Académique Documents
Professionnel Documents
Culture Documents
LOAN
1. Garcia v. Theo
2. Pantaleon v. American Express, Inc.
3. Producers Bank of the Phil. v. CA
4. Pajuyo v. CA
5. Republic v. Bagtas
6. BPI Family Bank v. Franco
7. Frias v. San Diego- Sison
8. Conception v. CA
9. Sps. Castro v. TAN
10. Siga-an v. Villanueva
11. Tan v. CA
12. Carpio vs. Chua Ng
13. PRISMA Construction v. Development Corp.
14. Sps. Silos v. PNB
DEPOSIT
1.
2.
3.
4.
5.
6.
7.
BPI v. IAC
DURBAN Apartment v. Poineer Insurance and Surety Corp.
TRIPLE-V Food Services v. Filipino Merchant Insurance Corp.
Lipat v. Pacific Banking Corp.
CA-Agro Industrial Development Corp. v. CA
Ortiz v. Kayanan
YHT Realty Corp. v. CA
GUARANTY
1. Dio v. CA
2. Escao v. Ortigas
3. Tupaz v. CA
4. Palmarez v. CA
5. Phil. Blooming Mills v. CA
6. Bitanga v. Pyramid Construction Engineering Corp.
7. JN Development Corp. v. Philippine Exports and Foreign Loan Guaranty, Ltd.
8. Stronghold Insrance Company, Inc. v. Tokyo Construction Company, Ltd.
9. Ong v. Philippine Commercial International Bank
10. E. Zobel, Inc. v. CA
LOAN
CAROLYN M. GARCIA v. RICA MARIE S. THIO
GR No. 154878, 16 March 2007
FACTS:
Respondent Thio received from petitioner Garcia two crossed checks which amount to
US $100,000 and US $500,000, respectively, payable to the order of Marilou Santiago.
According to petitioner, respondent failed to pay the principal amounts of the loans when
they fell due and so she filed a complaint for sum of money and damages with the RTC.
Respondent denied that she contracted the two loans and countered that it was Marilou Satiago
to whom petitioner lent the money. She claimed she was merely asked the petitioner to give the
checks to Santiago. She issued the checks for P76,000 and P20,000 not as payment of interest
but to accommodate petitioners request that respondent use her own checks instead of
Santiagos.
RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract
of loan between the parties.
ISSUES:
(1) Whether or not there was a contract of loan between petitioner and respondent.
(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?
RULING:
(1)
The Court held in the affirmative. A loan is a real contract, not consensual, and as such is
perfected only upon the delivery of the object of the contract. Upon delivery of the contract of
loan (in this case the money received by the debtor when the checks were encashed) the debtor
acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal
amount. It is undisputed that the checks were delivered to respondent.
(2)
However, the checks were crossed and payable not to the order of the respondent but to
the order of a certain Marilou Santiago. Delivery is the act by which the res or substance is
thereof placed within the actual or constructive possession or control of another. Although
respondent did not physically receive the proceeds of the checks, these instruments were
1
placed in her control and possession under an arrangement whereby she actually re-lent the
amount to Santiago.
Thus, such petition is granted.
May 8, 2009
FACTS:
Petitioner, lawyer Polo Pantaleon, with his family went on an escorted tour of Western
Europe. On the last day of the tour, the group arrived at the Coster Diamond House in which the
group agreed that the visit should end by 9:30 a.m. to allow enough time to take a guided city
tour of Amsterdam. While in the diamond house, Mrs. Pantaleon decided to buy a diamond and
also a pendant and a chain which totaled U.S. $13,826.00.
presented his American Express credit card together with his passport to the Coster sales clerk.
The sales clerk took the cards imprint, and asked Pantaleon to sign the charge slip. The charge
purchase was then referred electronically to respondents Amsterdam office at 9:20 a.m.
At 9:40am, Pantaleon asked the store clerk to cancel the sale to avoid further delaying
the tour group. At around 10:00a.m, Coster decided to release the items even without AMEXs
approval of the purchase. Due to the delay, the city tour of Amsterdam was cancelled due to
lack of time. The spouses Pantaleon offered their apologies but were met by their tour mates
with stony silence and visible irritation. There were also two instances similar to the incident in
Amsterdam wherein Pantaleon purchased golf equipment using his AMEX card, but he ended
up barrowing money after more than 30 minutes of non-approval. The other incident is when
Pantaleon used the card to purchase childrens shoes at a store in Boston, and it took 20
minutes before it was approved.
In Manila, Pantaleon sent a letter demanding an apology for the for AMEXs refusal to
provide credit authorization for the said purchases. AMEX refused to apologize stating that the
delay in authorizing the purchase from Coster was attributable to the circumstance that the
charged purchase of US $13,826.00 was out of the usual charge purchase pattern established.
Pantaleon filed an action for damages in the RTC which he won. In the CA the RTC decision
was reversed, hence this petition.
ISSUE: Whether or not AMEX breached its contractual obligation
RULING:
YES. Notwithstanding the popular notion that credit card purchases are approved "within
seconds," there really is no strict, legally determinative point of demarcation on how long must it
take for a credit card company to approve or disapprove a customers purchase, much less one
specifically contracted upon by the parties. Yet this is one of those instances when "youd know
it when youd see it," and one hour appears to be an awfully long, patently unreasonable length
of time to approve or disapprove a credit card purchase
It is not disputed that AMEX has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder,
and that the cardholder is within his means to make such transaction. The culpable failure of
AMEX is not the failure to timely approve petitioners purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. AMEX should have informed
Pantaleon the reason for the delay, and duly advised him that resolving the same could take
some time.
PRODUCERS BANK OF THE PHILIPPINES (now FIRST INTERNATIONAL BANK) vs. HON.
COURT OF APPEALS AND FRANKLIN VIVES
G.R. No. 115324. February 19, 2003
Callejo, Sr., J.
FACTS:
Sometime in 1979, private respondent Franklin Vives was asked by his neighbor and
friend Angeles Sanchez to help her friend and townmate, Col. Arturo Doronilla, in incorporating
his business, the Sterela Marketing and Services (Sterela). Specifically, Sanchez asked private
respondent to deposit in a bank a certain amount of money in the bank account of Sterela for
purposes of its incorporation.
money from said account within a months time. With this, Mrs. Vivies, Sanchez and a certain
Estrella Dumagpi, secretary of Doronilla, went to the bank to open an account with Mrs. Vives
and Sanchez as signatories. A passbook was then issued to Mrs. Vives. Subsequently, private
respondent learned that part of the money was withdrawn without presentment of the passbook
as it was his wife got hold of such. Mrs. Vives could not also withdraw said remaining amount
because it had to answer for some postdated checks issued by Doronilla who opened a current
account for Sterela and authorized the bank to debit savings.
Private respondent referred the matter to a lawyer, who made a written demand upon
Doronilla for the return of his clients money. Doronilla issued another check for P212,000.00 in
private respondents favor but the check was again dishonored for insufficiency of funds.
Private respondent instituted an action for recovery of sum of money in the Regional
Trial Court (RTC) in Pasig, Metro Manila against Doronilla, Sanchez, Dumagpi and petitioner.
The RTC ruled in favor of the private respondent which was also affirmed in toto by the CA.
Hence this petition.
ISSUE:
Whether or not the transaction between the Doronilla and respondent Vives was one of
a simple loan?
RULING:
5
No. A circumspect examination of the records reveals that the transaction between them
was a commodatum. Article 1933 of the Civil Code distinguishes between the two kinds of
loans in this wise:
By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time
and return it, in which case the contract is called a commodatum; or money or
other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid, in which case the contract is simply called a loan
or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum, the bailor retains the ownership of the thing loaned,
while in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a consumable thing. Article 1936 of the
Civil Code provides:
Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition.
Thus, if consumable goods are loaned only for purposes of exhibition, or when the
intention of the parties is to lend consumable goods and to have the very same goods returned
at the end of the period agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. In case of doubt, the
contemporaneous and subsequent acts of the parties shall be considered in such determination.
PAJUYO v. CA
GR No. 146364 June 3, 2004
FACTS:
Pajuyo, through a Kasunduan, entrusted a house, built on a lot not his own, to Guevara
for the latter's use provided he should return the same upon demand and with the condition that
Guevara should be responsible of the maintenance of the property. Upon demand Guevara
refused to return the property to Pajuyo. The petitioner then filed an ejectment case against
Guevara with the MTC who ruled in favor of the petitioner. On appeal with the CA, the appellate
court reversed the judgment of the lower court ruling that the contractual relationship of Pajuyo
and Guevara was that of a commodatum.
ISSUE: Whether the relationship of Pajuyo and Guevara is that of a commodatum.
RULING:
No An essential feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a certain period. If the use
of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in
which case the contractual relation is called a precarium.
Under the Civil Code, precarium is a kind of commodatum. The Kasunduan reveals that
the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in
good condition. The imposition of this obligation makes the Kasunduan a contract different from
a commodatum. The effects of the Kasunduan are also different from that of a commodatum.
Case law on ejectment has treated relationship based on tolerance as one that is akin to a
landlord-tenant relationship where the withdrawal of permission would result in the termination
of the lease.
REPUBLIC v. BAGTAS
G.R. No. L-17474 October 25, 1962
FACTS:
Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for
breeding purposes subject to payment of breeding fee of 10% of book value of the bull. Upon
expiration, Bagtas asked for renewal. The renewal was granted only to one bull.
Bagtas offered to buy the bulls at its book value less depreciation but the Bureau
refused. The Bureau said that Bagtas should either return or buy it at book value. Bagtas proved
that he already returned two of the bulls, and the other bull died during a Huk raid, hence,
obligation was already extinguished. He claims that the contract is a commodatum. Thus, it was
a loss through fortuitous event and should be borne by the owner.
ISSUE: WON Bagtas is liable for the death of the bull.
RULING:
Yes. Commodatum is essentially gratuitous. However, in this case, there is a 10%
charge. If this is considered compensation, then the case at bar is a lease. Lessee is liable as
possessor in bad faith because the period already lapsed.
Even if this is a commodatum, Bagtas is still liable because the fortuitous event
happened when he held the bull and the period stipulated already expired. He is liable because
the thing loaned was delivered with appraisal of value and there was no contrary stipulation
regarding his liability in case there is a fortuitous event.
RULING:
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but
not as a legal consequence of its unauthorized transfer of FMICs deposits to Tevestecos
account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the
Civil Code provisions on simple loan or mutuum. As there is a debtor-creditor relationship
between a bank and its depositor, BPI-FB ultimately acquired ownership of Francos deposits,
but such ownership is coupled with a corresponding obligation to pay him an equal amount on
demand. Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from
demanding payment of BPI-FBs obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued checks
drawn against his current account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.
10
100k moral, corrective, exemplary damages [liable for moral damages because of Frias
fraudulent scheme]
100k attorneys fees + cost of litigation
The CA affirmed RTC with modification32% reduced to 25%. CA said that there was no
basis for Frias to say that the interest should be charged for 6 months only. It said that a loan
always bears interest; otherwise, it is not a loan. The interest should commence on June 7,
1991 until fully paid, with compounded bank interest prevailing at the time [June 1991] the 2M
was considered as a loan (as certified by the bank).
ISSUE: WON compounded bank interest should be limited to 6 months as contained in the
MOA.
RULING:
No. CA committed no error in awarding an annual 25% interest on the 2M even beyond
the 6-month stipulated period. In this case, the phrase for the last six months only should be
taken in the context of the entire agreement.SC notes that the agreement speaks of two (2)
periods of 6 months each. No interest will be charged for the 1st 6-month period while Sison
was making up her mind, but only for the 2nd 6-month period after Sison decided not to buy the
property. There is nothing in the MOA that suggests that interest will be charged for 6 months
only even if it takes forever for Frias to pay the loan.
The payment of regular interest constitutes the price or cost of the use of money, and
until the principal sum due is returned to the creditor, regular interest continues to accrue since
the debtor continues to use such principal amount. For a debtor to continue in possession of the
principal of the loan and to continue to use the same after maturity of the loan without payment
of the monetary interest constitutes unjust enrichment on the part of the debtor at the expense
of the creditor.
12
stipulated in this
"Some contracts contain what is known as an 'escalator clause,' which is defined as one
in which the contract fixes a base price but contains a provision that in the event of specified
cost increases, the seller or contractor may raise the price up to a fixed percentage of the base.
14
Siga-an v Villanueva
G.R. No. 173227. January 20, 2009
FACTS:
Alicia Villanueva, a businesswoman engaged in supplying office materials and
equipments to the Philippine Navy Office (PNO), received a loan of P 540,000.00 from
Sebastian Siga-an, a military officer and comptroller of the PNO. The loan was not written but
merely an oral agreement. There was no written agreement of the interest between the parties.
Villanueva issued two checks with a total worth of P700,000.00 in favor of Siga-an as payment
of the loan. These checks were encashed. The excess of P160,000.00 was for the payment of
the interest of the loan, unaware of the law on interest. Aside from issuing the said two checks,
Villanueva also paid the amount of P175,000.00 to Sig-an as additional interest. Villanueva was
compelled to pay this additional interest because Siga-an threatened to block or disapprove the
transaction of Villanueva with the PNO. Siga-an is alleging that Villanuava issued a promissory
note that provides that Villanueva is owing Siga-an capital and interest.
ISSUE: Whether or not there should be payment of interest?
RULING:
The promissory note was issued with intimidation from Siga-an. The promissory note
was made because of the fear of Villanueva from the threats of Siga-an. Furthermore, the law
expressly mandates as provided in Article 1956 of the Civil Code that there will be no interest
shall due unless it has been expressly stipulated in writing. Monetary interest is allowed only if:
(1) there was an express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two conditions is required for
the payment of monetary interest. However, if there was delay on payment, and even in the
absence of express stipulation, regarding payment of interest, the debtor is compelled to pay
compensatory interest which is different from the monetary interest in the case at bar. Thus, the
collection of interest without any stipulation in writing is prohibited by law. Villanueva is entitled
to reimbursement from the interest she paid to Siga-an.
16
17
being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum. In the case at bar,
the penalty charge of 2% per month began to accrue from the time of default by the
petitioner. The reckoning point is provided under Art. 2212: Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent upon this point. In
the case at bar, the interest began to run on the penalty interest upon the filing of the complaint
in court by CCP. Therefore, petitioner is bound to pay the interest on the total amount of the
principal, the monetary interest and the penalty interest.
18
Whether or not the agreed rate of interest of 6% per month or 72% per annum is so
excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and
void
19
2.
Whether or not the invalidity of the stipulation on interest carries with it the invalidity of the
principal obligation
RULING:
1.
Yes. It is apparent that the stipulated interest in the subject loan is excessive, iniquitous,
The principal obligation subsists despite the nullity of the stipulated interest. Hence, it is
clear and settled that the principal loan obligation still stands and remains valid. By the same
token, since the mortgage contract derives its vitality from the validity of the principal obligation,
the invalid stipulation on interest rate is similarly insufficient to render void the ancillary
mortgage contract.
20
21
RULING:
Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. When the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs.
Courts have no authority to alter the contract by construction or to make a new contract for the
parties; a courts duty is confined to the interpretation of the contract the parties made for
themselves without regard to its wisdom or folly, as the court cannot supply material stipulations
or read into the contract words the contract does not contain. It is only when the contract is
vague and ambiguous that courts are permitted to resort to the interpretation of its terms to
determine the parties intent.
Article 1956 of the Civil Code specifically mandates that no interest shall be due unless
it has been expressly stipulated in writing. The payment of interest in loans or forbearance of
money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2)
the agreement for the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of interest at a stipulated rate. The collection of interest
without any stipulation in writing is prohibited by law.
The interest of P40,000.00 per month corresponds only to the six-month period of the
loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory
note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.
The facts show that the parties agreed to the payment of a specific sum of money of
P40,000.00 per month for six months, not to a 4% rate of interest payable within a 6-month
period.
No issue on the excessiveness of the stipulated amount of P40,000.00 per month was
ever put in issue by the petitioners; they only assailed the application of a 4% interest rate, since
it was not agreed upon.
Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month
for a period of 6 months, for a total principal and interest amount of P1,240,000.00. Thereafter,
interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners
during the pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be
deducted from the total amount due, computed as indicated above.
22
The case was remanded to the trial court for the actual computation of the total amount
due.
23
the imposed penalty of P581,666.66, petitioners alleged that since the Real Estate Mortgage
and the Supplement thereto did not include penalties as part of the secured amount, the same
should be excluded from the foreclosure amount or bid price, even if such penalties are
provided for in the final Promissory Note.
On February 28, 2003, the trial court rendered judgment dismissing the Civil Case.
Petitioners appealed to the CA. The appeal was partly granted. Therefore decision of the
Regional Trial Court per Order dated June 4, 2003 was affirmed with modification.
Hence, this petition.
Issue: Whether or not the unilateral action of PNB in increasing rate violated the mutuality of
contracts under Article 1308 of the Civil Code.
Ruling:
Yes. The court held that the unilateral action of the PNB in increasing the interest rate on
the private respondents loan violated the mutuality of contracts ordained in Article 1308 of the
Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on their
essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void
. . . . Hence, even assuming that the . . . loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact there was none) to increase
the interest rate at will during the term of the loan, that license would have been null and
void for being violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker partys (the debtor) participation
being reduced to the alternative "to take it or leave it" . . . . Such a contract is a veritable
trap for the weaker party whom the courts of justice must protect against abuse and
imposition.
The Court ruled on Spouses Almeda v. Court of Appeals, that the binding effect of any
agreement between parties to a contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between the parties; and (2) that there must
be mutuality between the parties based on their essential equality. Any contract which appears
to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is
void. Any stipulation regarding the validity or compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.
25
It is plainly obvious, therefore, from the undisputed facts of the case that respondent
bank unilaterally altered the terms of its contract with petitioners by increasing the interest rates
on the loan without the prior assent of the latter. In fact, the manner of agreement is itself
explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be
due unless it has been expressly stipulated in writing." What has been "stipulated in writing"
from a perusal of interest rate provision of the credit agreement signed between the parties is
that petitioners were bound merely to pay 21% interest, subject to a possible escalation or deescalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the
limits allowed by law; and 3) upon agreement.
Indeed, the interest rate which appears to have been agreed upon by the parties to the
contract in this case was the 21% rate stipulated in the interest provision. Any doubt about this
is in fact readily resolved by a careful reading of the credit agreement because the same plainly
uses the phrase "interest rate agreed upon," in reference to the original 21% interest rate.
26
DEPOSIT
Bank of the Philippine Island vs. Intermediate Appellate Court
G.R. No. L-66826, August 19, 1988
FACTS:
Rizaldy Zshornack and his wife, Shirley Gorospe, maintained in Commercial Bank and
Trust Company of the Philippines (COMTRUST), which was later on absorbed by the the Bank
of the Philippine Islands, a dollar savings account and a peso current account.
On December 8, 1975, Zshornack entrusted to COMTRUST, thru Virgilio Garcia,
assistant
Branch
Manager
of
COMTRUST
US
for safekeeping, and that the agreement was embodied in a document stating that COMTRUST
already received the said amount in his dollar account for safekeeping. However, when
Zshornack demanded the return of the amount, the bank refused to do so. COMTRUST averred
that the sum was disposed of in this manner: US$2,000.00 was sold and the peso proceeds
amounting to P14,920.00 were deposited to Zshornack's current account per deposit slip
accomplished by Garcia; the remaining US$1,000.00 was also sold later and the peso proceeds
amounting to P8,350.00 were deposited to his current account per deposit slip also
accomplished by Garcia. Thus, the US$3,000.00 was properly credited to Zshornack's current
account at prevailing conversion rates.
ISSUE:
Whether or not the contract between the parties is one of a deposit
RULING:
It is a contract of deposit defined under Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
The document acknowledging the receipt of the money (greenbacks) by the bank for
safekeeping show that the intent of the parties was really for the bank to safely keep the dollars
27
and to return it to Zshornack at a later time, Thus, Zshornack demanded the return of the money
on May 10, 1976, or over five months later.
Nothing in the document states that the parties intend to sell the US dollars to the
Central Bank within one business day from receipt. Otherwise, the contract of depositum would
never have been entered into at all.
28
NACHURA, J.:
FACTS:
On April 30, 2002, Jeffrey See arrived in a Suzuki Grand Vitara, and checked in at the
City Garden Hotel before midnight, and its parking attendant Vicente Justimbaste got the key to
said Vitara to park it, issuing See a valet parking customers claim stub. See was awakened by
a telephone call from the Hotel Chief Security Officer, Ernesto Horlador, Jr., informing him that
his Vitara was carnapped while it was parked unattended at the parking area of Equitable PCI
Bank, near City Garden Hotel. Forthwith, the incident was reported to the Makati City Police
Anti-Carnapping Unit, which conducted an investigation and found that a prior similar incident
happened in the Hotels valet parking service and that no necessary precautions were taken to
prevent its repetition. Thereafter, See recovered the amount of P1,163,250.00 from the car
insurer, Pioneer Insurance and Surety Corporation. Despite written demands by the latter to
Durban Apartments, no payment or reimbursement was made to the insurer. Hence, on July 22,
2003, Pioneer Insurance, by right of subrogation, filed a Complaint for Recovery of Damages
against Durban Apartments and Justimbaste, alleging that the latter was negligent in the
selection and supervision of its employee Justimbaste. During the pre-trial conference, both
Durban Apartments and Justimbaste, represented by Atty. Nestor Mejia, failed to file their pretrial brief, thus, they were declared in default and Pioneer Insurance was allowed to present its
evidence ex parte. The RTC of Makati City ruled in favor of Prioneer Insurance, ordering Durban
Apartments to pay the money claim with legal interest from July 22, 2003, plus attorneys fees
and costs of suit amounting to P120,000. This was affirmed by the CA, hence, this present
petition.
ISSUE: Whether or not Durban Apartments is liable to Pioneer Insurance for the loss of Sees
vehicle?
RULING:
The Court ruled in the affirmative. It is a rule that factual findings of the trial court,
especially when affirmed by the appellate court are accorded the highest degree of respect and
are considered conclusive between the parties. And that the petitioner was in default, thus,
29
correctly allowing the respondent to present evidence ex parte. On the merits of the case,
respondent Pioneer Insurance substantiated the allegations in its complaint, i.e., a contract of
necessary deposit existed between the insured Jeffrey See and petitioner Durban Apartments.
Article 1962, in relation to Article 1998 of the Civil Code defines a contract of deposit and a
necessary deposit made by persons in hotels or inns. Plainly, from the facts found by the lower
courts, the insured See deposited his vehicle for safekeeping with petitioner through the latters
employee Justimbaste who in turn issued a claim stub to See. Thus, the contract of deposit was
perfected from Sees delivery, when he handed over to Justimbaste the keys to his vehicle,
which Justimbaste received with the obligation of safely keeping and returning it. Therefore,
ultimately, petitioner is liable for the loss of Sees vehicle.
30
31
duly executed by Teresita on behalf of the corporation. A letter of credit was also opened by
Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the request of BEC after
BEC executed the corresponding trust receipt therefor. Export bills were also executed in favor
of Pacific Bank for additional finances. These transactions were all secured by the real estate
mortgage over the Lipats' property. The promissory notes, export bills, and trust receipt
eventually became due and demandable. Unfortunately, BEC defaulted in its payments. After
receipt of Pacific Bank's demand letters, Estelita Lipat went to the office of the bank's liquidator
and asked for additional time to enable her to personally settle BEC's obligations. The bank
acceded to her request but Estelita failed to fulfill her promise. Consequently, the real estate
mortgage was foreclosed and after compliance with the requirements of the law the mortgaged
property was sold at public auction. On 31 January 1989, a certificate of sale was issued to
respondent Eugenio D. Trinidad as the highest bidder.
On 28 November 1989, the spouses Lipat filed before the Quezon City RTC a complaint
for annulment of the real estate mortgage, extrajudicial foreclosure and the certificate of sale
issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint alleged,
among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of
Teresita as they were executed without the requisite board resolution of the Board of Directors
of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the
same were the corporation's sole obligation, it having a personality distinct and separate from
spouses Lipat. It was likewise pointed out that Teresita's authority to secure a loan from Pacific
Bank was specifically limited to Mrs. Lipat's sole use and benefit and that the real estate
mortgage was executed to secure the Lipats' and BET's P583,854.00 loan only. In their
respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot
evade payments of the value of the promissory notes, trust receipt, and export bills with their
property because they and the BEC are one and the same, the latter being a family corporation.
Trinidad further claimed that he was a buyer in good faith and for value and that the Lipat
spouses are estopped from denying BEC's existence after holding themselves out as a
corporation. After trial on the merits, the RTC dismissed the complaint. The Lipats timely
appealed the RTC decision to the Court of Appeals in CA-G.R. CV 41536. Said appeal,
however, was dismissed by the appellate court for lack of merit. The Lipats then moved for
reconsideration, but this was denied by the appellate court in its Resolution of 23 February
2000. The Lipat spouses filed the petition for review on certiorari.
33
ISSUE:
Whether BEC and BET are separate business entities, and thus the Lipt spouses can
isolate themselves behind the corporate personality of BEC.
RULING:
No. When the corporation is the mere alter ego or business conduit of a person, the
separate personality of the corporation may be disregarded. This is commonly referred to as the
"instrumentality rule" or the alter ego doctrine, which the courts have applied in disregarding the
separate juridical personality of corporations. As held in one case, where one corporation is so
organized and controlled and its affairs are conducted so that it is, in fact, a mere instrumentality
or adjunct of the other, the fiction of the corporate entity of the 'instrumentality' may be
disregarded. The control necessary to invoke the rule is not majority or even complete stock
control but such domination of finances, policies and practices that the controlled corporation
has, so to speak, no separate mind, will or existence of its own, and is but a conduit for its
principal. The evidence on record shows BET and BEC are not separate business entities. (1)
Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC,
respectively; (2) both firms were managed by their daughter, Teresita, 19 years of age; (3) both
firms were engaged in the garment business, supplying products to "Mystical Fashion," a U.S.
firm established by Estelita Lipat; (4) both firms held office in the same building owned by the
Lipats; (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the
business operations of the BEC were so merged with those of Mrs. Lipat such that they were
practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the
corporation itself had no visible assets; (8) the board of directors of BEC was composed of the
Burgos and Lipat family members; (9) Estelita had full control over the activities of and decided
business matters of the corporation; and that (10) Estelita Lipat had benefited from the loans
secured from Pacific Bank to finance her business abroad and from the export bills secured by
BEC for the account of "Mystical Fashion." It could not have been coincidental that BET and
BEC are so intertwined with each other in terms of ownership, business purpose, and
management.
Apparently, BET and BEC are one and the same and the latter is a conduit of and merely
succeeded the former. The spouses' attempt to isolate themselves from and hide behind the
corporate personality of BEC so as to evade their liabilities to Pacific Bank is precisely what the
34
classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. BEC is a
mere continuation and successor of BET, and the Lipat spouses cannot evade their obligations
in the mortgage contract secured under the name of BEC on the pretext that it was signed for
the benefit and under the name of BET.
35
BARTOLOME ORTIZ v. HON. UNION C. KAYANAN, in his capacity as Judge of the Court
of First Instance of Quezon, Branch IV; ELEUTERIO ZAMORA, QUIRINO COMINTAN,
VICENTE FERRO, AND GREGORIO PAMISARAN
G.R. No. L-32974. July 30, 1979.
FACTS:
(1) The lot in controversy was formerly the subject of Homestead Application of Martin Dolorico
II, plaintiffs ward who died; that since then it was plaintiff who continued the cultivation and
possession of the property, without however filing any application to acquire title thereon;
(2) That in the Homestead Application, Martin Dolorico II named his uncle, Martin Dolorico I as
his heir and successor in interest, so that in 1951 Martin Dolorico I executed an affidavit
relinquishing his rights over the property in favor of defendants Quirino Comintan and Eleuterio
Zamora, his grandson and son-in-law, respectively, and requested the Director of Lands to
cancel the homestead application;
(3) That on the strength of the affidavit, Homestead Application was cancelled and thereafter,
defendants Comintan and Zamora filed their respective sales applications; that plaintiff filed his
protest on alleging that he should be given preference to purchase the lot inasmuch as he is the
actual occupant and has been in continuous possession of the same since 1931; and inspite of
plaintiffs opposition,
(4) Portion A of the property was sold at public auction wherein defendant Comintan was the
only bidder; that an investigation was conducted on plaintiffs protest by Assistant Public Lands
Inspector Serapion Bauzon who submitted his report to the Regional Land Officer, and who in
turn rendered a decision, dismissing plaintiffs claim and giving due course to defendants sales
applications on the ground that the relinquishment of the homestead rights of Martin Dolorico I
in favor of Comintan and Zamora is proper, the former having been designated as successor in
interest of the original homestead applicant and that because plaintiff failed to participate in the
public auction, he is forever barred to claim the property;
(5) That plaintiff filed a motion for reconsideration of this decision which was denied by the
Director of Lands in his oreder dated June 10, 1959; that finally, on appeal to the Secretary of
Agriculture and Natural Resources, the decision rendered by the Regional Land Officer was
affirmed in toto.
(6) The CFI rendered judgment awarding one-half portion of the property in litigation in favor of
defendant QUIRINO COMINTAN, being the successful bidder in the public auction conducted
by the Bureau of Lands and hereby giving due course to the Sales Application of defendant
Eleuterio Zamora over the other half.
(7) The Appellate Court affirmed the decision of the trial court.
ISSUE:
37
Whether or not petitioner is still entitled to retain for his own exclusive benefit all the fruits of the
property for being a possessor in good faith.
RULING:
The Supreme Court held that even after his good faith ceases, the possessor in fact can
still retain the property, pursuant to Article 546 of the New Civil Code, until he has been fully
reimbursed for all the necessary and useful expenses made by him on the property. This right of
retention has been considered as one of the conglomerate of measures devised by the law for
the protection of the possessor in good faith. Its object is to guarantee the reimbursement of the
expenses, such as those for the preservation of the property, or for the enhancement of its utility
or productivity. It permits the actual possessor to remain in possession while he has not been
reimbursed by the person who defeated him in the possession for those necessary expenses
and useful improvements made by him on the thing possessed. The principal characteristic of
the right of retention is its accessory character. It is accessory to a principal obligation.
Considering that the right of the possessor to receive the fruits terminates when his good faith
ceases, it is necessary in order that this right to retain may be useful, to concede to the creditor
the right to secure reimbursement from the fruits of the property by utilizing its proceeds for the
payment of the interest as well as the principal of the debt while he remains in possession. This
right of retention of the property by the creditor, according to Scaevola, in the light of the
provisions of Article 502 of the Spanish Civil Code, is considered not a coercive measure to
oblige the debtor to pay, depriving him temporarily of the enjoyment of the fruits of his property,
but as a means of obtaining compensation for the debt.
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39
employees free from blame for such loss in light of Article 2003 of the Civil Code which voids
such waivers?
RULING:
No. Petitioners were directed, jointly and severally, to pay private respondent.
Article 2003 provides that the hotel-keeper cannot free himself from responsibility by
posting notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the reasonability of the former as
set for the in articles 1998 to 2001 is suppressed or diminished shall be void. The hotel business
like the common carrier's business is imbued with public interest. Catering to the public,
hotelkeepers are bound to provide not only lodging for hotel guests and security to their persons
and belongings. The twin duty constitutes the essence of the business. The law in turn does not
allow such duty to the public to be negated or diluted by any contrary stipulation in so-called
"undertakings" that ordinarily appear in prepared forms imposed by hotel keepers on guests
for their signature.
In an early case, to hold hotel-keepers or innkeepers liable for the effects of their guests,
it is not necessary that they be actually delivered to the innkeepers or their employees. It is
enough that such effects are within the hotel or inn. With greater reason should the liability of
the hotelkeeper be enforced when the missing items are taken without the guests knowledge
and consent from a safety deposit box provided by the hotel itself.
The undertaking manifestly contravened Article 2003 of the Civil Code it allowed
Tropicana to be released from liability arising from any loss in the contents of the safety deposit
box for any cause whatsoever. Evidently, the undertaking was intended to bar any claim against
Tropicana for any loss of the contents of the safety deposit box whether or not negligence was
incurred by Tropicana or its employees.
The New Civil Code is explicit that the responsibility of the hotel-keeper shall extend to
loss of, or injury to, the personal property of the guests even if caused by servants or employees
of the keepers of hotels or inns as well as by strangers, except as it may proceed from any force
majeure. It is the loss through force majeure that may spare the hotel-keeper from liability. In the
case at bar, there is no showing that the act of the thief or robber was done with the use of arms
or through an irresistible force to qualify the same as force majeure.
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GUARANTY
Dio vs. Court of Appeals (1992)
G.R. No. 89775. November 26, 1992
FACTS:
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy
Tiam, applied for and obtained credit accommodations from Metrobank in the sum of
Php700,000. This was secured by Continuing Suretyships separately executed by petitioners
Norberto Uy (who agreed to pay Php300,000) and Jacinto Dio (who bound himself liable up to
Php800,000). Uy Tiam paid the obligation under this letter of credit in 1977. UTEFS obtained
another credit accommodation in 1978, which was likewise settled before he applied and
obtained another in 1979 in the sum of Php815,600. This sum covered UTEFS purchase of
fertilizers from Planters Producst. Uy and Dio did not sign the application for this credit and
were not asked to execute suretyship or guarantee. UTEFS executed a trust receipt whereby it
agreed to deliver to Metrobank the goods in the event of non-sale, and if sold, the proceeds will
be delivered to Metrobank. However, UTEFS did not comply with its obligation. As a result,
Metrobank demanded payment from UTEFS and the sureties, Uy & Dio. The sureties refused
to pay on the ground that the obligation for which they executed the continuing suretyship
agreement has been paid. RTC ruled in favor of the petitioners, CA affirmed.
ISSUE: Whether or not the petitioners are liable for payment of the 1979 transaction under the
continuing suretyship agreement they executed in 1977. Assuming that they are, what is the
extent of their liability.
RULING:
The Supreme Court held that Uy & Dio are liable. The agreement they executed in
1977 is a continuing suretyship, one which is not limited to a single transaction but which
contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable.
The agreement that petitioners signed expressly provided that it is a continuing guaranty and
shall be in full force and effect until written notice to the bank that it has been revoked by the
surety. As to the 2nd issue, petitioners are only liable up to the maximum limit fixed in the
continuing suretyship agreements (Php800,000 for Dio and Php300,000 for Uy). The law is
clear that a guarantor may bind himself for less, but not for more than the principal debtor, both
41
as regards the amount and the onerous nature of the conditions (Art. 2054). CA decision
ordering petitioners to pay P2,397,883.68 which represents the amount due inclusive of interest
and charges, is modified.
42
paid. However, a significant distinction still lies between a joint and several debtors, on one
hand, and a surety on the other hand. Solidarity signifies that the creditor can compel anyone of
the joint and several debtors or the surety alone to answer for entirety of the principal debt. The
difference lies in the respective faculties of the joint and several debtors and the surety to seek
reimbursement for the sums they paid out to the creditor.
44
JOSE C. TUPAZ IV and PETRONILA C. TUPAZ v. THE COURT OF APPEALS and BANK OF
THE PHILIPPINE ISLANDS
G.R. No. 145578. November 18, 2005
CARPIO, J.:
FACTS:
Jose Tupaz and Petronila Tupaz were Vice-President for Operations and VicePresident/Treasurer, respectively, of El Oro Corporation. El Oro Corporation had a contract with
the PH Army to supply the latter with survival bolos. To finance the purchases of the raw
materials for the bolos, the petitioners (on behalf of El Oro) applied with BPI for 2 commercial
letters of credit.
The letters of credit were in favor of El Oros suppliers, Tanchaoco Incorporated and
Maresco Corporation. BPI granted the application and issued the letters of credit for
P564,871.05 and P294,000.00 to Tanchaoco Incorporated and Maresco Corporation
respectively.
Simultaneous with the issuance of the letters of credit, the petitioners signed trust
receipts in favor of BPI: (a) Jose signed in his personal capacity a trust receipt corresponding for
the first letter of credit, binding himself to sell the goods and to remit the proceeds to BPI, if sold,
or to return the goods, if not sold, on or before 29December 1981; (b) both petitioners signed in
their capacities as officers of El Oro a trust receipt covering the second letter of credit to remit
proceeds/return goods by 8 December 1981. Tanchauco Incorporated and Maresco Corp.
complied with their obligation and delivered the raw materials to El Oro. BPI then paid the
2 corporations P564, 871.05 and P294,000 accordingly.
However, petitioners did not comply with their undertakings under the trust receipts. BPI
made several demands for payment but El Oro made partial payments only. Final demand
letters were then sent but El Oro replied that it could not fully pay its debt because the AFP
had delayed in their payment for the bolos.
BPI charged petitioners with estafa under Sec. 13 of the Trust Receipts Law. In the RTC,
petitioners were acquitted based on reasonable doubt. However, they are solidarily liable with El
Oro for the balance of the principal debt under the trust receipts. The Court of Appeals affirmed
RTCs decision. The trust receipts clearly showed the terms that the petitioners signed the same
as surety for the corporation and that they bound themselves directly and immediately liable in
case of default without need of demand.
ISSUES:
(1) Whether petitioners bound themselves personally liable for El Oro Corporations debts
under the trust receipts;
(2) If so:
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46
47
NO. The Court held that it is a cardinal rule in the interpretation of contracts that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. In this case, Palmares expressly bound herself to be
jointly and severally or solidarily liable with the principal maker of the note. Thus, the terms of
the contract are clear, explicit and unequivocal that petitioners liability is that of a surety.
***Important Points in this case:
Difference between Suretyship and Guaranty
Guaranty
Suretyship
The creditor has the right to proceed even against the surety alone if the obligation is
joint and several since the obligation of the surety is the same as that of the principal.
Where a creditor refrains from proceeding against the principal, the surety is not
exonerated. In other words, 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.
48
ISSUE: Whether or not Ching is liable for credit obligations contracted by Philippine
Blooming Mills Inc. against Traders Royal Bank before and after the execution of the Deed of
Suretyship
RULING:
The court held that Ching is liable for credit obligations contracted by Philippine
Blooming Mills Inc. against Traders Royal Bank before and after the execution of the
Deed of Suretyship. This is evident from the tenor of the deed itself, referring to
amounts to PBM may now be indebted or may hereafter become indebted to
Traders Royal Bank. The law expressly allows a suretyship for future debts. Article
2053 provides that 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.
Furthermore, Article 2053 is the basis for contracts denominated as 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
49
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 states that the guaranty is to secure
advances to be made "from time to time," it will be construed to be a continuing one.
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51
The RTC ruled that Bitanga and Marilyn to pay the amount less the bank deposit of
Macrogen Realty with Planters Bank. Marilyn filed a Motion to Dismiss asserting that
respondent had no cause of action against her, since she did not co-sign the Contract of
Guaranty with her husband but was dismissed. The CA found Marilyn not liable which it
declared that a contract cannot be enforced against one who is not a party to it. The Court of
Appeals stated further that the substantial ownership of shares in Macrogen Realty by Marilyn
Bitanga was not enough basis to hold her liable.
ISSUE: Whether or not Bitanga is entitled to the benefit of excussion?
RULING:
NO. Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill
the obligation of the principal debtor in case the latter should fail to do so. The guarantor who
pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the debtor and
resorted to all the legal remedies against the debtor.
Article 2060 of the Civil Code requires that in order for the guarantor to make use of the
benefit of excussion, he must set it up against the creditor upon the latters demand for payment
and point out to the creditor available property of the debtor within the Philippines sufficient to
cover the amount of the debt.
It must be stressed that despite having been served a demand letter, Bitanga still failed
to point out to the respondent properties of Macrogen Realty sufficient to cover its debt as
required. Such failure on petitioners part forecloses his right to set up the defense of excussion.
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53
The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However,
the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of the debtor and resorted to all the legal remedies against the debtor. This is what is
otherwise known as the benefit of excussion.
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guarantee its repayment to respondent. Gabriel also obtained from petitioner Performance
Bonds to guarantee to respondent due and timely performance of the work. Both bonds were
valid for a period of one year from date of issue.
Gabriel defaulted in the performance of her obligations. On February 10, 1997, in a
letter sent to Gabriel, respondent manifested its intention to terminate the subcontract
agreement. Respondent also demanded that petitioner comply with its undertaking under its
bonds. On February 26, 1997, both parties (respondent and Gabriel) agreed to revise the scope
of work, reducing the contract price for the SDS phase from P33,007,752.00 to P1,175,175.00
and the STP from P23,500,000.00 to P11,095,930.50,fixing the completion time on May 31,
1997.
Gabriel thereafter obtained from Tico Insurance Company, Inc. (Tico) Surety and
Performance Bonds to guarantee the repayment of the advance payment given by respondent
to Gabriel and the completion of the work for the SDS, respectively.
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Still, Gabriel failed to accomplish the works within the agreed completion period.
Eventually, on April 26, 1997, Gabriel abandoned the project. Respondent made formal
demands against petitioner and Tico to make good their obligations under their respective
performance and surety bonds. However, all of them failed to heed respondents demand.
Respondent prayed that Gabriel, Tico, and petitioner be held jointly and severally liable for the
payment of the additional costs it incurred in completing the project covered by the subcontract
agreement.
ISSUE: Whether Stronghold can be held liable on its bonds
RULING:
YES. Strongholds liability was not affected by the revision of the contract price, scope of
work, and contract schedule. Neither was it extinguished because of the issuance of new bonds
procured from Tico. As early as February 10, 1997, respondent already sent a letter to Gabriel
informing the latter of the delay incurred in the performance of the work, and of the formers
intention to terminate the subcontract agreement to prevent further losses. Apparently, Gabriel
had already been in default even prior to the aforesaid letter; and demands had been previously
made but to no avail. By reason of said default, Gabriels liability had arisen; as a consequence,
so also did the liability of petitioner as a surety arise.
A contract of suretyship is an agreement whereby a party, called the surety, guarantees
the performance by another party, called the principal or obligor, of an obligation or undertaking
in favor of another party, called the obligee. By its very nature, under the laws regulating
suretyship, the liability of the surety is joint and several but is limited to the amount of the bond,
and its terms are determined strictly by the terms of the contract of suretyship in relation to the
principal contract between the obligor and the obligee. By the language of the bonds issued by
petitioner, it guaranteed the full and faithful compliance by Gabriel of its obligations in the
construction of the SDS and STP specifically set forth in the subcontract agreement, and the
repayment of the 15% advance payment given by respondent. These guarantees made by
petitioner gave respondent the right to proceed against the former following Gabriels noncompliance with her obligation.
Indeed, a surety is released from its obligation when there is a material alteration of the
principal contract in connection with which the bond is given, such as a change which imposes a
56
new obligation on the promising party, or which takes away some obligation already imposed, or
one which changes the legal effect of the original contract and not merely its form.
However, a surety is not released by a change in the contract, which does not have the
effect of making its obligation more onerous. In the instant case, the revision of the subcontract
agreement did not in any way make the obligations of both the principal and the surety more
onerous. To be sure, petitioner never assumed added obligations, nor were there any additional
obligations imposed, due to the modification of the terms of the contract. Failure to receive any
notice of such change did not, therefore, exonerate petitioner from its liabilities as surety.
Neither can petitioner be exonerated from liability simply because the bonds it issued were
replaced by those issued by Tico.
Notwithstanding the issuance of the new bonds, the fact remains that the event insured
against, which is the default in the performance of Gabriels obligations set forth in the
subcontract agreement, already took place. By such default, petitioners liability set in. Thus,
petitioner remains solidarily liable with Gabriel, subject only to the limitations on the amount of
its liability as provided for in the Bonds themselves.
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58
acted as BMCs sureties in their contracts of loan with respondent bank. Petitioners-spouses averred
that respondent bank is barred from pursuing its collection case filed against them.
The trial court denied the motion to dismiss. Petitioners-spouses appealed to the Court of
Appeals which affirmed the trial courts ruling that a creditor can proceed against petitioners-spouses
as surety independently of its right to proceed against the principal debtor BMC.
Hence this appeal.
ISSUE: Whether or not the collection suit of respondent to petitioners as surety should prosper.
RULING:
No. Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is
misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship
contracts. Petitioners-spouses are not guarantors but sureties of BMCs 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-spouses with respondent bank, the
former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of
its debts to respondent bank amounting to five million pesos (P5,000,000.00). 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
59
collection suits against BMC. Respondent banks 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.
The provisions of the MOA regarding the suspension of payments by BMC and the
non-filing of collection suits by the creditor banks pertain only to the property of the principal
debtor BMC
Clearly, the collection suit filed by respondent bank against petitioners-spouses as sureties
can prosper. The trial courts denial of petitioners motion to dismiss was proper.
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A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of
another in case the latter does not pay the debt.
Strictly speaking, guaranty and surety are nearly related, and many of the principles are
common to both. However, under our civil law, they may be distinguished thus: A surety is
usually bound with his principalby the same instrument, executed at the same time, and on the
same consideration. He is an original promissor and debtor from the beginning, and is held,
ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the
mere indulgence of the creditor to the principal, or by want of notice of the default of the
principal, no matter how much he may be injured thereby. On the other hand, the contract of
guaranty is the gurantor's own separate undertaking, in which the principal does not join.
In the case at bar, E. Zobel, Inc. signed as surety. Even the title of the document in
"Continuing Guranty," the court's interpretation is not limited to the title alone but to the contents
and intention of the parties more specifically if the language is clear and positive. The obligation
of defendant Zobel being that of a surety, Article 2080 of the New Civil Code will not apply as it
is only for those acting as guarantor. In fact, in the letter of defendants to plaintiff, it is requesting
that the chattel mortgage on the vessels and tugboat be waived or rescinded by the bank
inasmuch as the said loan is covered by the Continuing Guranty by Zobel in favor of the plaintiff
thus thwarting the claim of the defendant now that the chattel mortgage is an essential condition
of the guaranty.
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