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Melecio Severino upon his death, left considerable properties. To end litigation among heirs, a compromise was effected where defendant Guillermo (son of MS) took over the property of deceased and agreed to pay installment of 100K to plaintiff (wife of MS) payable first in 40K cash upon execution of document in 3 equal installments. Enrique Echauz became guarantor.

Upon failure to pay the balance, plaintiff filed and action against the defendant and Echauz. Enchauz contends that he received nothing from affixing his signature in the document and the contract lacked the consideration as to him. ISSUE: WON there is a consideration for the guaranty? HELD: 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 guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. 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 neither necessary that guarantor or surety should receive any part of the benefit, if such there be accruing to his principal. Thus, judgment affirmed.


Municipaity of Gasan vs. Marasigan Facts: Municipality of Gasan granted Marasigan fishing privileges within the jurisdictional waters. To secure payment of license fees, Marasigan filed a bond subscribed by G and H who bound themselves to pay if Marasigan failed to comply with the terms

of the contract. Contract was declared illegal by the Executive Bureau therefore the Municipality awarded the privilege to another person who failed to pay the deposit and yielded the privilege to Marasigan. The municipality told Marasigan that the contract was to be effective so the municipality sought to recover from Marasigan and G and H, the amount representing the license. Issue: WON the contract and bond are valid and enforceable? Held: No. Contract was not consummated and was cancelled. It ceased to be valid when it was cancelled so Marasigsan and G&H were not bound to comply with the terms of the contract. A guaranty cannot exist without a valid obligation.

Plaridel Surety Insurance vs. Artex Development Co.


Facts: Artex withdrew from the Bureau of Customs shipments of imported goods which were subject to customs duties and other taxes after posting surety bonds pursuant to RA 4086 because its applications for tax exemptions were not approved by the Board of Industries. In consideration of the obligation assumed by Plaridel, Artex agreed to pay the premiums and cost of documentary stamps in advance due on bonds for each period of 12 months until bonds and its renewals, extensions or substitutions be cancelled in full by the person or entity guaranteed or by court of competent jurisdiction. Artex stopped paying premiums and costs of documentary stamps after it was granted tax exemption. Plaridel maintains that it renewed the surety bonds more or less 8 months before the tax exemption. Plaridel seeks recovery of renewal of premiums on bonds which were already null and void upon grant of tax exemption to principal Issue: WON Artex is liable for accrued premiums and costs of doc stamps on renewals of the surety bonds after grant of tax exemption to Plaridel? Held: No. Suretyship cannot exsist without valid obligation. The renewals were without consideration. Plaridel incurred no risk from Artex tax exemption application was approved. Any renewals were void from the beginning because the cause or object of said renewals did not exist at the time of the transtaction. Express stipulation by parties, surety bonds became null and void upon grant of tax exemption.


SURETYSHIP/GUARANTY IS NOT ORDINARILY RETROSPECTIVE UNLESS THERE IS AN INTENTION TO THE CONTRARY. El Vencedor vs. Canlas Facts: An accounting between X company and D, its agent for the sale of merchandise, showed that D had failed to pay X for the merchandise of the value of 5K. X therefore refused to continue to furnish D merchandise for sale unless he gave a bond. Canlas bound himself as surety and guarantor to D to become liable in case of his inability to pay damages. It did not appear that at the time of the execution of the bond Canlas had knowledge of the fact that D was indebted to X in any sum. Canlas had no knowledge. Issue: Should the bond respond for the debt contracted by D prior to execution? Held: No. Canlas was liable only for the value of goods furnished to D subsequent to the execution of the bond. A contract of suretyship or guaranty is ordinarily not retrospective and no liability attached for defaults occurring before it is entered into unless intent to be so liable is indicated either by express words or by necessary implication.


Facts: The Board of directors of corporation X authorized its treasures to obtain for them a credit n current account for 100K from BPI. Credit was granted and X began to draw against it even before the formal document of the agreement for the said credit was issued. The accountant G gave a bond in his name as surety and agreed to be bound jointly and severally in the sum of 100K. The overdraft and interest amounted to 84,900. BPI was able to collect 43,100 as a result of an action brought against X. BPI receives 25,500 subsequently. Issue: WON the bond covered the amounts from BPI prior to its date? Held: Yes. It is very true that bonds or other contracts of suretyship are ordinarily not to be construed retrospectively, but that rule must yield to the intention of the contracting parties as revealed by the evidence. In the present case, the circumstances clearly indicated that the bond given by G was intended to cover all of the indebtedness.

Standard Oil Co. of NY vs. Cho Siong GUARANTY NOT TO BE EXTENDED Facts: To guarantee the fulfillment of the obligation of D, as agent of Standard Oil in the sale of the latters petroleum products, Cho Siong subscribed to a personal bond in the sum of 3K. Cho Siong also subscribed the 3K bond and signed an instrument in favor of Standard Oil in which he assumed responsibility for account of Standard Oils former agent. Isssue: WON Cho Siong is liable for the debt of the former agent of Standard Oil which D assumed in virtue of another contract of which Cho Siong was not aware? Held: No. Under the terms of the bond, Cho Siong did not answer for D, save for the latters acts by virtue of the contract o f agreement between D and Standard Oil. A contract of suretyship or guaranty is to strictly interpreted and is not to be extended beyond its terms.

Municipality of Lemery vs. Mendoza and Blas THE CLAUSE OF THE GUARANTY CONTRACT IS CONTROLLING Facts: Municipality of Lemery granted fishing privileges to D for a period of 2 years for the sum of 23K for each year. Mendoza and Blas as bondsmen, executed a document which declared, among other thing, the lease by D of the privilege of fishing referred to for the term of 2 years. In said document, Mendoza and Blass obligated themselves jointly and severally to pay the sum of 46K (23K FOR THE TERM OF TWO YEARS) in case D shall fail to comply with the conditions of the bond of which we are informed. D failed to pay. Issue: WON Mendoza and Blas are bound to pay 46K or 23K Held: 23K. The obligating clause of the contract of guaranty is quite clear to the effect that the rent to be paid for the privilege of fishery was 23K for the full term of 2 years. It is true that Mendoza and Blas declared 46K, but it was only because the bond was required to be made in double the amount of the principal liability as an assurance of the performance of the principal obligation.

Wise and Co. vs. Kelly STRICT INTERPRETATION Facts: KELLY purchased merchandise from WISE & CO on credit and agreed that KELLY would apply the proceeds of its sale to the discharge of his indebtedness in the amount of 13K the purchase price. LIM as surety for KELLY, undertook that KELLY would pay over to WISE & CO the entire proceeds from the sale of the merchandise. Issue: WON LIM is liable for the difference between the amount realized from the sale of the merchandise and the purchase price of the same?

Held: No. LIM did not undertake absolutely to pay the sum of 13K. His agreement was limited to respond for the performance by KELLY of his undertaking to deliver to WISE & CO the total proceeds of the sale of the merchandise for the invoice value of which a promissory note was given by KELLY. Pacific Tobacco Corp. vs. Lorenzana Facts: The Pacific Tobacco Corp. is engaged in the business of manufacturing and distributing cigarettes cigars and other tobacco products. Lorenzana and PTC entered into an agreement whereby Lorenzana will act as Distributor of PTC. Lorenzana put up a bond in the amount of 3K with Visayan Surety & Insurance Corporation, as surety, to guarantee the faithful fulfillment of Lorenzanas part in the contract to sell and distribute PTCs cigarettes. Issue: WON the delivery of merchandise to Lorenzana at a place other than that appearing in the contract constitutes a material alteration of the same that would release Lorenzana from liability? Held: No. The mention of Manila and Rizal in said agreement was designed more as a declaration or identification of the places wherein Lorenzana was expressly authorized and assigned to sell PTCs products which is no obstacle to his acceptance of additional territories in order to fulfill his obligation. A departure from the terms of contract will not have the effect of discharging a compensated surety unless it appears that such departure has resulted in injury, loss or prejudice to the surety.


Event: RC (Seller) and NL (Buyer) entered into a deed of conditional purchase and sales of reparation goods, specifically, a vessel named M/S Magsaysay later on renamed to M/S Don Salvador. It is stated that FIDI, the surety, guarantees the faithful compliance of the buyer of its obligations under the contract. There is a stipulation in a bond to the effect that the liability thereunder would expire a year before the first installments of the principal obligation had become due. ISSUE: is the stipulation valid? RULING: NO. it in effect nullified the nature of said bond and was therefore unfair & unreasonable, as well as a subtle way of making money thru trickery and deception
NATIONAL BANK V ESCUETA ACCEPTANCE OF GUARANTY BY CREDITOR (IMPLIED ACCEPTANCE) To secure the payment of any obligation ISLAND TRADING CO might contract with PNB, Escueta & Santos signed a surety (guaranty) agreement in favor of PNB. The document evidencing the agreement was delivered to PNB which retained it without objection. On the strength of said agreement, PNB extended credit to ISLAND TRADING CO ISSUE: Was there an acceptance by PNB? RULING: Yes. The facts sufficiently indicated such acceptance. Such acceptance need not necessarily be express or in writing