3.

SPOUSES VICKY TAN TOH and LUIS TOH vs. SOLID BANK CORPORATION, FIRST BUSINESS
PAPER CORPORATION, KENNETH NG LI and MA. VICTORIA NG LI
G.R. No. 154183. August 7, 2003
Solid Bank extended an omnibus credit facility worth P10 million in favor of First Bank Paper
Corporation (FBPC) through a letter-advise addressed to FBPC and to its President, respondent
Kenneth Ng Li. 30 days later, spouses Toh (Chairman and VP of FBPC) and spouses Ng Li (Pres. and
GM) signed the Continuing Guaranty required under the letter-advise. The contract was defined therein
as a surety agreement and provided that the signatories would be solidarily liable for and in consideration
of loans or advances and credit in any other manner to, or at the request or for the account of FBPC.
FBPC started to avail of the credit facility and procure letters of credit, which were secured by the Ng Lis
as signatories executing a series of trust receipts over the goods allegedly purchased from the proceeds
of the loans. When the Bank found that the Ng Lis had fraudulently departed from their conjugal home,
they sent a demand letter to FBCP and the Spouses Toh, invoking the acceleration clause, who were the
only parties known to be within national jurisdiction to answer as sureties for the credit facility of
FBPC.payment several letters of credit were irrevocably extended for ninety (90) days with alarmingly
flawed and inadequate consideration. The Tohs claimed that the Continuing Guaranty was not legally
valid ang binding against them since it was executed long after they had withdrawn from FBPC.
Respondent Bank filed a complaint for sum of money with ex parte application for a writ of
preliminary attachment against FBPC. The trial court promulgated its Decision in Civil Case No. 64047
finding respondent FBPC liable to pay respondent Solid Bank Corporation the principal of P10,539,758.68
plus twelve percent (12%) interest per annum from finality of the Decision until fully paid, but absolving
petitioner-spouses of any liability to respondent Bank. The RTC-Br. 161 of Pasig City denied
reconsideration of its Decision. Respondent Bank appealed the Decision to the CA. Petitioner-spouses
did not move for reconsideration nor appeal the finding of the trial court that they voluntarily executed the
Continuing Guaranty. CAmodified the Decision of the trial court and held that by signing the Continuing
Guaranty, petitioner-spouses became solidarily liable with FBPC to pay respondent Bank. The CA
ratiocinated that the provisions of the surety agreement did not indicate that Spouses Toh signed the
instrument in their capacities as Chairman and VP, respectively, of FBPC only. The appellate court also
ruled that as petitioners failed to execute any written revocation of the Continuing Guaranty with notice to
respondent Bank, the instrument remained in full force and effect when the letters of credit were availed
of by respondent FBPC. CA rejected petitioners argument that there were material alterations in the
provisions of the letter-advise. Petitioner-spouses moved for reconsideration of the Decision, and after
respondent Banks comment, filed a lengthy Reply with Motion for Oral Argument. Reconsideration of
the Decision was denied on the ground that no new matter was raised to warrant the reversal or
modification thereof. Hence, this Petition for Review.
Issue:
1. Whether or not the Continuing Agreement is a valid and binding contract.
2. Whether or not the illicit extension releases the sureties from liabilities.
Held:
1. The Continuing Guaranty is a valid and binding contract as it is a public document that enjoys the
presumption of authenticity and due execution. Nothing in the Continuing Guaranty restricts the Tohs
responsibility; they are still liable under it even if they are no longer stockholders of FBPC. In fact the
obligations assumed by them therein subsist upon the undersigned, the heirs, executors, administrators,
successors and assigns of the undersigned, and shall inure to the benefit of, and be enforceable by you,
your successors, transferees and assigns, and that their commitment shall remain in full force and effect
until written notice shall have been received by the Bank that it has been revoked by the undersigned.
Verily, if the Tohs intended not to be charged as sureties after their withdrawal from FBPC, they could
have simply terminated the agreement by serving the required notice of revocation upon the Bank as
expressly allowed therein.

2. Yes. The illicit extension releases the sureties. The foregoing extensions of the letters of credit made by
respondent Bank without observing the rigid restrictions for exercising the privilege are not covered by the
waiver stipulated in the Continuing Guaranty Art. 2079 of the Civil Code states that an extension granted
to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty.
As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan Toh are relieved of their
obligations as sureties of respondent FBPC under Art. 2079 of the Civil Code wherein an extension of the
period for enforcing the indebtedness does not by itself bring about the discharge of the sureties unless
the extra time is not permitted within the terms of the waiver. Furthermore, the assurance of the sureties
in the Continuing Guaranty that no act or omission of any kind on the Banks part in the premises shall in
any event affect or impair this guaranty must also be read strictissimi juris for the reason that petitioners
are only accommodation sureties, i.e., they received nothing out of the security contract they signed. Thus
said, the acts or omissions of the Bank conceded by petitioners as not affecting nor impairing the surety
contract refer only to those occurring in the premises, or those that have been the subject of the waiver in
the Continuing Guaranty, and stretch to no other. Stated otherwise, an extension of the period for
enforcing the indebtedness does not by itself bring about the discharge of the sureties unless the extra
time is not permitted within the terms of the waiver, i.e., where there is no payment or there is deficient
settlement of the marginal deposit and the twenty-five percent (25%) consideration, in which case
the illicit extension releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety is
measured by the terms of his contract, and while he is liable to the full extent thereof, his accountability is
strictly limited to that assumed by its terms.
[The consequence of these omissions is to discharge the surety, petitioners herein, under Art. 2080 of the
Civil Code, or at the very least, mitigate the liability of the surety up to the value of the property or lien
released. Finally, the foregoing omission or negligence of respondent Bank in failing to safe-keep the
security provided by the marginal deposit and the twenty-five percent (25%) requirement results in the
material alteration of the principal contract, i.e., the letter-advise, and consequently releases the
surety. This inference was admitted by the Bank through the testimony of its lone witness that whenever
this obligation becomes due and demandable, except when you roll it over, so there is novation there on
the original obligations. As has been said, if the suretyship contract was made upon the condition that the
principal shall furnish the creditor additional security, and the security being furnished under these
conditions is afterwards released by the creditor, the surety is wholly discharged, without regard to the
value of the securities released, for such a transaction amounts to an alteration of the main contract.]
4.
International Finance Corporation v. Imperial Textile Mills, Inc.
G.R. No. 160324 November 15, 2005
Facts:
On December 17, 1974, IFC and Philippine Polyamide Industrial Corporation entered into a loan
agreement wherein IFC extended to PPIC a loan of US$7,000,000 payable in sixteen (16) semi-annual
installments of US$437,500.00 each, with 10% interest. A Guarantee Agreement was executed with ITM,
Grand Textile Manufacturing Corporation and IFC as parties. ITM and Grandtex agreed to guarantee
PPICs obligations under the loan agreement. PPIC defaulted payments. By virtue of PPICs failure to pay,
IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings,
machinery, equipment plant and all improvements owned by PPIC. The remaining balance after public
sale of properties amounted to US$2,833,967, which PPIC failed to pay. Consequently, IFC demanded
ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. However, the two failed to pay.
IFC filed a complaint against PPIC and ITM for the payment of the outstanding balance plus interests and
attorneys fees.
The trial court dismissed the complaint against ITM. The CA reversed and held that ITM bound itself
under the Guarantee Agreement. The CA, however, held that ITMs liability as a guarantor would arise
only if and when PPIC could not pay. Since PPICs inability to comply with its obligation was not
sufficiently established, ITM could not immediately be made to assume the liability. IFC claims that, under
the Guarantee Agreement, ITM bound itself as a surety to PPIC s obligations proceeding from the Loan

Agreement. For its part, ITM asserts that, by the terms of the Guarantee Agreement, it was merely a
guarantor and not a surety. Moreover, any ambiguity in the Agreement should be construed against IFC
the party that drafted it
Issue:
Whether or not ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC, for
the payment of the loan.
Held:
Yes. The Agreement uses guarantee and guarantors, prompting ITM to base its argument on those
words. This Supreme Court is not convinced that the use of the two words limits the Contract to a mere
guaranty. The specific stipulations in the Contract show otherwise. While referring to ITM as a guarantor,
the Agreement specifically stated that the corporation was jointly and severally liable. To put emphasis
on the nature of that liability, the Contract further stated that ITM was a primary obligor, not a mere surety.
Those stipulations meant only one thing, that at bottom, and to all legal intents and purposes, it was a
surety. Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter s obligations
under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be
deemed merely secondarily liable. Initially, ITM was a stranger to the Loan Agreement between PPIC and
IFC. ITMs liability commenced only when it guaranteed PPICs obligation. It became a surety when it
bound itself solidarily with the principal obligor. Thus, the applicable law is Art 2047 CC. Pursuant to this
provision, petitioner (as creditor) was justified in taking action directly against respondent.
[The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified by
the term jointly and severally, the use of the word guarantor to refer to a surety does not violate the
law. As Art 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the
principal obligor. Likewise, the phrase in the Agreement as primary obligor and not merely as surety
stresses that ITM is being placed on the same level as PPIC. Those words emphasize the nature of their
liability, which the law characterizes as a suretyship. The use of the word guarantee does not ipso facto
make the contract one of guaranty. On this point, the Court stresses that a suretyship is merely an
accessory or a collateral to a principal obligation. Although a surety contract is secondary to the principal
obligation, the liability of the surety is direct, primary and absolute; or equivalent to that of a regular party
to the undertaking. A surety becomes liable to the debt and duty of the principal obligor even without
possessing a direct or personal interest in the obligations constituted by the latter. With the present
finding that ITM is a surety, it is clear that the CA erred in declaring the former secondarily liable. A surety
is considered in law to be on the same footing as the principal debtor in relation to whatever is adjudged
against the latter. Evidently, the dispositive portion of the assailed Decision should be modified to require
ITM to pay the amount adjudged in favor of IFC.]
16.
EMILIO Y. TAEDO vs. ALLIED BANKING CORPORATION
G. R. No. 136603. January 18, 2002

Facts:
A complaint with preliminary attachment was filed by plaintiff bank to recover sums of money from
defendant corporation on its seven past due promissory notes with principal amounts totaling
P10,000,000.00, from defendants Alfredo Ching and Emilio Taedo under a Continuing Guaranty providing
for joint and several liability relative to the said promissory notes. The preliminary attachment sought was

granted upon the required bond and was thereafter maintained despite defendant corporations efforts to
have it discharged.
The appeal of plaintiff bank is limited to paragraph 9 of the summary judgment which declared
defendants Aldredo Ching and Emilio Taedo as free from any liability under the Continuing Guaranty since
their respective liabilities thereunder became extinguished when plaintiff bank in its pleading branded the
Continuing Guaranty as worthless security.
On the other hand, defendant corporations appeal is an attack on the summary nature of the
proceeding adopted by the lower court since, according to defendant corporation, there was a petition for
suspension of payment filed by it with the Securities and Exchange Commission which, although
dismissed, was duly appealed to the Court of Appeals.
A summary judgment was rendered by the RTC Manila. Both plaintiff Allied Banking Corporation and
the defendant Cheng Ban Yek & Co., Inc. appealed from the summary judgment to the Court of Appeals.
On March 27, 1990, the Court of Appeals promulgated a decision, reversing and modifying the RTC
decision, and declaring the defendants Alfredo Ching and Emilio Taedo solidarily liable with defendant
Cheng Ban Yek Co., Inc. for all items of the money judgment.
On April 11, 1990, petitioner Emilio Y. Taedo filed a motion for reconsideration of the decision,
contending that while the case was pending before the Court of Appeals the Allied Bank and Cheng Ban
Yek & Co., Inc. agreed to extend the time of payment of the indebtedness, without the consent of
petitioner, thereby relieving him of his obligation as guarantor or surety of such obligation. The Court of
Appeals denied the motion for lack of merit. Hence, this appeal.
Issues:
1. Whether or not the execution by the respondent Bank of the Fourth Amendatory Agreement
extinguished petitioners obligations as surety.
2. Whether or not the contract of surety is void because the continuing guarantee executed by the
petitioner is a contract of (surety) adhesion.
Held:
1. No. The Supreme Court note that the amendatory agreement between the respondent Allied Banking
Corporation and Cheng Ban Yek & Co., Inc. extended the maturity of the promissory notes without notice
or consent of the petitioner as surety of the obligations. However, the continuing guarantee executed by
the petitioner provided that he consents and agrees that the bank may, at any time or from time to time
extend or change the time of payments and/or the manner, place or terms of payment of all such
instruments, loans, advances, credits or other obligations guaranteed by the surety. Hence, the
extensions of the loans did not release the surety.
2. No. Even if the continuing guarantee were considered as one of adhesion, SC finds the contract of
surety valid because petitioner was free to reject it entirely. Petitioner was a stockholder and officer of
Cheng Ban Yek and Co., Inc. and it was common business and banking practice to require sureties to
guarantee corporate obligations.