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[No. 16666. April 10, 1922]

ROMULO MACHETTI, plaintiff and appellee, vs.

HOSPICIO DE SAN JOSE, defendant and appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE
ISLANDS, defendant and appellant.

1. CONTRACT OF GUARANTY.—Machetti, by contract in

writing, agreed to erect a building f or the Hospicio de San
Jose. The def endant Surety Company made the f ollowing
endorsement in the English language upon the contract:
"For value. received we hereby guarantee compliance with
the terms and conditions as outlined in the above
contract." Held: That the terms of the en

298

298 PHILIPPINE REPORTS ANNOTATED

Machetti vs. Hospicio de San Jose and Fidelity & Surety Co.

dorsement must be given the signification which

ordinarily attaches to them in the language in which the
endorsement was written and that the obligation of the
Surety Company was one of guaranty and not of
suretyship or fianza solidaria.

2. DISTINCTION BETWEEN GUARANTOR AND SURETY.

—A guarantor is the insurer of the solvency of the debtor;
a surety is an insurer of the debt. A guarantor binds
himself to pay if the principal is unable to pay; a surety
undertakes to pay if the principal does not pay.

3. 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.
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APPEAL from a judgment of the Court of First Instance of

Manila. Concepcion, J.
The facts are stated in the opinion of the court.
          Ross & Lawrence and Wolfson, Wolfson &
Schwarzkopf for appellant.
     Gabriel La O for appellee Hospicio de San Jose.
     No appearance for the other appellee.

OSTRAND, J.:

It appears from the evidence that on July 17, 1916, one

Romulo Machetti, by a written agreement, undertook to
construct a building on Calle Rosario in the city of Manila
for the Hospicio de San Jose, the contract price being of
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"

299

VOL. 43, APRIL 10, 1922 299

Machetti vs. Hospicio de San Jose and Fidelity & Surety
Co.

Machetti constructed the building under the supervision of

architects representing the Hospicio de San Jose and, as
the work progressed, payments were made to him f rom
time to time upon the recommendation of the architects,
until the entire contract price, with the exception of the
sum of P4,978.08, was paid. 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 complaint being filed May 28, 1917. On January
28, 1918, the Hospicio de San Jose answered the complaint
and presented a counterclaim for damages for the partial
noncompliance with the terms of the agreement
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abovementioned, in the total sum of P71,350. After issue

was thus joined, Machetti, on petition of his creditors, was,
on February 27, 1918, declared insolvent and on March
4,1918, an order was entered suspending the proceeding in
the present case in accordance with section 60 of the
Insolvency Law, Act No. 1956.
The Hospicio de San Jose on January 29, 1919, 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 granted
and on February 7, 1920, the Hospicio filed a complaint
against the Fidelity and Surety Company asking for a
judgment for P12,800 against the company upon its
guaranty. After trial, the Court of First Instance rendered
judgment against the Fidelity and Surety Company for
P12,800 in accordance with the complaint. The case is now
before this court upon appeal by the Fidelity and Surety
Company from said judgment.
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,

300

300 PHILIPPINE REPORTS ANNOTATED

Machetti vs. Hospicio de San Jose and Fidelity & Surety
Co.

the original plaintiff's guarantor, is the defendant,

Machetti having been practically eliminated from the case.
We think 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. The contract of
guaranty is written in the English language and the terms
employed must of course be given the signification which
ordinarily attaches to them in that language. In English
the term "guarantor" implies an undertaking of guaranty,
as distinguished from suretyship. It is very true that
notwithstanding the use of the words "guarantee" or
"guaranty" circumstances may be shown which convert the
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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 f rom the
principal and that although it is written in continuation of
the contract for the construction of the building, it is a
collateral undertaking 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. (Saint vs.
Wheeler & Wilson Mfg. Co., 95 Ala., 362; Campbell vs.
Sherman, 151 Pa. St., 70; Castellvi de Higgins and Higgins
vs. Sellner, 41 Phil., 142; U. S. vs. Varadero de la Quinta,
40 Phil., 48.) This latter liability is what the Fidelity and
Surety Company assumed in the present case. The
undertaking is perhaps not exactly that of a fianza

301

VOL. 43, APRIL 15, 1922 301

Manotoc vs. Smith

under the Civil Code, but it is a perfectly valid contract and

must be given the legal effect it ordinarily carries. 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
f act 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.
The judgment appealed from is therefore reversed
without costs and without prejudice to such right of action
as the cross-complainant, the Hospicio de San Jose, may
have after exhausting its remedy against the plaintiff
Machetti. So ordered.

          Araullo, C. J., Malcolm, Villamor, Johns, and

Romualdez, JJ., concur.

Judgment reversed.

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