,
but his principal, Guillermo Severino, did not.
7
The plaintiff Fabiola Severino is the recognized natural daughter
of Melecio Severino, deceased, former resident of Occidental
Negros. Upon the death of Melecio Severino a number of years
ago, he left considerable property and litigation ensued between
his widow, Felicitas Villanueva, and Fabiola Severino, on the one
part, and other heirs of the deceased on the other part. In order
to make an end of this litigation a compromise was effected by
which Guillermo Severino, a son of Melecio Severino, took over
the property pertaining to the estate of his father at the same
time agreeing to pay P100,000 to Felicitas Villanueva and
Fabiola Severino. This sum of money was made payable, first,
P40,000 in cash upon the execution of the document of
compromise, and the balance in three several payments of
P20,000 at the end of one year; two years, and three years
respectively. To this contract the appellant Enrique Echaus
affixed his name as guarantor. The first payment of P40,000 was
made on July 11, 1924, the date when the contract of
compromise was executed; and of this amount the plaintiff
Fabiola Severino received the sum of P10,000. Of the remaining
P60,000, all as yet unpaid, Fabiola Severino is entitled to the
sum of P20,000.
It appears that at the time of the compromise agreement above-
mentioned was executed Fabiola Severino had not yet been
judicially recognized as the natural daughter of Melecio Severino,
and it was stipulated that the last P20,000 corresponding to
Fabiola and the last P5,000 corresponding to Felicitas Villanueva
should retained on deposit until the definite status of Fabiola
Severino as natural daughter of Melecio Severino should be
established. The judicial decree to this effect was entered in the
Court of First Instance of Occidental Negros on June 16, 1925,
and as the money which was contemplated to be held in
suspense has never in fact been paid to the parties entitled
thereto, it results that the point respecting the deposit referred to
has ceased to be of moment.
The proof shows that the money claimed in this action has never
been paid and is still owing to the plaintiff; and the only defense
worth noting in this decision is the assertion on the part of
Enrique Echaus that he received nothing for affixing his signature
as guarantor to the contract which is the subject of suit and that
in effect the contract was lacking in consideration as to him.
The point is not well taken. A guarantor or surety is bound by the
the principal parties thereto. (Pyle vs. Johnson, 9 Phil., 249.) The
compromise and dismissal of a lawsuit is recognized in law as a
valuable consideration; and the dismissal of the action which
Felicitas Villanueva and Fabiola Severino had instituted against
Guillermo Severino was an adequate consideration to support
the promise on the part of Guillermo Severino to pay the sum of
money stipulated in the contract which is the subject of this
action. The promise of the appellant Echaus as guarantor
therefore binding. It is never necessary that the guarantor or
surety should receive any part of the benefit, if such there be,
accruing to his principal. But the true consideration of this
contract was the detriment suffered by the plaintiffs in the former
action in dismissing that proceeding, and it is immaterial that no
benefit may have accrued either to the principal or his guarantor.
The judgment appealed from is in all respects correct, and the
same will be affirmed, with costs against the appellant. So
ordered.
CONTRACT; CONSIDERATION ; SURETY OR GUARANTOR.
—It is not necessary that a surety or guarantor should participate
in the benefit which constitutes the consideration as between the
principal parties to the contract.

WILLEX PLASTIC INDUSTRIES, CORPORATION, vs. CA and
INTERNATIONAL CORPORATE BANK
Facts:
Inter-Resin Industrial Corporation opened a letter of credit with
the Manila Banking Corporation. To secure payment of the credit
accommodation, Inter-Resin Industrial and the Investment and
Underwriting Corporation of the Philippines (IUCP) executed two
documents, both entitled "Continuing Surety Agreement",
whereby they bound themselves solidarily to pay Manilabank.
Thereafter, Inter-Resin Industrial, together with Willex Plastic
Industries Corp., executed a "Continuing Guaranty" in favor of
IUCP whereby "For and in consideration of the sum or sums
obtained and/or to be obtained by Inter-Resin Industrial
Corporation" from IUCP, Inter-Resin Industrial and Willex Plastic
jointly and severally guarantee "the prompt and punctual
payment at maturity of the NOTE/S issued by the DEBTOR/S to
the extent of the aggregate principal sum of FIVE MILLION
PESOS (P5,000,000.00) Philippine Currency and such interests,
charges and penalties as hereafter may be specified."
Following demand upon it, IUCP paid to Manilabank the sum of
P4,334,280.61 representing Inter-Resin Industrial's outstanding
obligation. Atrium Capital Corp., which in the meantime had
succeeded IUCP, demanded from Inter-Resin Industrial and
Willex Plastic the payment of what it (IUCP) had paid to
Manilabank. As neither one of the sureties paid, Atrium filed this
case in the court below against Inter-Resin Industrial and Willex
Plastic.
Inter-Resin Industrial paid some of the amounts due. Willex
Plastic denied the material allegations of the complaint. It argues
that under the "Continuing Guaranty," its liability is for sums
obtained by Inter-Resin Industrial from Interbank, not for sums
paid by the latter to Manilabank for the account of Inter-Resin
Industrial.
As already stated, the amount had been paid by Interbank's
predecessor-in-interest, Atrium Capital, to Manilabank pursuant
to the "Continuing Surety Agreements" made on December 1,
1978. In denying liability to Interbank for the amount, Willex
Plastic argues that under the "Continuing Guaranty," its liability is
for sums obtained by Inter-Resin Industrial from Interbank, not
for sums paid by the latter to Manilabank for the account of Inter-
Resin Industrial.
Issue
Whether under the "Continuing Guaranty" signed on April 2,
1979, Willex Plastic may be held jointly and severally liable with
Inter-Resin Industrial for the amount by Interbank to Manilabank.
Held
Yes. Willex Plastic has overlooked is the fact that evidence
aliunde was introduced in the trial court to explain that it was
actually to secure payment to Interbank (formerly IUCP) of
amounts paid by the latter to Manilabank that the "Continuing
Guaranty" was executed.
Interbank adduced evidence to show that the "Continuing
Guaranty" had been made to guarantee payment of amounts
made by it to Manilabank and not of any sums given by it as loan
to Inter-Resin Industrial.
8
Accordingly, the trial court found that it was "to secure the
guarantee made by plaintiff of the credit accommodation granted
to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that]
the plaintiff required defendant IRIC to execute a chattel
mortgage in its favor and a Continuing Guaranty which was
signed by the defendant Willex Plastic Industries Corporation."
Similarly, the Court of Appeals found it to be an undisputed fact
that "to secure the guarantee undertaken by plaintiff-appellee
[Interbank] of the credit accommodation granted to Inter-Resin
Industrial by Manilabank, plaintiff-appellee required defendant-
appellants to sign a Continuing Guaranty.
Willex Plastic admitted that it was "to secure the aforesaid
guarantee, that INTERBANK required principal debtor IRIC
[Inter-Resin Industrial] to execute a chattel mortgage in its favor,
and so a 'Continuing Guaranty' was executed on April 2, 1979 by
WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for
brevity) in favor of INTERBANK for and in consideration of the
loan obtained by IRIC [Inter-Resin Industrial]."
Put in another way the consideration necessary to support a
surety obligation need not pass directly to the surety, a
consideration moving to the principal alone being sufficient.
For a "guarantor or surety is bound by the same consideration
that makes the contract effective between the principal parties
thereto. . . . It is never necessary that a guarantor or surety
should receive any part or benefit, if such there be, accruing to
his principal."
Contracts; Loans;  Suretyships;  Guarantees;  Evidence;  Par
ol Evidence Rule; Explanatory evidence may be received to
show the circumstances under which a document has been
made and to what debt it relates; A party, by failing to object
to the parol evidence presented, waives the protection of
the parol evidence rule.—It has been held that explanatory
evidence may be received to show the circumstances under
which a document has been made and to what debt it relates. At
all events, Willex Plastic cannot now claim that its liability is
limited to any amount which Interbank, as creditor, might give
directly to Inter-Resin Industrial as debtor because, by failing to
object to the parol evidence presented, Willex Plastic waived the
protection of the parol evidence rule.
Same;  Same; Same;  Same; Same;  Factual findings of the
trial court and the Court of Appeals are binding on the
Supreme Court.—Similarly, the Court of Appeals found it to be
an undisputed fact that “to secure the guarantee undertaken by
plaintiff-appellee [Interbank] of the credit accommodation granted
to Inter-Resin Industrial by Manilabank, plaintiff-appellee required
defendant-appellants to sign a Continuing Guaranty.” These
factual findings of the trial court and of the Court of Appeals are
binding on us not only because of the rule that on appeal to the
Supreme Court such findings are entitled to great weight and
respect but also because our own examination of the record of
the trial court confirms these findings of the two courts.
Same;  Same; Same;  Same; The consideration necessary to
support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being
sufficient—a guarantor or surety is bound by the same
consideration that makes the contract effective between the
principal parties thereto.—Willex Plastic argues that the
“Continuing Guaranty,” being an accessory contract, cannot
legally exist because of the absence of a valid principal
obligation. Its contention is based on the fact that it is not a party
either to the “Continuing Surety Agreement” or to the loan
agreement between Manilabank and Inter-Resin Industrial. Put in
another way the consideration necessary to support a surety
obligation need not pass directly to the surety, a consideration
moving to the principal alone being sufficient. For a “guarantor or
surety is bound by the same consideration that makes the
contract effective between the principal parties thereto. . . . It is
never necessary that a guarantor or surety should receive any
part or benefit, if such there be, accruing to his principal.”
Same; Same;  Same; Same;  Although a contract of
suretyship is ordinarily not to be construed as
retrospective, in the end the intention of the parties as
revealed by the evidence is controlling.—Indeed, as we also
held in Bank of the Philippine Islands v. Foerster, although a
contract of suretyship is ordinarily not to be construed as
retrospective, in the end the intention of the parties as revealed
by the evidence is controlling.
JACINTO UY DIÑO and NORBERTO UY, petitioners, vs.
HON. COURT OF APPEALS and METROPOLITAN BANK
AND TRUST COMPANY
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS),
thru its representative Uy Tiam, applied for and obtained credit
accommodations (letter of credit and trust receipt
accommodations) from the Metropolitan Bank and Trust
Company. To secure the aforementioned credit
accommodations, Norberto Uy and Jacinto Uy Diño executed
separate Continuing, dated 25 February 1977, in favor of the
MBTC. This credit accommodation has been fully paid.
Subsequent transactions flowed smoothly until UTEFS executed
and delivered to METROBANK a Trust Receipt whereby the
former acknowledged receipt in trust from the latter of the
received goods from Planters Products which amounted to
P815,600.00. Being the entrustee, the UTEFS agreed to deliver
to METROBANK the entrusted goods in the event of non-sale or,
if sold, the proceeds of the sale thereof, on or before September
2, 1979.
However, UTEFS did not acquiesce to the obligatory stipulations
in the trust receipt. As a consequence, METROBANK sent letters
to the said principal obligor and its sureties, Norberto Uy and
Jacinto Uy Diño, demanding payment of the amount due. They
denied liability on the transaction. In its reply, the bank informed
him that the source of his liability is the Continuing Suretyship
which he executed on February 25, 1977. On demand, UTEFS
paid some of the outstanding amount.
As a rejoinder, Diño maintained that he cannot be held liable for
the 1979 credit accommodation because it is a new obligation
contracted without his participation. Besides, the 1977 credit
accommodation which he guaranteed has been fully paid.
Since it could no longer collect the balance of amount due,
METROBANK thus filed a complaint for collection of a sum of
money. Norberto Uy and Jacinto Uy Diño (sureties-defendants)
filed a motion to dismiss the complaint on the ground of lack of
cause of action. They maintained that the obligation which they
guaranteed in 1977 has been extinguished since it has already
been paid in the same year. Accordingly, the Continuing
Suretyships executed in 1977 cannot be availed of to secure Uy
Tiam's Letter of Credit obtained in 1979 because a guaranty
cannot exist without a valid obligation. It was further argued
that they cannot be held liable for the obligation contracted
in 1979 because they are not privies thereto as it was
contracted without their participation.
9
METROBANK filed its opposition to the motion to dismiss.
Invoking the terms and conditions embodied in the
comprehensive suretyships separately executed by sureties-
defendants, the bank argued that sureties-movants bound
themselves as solidary obligors of defendant Uy Tiam to both
existing obligations and future ones. The RTC and the CA ruled
in favor of MBTC and held the sureties solidarily liable.
Issues
1. Whether petitioners are liable as sureties for the 1979
obligations of Uy Tiam to METROBANK by virtue of the
Continuing Suretyship Agreements they separately
signed in 1977; and
2. On the assumption that they are, what is the extent of
their liabilities for said 1979 obligations.
Held
1. Yes, they are still liable. Under the Civil Code, a
guaranty may be given to secure even future debts, the
amount of which may not be known at the time the
guaranty is executed. This is the basis for contracts
denominated as a continuing guaranty or suretyship. A
continuing guaranty is one which is not limited to a
single transaction, but which contemplates a future
course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It s
prospective in its operation and is generally intended to
provide security with respect to future transactions
within certain limits, and contemplates a succession of
liabilities, for which, as they accrue, the guarantor
becomes liable. Otherwise stated, a continuing guaranty
is one which covers all transactions, including those
arising in the future, which are within the description or
contemplation of the contract of guaranty, until the
expiration or termination thereof.
A guaranty shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing credit to
the principal debtor to be used from time to time either
indefinitely or until a certain period, especially if the right to recall
the guaranty is expressly reserved. Hence, where the contract of
guaranty states that the same is to secure advances to be made
"from time to time" the guaranty will be construed to be a
continuing one.
Paragraph IV of both agreements stipulate that:
"VI. This is a continuing guaranty and shall remain in full
force and effect until written notice shall have been received by
the BANK that it has been revoked by the SURETY, but any
such notice shall not release the SURETY from any liability as to
any instruments, loans, advances or other obligations hereby
guaranteed, which may be held by the BANK, or in which the
BANK may have any interest at the time of the receipt of such
notice. x x x
The foregoing stipulations unequivocally reveal that the
suretyship agreements in the case at bar are continuing in
nature. Petitioners do not deny this; in fact, they candidly
admitted it. Neither have they denied the fact that they had not
revoked the suretyship agreements.
Petitioners maintain, however, that their Continuing Suretyship
Agreements cannot be made applicable to the 1979 obligation
because the latter was not yet in existence when the agreements
were executed in 1977; under Article 2052 of the Civil Code, a
guaranty "cannot exist without a valid obligation." We cannot
agree. First of all, the succeeding article provides that "[a]
guaranty may also be given as security for future debts, the
amount of which is not yet known." Secondly. Article 2052
speaks about a valid obligations, as distinguished from a
void obligation, and not an existing or current obligation.
This distinction is made clearer in the second paragraph of
Article 2052 which reads:
"Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may
also guarantee a natural obligation."
2. By express mandate of the Continuing Suretyship
Agreements which they had signed, petitioners
separately bound themselves to pay interests,
expenses, attorney's fees and costs. The last two items
are pegged at not less than ten percent (10%) of the
amount due.
Even without such stipulations, the petitioners would,
nevertheless, be liable for the interest and judicial costs. Article
2055 of the Civil Code provides:
"ARTICLE 2055. A guaranty is not presumed; it must be
express and cannot extend to more than what is stipulated
therein.
The limit of the petitioners' respective liabilities must be
determined from the suretyship agreement each had signed. It is
undoubtedly true that the law looks upon the contract of
suretyship with a jealous eye, and the rule is settled that the
obligation of the surety cannot be extended by implication
beyond its specified limits. To the extent, and in the manner, and
under the circumstances pointed out in his obligation, he is
bound, and no farther.
Indeed, the Continuing Suretyship Agreements signed by
petitioner Diño — and petitioner Uy fix the aggregate amount of
their liability, at any given time, at P800,000.00 and P300,000.00,
respectively. The law is clear that a guarantor may bind himself
for less, but not for more than the principal debtor, both as
regards the amount and the onerous nature of the conditions.
Civil Law;  Guaranty;  Suretyship;  Nature and basis for
contracts denominated as a continuing guaranty or
suretyship.—Under the Civil Code, a guaranty may be given to
secure even future debts, the amount of which may not be
known at the time the guaranty is executed. This is the basis for
contracts denominated as a continuing guaranty or suretyship. A
continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time
or until revoked. It is prospective in its operation and is generally
intended to provide security with respect to future transactions
within certain limits, and contemplates a succession of liabilities,
for which, as they accrue, the guarantor becomes liable.
Otherwise stated, a continuing guaranty is one which covers all
transactions, including those arising in the future, which are
within the description or contemplation of the contract, of
guaranty, until the expiration or termination thereof. A guaranty
shall be construed as continuing when by the terms thereof it is
evident that the object is to give a standing credit to the principal
debtor to be used from time to time either indefinitely or until a
certain period; especially if the right to recall the guaranty is
expressly reserved. Hence, where the contract of guaranty states
that the same is to secure advances to be made “from time to
time” the guaranty will be construed to be a continuing one.
10
Atok Finance v CA; SANYU CHEMICAL CORPORATION,
DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO
BERMUNDO and LEOPOLDO HALILI
Facts
Atok and Sanyu Chemical entered into a Continuing Suretyship
Agreement in favor of Atok Finance with the latter being the
creditor and Sanyu Chemical and several stockholders as
sureties. Sanyu Chemical, in consideration of receipt from Atok
Finance of the amount of P105,000.00, assigned several
receivables in favor of Atok. Later, additional trade receivables
were assigned by Sanyu Chemical to Atok Finance with a total
face value of P100,378.45.
Atok Finance commenced action against Sanyu Chemical, and
the sureties before the RTC to collect the sum of P120,240.00.
Atok Finance alleged that Sanyu Chemical had failed to collect
and remit the amounts due under the trade receivables.
Sanyu Chemical and the individual private respondents sought
dismissal of Atok's claim upon the ground that such claim had
prescribed under Article 1629 of the Civil Code and for lack of
cause of action. The private respondents contended that the
Continuing Suretyship Agreement, being an accessory
contract, was null and void since, at the time of its
execution, Sanyu Chemical had no pre-existing obligation
due to Atok Finance.
It is the contention of respondents that the suretyship agreement
is null and void because it is not in consonance with the laws on
guaranty and security. The said agreement was entered into by
the parties two years before the Deed of Assignment was
executed. Thus, allegedly, it ran counter to the provision that
guaranty cannot exist independently because by nature it is
merely an accessory contract: first, because this contract, just
like guaranty, cannot exist without a valid obligation (Art. 2052,
Civil Code); and, second, although it may be given as security for
future debt (Art. 2053, C.C.), the obligation contemplated in the
case at bar cannot be considered 'future debt' as envisioned by
this law.
Issue
1. May a surety agreement, being an accessory contract,
be effected to secure future (non-existing) debts? May
the continuing suretyship agreement be declared null
and void for alleged lack of consideration since there
was still no pre-existing obligation for the surety to
attach to?
2. Whether private respondents are liable under the Deed
of Assignment which they, along with the principal
debtor Sanyu Chemical, executed in favor of petitioner,
on the receivables thereby assigned.
Held
1. Surety agreements may secure future debts. It is true
that a guaranty or a suretyship agreement is an
accessory contract in the sense that it is entered into for
the purpose of securing the performance of another
obligation which is denominated as the principal
obligation. It is also true that Article 2052 of the Civil
Code states that "a guarantee cannot exist without a
valid obligation." This legal proposition is not, however,
like most legal principles, to be read in an absolute and
literal manner and carried to the limit of its logic.
The argument of respondents has been debunked in the cases
of National Rice and Corn Corporation (NARIC) v. Jose A. Fojas
and Alto Surety Co., Inc. and in Rizal Commercial Banking
Corporation v. Arro.
In NARIC v Fojas:
This defense is untenable, because in its complaint the NARIC
averred, and the appellant did not deny that these bonds were
posted to secure the additional credit that Fojas has applied for,
and the credit increase over his original contract was sufficient
consideration for the bonds. That the latter were signed and filed
before the additional credit was extended by the NARIC is no
ground for complaint. Article 1825 of the Civil Code of 1889, in
force in 1948, expressly recognized that 'a guaranty may also be
given as security for future debts the amount of which is not yet
known.
In RCBC v Arro:
The surety agreement which was earlier signed by Enrique Go.,
Sr. and private respondent, is an accessory obligation, it being
dependent upon a principal one which, in this case is the loan
obtained by Daicor as evidenced by a promissory note. What
obviously induced petitioner bank to grant the loan was the
surety agreement whereby Go and Chua bound themselves
solidarily to guaranty the punctual payment of the loan at
maturity. By terms that are unequivocal, it can be clearly seen
that the surety agreement was executed to guarantee future
debts which Daicor may incur with petitioner, as is legally
allowable under the Civil Code.
Thes cases rejected the distinction which the Court of Appeals in
the case at bar sought to make with respect to Article 2053, that
is, that the "future debts" referred to in that Article relate to "debts
already existing at the time of the constitution of the agreement
but the amount [of which] is unknown," and not to debts not yet
incurred and existing at that time. Of course, a surety is not
bound under any particular principal obligation until that principal
obligation is born. But there is no theoretical or doctrinal difficulty
inherent in saying that the suretyship agreement itself is valid
and binding even before the principal obligation intended to be
secured thereby is born, any more than there would be in saying
that obligations which are subject to a condition precedent are
valid and binding before the occurrence of the condition
precedent.
Comprehensive or continuing surety agreements are in fact quite
commonplace in present day financial and commercial practice.
A bank or a financing company which anticipates entering into a
series of credit transactions with a particular company,
commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing
such an agreement, the principal places itself in a position to
enter into the projected series of transactions with its creditor;
with such suretyship agreement, there would be no need to
execute a separate surety contract or bond for each financing or
credit accommodation extended to the principal debtor. As we
understand it, this is precisely what happened in the case at bar
2. They are liable. The contention of Sanyu Chemical was
that Atok Finance had no cause of action under the
Deed of Assignment for the reason that Sanyu
Chemical's warranty of the debtors' solvency had
ceased based on article 1629: In case the assignor in
good faith should have made himself responsible for the
solvency of the debtor, and the contracting parties
should not have agreed upon the duration of the liability,
11
it shall last for one year only, from the time of the
assignment if the period had already expired.
Article 1629 of the Civil Code invoked by private respondents
and accepted by the Court of Appeals is not, in the case at bar,
material. The liability of Sanyu Chemical to Atok Finance rests
not on the breach of the warranty of solvency; the liability of
Sanyu Chemical was not ex lege (ex Article 1629) but rather ex
contractu.
Under the Deed of Assignment, the effect of non-payment by the
original trade debtors was a breach of warranty of solvency by
Sanyu Chemical, resulting in turn in the assumption of
solidary liability by the assignor under the receivables
assigned. In other words, the assignor Sanyu Chemical
becomes a solidary debtor under the terms of the
receivables covered and transferred by virtue of the Deed of
Assignment. And because assignor Sanyu Chemical
became, under the terms of the Deed of Assignment,
solidary obligor under each of the assigned receivables, the
other private respondents (the Arrieta spouses, Pablito
Bermundo and Leopoldo Halili), ALSO became solidarily
liable for that obligation of Sanyu Chemical, by virtue of the
operation of the Continuing Suretyship Agreement. Put a
little differently, the obligations of individual private
respondent officers and stockholders of Sanyu Chemical
under the Continuing Suretyship Agreement, were activated
by the resulting obligations of Sanyu Chemical as solidary
obligor under each of the assigned receivables by virtue of
the operation of the Deed of Assignment. That solidary
liability of Sanyu Chemical is not subject to the limiting
period set out in Article 1629 of the Civil Code.
Contracts; Suretyship; Guaranty; Obligations;  While a
contract of suretyship or guarantee is an accessory
contract, it may be readily entered into to warranty debts to
be incurred or created in the future yet.—We consider that the
Court of Appeals here was in serious error. It is true that a
guaranty or a suretyship agreement is an accessory contract in
the sense that it is entered into for the purpose of securing the
performance of another obligation which is denominated as the
principal obligation. It is also true that Article 2052 of the Civil
Code states that “a guarantee cannot exist without a valid
obligation.” This legal proposition is not, however, like most legal
principles, to be read in an absolute and literal manner and
carried to the limit of its logic. This is clear from Article 2052 of
the Civil Code itself: “Art. 2052. A guaranty cannot exist without a
valid obligation. Nevertheless, a guaranty may be constituted to
guarantee the performance of a voidable or an unenforceable
contract. It may also guarantee a naturalobligation. (Emphases
supplied) Moreover, Article 2053 of the Civil Code states: “Art.
2053. A guaranty may also be given as security for future
debts,the amount of which is not yet known; there can be no
claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured.”
Same;  Same; Same;  Same; Same.—It is clear to us that
the Rizal Commercial Banking Corporation and the NARIC cases
rejected the distinction which the Court of Appeals in the case at
bar sought to make with respect to Article 2053, that is, that the
“future debts” referred to in that Article relate to “debts already
existing at the time of the constitution of the agreement but the
amount [of which] is unknown,” and not to debts not yet incurred
and existing at that time. Of course, a surety is not bound under
any particular principal obligation until that principal obligation is
born. But there is no theoretical or doctrinal difficulty inherent in
saying that the suretyship agreement itself is valid and binding
even before the principal obligation intended to be secured
thereby is born, any more than there would be in saying that
obligations which are subject to a condition precedent are valid
and binding before the occurrence of the condition precedent.
Same; Same;  Same; Same;  Same.—Comprehensive or
continuing surety agreements are in fact quite commonplace in
present day financial and commercial practice. A bank or a
financing company which anticipates entering into a series of
credit transactions with a particular company, commonly requires
the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an
agreement, the principal places itself in a position to enter into
the projected series of transactions with its creditor; with such
suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit
accommodation extended to the principal debtor. As we
understand it, this is precisely what happened in the case at bar.
Same; Same;  Same; Same;  Prescription;  The period of
limitations in Art. 1629 of the New Civil Code does not apply
where there is no breach of warranty of solvency but the
creation of solidary liability as per agreement of the sureties
with the creditor when principal defaults.—Article 1629 of the
Civil Code invoked by private respondents and accepted by the
Court of Appeals is not, in the case at bar, material. The liability
of Sanyu Chemical to Atok Finance rests not on the breach of
the warranty of solvency; the liability of Sanyu Chemical was not
ex lege (ex Article 1629) but rather ex contractu. Under the Deed
of Assignment, the effect of non-payment by the original trade
debtors was a breach of warranty of solvency by Sanyu
Chemical, resulting in turn in the assumption of solidary liability
by the assignor under the receivables assigned. In other
words, the assignor Sanyu Chemical becomes a solidary debtor
under the terms of the receivables covered and transferred by
virtue of the Deed of Assignment. And because assignor Sanyu
Chemical became, under the terms of the Deed of Assignment,
solidary obligor under each of the assigned receivables, the
other private respondents (the Arrieta spouses, Pablito
Bermundo and Leopoldo Halili), became solidarily liable for that
obligation of Sanyu Chemical, by virtue of the operation of the
Continuing Suretyship Agreement. Put a little differently, the
obligations of individual private respondent officers and
stockholders of Sanyu Chemical under the Continuing Suretyship
Agreement, were activated by the resulting obligations of Sanyu
Chemical as solidary obligor under each of the assigned
receivables by virtue of the operation of the Deed of Assignment.
That solidary liability of Sanyu Chemical is not subject to the
limiting period set out in Article 1629 of the Civil Code.
EMILIO Y. TAÑEDO, petitioner, 
vs.
ALLIED BANKING CORPORATION, respondent.
PARDO, J.:
Appeal via  certiorari from the decision of the Court of
Appeals1 reversing the ruling of the trial court and holding
petitioner liable solidarily with defendant Cheng Ban Yek Co.,
Inc. for all items of the money judgment and costs of suit.
The Facts
The facts, as found by the Court of Appeals, are as follows:
"Appeal by both the plaintiff Allied Banking Corporation and the
defendant Cheng Ban Yek & Co., Inc. from the Order, as
12
summary judgment, of the Regional Trial Court (Branch XLIV,
Manila), the decretal part whereof reads:
"WHEREFORE, and in view of the foregoing considerations,
summary judgment is hereby rendered in favor of the plaintiff,
Allied Banking Corporation, and against defendant Cheng Ban
Yek and Co., Inc. as follows:
"1. On the first cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P2,000,000.00, plus interest thereon at 14% per
annum, 2% per annum as service charge, and penalty charge of
1% per month from February 11, 1981 until fully paid;
"2. On the second cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P2,500,000.00, plus interest thereon at 14% per
annum, service charge of 2% per annum, and penalty charge of
1 % per month, from February 3, 1981 until fully paid;
"3. On the third cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P1,000,000.00 plus interest thereon at 14% per
annum, service charge of 2% per annum, and penalty charge of
1 % per month, from February 12, 1981 until fully paid;
"4. On the fourth cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P1,000,000.00 plus interest thereon at 14% per
annum, service charge of 2% per annum, and penalty charge of
1 % per month, from February 12, 1981 until fully paid;
"5. On the fifth cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P1,000,000.00 plus interest thereon at 14% per
annum, service charge of 2% per annum, and penalty charge of
1% per month, from February 12, 1981 until fully paid;
"6. On the sixth cause of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P1,000,000.00 plus interest thereon at 14% per
annum, service charge of 2% per annum, and penalty charge of
1% per month, from February 12, 1981 until fully paid;
"7. On the seventh cause of action:
" Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum of P1,500,000.00 plus interest thereon at 14% per
annum, service charge of 2% per annum, and penalty charge of
1% per month, from February 12, 1981 until fully paid;
"8. On all the causes of action:
"Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff
the sum equivalent to 25% of the amount due and demandable
as and for attorney’s fees;
"9. Declaring the "Continuing Guaranty" as having been
extinguished after plaintiff branded it as a "worthless security"
and preferred to avail, as it did avail, of the provisional remedy of
attachment; and declaring defendants Alfredo Ching and Emilio
Tañedo relieved of their obligation under the said continuing
Guaranty; and
"10. Ordering the defendant Cheng Ban Yek Co., Inc. to pay the
costs of suit.
"SO ORDERED."2
"The foregoing summary judgment has its roots in a complaint
with preliminary attachment filed by plaintiff bank to recover
sums of money from defendant corporation on its seven past due
promissory notes with principal amounts totaling
P10,000,000.00, from defendants Alfredo Ching and Emilio
Tañedo under a Continuing Guaranty providing for joint and
several liability relative to the said promissory notes. The
preliminary attachment sought was granted upon the required
bond and was thereafter maintained despite defendant
corporation’s efforts to have it discharged.
"The appeal of plaintiff bank is limited to paragraph 9 of the
summary judgment (supra, p. 3) which declared defendants
Aldredo Ching and Emilio Tañedo as free from any liability under
the Continuing Guaranty since their respective liabilities
thereunder became extinguished when plaintiff bank in its
pleading branded the Continuing Guaranty as "worthless
security".
"On the other hand, defendant corporation’s appeal is an attack
on the summary nature of the proceeding adopted by the lower
court since, according to defendant corporation, there was a
petition for suspension of payment filed by it with the Securities
and Exchange Commission which, although dismissed, was duly
appealed to the Court of Appeals.
"xxx
"Defendant corporation’s petition for suspension of payment was
dismissed by the Securities and Exchange Commission for lack
of quorum. At the creditors’ meeting called and accordingly held
to approve the corporation’s petition for suspension of payment,
out of outstanding liabilities of P237,718,426.00, only the
creditors representing P110,355,607.37 thereof attended. This
was far short of the three-fifths quorum unqualifiedly required by
law which should have been P142,631,055.60 (Act No. 1956,
Sec. 8) x x x ."3
On October 16, 1984, the trial court rendered a summary
judgment, as quoted above.4
Both plaintiff Allied Banking Corporation and the defendant
Cheng Ban Yek & Co., Inc. appealed from the summary
judgment to the Court of Appeals.5
On March 27, 1990, the Court of Appeals promulgated a
decision, the dispositive portion of which reads:
"WHEREFORE, the Order appealed from is in part REVERSED
and MODIFIED by deleting paragraph 9 from the dispositive
portion thereof, and declaring the defendants Alfredo Ching and
Emilio Tañedo solidarily liable with defendant Cheng Ban Yek
Co., Inc. for all items of the money judgment set forth in
paragraphs one 91) to eight (8) inclusive, and paragraph ten
(10), of said dispositive portion. The Order is AFFIRMED in its
other aspects. No costs in this instance.
"SO ORDERED."6
On April 11, 1990, petitioner Emilio Y. Tañedo filed a motion for
reconsideration of the decision, contending that while the case
was pending before the Court of Appeals the Allied Bank and
Cheng Ban Yek & Co., Inc. agreed to extend the time of payment
of the indebtedness, without the consent of petitioner, thereby
relieving him of his obligation as guarantor or surety of such
obligation.7
13
On November 27, 1998, the Court of Appeals denied the motion
for lack of merit.8
Hence, this appeal.9
The Issues
The basic issues raised are (a) whether the execution by the
respondent Bank of the Fourth Amendatory Agreement
extinguished petitioner’s obligations as surety, and (b) whether
the "continuing guarantee" executed by the petitioner is a
contract of (surety) adhesion.10
The Court’s Ruling
We find the petition without merit.
Resolving the first issue, we note that the amendatory agreement
between the respondent Allied Banking Corporation and Cheng
Ban Yek & Co., Inc. extended the maturity of the promissory
notes without notice or consent of the petitioner as surety of the
obligations. However, the "continuing guarantee" executed by
the petitioner provided that he consents and agrees that the bank
may, at any time or from time to time extend or change the time
of payments and/or the manner, place or terms of payment of all
such instruments, loans, advances, credits or other obligations
guaranteed by the surety. Hence, the extensions of the loans did
not release the surety.11
As to the second issue, even if the "continuing guarantee" were
considered as one of adhesion, we find the contract of "surety"
valid because petitioner was "free to reject it entirely".12 Petitioner
was a stockholder and officer of Cheng Ban Yek and Co., Inc.
and it was common business and banking practice to require
"sureties" to guarantee corporate obligations.
The Fallo
IN VIEW WHEREOF, the Court DENIES the petition and
AFFIRMS the decision of the Court of Appeals.13
No costs in this instance.
SO ORDERED.
Contracts; Loans;  Surety; The extensions of the loans do
not release the surety where the “continuing guarantee”
executed by the surety provided that he consents and
agrees that the bank may, at any time or from time to time,
extend or change the time of payments and or the manner,
place or terms of payment of all such instruments, loans,
advances, credits, or other obligations guaranteed by the surety.
—Resolving the first issue, we note that the amendatory
agreement between the respondent Allied Banking Corporation
and Cheng Ban Yek & Co., Inc. extended the maturity of the
promissory notes without notice or consent of the petitioner as
surety of the obligations. However, the “continuing guarantee”
executed by the petitioner provided that he consents and agrees
that the bank may, at any time or from time to time extend or
change the time of payments and/or the manner, place or terms
of payment of all such instruments, loans, advances, credits or
other obligations guaranteed by the surety. Hence, the
extensions of the loans did not release the surety.
Same;  Same; Same;  Contracts of Adhesion; Even if a
“continuing guarantee” were considered as one of
adhesion, the contract of “surety” is valid where the surety
was “free to reject it entirely”.—As to the second issue, even if
the “continuing guarantee” were considered as one of adhesion,
we find the contract of “surety” valid because petitioner was “free
to reject it entirely”. Petitioner was a stockholder and officer of
Cheng Ban Yek and Co., Inc. and it was common business and
banking practice to require “sureties” to guarantee corporate
obligations.

14