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Ruling WON the undertaking assumed by FSC that of guarantor or surety? Circumstances may be shown which convert the contract into one of suretyship but that does not exist. It appears that the contract is the guarantors separate undertaking in which the principal does not join, that it rests on a separate consideration moving from the principal, and that although it is written in continuation of the contract for the construction of the building, it is collateral undertaking separate and distinct from the latter. All these are features of a contract of guaranty.

Machetti vs. By a written agreement, Machetti Hospicio De undertook to construct a building for San Jose Hospicio de San Jose. One of the conditions was that Machetti obtain the guarantee of Fidelity & Surety Co. to the amount of 12K. It was subsequently found out that the work had not been carried out in accordance with the specifications. Hospicio refused to pay therefore Machetti brought an action to recover the amount..

PhilExport vs. Eusebio

State of Organization Building (SOB) Iraq contracted Ajyal for the construction of a Rehab Center. Respondents Santos joint ventured with Ajyal as 3plex, since 3plex is not duly accredited, it assigned its right to VPECI but jointly managed. SOB required them to submit a performance bond and an advance payment bond, Phil Export issued that guarantee. But because of delays and other factors attributable to the SOB, they failed to pay more than 5% of the work in dollars. Hence, the joint venture doesnt incur delay.

Whether or Not the Contract entered into is a Surety or Guaranty. Guaranty. The guarantee issued although unconditional and irrevocable doesnt make the petitioner a surety. It is dependent on the failure of the Principal Debtor to do his obligation. The guarantor cant be compelled to pay the creditor unless the latter exhaust all property of the debtor and has resorted to all legal remedies.

Manila CFI sentenced Manila Railroad Co. and Should the appeal be accepted? Railroad vs. Manila Ports to pay Bataan Refining No. There is no principal debtor in the appeal Alvendia Corporation. The MPS filed notice of bond in this case, hence, the it is void and appeal accompanied by an appeal bond. enforceable. The appeal bond was executed by MPS The mere recital in the body of the signed by the manager and Standard instrument We, MRC et. al, as principal and Insurance as surety signed by the vicethe Standard Insurance Co. Inc xxx as surety president, noticing this, the Trial Court does not suffice to make contract binding on rejected the record on appeal. the MRC unless it is shown that the same was It is contended by MRC that the MPS, authorized by it. Neither the signature nor being a mere subsidiary or department the acknowledgment indicates that the act of of MRC, without legal personality, the that of the MRC or that the latter had bond filed should be a bond for MRC empowered MPS to execute the bond in its and the appeal should have been given behalf. The result would be that the appeal due course. bond is void and unenforceable for lack of principal debtor or obligation. While a surety binds himself to pay jointly and severally, such an undertaking presupposes that the obligation is to be enforceable against someone else besides the surety, and the latter can always claim that it was never its/his intention to be the sole person obligated thereby.

IFC vs Imperial Textile

1. Dec 17, 1974, International Finance Corp. (IFC) extended to Phil. Polyamide Industrial Corp.(PPIC) a loan of US$7,000,000.00, payable in 16 semiannual installments of US$437,500.00.

Is ITM a surety? Is he solidarily liable with PPIC for the payment of the loan?

Yes. The Agreement uses guarantee and guarantors, prompting ITM to base its argument on those words. The use of these 2. Also on Dec 17, 1974 a Guarantee two words doesnt limit the Contract to a Agreement was executed, with Imperial mere guaranty. The specific stipulations in Textile Mills (ITM)and Grandex agreeing the Contract show otherwise. to guarantee PPIC's obligation. 3. PPIC made 3 payments but defaulted on the rest. Hence, on April 1, 1985 IFC served a written notice of default and demanding the outstanding principal loan and accrued interests but still PPIC failed to pay. 4. IFC extrajudicially foreclosed the mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC, located at Calamba, Laguna. The auction sale amounted to US$ 8,083,967. There remained a balance of US$ 2,833,967 which PPIC failed to pay. 5. IFC demanded payment from ITM and Grandex by virtue of their guarantee agreement, yet the balance remained unpaid. Hence, IFC filed a suit against PPIC and ITM for the payment of the outstanding balance, interests, and Atty. Fees. RTC held PPIC liable but relieved ITM of its obligation as guarantor. IFC's complaint against ITM was dismissed. 6. On appeal , CA held that ITM is not absolved, but its liability would arise only if and when PPIC could not pay. Since PPIC's inability to pay was not sufficiently established, ITM could not immediately be made to assume liability. 7. IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC's obligations proceeding from the Loan Agreement. For its part, ITM asserts that, by the terms of the Guarantee Agreement, it was merely a guarantor and not 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.

Severino vs. Upon the death of Melecio Severino, Severino who left considerable property, a litigation ensued between Fabiola, Melecios widow, and other heirs of Melecio. a compromise was effected by which Guillermo, a son of Melecio, took over the property pertaining to the estate of Melecio at the same time agreeing to pay P100k to Fabiola payable, first in P40k cash upon the execution of the document of compromise and the balance, in three equal installments. Enrique Echauz affixed his name as guarantor

Is there consideration for the guaranty? 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.

Upon Guillermos failure to pay the balance, Fabiola instituted an action against Guillermo and Enrique, the latter contending that he received nothing for It is neither necessary that guarantor or affixing his signature as guarantor to the surety should receive any part of the benefit, contract and that in effect the contract if such there be accruing to his principal. was lacking in consideration as to him.

Lee vs. CA

Mico Metals Corp, through its President Lee, requested from PBCom discounting loans which were supported by a resolution that Pres. Lee and VP and GM Sio are authorized to apply for, negotiate and secure the approval of commercial loans for the amount not to exceed P1,000, 000. The request was approved by PBCom, total availment was P 3,000,000, which upon maturity was renewed. As security to the loan, a REM over Micos property was executed by VP Sio. Further Lee, Sio et al executed in their personal capacity a surety agreement in favor of PBCom for P3,000,000. The another P4,000, 000 was requested by Pres.Lee which was approved and another surety agreement was executed in favor of PBCom.

Whether or not the individual petitioners, as sureties, may be held liable under the two (2) Surety Agreements. Yes. From the fact itself that Mico requested for additional loan impliedly, is prima facie, case which showed that the proceeds of the earlier oans were delievered to Mico. As regards the Petitioner-Sureties contention that they obtained no consideration of the surety agreement, the court pointed out that the consideration for the sureties is the very consideration for the principal obligor, Mico, in the contract of Loan.

In Willex v CA, it was held, 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 guaranty or surety is Later, Mico furnished PBCom a copy of bound by the same consideration that makes its notarized certification stating that the contact effective between the parties Chio Siok Suy was the duly authorized to thereto. It is not necessary that a surety negotiate with PBCom on behalf of Mico should receive a part of benefit, if such there for loans. After which other loans were be, accruing to his principal. requested, approved and availed. Upon maturity of the credit transactions, PBCom demanded payment but Mico failed to settle despite demand; The bank extrajudicially foreclosed and sold Micos properties. The price was not sufficient to fully pay the total. PBCom demanded from Petitioner-Sureties the deficiency, who refused to acknowledge the same. PBCom filed a complaint and for attachment of their properties, the Trial Court denied the complaint for the failure of PBCOm to prove that the proceeds of the loans were delivered to Mico.

De Guzman Toole, Abad and Anastasio formed a vs. Santos general mercantile partnership the Philippine American Constrution Company- - with a capital of 14,000. The 10,000 was a loan taken from Candelaria which the partnership and co-partners undertook and bound themselves to pay jointly and severally. Candelaria filed an action for recovery because of the loan. Judgment was rendered against the partnership to which a writ of attachment against the partners was issued. Due to this, the partneship offered to post a bond of 10,000. Because there was no properties due to the judgment debtors, Candelaria moved for the issuance against the guarantors of the Defendant. Carlos, the guarantor, the paid Candelaria and were able to recover from Abad the sum of 3,800. It appears that the payment made by the plaintiff was reduced to the sum of 3665.00. The Plaintiff now demands from Anastacio Santos the return of the aforesaid sum but Anastacio refused.

Whether or not the Defendant is bound to pay Plaintiff what he had advance to Paulino. Yes. Any person who makes a payment for the account of another may recover from the debtor the amount of the payment, unless it was made against the express will of the latter. In the latter case, he can only recover from the debtor in so far as the payment has been beneficial to the latter.

Mun. of Municipality of Gasan granted Gasan vs Marasigan fishing privileges within the Marasingan jurisdictional waters. To secure payment of license fees, Marasigan filed a bond subscribed Angel R. Sevilla and Gonzalo L. Luna who bound themselves to pay if Marasigan failed to comply with the terms of the contract. Contract was declared illegal bythe 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 thecontract was to be effective so the municipality sought to recover from Marasigan and Angel R. Sevilla and Gonzalo L. Luna, theamount representing the license.

Whether or not the respondents are liable?

No. The contract being invalid and unenforceable because not only was it not consummated, it was also cancelled. It ceased to be valid when it was cancelled. And this being so, neither Marsigan, Sevilla or Luna were bound to comply with the terms of their respective contracts of fishing privilege and guaranty. A suretyship cannot exist without a valid obligation.

Smith Bell vs. PNB

Harden applied to Smith to buy 8 Anderson Expellers end drive, latest model, for the price of 80,000 to be paid on delivery. It was understood that these expellers would be manufactured in the US and delivery would be in the month of February or March ensuing year. In order to assure the prompt payment of the price upon delivery, an arrangement was made between Harden and PNB whereby the latter bound itself to Smith, Bell & Co. for the payment of the contract price, but provided the expellers would be delivered to them and must be new and in first class working order. Shortly after the contract, Harden requested the change from end-drive to side-drive. When the exprellers arrived, Harden advised the Bank that the expellers were not as ordered. The bank then refused payments.

Is PNB subsidiarily liable?

No. The liability of the PNB is primary in nature. The contract by which the Bank obligated itself is both in form and effect an independent undertaking on the part of the Bank directly to the Plaintiff; and inasmuch as the Plaintiff had compiled, or offered to comply, with the terms of said contract, the Bank is bound by its promise to pay the purchase price. Its obligation to the Plaintiff is direct and independent. The debt must be considered a liquidated debt, in the sense intended in article 1825 of the Civil Code; and the action is now maintainable by the Plaintiff directly against the Bank without regard to the position of Harden. The Bank is to be considered strictly in the light of an independent promisor, a consequence would be that Harden had no authority to change the order from end-drive to side-drive expellers; in other words, that the Bank should be held to be obligated according to the terms of the order as it stood when the Bank entered into the undertaking which is the subject of the suit.

Wise&Co. vs. Kelly

Kelly bought goods and merchandise on credit from Wise and Co., with the agreement that Kelly will apply the proceeds of its sale to the discharge of his indebtedness. Lim, as surety for Kelly, guaranteed unto Wise & Co. the payment of a sum of money which Kelly owes to Wise for goods and merchandise received and purchased by Kelly, to be sold in his establishment, upon the condition that Kelly will pay over to Wise at the end of each month all sums which he may receive from the sale of said goods and merchandise, and that in the contrary event, the surety undertakes to pay Wise such sums as Kelly may fail to turn in. As alleged by Wise, Kelly has not paid any money and thus filed a collection case against Kelly and Lim. Lim interposed the defense that the obligation was conditional as to him, and that the fact constituting the condition had not occurred. Lower court dismissed the case against Lim on the ground that wise has not proven that Kelly had failed to turn over any money and established the conclusion that Lim had incurred no liability.

Is Lim Liable? No. Lim, as surety, did not undertake to pay the principal amount due. His agreement was limited to respond for the performance by Kelly of one of the accessory pacts, namely the undertaking to deliver to Wise the total proceeds of the sales of the merchandise for the invoice value of which the promissory note was given.


Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive surety agreement to guaranty, above all, any existing or future indebtedness of Davao Agricultural Industries Corporation (Daicor), and/or induce the bank at anytime or from time to time to make loans or advances or to extend credit to said Daicor, provided that the liability shall not exceed ay any time Php100,000.00.A promissory note for Php100,000.00 (for additional capital to the charcoal buy and sell and the activated carbon importation business) was issued in favor of petitioner RCBC payable a month after execution. This was signed by Go in his personal capacity and in behalf of Daicor. Respondent Chua did not sign in said promissory note. As the note was not paid despite demands, RCBC filed a complaint for a sum of money against Daicor, Go and Chua.The complaint against Chua was dismissed upon his motion, alleging that the complaint states no cause of action against him as he was not a signatory to the note and hence he cannot be held liable. This was so despite RCBCs opposition, invoking the comprehensive surety agreement which it holds to cover not just the note in question but also every other indebtedness that Daicor may incur from petitioner bank. RCBC moved for reconsideration of the dismissal but to no avail. Hence, this petition. Whether respondent Chua may be held liable with Go and Daicor under the promissory note, even if he was not a signatory to it, in light of the provisions of the comprehensive surety agreement wherein he bound himself with Go and Daicor, as solidary debtors, to pay existing and future debts of said corporation.

The comprehensive surety agreement executed by Chua and Go, as president and general manager, respectively, of Daicor, was to cover existing as well as future obligations which Daicor may incur with RCBC. This was only subject to the proviso that their liability shall not exceed at any one time the aggregate principal amount of Php100,000.00 The agreement was executed to induce petitioner Bank to grant any application for a loan Daicor would request for. According to said agreement, the guaranty is continuing and shall remain in full force or effect until the bank is notified of its termination. During the time the loan under the promissory note was incurred, the agreement was still in full force and effect and is thus covered by the latter agreement. Thus, even if Chua did not sign the promissory note, he is still liable by virtue of the surety agreement. The only condition necessary for him to be liable under the agreement was that Daicor is or may become liable as maker, endorser, acceptor or otherwise. The comprehensive surety agreement signed by Go and Chua was as an accessory obligation dependent upon the principal obligation, i.e., the loan obtained by Daicor as evidenced by the promissory note The surety agreement unequivocally shows that it was executed to guarantee future debts that may be incurred by Daicor with petitioner, as allowed under NCC Art.2053. A guaranty may also be given as security for future debts, the amount of which isnot yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured.


Willex Plastic vs. CA

Inter Resin opened a Letter of Credit with Manila Banking Corporation with security of Continuing Surety Agreement signed by Inter Resin and Investment and Underwriting Corporation wherein they bound themselves solidarily to pay ManilaBank. Later, another continuing guaranty in favor of IUCP was signed by Inter Resin with Willex. IUCP then demanded from Inter-Resin and Willex payment of the amount of it paid to ManilaBank. As neither one of the sureties paid, IUCP filed against them. Willex argues that the Contuining 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 to the Containing Surety Agreement or to the loan agreement between ManilaBank and Inter-Resin and it also contends that the Continuing Guaranty cannot be retroactively applied so as to secure the payments made by Inter-Resin under the two Continuing Agreement.

Whether under the Continuing Guaranty, Petitioner may be held jointly and severally liable with Inter-Resin for the amount paid by IUCP to ManilaBank? Yes. Willex is liable. The consideration necessary to support a surety 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 necessarythat a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. With regards to the contention that Continuing Guaranty cannot be retroactively applied, it is very true that bonds or other contracts if suretyship are ordinarily not to be constued as retrospective, but that rule must yield to the intention if the contracting parties as revealed by the evidence and does not interfere with the use of the ordinary tests and canons or interpretation which apply in regard to other contracts.


Traders Insurance vs. Dy

Dy Eng Giok was a provincial sales agent of distillery corporation, with the responsibility of remitting sales proceeds to the principal corporation. He has a running balance and to satisfy payment, a surety bond was issued with petitioner as guarantor, whereby they bound themselves liable to the distillery corporation. More purchases was made by Dy Eng Giok and he was able to pay for these additional purchases. Nonetheless, the payment was first applied to his prior payables. A remaining balance still is unpaid. Thus, an action was filed against sales agent and surety company. Judgment was rendered in favor of the corporation.

Whether or Not Traders should be liable. No. The remittances of Dy Eng Giok should first be applied to the obligation first contracted by him and covered by the surety agreement. First, in the absence of express stipulation, A guaranty or suretyship operate prospectively, not retroactively. It only secures the debts contracted after the guaranty takes effect. To apply the payment to the obligations contracted before the guaranty would make the surety answer for debts outside the guaranty. The surety agreement didn't guarantee the payment of any outstanding balance due from the principal debtor but only he would turn out the sales proceeds to the Distileria and this he has done, since his remittances exceeded the value of the sal es during the period of the guaranty. Second, since the Dy Eng Bioks obligations prior to the guaranty were not covered, and absent any express stipulation , any prior payment made should be applied to the debts that were guaranteed since they are to be regarded as the more onerous debts.

SOCONY vs. To Guarantee the fulfillment of the Cho Siong. obligation of Cho Siong as agent of Standard Oil Co of NewYork, in the sale of the latters petroleum products, Ong Guan subscried toa personal bond in the same of P 3,000. By virtue of the agency, Cho Siong received from Socony Petroleum to the value of P 14,065 and made good with the amount of P14,000 thus leaving a balance of P65.

Could Ong Guan be held liable for the former agent, Tong Kuan which Cho Siong assumed in virtue of another contract if which Ong Guan was not even aware?

No. Under the terms of the bond signed by the surety, he did not answer for the principal obligor save for the Latters acts by virtue of the contract of agency. He cannot be held liable for the debt of a former agent, which the principal obligor assumed by virtue On the same date, when Ong Guan of another contract, of which said surety was Subscribed the P3,000 bond, Cho Siong not even aware. A contract of suretyship is to signed an instrument in favor of Socony be strictly interpreted and is not to be in which eh assumed responsibility for extended beyond its terms. the accounts that might be owed to Socony by its former agent, Tong Kuan.


Garon vs Project Movers

Project Movers obtained a loan from Garon, covered by a Promissory Note with stipulated interest of 36% per annum. To Secure payment of the loan, PMRDC undertook to assign to Garon its leasehold rights over a space in Monumento.

Whether or not Stronghold is liable? Yes, the surety is liable in general.

Suretyship arises upon the solidary binding of a person with the principal debtor, for the purpose of fulfilling an obligation. A surety is considered in law as being the same party as the debtor in relation to whatever is The parties stipulated that failure to pay adjudged as touching the obligation of the the note or any portion thereof, or any latter and their liabilities are interwoven as interest thereon, shall constitute as to be inseparable. Although a surety contract default and the entire obligation shall is secondary to the principal obligation, the become due and demandable without liability of the surety is direct, primary and need of demand. absolute or equivalent to that of a regular Another loan was obtained with Garon party to the undertaking. by the PMRDC to which they issued another promissory and assigned leasehold rights to another space in Monumento. A surety bond with Stronghold Insurance was procured by PMRDC to secure the obligations with Garon. Garon, upon delay of PMRDC, then filed a collection suit against PMRDC and the surety. Stronghold contends that the action was premature.


Republic vs. Pal-Fox Lumber Co., Inc. was indebted to PAL-Fox the Bureau of Internal Revenue for Lumbers forest charges and surcharges amounting to P11,851.56, and that the Far Eastern Surety & Insurance Co., Inc. was jointly and severally liable with the lumber company for the payment of said forest charges up to P5,000.00. Republic moved for reconsideration, pointing out that the surety company's correct liability under the appealed decision was P5,000.00 plus legal interest from the filing of the complaint. In other words, the Republic would want the surety company to pay the legal interest adjudged by the trial court before the case may finally be considered dismissed. Far Eastern's denial of liability for such interest is based on the stipulation in the bond that it was bound to the plaintiff "in the sum of P5,000.00." Commonwealth vs. CA This case is about JIGS (Jigs Manufacturing Corporation) and ELBA (Elba Industries, Inc) borrowing money from RCBC worth P4M. Commonwealth being the surety. JIGS and ELBA defaulted so RCBC went after Commonwealth. Commonwealth insists on not paying. Lower Court ruled in favor of RCBC and ordered Commonwealth to pay the principal debt plus interest. Commonwealth refused. Commonwealth appealed to CA and questions the ruling of the lower court awarding interest.

Should Far Eastern pay interest? Yes. Article 2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable. If it (the guaranty) be simple or indefinite, it shall comprise not only the principal obligation but also all its accessories, including judicial costs.

Should Commonwealth be liable to pay principal and interest? Obviously, Commonwealth is obliged to pay the principal being the surety. Regarding the interest, generally no. However because Commonwealth refused to pay the principal when the lower court ordered it to do so, it is now bound to pay the interest.


NAMARCO Marquez secured from the PRATRA, vs. Marquez later NAMARCO, one tractor and one rice thresher with a total value of 20,000 for which the said defendant paid thereon the sum of 8,000 down payment and the balance to be paid in installment. To guarantee full compliance, Marquez executed a Guaranty Bond with Plaridel Surety & Insurance Company as surety. In this guaranty bond, the surety expressly waives its right to demand payment and notice of non-payment and agrees that the liabilities of this guaranty shall be direct and immediate and not contingent upon the exhaustion by the PRATRA of whatever remedies it may have against the principal, and that the same shall be valid and continuous until the obligation so guaranteed is paid in full. Marquez defaulted payments. To which the petitioner filed a collection suit against Marquez and Plaridel. Vizconde vs. Vizconde was called by a certain Perlas IAC to sell, in her behalf, a diamond ring for commission of 85,000. Vizconde returned the ring but called Perlas afterwards because there was a sure buyer for the ring, a certain Pilar Pagulayan. To this a post-dated check was given by Pagulayan. The check was, however, dishonoured. Upon of the dishonorment, Pagulayan paid Perlas 5,000 and gave 3 Certificate of Title to guarantee delivery of the balance of such value. Perlas filed a complaint for estafa against Pagulayan and Vizonde.

Whether a Surety's liable can exceed the sum of 12,000. Yes. The contract of guaranty executed by the appellant Company nowhere excludes this interest, and Article 2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable. If it (the guaranty) be simple or indefinite, it shall comprise not only the principal obligation but also all its accessories, including judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay. Compensated sureties are not entitled to have their contracts interrupted strictissimi juris in their favor.

Is Vizconde and agent of Perlas or a mere guarantor of Pagulayan? Mere guarantor. Nothing in the language of the receipt or in the proven circumstances attending its execution can logically be considered as evidencing the creation of an agency between Perlas, as principal, and Vizconde as agent, for the sale of the formers ring. If any agency was established, it was one between Perlas and Pagulayan only, this being the logical conclusion from the use of the singular I in said clause, in conjunction with the fact that the part of the receipt in which the clause appears bears only the signature of Pagulayan.