CA Agro-Industrial Development Corporation vs CA GR No. 90027.

March 3, 1993
Facts:
CA Agro (through its President, Aguirre) and spouses Pugao entered into an agreement whereby
the former purchased two parcels of land for P350, 525 with a P75, 725 down payment while the balance
was covered by three (3) postdated checks. Among the terms embodied in a Memorandum of True and
Actual Agreement of Sale of Land were that titles to the lots shall be transferred to the petitioner upon full
payment of the purchase price and that the owners copies of the certificates of titles thereto shall be
deposited in a safety deposit box of any bank. The same could be withdrawn only upon the joint signatures
of a representative of the petitioner upon full payment of the purchase price. They then rented Safety Deposit
box of private respondent Security Bank and Trust Company (SBTC). For this purpose, both signed a contract
of lease which contains the following conditions:
13. The bank is not a depositary of the contents of the safe and it has neither the possession nor
control of the same.
14. The bank has no interest whatsoever in said contents, except herein expressly provided, and it
assumes absolutely no liability in connection therewith.

After the execution of the contract, two (2) renters key were given to Aguirre, and Pugaos. A key guard
remained with the bank. The safety deposit box has two key holes and can be opened with the use of both
keys. Petitioner claims that the CTC were placed inside the said box.

Thereafter, a certain Mrs. Ramos offered to buy from the petitioner the two (2) lots at a price of P225 per
sqm. Mrs. Ramose demanded the execution of a deed of sale which necessarily entailed the production of
the CTC. Aguirre and Pugaos then proceeded to the bank to open the safety deposit box. However, when
opened in the presence of banks representative, the box yielded no certificates. Because of the delay in
reconstitution of title, Mrs. Ramos withdrew her earlier offer and as a consequence petitioner failed to realize
the expected profit of P280 , 500. Hence, the latter filed a complaint for damages.
RTC: Dismissed the complaint
CA: Affirmed

Issue:
Whether or not the contractual relation between a commercial bank and another party in the contract
of rent of a safety deposit box is one of bailor and bailee.

Ruling:
Yes.
The contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary
contract of lease under Article 1643 because the full and absolute possession and control of the safety
deposit box was not given to the joint renters the petitioner and Pugaos.
American Jurisprudence:
The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer
with respect to the contents of the box is that of a bail or bailee, the bailment being for hire and mutual benefit.

Our provisions on safety deposit boxes are governed by Section 72 (a) of the General Banking Act,
and this primary function is still found within the parameters of a contract of deposit like the receiving in
custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit
boxes is not independent from, but related to or in conjunction with, this principal function. Thus, depositarys
liability is governed by our civil code rules on obligation and contracts, and thus the SBTC would be liable if,
in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the
agreement.
PALMARES V. CA & M. B. LENDING CORPORATION, (1998)
Surety distinguished from Guaranty, Art. 2047

Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with
the principal debtor in case the latter defaults in the payment of the loan, is such undertaking of the former
deemed to be that of a surety as an insurer of the debt, or of a guarantor who warrants the solvency of the
debtor?SURETY.

The Civil Code pertinently provides:

Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of
this Book shall be observed. In such case the contract is called a suretyship.

In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the
principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's
liability is that of a surety. Her pretension that the terms "jointly and severally or solidarily liable" contained
in the second paragraph of her contract are technical and legal terms which could not be easily understood
by an ordinary layman like her is diametrically opposed to her manifestation in the contract that she "fully
understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the
principal maker.

Petitioner would like to make capital of the fact that although she obligated herself to be jointly and severally
liable with the principal maker, her liability is deemed restricted by the provisions of the third paragraph of her
contract wherein she agreed "that M.B. Lending Corporation may demand payment of the above loan from
me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note," which makes her
contract one of guaranty and not suretyship. The purported discordance is more apparent than real.

Palmares vs. CA (288 SCRA 422)

Facts: Private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn
Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before
May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from
the date thereof. 1 On four occasions after the execution of the promissory note and even after the loan
matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a
balance of P13,700.00. No payments were made after the last payment on September 26, 1991. 2
Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent
corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to the exclusion of
the principal debtors, allegedly by reason of the insolvency of the latter.

Issue: WON Palmares is liable

Held: If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship. 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. 13 In the case at bar, petitioner
expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note.
The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety.

[G.R. No. L-16666. April 10, 1922.]

ROMULO MACHETTI, plaintiff-appellee, vs. HOSPICIO DE SAN JOSE, defendant and

appellee, and FIDELITY & SURETY COMPANY OF THE PHILIPPINE
ISLANDS, defendant-appellant.

Theme: LIABILITY OF GUARANTOR; INSOLVENCY OF PRINCIPAL. A guarantor cannot be

compelled to pay until it is shown that the principal is unable to pay and such inability is not sufficiently
shown by the mere fact that he has been declared insolvent under the present Insolvency Law in which
the extent of the insolvent's inability to pay is not determined until the final liquidation of his estate.

Facts:
- Romulo Machetti, by a written agreement, undertook to construct a building for
the Hospicio de San Jose, the contract price being P64,000.
- One of the conditions of the agreement was that the contractor should obtain the "guarantee" of the
Fidelity and Surety Company of the Philippine Islands to the amount of P12,800 and the following
endorsement in the English language appears upon the contract:
"MANILA, July 15, 1916.
"For value received we hereby guarantee compliance with the terms and
conditions as outlined in the above contract.
"FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS.
(Sgd.) "OTTO VORSTER,
"Vice-President,"
- Machetti constructed the building under the supervision of architects representing
the Hospicio de San Jose.
- Subsequently it was found that the work had not been carried out in accordance with the
specifications which formed part of the contract and that the workmanship was not of the standard
required, and the Hospicio de San Jose therefore refused to pay the balance of the contract price.
- Machetti thereupon brought this action
- the Hospicio de San Jose answered the complaint and presented a counterclaim for damages for
the partial noncompliance with the terms of the agreement, in the total sum of P71,350.
- Machetti was declared insolvent under Insolvency law.
 - The Hospicio de San Jose filed a motion asking that the Fidelity and Surety Company be made
cross-defendant to the exclusion of Machetti and that the proceedings be continued as to said
company, but still remain suspended as to Machetti. This motion was granted1.
- The Hospicio filed a complaint against the Fidelity and Surety Company asking for a judgment for
P12,800 against the company upon its guaranty.

CFI:
- rendered judgment against the Fidelity and Surety Company (FSC) for P12,800 in accordance with
the complaint. FSC appealed.

Issue: whether FSC, being a guarantor, be compelled to pay.

Ruling:
- the court below erred in proceeding with the case against the guarantor while the proceedings
were suspended as to the principal. The guaranty in the present case was for a future debt of
unknown amount and even regarding the guaranty as an ordinary fianza under the Civil Code, the
surety cannot be held responsible until the debt is liquidated. (Civil Code, art. 1825.)
- But in this instance the guarantor's case is even stronger than that of an ordinary surety. In English
the term "guarantor" implies an undertaking of guaranty, as distinguished from suretyship.

Distinguishing features of contracts of guaranty vis--vis surety:

- It is very true that notwithstanding the use of the words "guarantee" or "guaranty" circumstances
may be shown which convert the contract into one of suretyship but such circumstances do not
exist in the present case: on the contrary it appears affirmatively that the contract is the guarantor's
separate undertaking in which the principal does not join, that it rests on a separate consideration
moving from the principal and that although it is written in continuation of the contract for the
construction of the building, it is a collateral under taking separate and distinct from the latter. All of
these circumstances are distinguishing features of contracts of guaranty.

- Now, while a surety undertakes to pay if the principal does not pay, the guarantor only binds
himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer of
the solvency of the debtor. This latter liability is what the Fidelity and Surety Company assumed in
the present case.

FSC, being a guarantor, cannot be compelled to pay until it is shown that Machetti is unable to pay

1
As will be seen, the original action in which Machetti was the plaintiff and
the Hospicio de San Jose defendant, has been converted into an action in which
the Hospicio de San Jose is plaintiff and the Fidelity and Surety Company, the original plaintiff's
guarantor, is the defendant, Machetti having been practically eliminated from the case.
- The Fidelity and Surety Company having bound itself to pay only in the event its
principal, Machetti, cannot pay it follows that it cannot be compelled to pay until it is shown
that Machetti is unable to pay. Such inability may be proven by the return of a writ of execution
unsatisfied or by other means, but is not sufficiently established by the mere fact that he has been
declared insolvent in insolvency proceedings under our statutes, in which the extent of the
insolvent's inability to pay is not determined until the final liquidation of his estate.