ASIATIC PETROLEUM v.

HIZON
Plaintiff: The Asiatic Petroleum Company (Philippine Islands), LTD.
Defendants: Francisco Hizon (defendant-appellant) and Justino A. David
Docket No.: G.R. No. L-20588
Date of Promulgation: December 17, 1923
Ponente: Street, J.

FACTS:
 Asiatic Petroleum is a corporation lawfully engaged in the selling of petroleum products in the
Philippine Islands.
 1916: Asiatic Petroleum made contract (Exhibit B – contract of agency) with Justino A. David,
whereby the latter became the selling agent of the Asiatic Petroleum at San Fernando, in the
Province of Pampanga.
 Justino A. David from time to time over a period of about five years received for sale and distribution
at the places mentioned various consignments of kerosene, gasoline, and similar petroleum
products, which were sold and disposed of by Justino A. David as selling agent.
 Relation thus established was continued without interruption until in the year 1921, when all the
transactions between the two parties were gone over, and it was found that David was indebted to
the Asiatic Petroleum in the amount of nearly P60,000, a sum which, by subsequent payments,
was reduced to P40,786.98, as found and adjudged by the trial court.
 Francisco Hizon’s liability, is planted upon a document (Exhibit B-1 – contract of suretyship),
which, as appearing in evidence, is pasted to the contract wherein Hizon obligates himself to
answer jointly and severally with the agent (Justino A. David) for all the obligations contracted or to
be contracted by the latter in accordance with the terms of Exhibit B, and the said Francisco Hizon
further agrees finally to answer for any balance that should be due to the Asiatic Petroleum from
said agent upon liquidation of the account, or accounts, between said two parties.
 Exhibit B-1 is pasted to the Exhibit B but the two documents do not form integral parts of the same
sheet, or sheets.
o However, Exhibit B-1 refers to Exhibit B to which it is appended; and when the two are
considered together, it would appear that Exhibit B is the identical instrument referred to in
Exhibit B-1 and that the former was executed in relation with the latter.
 David, together with Hizon, failed to pay Asiatic the balance due upon the liquidation of accounts.
 CFI Pampanga: Special civil action was filed by Asiatic to recover from Justino A. David, as
principal, and of Francisco Hizon, as security, the sum of P51,560.12.
o Asiatic claims that David and Francisco Hizon is to be obligated as joint and several surety
with the principal debtor.
 CFI ruled in favor of Asiatic to recover of Justino A. David, as principal, the sum P40,786.98, and
of Francisco Hizon, as surety, a portion of the same debt not to exceed the sum of P5,000.
o Justino A. David did not appeal.
 In this appeal, Asiatic Petroleum contending that the court should have held Hizon jointly and
severally responsible for the entire sum adjudged against the principal debtor, while Hizon claims
that he should have been wholly absolved.

ISSUE: Whether or not Hizon, as surety, should be jointly and severally liable for the entire obligation and
not only for a portion of the same.

HELD: No. CFI’s judgement against Hizon reversed and Hizon is absolved.

As already stated the contract Exhibit B declares that David shall serve the Asiatic Petroleum company as
its only selling agent at San Fernando, Guagua, Angeles, San Simon, Capas, Magalang, and Mabalakat,
in the Province of Pampanga; and the indebtedness which is the subject of this action was incurred by said
David as selling agent of the Asiatic Petroleum at all the places named.

From the time demand was first made upon the present appellant, Hizon, for the satisfaction of the balance
due to the Asiatic Petroleum upon liquidation of the account of David, Hizon has insisted that he had
obligated himself to answer for indebtedness to be incurred by David as selling agent at and for the
town of San Fernando and that he had been given to understand, at the time he contracted the
obligation, that the indebtedness so incurred would not be in excess of P5,000.

The representation as to the amount into which the indebtedness would run — a representation which
seems to have come exclusively from David — we consider unimportant, since the written contract places
no limit upon the amount of the obligation; but the defendant's contention concerning the place, or places,
over which David's agency extended is of a more serious character.

In this connection it is important to note that in the principal contract (Exhibit B), as submitted in evidence,
the words "Guagua, Angeles, San Simon, Capas, Magalang, Mabalakat" (after the words San Fernando),
have been inserted in the printed form by means of a typewriting machine, and owing to lack of space in
the printed form, it was necessary for the typist to interline the words "Guagua, Angeles, and San Simon."
Furthermore, the word "Mabalakat" as written by the typist, overlaps and obscures the succeeding printed
words, "in the," standing before "Province of Pampanga." There is of course nothing particularly suspicious
about this, but the situation thus revealed suggests the possibility that the words Guagua, Angeles,
San Simon, Capas, Magalang, and Mabalakat may have been inserted after the contract of
suretyship had been signed and acknowledged by Hizon. Conclusive proof on this point comes,
however, from another quarter and from a source not at all dependent upon the credibility of the oral
testimony of Hizon. Said proof consists in the fact now to be stated.

It appears that at the time Hizon acknowledged the contract of suretyship (Exhibit B-1), duplicate copies of
the principal contract were produced before the notary public and were there present for the inspection of
the parties. The notary who acted in the matter was one A.E. Cuyugan, an attorney, who, at the time of the
incident now in question, was engaged in the exercise of the legal profession, and at the time he was
examined as a witness was filing the office of assistant attorney of the Bureau of Justice. This witness was
introduced by the Asiatic Petroleum, and his testimony has every appearance of being candid and truthful.
He states that the two copies of the principal contract which were produced at the time the acknowledgment
of Hizon to the contract of suretyship was taken were the same.

Now, after the principal contract had been acknowledged by Justino A. David, as appears from the notarial
certificate appended thereto, and after the contract of suretyship had been at the same time acknowledged
by Hizon, as appears from the contemporaneous notarial certificate appended thereto, the notary public
delivered to David one copy of the principal contract, together with one copy of the contract of suretyship
acknowledged by Hizon; and these two documents went to the hands of the Asiatic Petroleum and have
appeared in evidence as Exhibits B and B-1, as already stated. The other copy of the principal contract was
retained in possession of the notary, in accordance with notarial usage in such matters. It thus became a
part of his official records and, with other documents, was afterwards delivered by the notary to the clerk of
court, of the Province of Pampanga, by whom it was transmitted to the division of archives of the Philippine
Library and Museum.

In the course of the trial of this case, a duly authenticated copy of said contract was introduced in
evidence in this case; and upon comparison of said copy with the Exhibit B, the two documents are
found to differ in the sole circumstance that the words Guagua, Angeles, San Simon, Capas,
Magalang, and Mabalakat, are wanting in the instrument now preserved in the division of archives.

Upon this circumstance, in relation with the testimony of the notary public and Hizon, the trial judge reached
the conclusion that at the time Hizon signed and acknowledged the contract of suretyship the principal
contract made no mention of other places than San Fernando, had been interpolated in the document
Exhibit B after the contract of suretyship had been acknowledged.

We believe that there can be little doubt as to the correctness of this conclusion, and it completely bears
out the contention of Hizon to the effect that he really obligated himself only to answer for such indebtedness
as might be incurred by David as agent at San Fernando. We may add that no witness was produced by
the Asiatic Petroleum for the purpose of explaining in any way the discrepancy between the two documents
above referred to.
The circumstance should not pass unnoticed that Hizon's contention concerning the extent of the agency
at the time he obligated himself was formulated at a time when he did not know of the existence of a copy
of the contract of agency in the files of the division of archives; and the subsequent discovery of this piece
of evidence is strongly suggestive of Hizon's good faith in claiming that he had obligated himself only for
the results of an agency to be established at San Fernando.

Our conclusion upon a careful consideration of the evidence is that, when Hizon acknowledged the contract
of suretyship, the principal contract was limited to the agency at that place and that the document Exhibit
B was subsequently amended by agreement between the Asiatic Petroleum and Justino A. David, but
without the knowledge or consent of Hizon, by the insertion therein of the names of the other places
mentioned in said exhibit.

It is fundamental in the law of suretyship that any agreement between the creditor and the principal
debtor which essentially varies the terms of the principal contract, without the consent of the surety,
will release the surety from liability. (21 R.C.L., 1004.) This principle is equally valid under the civil as
under the common law; and though not specifically expressed in the Civil Code, it may be deduced, so far
as its application to the facts of this case is concerned, from the second paragraph of Article 1822 in relation
with Article 1143 of the same Code. It requires no argument to show that the increase of liability
incident to the extension of the agency to other places that San Fernando was prejudicial to the
interest of Hizon, and the change could not be lawfully made without his consent.

The trial judge was therefore not in error in holding that Hizon was in effect discharged from liability under
the contract of suretyship (Exhibit B-1); but his Honor nevertheless gave judgment against the defendant
for the sum of P5,000. In doing so he proceeded upon the idea that the defendant admitted that he had
intended to obligate himself to the extent of P5,000, and his Honor concluded that by entering into the
contract of suretyship the defendant had induced the Asiatic Petroleum to make the contract of agency —
which appears to have been signed by the representative of the Asiatic Petroleum after it had been signed
and acknowledged by David; for which reason his Honor considered it just to hold the defendant to the
extent at least in which he had intended to bind himself. The validity of this conclusion cannot be admitted.
The only obligation which was created on the part of the defendant was the contract of suretyship (Exhibit
B-1), and when that obligation was nullified by the subsequent alteration of the principal contract, Hizon
was discharged in toto.

In the course of this decision the fact has not escaped our attention that the answer of Hizon does not
specially plead the alteration of the contract of agency. But this is sufficiently explained by the circumstance
that the document which conclusively proves the fact of alteration had not been discovered in the division
of archives at the time the answer was filed. We note further that when a copy of said document was finally
produced, it was introduced in evidence and admitted without question. Upon this state of facts it would be
permissible, if necessary, for this court to direct an amendment of the answer, as was done in Harty vs.
Macabuhay (39 Phil., 495). But as the point is purely defensive and the right clear, we consider it
unnecessary to require Hizon to go through the form of this technicality.

In the light of what has been said it becomes necessary to reverse the appealed judgment in so far as it
awards the sum of P5,000 against Francisco Hizon, and he will be completely absolved from the complaint.
MABUHAY INSURANCE v CA
Petitioner: Mabuhay Insurance and Guaranty, Inc.
Respondents: Hon. Court of Appeals, Hon. Jesus P. Morfe, et al.
Docket No.: G.R. No. L-28700
Date of Promulgation: March 30, 1970
Ponente: Teehankee, J.

FACTS:
 Abdurakman Assih y Jamlaila was charged of and tried before the Court of First Instance of
Manila for the crime of illegal possession of firearm and ammunition.
  Mabuhay Insurance posted a bond for the provisional release of the accused in the sum of
P3,000.00, conditioned that Abdurakman Assih will appear and answer the charge in whatever
Court it may be tried, and with at all times hold himself amenable to the orders and processes of
the Court, and if convicted will appear for judgment and render himself to the execution thereof.
 During the trial, Mabuhay Insurance presented or caused to be presented the body and person of
the accused before the CFI.
 November 2, 1966: CFI rendered its judgment finding accused Abduralkman Assih guilty as
charged, and sentenced him to imprisonment.
 December 5, 1966: The accused voluntarily presented himself before the Court for the reading of
the sentence.
o After the sentence was read, the accused, in his own behalf, prayed in open court that he
be allowed 15 days within which to decide whether or not to appeal from the judgment;
o Said prayer was granted in the Order dated December 5, 1966, as was accused's motion
to be allowed out on bail 'in the meantime under his original bond.'
o At the same time, the court fixed a new bond for his provisional liberty in case of appeal.
o The lower court further ordered that the bondsman of the accused be notified to produce
the person of the accused on December 20, 1966 at 9:00 A.M., either to serve his
sentence or to perfect an appeal, as the case may be.
 Copy of this order was served on and received by Mabuhay Insurance &
Guaranty Co., Inc.
 December 20, 1966: the last day for perfecting his appeal, Abdurakman Assih merely filed his
notice of appeal with the trial court without himself appearing in person.
 For this failure to appear in person on the date set by the order of December 5, 1966, the
respondent Judge, on January 17, 1967, issued an order declaring Abdurakman Assih a fugitive
from justice; deferred action on his notice of appeal until he shall have re-submitted himself to
effective order of the Court by voluntary surrender and purged himself of the taint of being a
fugitive from justice; declared the bond of the accused forfeited; and gave Mabuhay Insurance 30
days within which to show cause, if any, why judgment, should not be issued against its bond.
 Mabuhay Insurance took no steps to produce the person of the accused Abdurakman Assih in
court within the period set by the said court in its order dated January 17, 1967, nor did the
Mabuhay Insurance show cause why judgment should not be rendered against the bond.
 March 3, 1967: the court issued an order directing immediate execution of the judgment rendered
against said bond which order was received by the Mabuhay Insurance on March 9, 1967.
 Instead of taking an appeal, the Mabuhay Insurance filed a Motion for Reconsideration of the
Order dated March 3, 1967, praying that the writ of execution be set aside, only on May 11, 1967,
or more than 60 days after notice of said order.
 In an Order dated May 12, 1967, the respondent judge denied the motion for lack of merit; it is not
known by this Court whether he is in the custody of the proper authorities or not.

ISSUE: Whether or not CA’s decision in denying the prayer of Mabuhay Insurance to set aside the writ of
execution should be reversed.

HELD: No. The Court found no merit in the present appeal seeking reversal of the Court of
Appeals' decision dismissing Mabuhay Insurance's action, by a four-to-one vote.

1. Mabuhay Insurance 's contention based on the dissenting appellate justice's opinion that after the
sentence of conviction is read to the accused, the accused should be deemed placed under the custody
of the trial court to serve the sentence and his bail bond is deemed automatically cancelled, finds no
support in law nor in our jurisprudence.

The office of bail in criminal cases is "to secure the due attendance of the party accused to answer the
indictment and to submit to trial and judgment of the court thereon." The accused has fifteen days from
promulgation or reading of the judgment of conviction by the Court of First Instance within which to take
an appeal to the higher courts under Rule 122, Section 6 of the Rules of Court. The trial court's duty to
place the accused under custody and detention for service of his sentence and consequent cancellation
of his bail bond does not arise until after the judgment becomes final upon the lapse of the fifteen-day
period for perfecting an appeal (Rule 120, Secs. 7 and 8).

The trial court therefore properly acted within its jurisdiction in giving the accused the benefit of the
fifteen-day period within which to decide whether or not to appeal the judgment of conviction after the
same was read on December 5, 1966 and to order that Mabuhay Insurance as bondsman of the accused
be notified to produce the person of the accused on the fifteenth day, i.e., December 20, 1966, either to
serve his sentence or to perfect an appeal as the case may be.

2. Under the very terms of the bail bond posted by Mabuhay Insurance whereby it undertook that the
accused will 'appear and answer the charge ... and will at all times hold himself amenable to the orders
and processes of the court, and if convicted will appear for judgment and render himself to the execution
thereof ...," it was clearly the duty of Mabuhay Insurance as bondsman to produce the person of the
accused on December 20, 1966, in accordance with the trial court's order of December 5, 1966 when the
judgment of conviction was promulgated and notice of which was duly served upon and received by
Mabuhay Insurance.

In other words, Mabuhay Insurance's responsibility under its bail bond subsisted for as long as the case
was under the jurisdiction and control of the trial court and said jurisdiction would only be lost upon
surrender of the accused for execution of the judgment of conviction or upon due perfection of an appeal
from the judgment. Mabuhay Insurance 's bail bond necessarily subsisted and was effective up to
December 20, 1966, which was the last day of the fifteen-day period for the perfection of an appeal by the
accused. If the accused presented his notice of appeal, the trial Court then would order his being taken
into custody in the absence of a new bail bond on appeal duly allowed and approved by it. It cannot be
contended, therefore, that the trial Court's action requiring Mabuhay Insurance as bondsman to produce
the person of the accused on the fifteenth day from promulgation of sentence for the perfection of his
appeal or for service of sentence with the lapse of the period for appeal amounted to an extension of the
terms of the bail bond without the knowledge or consent of Mabuhay Insurance -bondsman and was
beyond the jurisdiction of the trial court.

3. A bondsman who wishes to be relieved from his undertaking as such should petition the Court
for his discharge as a surety in accordance with the provisions of Rule 114, section 16 of the
Rules of Court.

Sec. 16. Discharge of Surties. — Upon application filed with the court and after due notice to
the fiscal, the bail bond shall be cancelled and the sureties discharged from liability
(a) where the sureties so request upon surrender of the defendant to the court;
(b) where the defendant is re-arrested or ordered into custody on the same charge or for the
same offense;
(c) where the defendant is discharged by the court at any stage of the proceedings, or
acquitted, or is convicted and surrendered to serve the sentence; and
(d) where the defendant dies during the pendency of the action.

Mabuhay Insurance did not avail itself of the above-quoted provision and ask for its discharge as
a surety nor did it manifest to the trial Court at the promulgation of sentence its wish to be
relieved of its responsibility for the custody of the accused. Under the above-quoted Rule,
Mabuhay Insurance could very well have asked the trial court to relieve it as the jailer and
custodian of the accused by surrendering the person of the accused to the said court and asking
for the cancellation of its bail bond.

4. Finally, it should be noted that Mabuhay Insurance filed a motion for reconsideration of the trial Court's
order of March 3, 1967 for execution of the judgment against the bond only on May 11, 1967 or more than
60 days from its receipt on March 9, 1967 of said order, which motion for reconsideration was in due
course denied by the trial court. Mabuhay Insurance having failed to file a timely appeal from the Court's
order could no longer avail of the remedy of the special civil action for certiorari in lieu of its lost right of
appeal, since no errors of jurisdiction were committed by the trial court.

ACCORDINGLY, the appealed judgment of the Court of Appeals is affirmed and the petition is dismissed.
With costs against Mabuhay Insurance.
MANILA SURETY v ALMEDA
Petitoner: Manila Surety & Fidelity Co., Inc.
Respondents: Noemi Almeda, doing business under the name and style of Almeda Trading, Generoso
Esquillo and National Marketing Corporation
Docket No.: G.R. No. L-27249
Date of Promulgation: July 31, 1970
Ponente: Reyes, J.B.L., J.

FACTS:
 Nature: An appeal from the ruling of the Court of First Instance of Manil that the insolvency of a
debtor-principal does not release the surety from its obligation to the creditor under the bond.
 4 December 1961: Noemi Almeda, married to Generoso Esquillo, and doing business under the
name and style of Almeda Trading, entered into a contract with the National Marketing
Corporation (NAMARCO) for the purchase of goods on credit, payable in 30 days from the dates
of deliveries thereof.
o As required by the NAMARCO, a bond for P5,000.00, undertaken by the Manila Surety &
Fidelity Co., Inc. (Exhibit "A"), was posted by the purchaser to secure the latter's faithful
compliance with the terms of the contract.
o The agreement was later supplemented on 17 October 1962 and a new bond for the
same amount of P5,000.00, also undertaken by the Manila Surety & Fidelity Co., Inc.
(Exhibit "C"), was given in favor of the NAMARCO
 The bonds uniformly contained the following provisions:
2. Should the Principal's account on any purchase be not paid on time, then the Surety, shall,
upon demand, pay said account immediately to the NAMARCO;
3. Should the account of the Principal exceed the amount of FIVE THOUSAND (P5,000.00)
PESOS, Philippine Currency, such excess up to twenty (20%) per cent of said amount shall also
be deemed secured by this Bond;
4. The Surety expressly waives its right to demand payment and notice of non-payment and
agreed that the liability of the Surety shall be direct and immediate and not contingent upon the
exhaustion by the NAMARCO of whatever remedies it may have against the Principal and same
shall be valid and continuous until the obligation so guaranteed is paid in full; and
5. The Surety also waives its right to be notified of any extension of the terms of payment which
the NAMARCO may give to the Principal, it being understood that were extension is given to
satisfy the account, that such extension shall not extinguish the guaranty unless the same is
made against the express wish of the Surety.
 26 March 1965: Generoso Esquillo instituted voluntary insolvency proceeding in the Court of First
Instance of Laguna and by order of said court of 6 April 1965, he was declared insolvent.
 14 May 1965: In the meeting of the named creditors of the insolvent held for the purpose of
electing the assignee of his properties, NAMARCO was represented and its contingent claim duly
registered.
 8 June 1965: NAMARCO demanded from the purchaser Almeda Trading the settlement of its
back accounts which allegedly amounted to P16,335.09.
o Furnished with copy of the NAMARCO's demand- letter, the surety company thereafter
also wrote to the said purchaser urging it to liquidate its unsettled accounts with the
NAMARCO (Exhibit "E-1").
 10 September 1965: Manila Surety & Fidelity Co., Inc., commenced in the CFI Manila against the
spouses Noemi Almeda and Generoso Esquillo, and the NAMARCO, to secure its release from
liability under the bonds executed in favor of NAMARCO.
 o Action was based on the allegation that the defendant spouses had become insolvent
and that defendant NAMARCO had rescinded its agreement with them and had already
demanded payment of the outstanding accounts of the couple.
o Defendant NAMARCO filed its answer denying the averments of the complaint and
setting up, as affirmative defenses, lack of cause of action and the court's want of
jurisdiction.
 16 December 1966: CFI rendered judgment sustaining NAMARCO's contention that the
insolvency of the debtor-principal did not discharge the surety's liability under the bond; complaint
was dismissed and plaintiff surety company was ordered to pay off the indebtedness of the
defendant spouses to the NAMARCO to the extent of its (the Surety's) undertaking, plus
attorneys' fees and costs.
 Present appeal: Manila Surety’s action to secure its discharge from the suretyship was based on
Article 2071 of the Civil Code, which provides the surety with certain protective remedies that may
be resorted to before he has paid, but after he has become liable to do so.
o On the other hand, the lower court's ruling, now on appeal, is anchored on an equally
explicit provision of the Insolvency law (Act 1956, as amended), to writ:
SEC. 68. No discharge (of the insolvent from his obligations) shall release, discharge
or affect any person liable for the same debt, for or with the debtor, either as partner,
joint contractor, indorser, surety, or otherwise.

ISSUE: Whether or not a surety can avail itself of the relief, specifically afforded in Article 2071 of the Civil
Code and be released from its liability under the bonds, notwithstanding a prior declaration of the
insolvency of the debtor-principal in an insolvency proceeding.

HELD: No.

 Article 2071. The guarantor, even before having paid, may proceed against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within a specified period,
and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the period for
payment;
(5) After the lapse of ten years, when the principal obligation has no fixed period for its maturity,
unless it be of such nature that it cannot be extinguished except within a period longer than ten
years;
(6) If there are reasonable grounds to fear that the principal debtor intends to abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand
a security that shall protect him from any proceedings by the creditor and from the danger of
insolvency of the debtor.

There is no question that under the bonds posted in favor of the NAMARCO in this case, the surety
company assumed to make immediate payment to said firm of any due and unsettled accounts of the
debtor-principal, even without demand and notice of the debtor's non-payment, the surety, in fact,
agreeing that its liability to the creditor shall be direct, without benefit of exhaustion of the debtor's
properties, and to remain valid and continuous until the guaranteed obligation is fully satisfied. In short,
appellant secured to the creditor not just the payment by the debtor-principal of his accounts, but the
payment itself of such accounts. Clearly, a contract of suretyship was thus created, the appellant
becoming the insurer, not merely of the debtor's solvency or ability to pay, but of the debt itself.

Under the Civil Code, with the debtor's insolvency having been judicially recognized, herein appellant's
resort to the courts to be released from the undertaking thus assumed would have been
appropriate. Nevertheless, the guarantor's action for release can only be exercised against the principal
debtor and not against the creditor, as is apparent from the precise terms of the legal provision. "The
guarantor" (says Article 2071 of the Civil Code of the Philippines) "even before having paid, may proceed
against the principal debtor ------------------ to obtain a release from the guaranty ---------------."

The juridical rule grants no cause of action against the creditor for a release of the guaranty, before
payment of the credit, for a plain reason: the creditor is not compellable to release the guaranty
(which is a property right) against his will. For, the release of the guarantor imports an extinction of his
obligation to the creditor; it connotes, therefore, either a remission or a novation by subrogation, and
either operation requires the creditor's assent for its validity (See Article 1270 and Article 1301).
Especially should this be the case where the principal debtor has become insolvent, for the purpose of a
guaranty is exactly to protect the creditor against such a contingency.

In what manner, then, can the article operate? Where the debtor cannot make full payment, the release of
the guarantor can only be obtained with the assent of the creditor, by persuading the latter to accept an
equally safe security, either another suitable guaranty or else a pledge or mortgage. Absent the creditor's
consent, the principal debtor may only proceed to protect the demanding guarantor by a counterbond or
counter guaranty, as is authorized by the codal precept (Article 2071 in fine). To this effect is the opinion
of the Spanish commentator, Scaevola, in his explanations to Article 1843 of the Spanish Civil Code (from
which Article 2071 of our Code is derived). Says Scaevola:

How would such guarantees be given to the guarantor? It is answered by the aforementioned final
paragraph of Article 1843. It will be done in one of these two ways: the debtor will get the creditor to
leave that bond freely, which will occur by giving the debtor another similar guarantee, either by
reason of the guarantor or offering the debtor to the same guarantor, but continuing this as such, a
guarantee that covers the creditor's procedures and the insolvency risk of the debtor. (Scaevola
Codigo Civil, 2d Ed., Vol. 28, pp. 651652).

The appellant's troubles are compounded by the fact that when the complaint for release from suretyship
was filed in the Manila court on 10 September 1965, the insolvency case in the Laguna court was already
pending and the debtor-principal Generoso Esquillo had been judicially declared an insolvent. By the time
the appellant sued, therefore, the insolvency court had already acquired jurisdiction over all the debtor's
properties and of all claims by and against him, to the exclusion of any other court. In the circumstances,
the lawful recourse of the guarantor of an obligation of the insolvent would be to file a contingent claim in
the insolvency proceeding, if his rights as such guarantor or surety are not to be barred by the
subsequent discharge of the insolvent debtor from all his liabilities.

In the case at bar, it is true that the guaranteed claim of NAMARCO was registered or filed in the
insolvency proceeding. But appellant cannot utilize this fact in support of its petition for release from the
assumed undertaking. For one thing, it is almost a certainty that creditor NAMARCO cannot secure full
satisfaction of its credit out of the debtor's properties brought into the insolvency proceeding. Considering
that under the contract of suretyship, which remains valid and subsisting, the entire obligation may even
be demanded directly against the surety itself, the creditor's act in resorting first to the properties of the
insolvent debtor is to the surety's advantage At least, the latter would be answerable only for whatever
amount may remain not covered or unsatisfied by the disposition of the insolvent's properties, with the
right to go against debtor-principal after it has made the necessary payment to the creditor. For another,
the fact that the debtor-principal may be discharged from all his outstanding obligations in the
insolvency case would not benefit the surety, as to relieve it of its liability under the surety
agreement. That is so provided in Section 68 of the Insolvency Act which shall be controlling in
the case.

Finally, even supposing that the present action is not blocked by the insolvency proceedings because it
does not aim at reducing the insolvent's assets, but only at having the suretyship substituted by other
equivalent security, still it is difficult to see how the principal debtor, with his business, property and
assets impounded by the insolvency court, can obtain other securities with which to replace the guaranty
given by the plaintiff-appellant. The action at bar would seem, under the circumstances, destined to end
in futility.
WHEREFORE, with the modification that appellant's liability shall be limited to the payment of whatever
amount may remain due to the appellee NAMARCO and is unsatisfied in the insolvency proceeding, but
not to exceed the amount of the surety's undertaking under the bonds, the decision appealed from is
affirmed in all other respects. Costs against appellant surety company.
BANZON v CRUZ
Petitioners: Antonio R. Banzon and Rosa Balmaceda
Respondents: Hon. Fernando Cruz, Spouses Pedro Cardenas and Leonila Baluyot and Associated
Insurance & Surety Company, Inc. represented by Insurance Commissioner in her capacity as Liquidator
of Associated Insurance & Surety Company, Inc
Docket No.: G.R. No. L-31789
Date of Promulgation: June 29, 1972
Ponente: Teehankee, J.

FACTS:
 1952: Maximo Sta. Maria obtained crop loans from the Philippine National Bank (referred as the
bank).
o Respondent Associated Insurance & Surety Co., Inc. (hereinafter referred to as
Associated) acted as surety of Sta. Maria, filing surety bonds in favor of the bank to
answer for prompt repayment of the loans.
o Petitioner Antonio R. Banzon and Emilio Ma. Naval in turn acted as indemnitors of
Associated and were obligated to indemnify and hold harmless Associated from any
liability thus acting as surety of the loan. Sta. Maria failed to pay his obligations to the
bank, which accordingly demanded payment from Associated as surety.
 Instead of paying the bank, Associated filed a complaint dated November 19, 1956 with the CFI
Manila against debtor Sta. Maria and indemnitors Banzon and Naval, alleging that the
outstanding obligations of Sta. Maria with the bank guaranteed by it amounted to P6,100.00,
P9,346.44 and P14,811.32, or a total of P30,257.86, excluding interest.
 December 11, 1957: CFI rendered judgment ordering Sta. Maria, Banzon and Naval "to pay
jointly and severally unto plaintiff for the benefit of the Philippine National Bank"
 Associated then levied Banzon’s two lots in Caloocan to satisfy the judgment of CFI
Manila.
o Associated was the highest bidder at the execution sale.
 The Sheriff of Rizal issued in Associated’s favor the corresponding certificate of sale
which were duly registered.
 When the period of redemption expired, Associated obtained the final certificate of sale
and registered the same.
 Associated then demanded from Banzon the delivery of the owner’s duplicate certificate of
title to which Banzon refused.
o Because of this, Associated filed a complaint with CFI Rizal for an order to Banzon
to present the certificate for cancellation and another order to cancel the same and
issue new ones in its name
o CFI Rizal ruled in favor of Associated
 It was then discovered that notwithstanding the judgment of December 11, 1957 obtained from
the Manila court by Associated and executed by it against petitioner Banzon as indemnitor " for
the benefit of the Philippine National Bank," never discharged its liability as surety to the bank nor
ever made any payment to the bank, whether in money or property, to discharge Sta. Maria's
outstanding obligations as guaranteed by it.
 February 10, 1961, the bank complaint with the Court of First Instance of Pampanga against
principal debtor Maximo Sta. Maria, his six brothers and sisters and Associated itself, surety, as
defendants, for the collection of the outstanding obligations due from the principal debtor, Maximo
Sta. Maria.
o The court ordered all the defendants jointly and severally to pay the bank the outstanding
amounts due on the crop loans to Sta. Maria
 The bank collected directly from its debtor Sta. Maria the amounts owing to it, with Associated
never having put in one centavo and not liquidating Banzon’s properties.
  The bank's letter dated February 20, 1970 to Associated, it informed Associated that the amounts
of its judgment credit against judgment defendants in the aforementioned case terminated by this
Court's decision of August 29, 1969
 This should have put an end to the matter and Banzon’s lots should have been restored fully to
him, but it was later on discovered that one of Banzon’s lots which were held by Associated as
trustee were executed and levied to one Pedro Cardenas.
 March 13, 1970: Banzon filed a complaint for reconveyance of the two parcels of land.
 March 16, 1970: Sheriff of Caloocan City served upon the Banzons copy of the aforesaid order
giving them until March 20, 1970, within which to deliver possession of the parcel of land covered
by T.C.T. No. 8567, and to remove the improvements thereon; otherwise, the said sheriff would
proceed to enforce the same.
 Banzon came to court to enjoin Associated from disposing its alleged rights and interests in
the two lots.

ISSUE: Whether or not Associated has valid cause of action against Banzon.

HELD: No.

As a point of law, even though under Associated's suretyship agreement guaranteeing Sta. Maria's crop
loans with the bank, it was permitted, supposedly for its protection, to proceed judicially against the
principal debtor and indemnitors even prior to the surety's making payment to the creditor bank, Article
2071 of the Civil Code regulates such relations and provides that in such cases, the surety's right
is against the principal debtor and that "in all these cases, the action of the guarantor is to obtain
release from the guaranty, or to demand a security that shall protect him from any proceedings by
the creditor and from the danger of insolvency of the debtor."

Associated thus did not even have any valid cause of action against Banzon as its indemnitor, but could
proceed only against Sta. Maria as the principal debtor. And even as against such principal debtor, it
could not prematurely demand payment even before it had paid the creditor, its action being limited only
for the purpose of obtaining release from the guaranty or a security against an eventual insolvency of the
debtor. As was emphasized by Mr. Justice Reyes for the Court in General Indemnity Co., Inc. vs.
Alvarez, while a guarantor may under Article 2071 of the Civil Code proceed against the principal
debtor, even before having paid, when the debt has become demandable, "(T)he last paragraph of
this same article, however, provides that in such instance, the only action the guarantor can file
against the debtor is 'to obtain release from the guaranty, or to demand a security that shall
protect him from any proceeding by the creditor and from the danger of insolvency of the
debtor.' An action by the guarantor against the principal debtor for payment, before the former
has paid the creditor, is premature."

WHEREFORE, the petition for a permanent injunction, during the pendency of Civil Case No. 79244 of
the Court of First Instance of Manila against the disposition in any manner of the two parcels of land
subject of said case other than their reconveyance to petitioners as the true and rightful owners thereof as
expressly recognized by the insurance commissioner as liquidator of Associated is hereby granted. In lieu
of the permanent injunction against enforcement of respondent court's order dated March 13, 1970 in
Case No. C-211 thereof ordering the delivery of possession of the property covered by T.C.T. No. 8567 to
respondents Cardenases and demolition of petitioners Banzons' improvements thereon, (which were
prematurely carried out by respondent court's sheriff on March 23, 1970) a writ of mandatory injunction
commanding respondent court to forthwith restore the status ante quo and to restore petitioners Banzons
to full possession of the property and enjoyment of the fruits and rentals thereof under the terms and
conditions stated in the next preceding paragraph is hereby issued, which shall be immediately
executory upon promulgation of this decision. With costs against respondents Pedro Cardenas and
Leonila Baluyot.
This decision is without prejudice to such civil and criminal liability as the officers of the defunct
Associated Insurance & Surety Co., Inc. may have incurred by virtue of their acts of commission and
omission which have resuited in grave prejudice and damage to petitioners as well as to the public
interest, as in the suppression from and non-surrender to the Insurance Commissioner as liquidator of the
records of the relevant antecedent cases, and in the possible misrepresentation to the courts therein that
Associated had duly discharged to the bank its liability as surety and could therefore lawfully levy on the
properties of Banzon as indemnitor, which would have resulted in the respondents' unjust enrichment at
Banzon's expense. The insurance commissioner is directed to conduct the corresponding investigation for
the purpose of filing such criminal and other appropriate actions as may be warranted against the
responsible parties. So ordered.