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AGRO CONGLOMERATES V.

CA
FACTS:
July 17, 1982: Agro Conglomerates,
Inc. (Agro) sold 2 parcels of land to
Wonderland Food Industries, Inc
(Wonderland) for P 5M under terms
and conditions:

payment due dates. Mario Soriano


manifested his intention to restructure the loan, yet did not show up
nor submit his formal written request.
Regent filed 3 separate complaints
before the RTC for Collection of sums
of money

P 1M Pesos shall be paid in cash upon


the signing of the agreement

CA affirmed Trial court: held Agro


liable

P 2M Pesos worth of common shares of


stock of the Wonderland Food
Industries, Inc.

ISSUE: W/N Agro should be liable


because there was no accommodation
or surety

balance of P2,000,000.00 shall be paid


in 4 equal installments, the first
installment falling due, 180 days after
the signing of the agreement and
every six months thereafter, with an
interest rate of 18% per annum, to be
advanced by the vendee upon the
signing of the agreement

HELD:YES. CA affirmed.
First, there was no contract of sale
that materialized. The original
agreement was that Wonderland
would pay cash and Agro would
deliver possession of the farmlands.
But this was changed through an
addendum, that Agro would instead
secure a loan and the settlement of
the same would be shouldered by
Wonderland. contract of surety
between Woodland and petitioner was
extinguished by the rescission of the
contract of sale of the farmland

July 19, 1982: Agro, Wonderland and


Regent Savings & Loan Bank (Regent)
(formerly Summa Savings & Loan
Association) amended the
arrangement resulting to a revision addedum was not notarized
Agro would secure a loan in the name
of Agro Conglomerates Inc. for the
total amount of the initial payments,
while the settlement of loan would be
assumed by Wonderland
Mario Soriano (of Agro) signed as
maker several promissory notes,
payable to Regent in favor of
Wonderland subsidiary contract of
suretyship had taken effect since Agro
signed the promissory notes as maker
and accommodation party for the
benefit of Wonderland bank released
the proceeds of the loan to Agro who
failed to meet their obligations as they
fell due bank, experiencing financial
turmoil, gave Agro opportunity to
settle their account by extending

With the rescission, there was


confusion in the persons of the
principal debtor and surety. The
addendum thereon likewise lost its
efficacy accommodation party - NOT in
this case because of recission
person who has signed the instrument
as:
a. maker
b. acceptor
c. indorser
without receiving value therefor for
the purpose of lending his name to
some other person is liable on the
instrument to a holder for value,

notwithstanding such holder at the


time of taking the instrument knew
(the signatory) to be an
accommodation party has the right,
after paying the holder, to obtain
reimbursement from the party
accommodated, since the relation
between them has in effect become
one of principal and surety, the
accommodation party being the
surety.
Suretyship relation which exists where:
One person has undertaken an
obligation
another person is also under the
obligation or other duty to the obligee,
who is entitled to but one
performance. The suretys liability to
the creditor or promisee is directly and
equally bound with the principal and
the creditor may proceed against any
one of the solidary debtors
Novation - NOT in this case
extinguishment of an obligation by the
substitution or change of the
obligation by a subsequent one which
extinguishes or modifies the first,
either by changing the object or
principal conditions, or by substituting
another in place of the debtor, or by
subrogating a third person in the
rights of the creditor never presumed
and it must be clearly and
unequivocally shown
requisites:
There must be a previous valid
obligation lacking. There must be an
agreement of the parties concerned to
a new contract. There must be the
extinguishment of the old contract;
and there must be the validity of the
new contract
Sec. 22 of the Civil Code provides:

Every person who through an act of


performance by another, or any other
means, acquires or comes into
possession of something at the
expense of the latter without just or
legal ground, shall return the same to
him.
Agro had no legal or just ground to
retain the proceeds of the loan at the
expense of Wonderland. Neither could
Agro excuse themselves and hold
Wonderland still liable to pay the loan
upon the rescission of their sales
contract - surety no effect because of
the rescission. If Agro sustained
damages as a result of the rescission,
they should have impleaded
Wonderland and asked damages. The
non-inclusion of a necessary party
does not prevent the court from
proceeding in the action, and the
judgment rendered therein shall be
without prejudice to the rights of such
necessary party
But respondent appellate court did not
err in holding that Agro are dutybound under the law to pay the claims
of Regent from whom they had
obtained the loan proceeds.
EMPIRE INSURANCE COMPANY V. NLRC
Facts: Andal applied with G&M Phils.
for an overseas employment as a
domestic helper in Saudi Arabia. She
was hired for a term of 2 years. Upon
working for 2 years, she was
repatriated. Upon her repatriation,
she brought a complaint before the
POEA for illegal dismissal, nonpayment and underpayment of
salaries. Impleaded in the complaint
was Empire Insurance as surety of
G&M.
Empire Insurance Company theorized
that Andal was without any cause of
action against it for the alleged reason
that the liability of its principal, G&M
had not been established. Further, it
argued that its liability, if any, for the

money claims sued upon was merely


subsidiary.
G&M contends that Andal was not
illegally dismissed, but that she
abandoned her job.
POEA adjudged in favor of Andal
ordering G&M to pay the salaries due
Andal. Empire appealed the case to
the NLRC. NLRC affirmed in toto the
decision of the POEA. Hence, this
petition with the SC.

Issue: WON Sellner is a guarantor or


surety?

Issue: Whether or not NLRC erred in


adjudging Empire jointly liable with
G&M for the payment of Andals
monetary claims.

MACHETTI V. HOSPICIO
Facts: By a written agreement,
Machetti undertook to construct a
building for 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.

Held: NO. Empire is solidarily liable


with its principal, G&M. Suretyship is
a contractual relation resulting from
an agreement whereby one person,
the surety, engages to be answerable
for the debt, default or miscarriage of
another, known as the principal.
Where the surety bound itself
solidarily with the principal obligor, the
former is so dependent on the
principal debtor such that the surety is
considered in law as being the same
party as the debtor in relation to
whatever is adjudged touching the
obligation of the latter, and their
liabilities are interwoven as to be
inseparable. The suretys liability is
solidary but the nature of its
undertaking is such that unless and
until the principal debtor is held liable
it does not incur liability.
CASTELVI V. SELLNER
Facts: Sellner (defendant) wrote a
letter to Mcleod (Castellvis agent)
saying that he would bound himself to
pay the promissory note of Mining,
Clarke and Maye amounting 10K + %
if not fully paid at maturity, upon the
surrender 8k worth of MCMs stock
which is held by Castellvi.

Held: Sellner is a GUARANTOR. Sellner


was not bound with Castellvi by
the same instrument executed at the
time and the same consideration, but
his responsibility was secondary, one
founded on an independent collateral
agreement. Neither was he jointly and
severally liable with Castellvi.

Issue: WON the undertaking assumed


by FSC that of guarantor or surety?
Held: 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 doesnot 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.
PLARIDEL SURETY V. ARTEX
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 exist
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.
PACIFIC TOBACCO V. LORENZANA
Facts: The Pacific Tobacco Corp. is eng
aged in the business of manufacturing
and distributingcigarettes 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.
RCBC V. ARRO
Facts:
Private respondent Residoro Chua,
with Enrique Go, Sr., executed a
comprehensive surety agreement
to guaranty, above all, any existing or
future indebtedness of Davao
Agricultural Industries Corporation
(Daicor), and/or induce the bank at
anytime or from time to time to make
loans or advances or to extend credit
to 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.

amount of Php100,000.00. (Par.1of


said agreement).

Held:
Yes, he may be held liable. Order
dismissing the complaint against
respondent Chua reversed and set
aside. Case remanded to court of
origin with instruction to set aside
motion to dismiss and to require
defendant Chua to answer the
complaint.

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 Daicoras evidenced by
the promissory note. The surety
agreement unequivocally shows that it
was executed to guarantee future
debts that may be incurred by Daicor
with petitioner, as allowed under NCC
Art.2053.
A guaranty may also be given as
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.

Ratio:
The comprehensive surety agreement
executed by Chua and Go, as
president and general manager,
respectively, of Daicor, was to cover
existing as well as future obligations
which Daicor may incur with RCBC.
This was only subject to the proviso
that their liability shall not exceed at
any one time the aggregate principal

DINO V. CA
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

Issue:
WON 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.

Jacinto Uy Dio 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 t
he obligatory stipulations in the trust r
eceipt. As aconsequence, METROBANK
sent letters to the said principal
obligor and its sureties, Norberto
Uyand Jacinto Uy Dio, demanding pay
ment of the amount due. They denied
liability on thetransaction. In its reply,
the bank informed him that the source
of his liability is the
ContinuingSuretyship which he execut
ed on February 25, 1977. On demand,
UTEFS paid some of the outstanding
amount. As a rejoinder, Dio
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 Dio (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.
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.Issues1.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;
and2.On the assumption that they are,
what is the extent of their liabilities for
said 1979obligations.Held1.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. Its
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 des
cription orcontemplation 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
suretyshipagreements.Petitioners mai
ntain, however, that their Continuing S
uretyship 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 provi
des 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 Agreeme
nts 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' res
pective liabilities must be determined f
rom the suretyshipagreement each ha
d signed. It is undoubtedly true that th
e law looks upon the contract of surety
ship 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 Dio and petitioner Uy
fixthe aggregate amount of their liabili
ty, 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.
ATOK FINANCE V. CA
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
tothe provision that guaranty cannot e
xist independently because by nature i
t is merely anaccessory 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 ha
s been debunked in the cases of Natio
nal Rice and CornCorporation (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.
These 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 bar2.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, 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 (e
xArticle 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 assign or 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 privat
e respondet officers andstockhold
ers of Sanyu Chemical under the C
ontinuing 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
Article1629 of the Civil Code.
PNB V. CA
Facts: Estanislao Depusoy, and the
Republic of the Philippines,
represented by the Director of Public
Works, entered into a building
contract, for the construction of the
GSTS building at
ArrocerosStreet,Manila, Depusoy to fur
nish all materials, labor, plans, and su
pplies needed in the construction.Dep
usoy applied for credit
accommodation with the plaintiff.
This was approved by
the Board of Directors in various
resolutions subject to the conditions
that he would assign all payments to
be received from the Bureau of Public
Works of the GSIS to the bank, furnish
a surety bond, and the
surety to deposit P10,000.00 to the pla
intiff. The total accommodation
granted to Depusoy wasP100,000.00.
This was later extended by another
P10,000.00 and P25,000.00, but in no
case should the
loan exceed P100,000.00. In complian
ce with these conditions, Depusoy
executed a Deed of Assignment of
all money to be received by
him from the
GSIS to PNB. Depusoy defaulted in his
building contract with the Bureau of
Public Works, and sometime in
September, 1957, the Bureau of Public
Works rescinded its contract with
Dernisoy. No furher amounts were
thereafter paid by the GSISto
lie plaintiff bank. The amount of
the loan of Depusoy which
remains unpaid, including interest, is
over P100,000.00. Demands for
payment were made upon Depusoy
and Luzon, and as no payment was

made, therefore herein petitioner filed


with the trial court a complaint against
Estanislao Depusoy and private
respondent Luzon Surety Co.
Inc. (LSCI).

payments, in 1989 it
requestedSecurity Bank a complete re
structure of its indebtedness, which w
asapproved without prior notice to, or
prior consent of Cuenca. Still it was
unable to pay.

Issue: WON Luzon Surety is liable


Held: the bonds executed by private
respondent LSCI were to guarantee
the faithful performance of Depusoy of
his obligation under the Deed of
Assignment and not to guarantee
payment of the loans or the debt of
Depusoy to petitioner to the extent of
P100,000.00. Besides, even if there
had been any doubt on the terms and
conditions of the surety agreement,
the doubt should be resolved in favor
of the surety. As concretely put in
Article 2056 of the Civil Code, "A
guaranty is not presumed, it must be
expressed and cannot extend to more
than what is stipulated therein." LSCI
is liable to the full extent thereof, such
liability is strictly limited to that
assumed by its terms."
SECURITY BANK V. CUENCA
I. Facts
* Creditor: Sccurity Bank and Trust
Co.Debtor: Sta. Ines Melale Corp.
Surety: Rodolfo Cuenca
A.
Sta. Ines is a corporation engaged in
logging operations. In 1980, it was
granted by Security Bank a credit line
in the amount of Php 8M. To secure
payment, it executed a chattel
mortgage over some of its
machineries and equipments. And as
an additional security, its President
and Chairman of the
Board of Directors Rodolfo Cuenca, exe
cuted anIndemnity agreement in favor
of Security Bank whereby he bound
himself jointly and severally with Sta.
Ines. After Cuenca resigned, Sta. Ines
obtained a Php 6M loan. Because of its
difficulty in making the amortization

B. Contention of the Petitioner


Security Bank insists that the 1989
Loan Agreement was a mere renewal
or extension of the Php 8M original
accommodation, that Cuenca waived
his right to be notified of and to give
consent to any substitution, renewal,
extension, increase, amendment,
conversion or revival of the same, and
that it was a continuing surety.
C. Contention of the Respondent
Cuenca argues that the 1989
agreement extinguished the obligation
under the 1980 credit accommodation
by novation.
II. Issues
WON the 1989 Loan Agreement
novated the original credit
accommodation
and Cuencas liability under
the Indemnity Agreement.
III. Ruling
The 1989 Loan Agreement
extinguished by novation the
obligation under the1980 P8 million
credit accommodation. It is essential
in the law of suretyship that
any agreement between the creditor a
nd the principal debtor that essentially
varies the terms of the principal
contract without the consent of the
surety, will release the surety from
liability. The 1989 Loan Agreement
expressly
stipulatedthat its purpose was to liquid
ate, not to renew or extend, the outsta
nding
indebtedness.Moreover, respondent di
d not sign or consent to the 1989 Loan
Agreement, which had allegedly

extended the original P8 million credit


facility. Indeed, the stipulation in the
1989 Loan Agreement providing for
the surety of respondent, without even
informing him, smacks of negligence
on the part of the bank and bad faith
on that of the principal debtor. Since
that Loan Agreement constituted a
new indebtedness, the old loan having
been already liquidated, the spirit of
fair play should have impelled Sta.
Ines to ask somebody else to act as a
surety for the new loan.

DURAN V. IAC
Doctrine: The fraudulent and forged
document of sale may become the
root of a valid title if the certificate
has already been transferred from the
name of the true owner to the name
indicated by the forger.
Facts:
Circe Duran owned 2 parcels of land in
Caloocan City which she had
purchased form the Moja Estate. She
left the Philippines in June 1854. A
Deed of Sale of the 2 lots was made in
favor of Circes mother, Fe. In
December 1965, Fe mortgaged the
same property to Erlinda MarceloTiangco. When Circe came to know
about the mortgage, she wrote to the
Register of Deeds (RD) of Caloocan
informing that she had not given her
mother any authority to sell or
mortgage any of her properties. She
failed to get an answer from the RD.
So she returned to the Philippines in
May 1966.
Meanwhile, Fe failed to redeem the
mortgaged properties and foreclosure
proceedings were initiated by MarceloTiangco.
Circe claims that the sale in favor of
her mother is a forgery saying that at
the time of its execution in 1963, she
was in the US. Fe alleges that the
signatures of Circe in the Deed are

genuine and the mortgage made by Fe


is valid.
Issue:
1.
Whether or not the mortgage is
valid
2.
Whether or not Marcelo-Tiangco
was a buyer in good faith and for
value
Held:
1.
Yes, the mortgage is valid with
respect to the mortgagees. There is a
presumption of regularity in the case
of a public document. The fraudulent
and forged document of sale may
become the root of a valid title if the
certificate has already been
transferred from the name of the true
owner to the name indicated by the
forger. Insofar as innocent 3rd persons
are concerned, the owner was already
Fe inasmuch as she had become the
registered owner (caused by the sale
of Circe to Fe). The mortgagee had the
right to rely upon what appeared in
the cert. of title and did not have to
inquire further.
2.
Good faith consists of the
possessors belief that the person from
whom he received the thing was the
owner of the same and could convey
his title. In the case, Marcelo-Tiangco
in good faith relied on the cert. of title
in the name of Fe.
*Circe was also guilty of estoppels by
laches. Antero (husband of Circe) was
in the Philippines in 1964 to construct
an apartment on the disputed lots. He
could have discovered the deed of
sale sought to be set aside. They could
also have intervened in the foreclosure
suit but they did not.
UY TONG V. CA
Facts: Spouses Uy Tong purchased
from BAYANIHAN 7 units of motor
vehicles forP47,700.00 payable in 3
installments. The transaction was
evidenced by a Written Agreement
which provided that if VENDEE should
fail to pay the latter shall become

automatically the owner of the


formers apartment in Binondo,
Manila, with the only obligation on its
part to pay unto the VENDDE
P3,535.00 and that VENDEE shall
execute the corresponding Deed of
Absolute Sale in favor of the Vendor
and/or Assignment of Leasehold
Rights. This agreement, according to
the petitioners is in the nature of a
pactum commissorium which is null
and void.
Issue: WON the agreement is in the
nature of pactum commisorium
Held: No. A perusal of the terms of
the questioned agreement evinces no
basis for the application of the pactum
commissorium provision. First, there is
no identification of any contract of
mortgage entered into by the parties.
It is a fact that the parties agreed on
the sale and purchase of trucks.
Second, there is no case of automatic
appropriation of property because it
took the intervention of the trial courts
to exact fulfillment of the obligation.
BUSTAMANTE V. ROSEL
Facts: Respondent ROSEL (lender)
entered into a loan agreement with
petitioner BUSTAMANTE (borrower)
and her late husband, under, among
others, the condition that the Rosel is
given the option to buy at a certain
price the property given as collateral
in the event the borrower fails to pay.
When the loan was about to mature,
Rosel proposed to buy at the pre-set
price of 200K the collateral given to
guarantee the payment of the
loan, but Bustamante refused to sell.
When Bustamante tendered payment
of the loan to Rosel which it refused to
accept, insisting on petitioners
signing a prepared deed of absolute
sale of the collateral. Rosel consigned
the amount of 47,500 with the

trial court with which Rosel filed a


complaint for specific performance.
Issue: WON the stipulation in the loan
contract was valid and enforceable.
Held:1.Stipulation embraced in
concept of pactum commisorium
Bustamante did not fail to pay the loan
when Rosel refused to accept
payment, Bustamante consigned the
amount with the trial court. A scrutiny
of the stipulation of the parties reveals
a subtle intention of the creditor to
acquire the property given as security
for the loan. This is embraced in the
concept
of pactumcommissorium.2.Intent to
appropriate property as collateral
appears to be evident the debtor is
obliged to dispose of the collateral at
the pre-agreed consideration
amounting to practically the same
amount of the loan. In effect, the
creditor acquires collateral in event of
non-payment of the loan. This is within
the concept of PC, thus stipulation is
void. ELEMENTS OF PACTUM
COMMISSORIUM
a. There should be a
property mortgaged by way of security
for the payment of the principal
obligation; b. There should be a
stipulation for automatic appropriation
by the creditor of the thing mortgaged
in the case of non-payment of the
principal obligation within the
stipulated period.
DBP V. CA
Facts: CUBA, a guarantee of
a Fishpond Lease Agreement from the
Government, obtained from DBP 3
separate loans, each of which was
covered by a promissory note.
Simultaneous with the execution of
the notes was the execution of the
Assignment of Leasehold Rights by
CUBA, as borrower of the mortgaged
properties by way of security in the

payment of the loans. Condition no. 12


provides for the appointment of DBP
as attorney-in-fact with authority,
among other things, to sell or
otherwise dispose of the said real
rights in case of default by CUBA and
to apply the proceeds to the payment
of the loan.Issue:1.WON the condition
in question constitute pactum
commissorium2.WON the act of DBP in
appropriating to itself CUBAs
leasehold rights with foreclosure
proceedings was contrary to Article
2088 and, therefore,
invalid.Held:1.The elements of pactum
commissorium are not present
Condition 12 did not provide that the
ownership over the leasehold rights
would automatically pass to DBP upon
CUBAs failure to pay the loan on
time2.DPB exceeded authority vested
by condition - DBP cannot take refuge
in condition 12 of the deed
of assignment to justify its act
of appropriating the leasehold rights.
As stated, condition 12 did not
provided that CUBAs default would
operate to vest DBP ownership of
the said rights. Besides, an
assignment to guarantee an
obligation, as in the present case, is
virtually a mortgage and not an
absolute conveyance of title which
confers ownership on the assignee
SERRANO V. CA
FACTS:
Serrano bought some jewelry from
Ribaya. Due to need of finances, she
decided to have the jewelry pawned.
She instructed her secretary to do so
for her, which the secretary did
but
absconded after
receiving the proceeds. It is to be
noted that the pawnshop ticket
indicated that the jewelry was
redeemable by presentation by
the bearer. Afterwards, there was a
lead on where the jewelry was
pawned. An investigation was done to

verify the suspicion. The jewelry was


to be sold in a public auction then.
The petitioner and police authorities
informed the pawnshop owner not to
sell the jewelry as she was the
rightful owner thereof. Despite of
this however, the jewelry was
redeemed by a Tomasa de Leon
who presented the pawnshop ticket.
HELD:
Having been informed by the
petitioner and the police that jewelry
pawned to it was either stolen or
involved in an embezzlement of the
proceeds of the pledge, pawnbroker
became duty bound to hold the things
pledged and to give notice to the
petitioner and authorities of any
effort to redeem them. Such a duty
was imposed by Article 21 of the CC.
The circumstance that the pawn ticket
stated that the pawn was redeemable
by the bearer, didnt dissolve this
duty. The pawn ticket wasnt a
negotiable instrument under the NIL,
nor was it a negotiable document of
title under Article 1507of the CC.
YULIONGSI V. PNB
Facts: Plaintiff Yuliongsi was the owner
of 3 vessels. In 1947, plaintiff obtained
a loan from defendant PNB for P50,000
guaranteed by a pledge of the 3
vessels to PNB, which pledge contract
was duly registered with the office
of the Customs Collector
of Cebu. Plaintiff effected partial
payment of said loan and delivered 2
promissory notes for the balance. In
1948, the defendant filed criminal
charges against plaintiff for estafa thru
falsification of documents. With the
institution of the criminal action,
defendant took physical possession of
the 3 pledged vessels. After the first
note fell due, without the plaintiff
effecting payment, the defendant,
pursuant to the terms of the contract,
executed a document of

sale transferring the vessels to itself.


2 of the vessels were later sold to a
3rd
party. Plaintiff filed an action to
recover the vessels or their value plus
damages. Trial court decided for
defendant PNB.
Issue: WON the contention of PNB
is tenable
Held: The pledgee can temporarily
entrust the physical possession of the
chattels (in this case, the vessels)
to the pledgor without invalidation the
pledge. The pledgor is regarded as
holding the property pledged merely
as trustee for the pledgee. Since the
defendant was, pursuant to the terms
of the contract, in full contract of the
vessels thru the plaintiff, the former
could take actual possession at any
time during the life of the pledge to
make more effective its security. Its
taking of the vessels. Therefore, was
not unlawful, nor was it unjustified
considering that plaintiff had just
defrauded the defendant.
PNB V. SAYO
Facts: Noahs Ark Sugar Refinery
issued several warehouse receipts
covering sugar deposited by RNS
Merchandising and St. Therese
Merchandising. Subsequently, these
same receipts were endorsed to
Ramos and Zoleta. The latter then
used the receipts as security for two
loan agreements with PNB, thus
endorsing them with said bank. When
Ramos and Zoleta could not pay their
loan to the bank, PNB demanded
delivery of the sugar stocks covered
by the receipts from Noah Ark Sugar
Refinery.
Noah refused to comply with the
demand alleging ownership of the
sugar. It alleged that the owner of
Noah, Looyuko, entered into an
agreement with RNS and St. Therese

Merchandising to sell the sugar


indicated in the warehouse receipts
stored in Noah for an amount of
P63,000,000. Checks were issued but
they were dishonored for being drawn
against insufficient funds.
Hence, PNB filed a complaint with the
RTC. RTC dismissed said complaint.
On appeal to the SC by way of
petition for review on certiorari, SC
ordered Noah and its owner, Looyuko,
to deliver to PNB the sugar stocks
covered by the warehouse receipts in
controversy.
However, Noah filed an Omnibus
Motion seeking deferment of the
judgment until it was heard on its
warehousemans lien. RTC granted
the order and evidence was received
in support thereof. RTC adjudged that
there existed a valid lien in favor of
Noah, and accordingly, execution of
the judgment against Noah should be
stayed until the full amount of Noahs
lien shall have been satisfied. PNB
then filed certiorari proceedings before
the SC. SC held that while PNB was
entitled to the sugar stocks as
endorsee of the receipts, delivery to it
shall only be effected upon payment
of the storage fees. SC further ruled
that imperative is the right of the
warehouseman to demand payment of
his lien because he loses his lien upon
goods by surrendering possession
thereof.
RTC Judge Sayo, Jr. allowed a writ of
execution in favor of Noah to collect
on its warehousemans lien against
PNB. Hence, this certiorari proceeding
before the SC.
Issues:
(1) Whether or not PNB is liable for
storage fees.
(2) If yes, what is the duration of time
the right of PNB over the goods may
be subject to the lien?
Held:

(1) YES. PNB contends that it was a


mere pledgee as the receipts were
used to secure two loans it granted.
SC agreed with this and held that the
indorsement and delivery of the
receipts by Ramos and Zoleta to PNB
was not to convey title to or ownership
of the goods but to secure the loans
by way of pledge. The indorsement of
the receipts to perfect the pledge
merely constituted a symbolical or
constructive delivery of the possession
of the thing thus encumbered. The
creditor, in a contract of real security,
like pledge, cannot appropriate
without foreclosure the things given
by way of pledge. Any stipulation to
the contrary is null and void for being
pactum commissorio. The law
requires foreclosure in order to allow a
transfer of title of the goods given by
way of security from its pledgor, and
before any such foreclosure, the
pledgor, not the pledgee, is the owner
of the goods.
However, SC held that the
warehouseman nevertheless is
entitled to his lien that attaches to the
goods invokable against anyone who
claims a right of possession thereon.
(2) SC held that where a valid demand
by the lawful holder of the receipts for
the delivery of the goods is refused by
the warehouseman, despite the
absence of a lawful excuse provided
by the law itself, the warehousemans
lien is thereafter concomitantly lost.
As to what the law deems a valid
demand, Section 8 of the Warehouse
Receipts Law enumerates what must

accompany a demand. SC held that


regrettably, the factual settings do not
sufficiently indicate whether the
demand to obtain possession of the
goods complied with Sec. 8. The
presumption, nevertheless, would be
that the law was complied with. On
the other hand, it would appear that
the refusal of Noah to deliver the
goods was not anchored on a valid
excuse, i.e., non-satisfaction of the
lien over the goods, but on an adverse
claim of ownership. Under the
circumstances, this hardly qualified as
a valid, legal excuse. The loss of the
lien, however, does not necessarily
mean the extinguishment of the
obligation to pay the warehousing fees
and charges which continues to be a
personal liability of the owners, i.e.,
the pledgors, not the pledgee, in this
case. But even as to the ownerspledgors, the warehouseman fees and
charges have ceased to accrue from
the date of the rejection by Noah to
heed the lawful demand by PNB for
the release of the goods. Hence, the
time from which the fees and charges
should be made payable is from the
time Noah refused to heed PNBs
demand for delivery of the sugar
stocks and in no event beyond the
value of the credit in favor of the
pledgee since it is basic that, in
foreclosures, the buyer does not
assume the obligations of the pledgor
to his other creditors even while such
buyer acquires title over the goods
less any existing preferred lien there
over.

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