CredTran Case Assignment

7/18/2019 CredTran Case Assignment

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3. GuarantyMachetti v. Hospicio de San Jose, 43 Phil 297 (922!

"#$%S& By a written agreement, Machetti undertook to construct a building for Hospicio de SanJose. One of the conditions was that Machetti obtain the guarantee of Fidelity Surety !o. to the

amount of "#$%,%&&. 't was subse(uently found out that the work had not been carried out inaccordance with the specifications.

Machetti constructed the building under the super)ision of architects representing the Hospicio deSan Jose and, as the work progressed, payments were made to him from time to time upon therecommendation of the architects, until the entire contract price, with the e*ception of the sum of the "+,-%.&%, was paid.

Subse(uently it was found that the work had not been carried out in accordance with thespecifications which formed part of the contract and that the workmanship was not of thestandard re(uired, and the Hospicio de San Jose therefore answered the complaint andpresented a counterclaim for damages for the partial noncompliance with the terms of theagreement abo)ementioned, in the total sum of "-#,/&. 0fter issue was thus 1oined, Machetti,

on petition of his creditors, was declared insol)ent and an order was entered suspending theproceeding in the present case in accordance with section 2& of the 'nsol)ency 3aw, 0ct 4o.#/2.

Hospicio de San Jose filed a motion asking that the Fidelity and Surety !ompany be made cross5defendant to the e*clusion of Machetti and that the proceedings be continued as to saidcompany, but still remain suspended as to Machetti. 6his motion was granted and then theHospicio filed a complaint against the Fidelity and Surety !ompany asking for a 1udgement for "#$,%&& against the company upon its guaranty.

0fter trial, the !F' rendered 1udgment against the Fidelity and Surety !ompany for "#$,%&& inaccordance with the complaint. 6he case is now before this court upon appeal by the Fidelity andSurety !ompany form said 1udgment.

'SS)& 7O4 the undertaking assumed by FS! that of guarantor or surety

H)*+& 't is a contract of guaranty.

#%'-& 'n this instance the guarantor8s case is stronger than that of an ordinary surety. 6hecontract of guaranty is written in the 9nglish language and the terms employed must of course begi)en the signification which ordinarily attaches to them in that language. 'n 9nglish the term:guarantor: implies an undertaking of guaranty, as distinguished from suretyship. 't is )ery truethat notwithstanding the use of the words :guarantee: or :guaranty: circumstances may be shownwhich con)ert the contract into one of suretyship but such circumstances do not e*ist in thepresent case; on the contrary it appear affirmati)ely that the contract is the guarantor8s separateundertaking in which the principal does not 1oin, that its rests on a separate consideration mo)ing

from the principal and that although it is written in continuation of the contract for the constructionof the building, it is a collateral undertaking separate and distinct from the latter. 0ll of thesecircumstances are distinguishing features of contracts of guaranty.

6he undertaking maybe is not e*actly that of a fianza under the !i)il !ode, but is a perfectly )alidcontract and must be gi)en the legal effect if ordinarily carries. 6he Fidelity and Surety !ompanyha)ing bound itself to pay only if its principal, Machetti, cannot pay. 't follows that it cannot becompelled to pay until it is shown that Machetti is unable to pay. Such ability may be pro)en bythe return of a writ of e*ecution unsatisfied or by other means, but is not sufficiently establishedby the mere fact that he has been declared insol)ent in insol)ency proceedings under our



statutes, in which the e*tent of the insol)ent8s inability to pay is not determined until the finalli(uidation of his estate.

epulic v. Pal/"o0 *u1er $o. (972!

"#$%S& epulic clai1 that the "al5Fo* 3umber !o., 'nc. was indebted to the Bureau of 'nternal<e)enue for forest charges and surcharges amounting to "##, %/#./2, and that the Far 9asternSurety 'nsurance !o., 'nc. was 1ointly and se)erally liable with the lumber company for thepayment of said forest charges up to "/, &&&.&& on account of a forestry bond which the suretycompany e*ecuted in fa)or of the plaintiff guaranteeing faithful compliance by the principal with allthe pro)isions of the Forest 3aw and 4ational 'nternal <e)enue !ode, and of all fines andpenalties imposed in accordance with the pro)isions of law,:

6he plaintiff commenced suit before the !F' of Manila seeking to reco)er, 1ointly and se)erally,from "al5Fo* 3umber !o., 'nc. and the Far 9astern Surety 'nsurance !o., 'nc. the sum of "/,&&&.&& plus interest from the filing of the complaint, and from the "al5Fo* 3umber !o., 'nc.alone the balance of "2,%+#./2 plus legal interest.

6he Far 9astern Surety 'nsurance !o., 'nc. filed its answer with a cross5claim against its co5defendant "al5Fo* 3umber !o., 'nc. which was subse(uently declared in default. 7ith lea)e of court, the surety company later filed a third5party complaint against certain persons based on aseparate indemnity agreement. 'n time, these third5party defendants were similarly declared indefault. Surety company appealed to the !ourt of 0ppeals.

On March $-, #2-, <epublic mo)ed for reconsideration, pointing out that the surety company8scorrect liability under the appealed decision was "/,&&&.&& plus legal interest from the filing of thecomplaint. 'n other words, the <epublic would want the surety company to pay the legal interestad1udged by the trial court before the case may finally beconsidered dismissed.

'SS)& 7O4 Far 9astern should also pay for the interest

H)*+& =es, it should.

#%'-& 0rticle $&//, paragraph $ of the !i)il !ode of the "hilippines pro)ide ,'f it >the guaranty?be simple or indefinite, it shall comprise not only the principal obligation but also all itsaccessories, including 1udicial costs, pro)ided with respect to the latter, that the guarantor shallonly be liable for those costs incurred after he has been 1udicially re(uired to pay.

'nternational "inance $orporation v. '1perial %e0tile Mills, 'nc. (2!

"#$%S& "etitioner 'nternational Finance !orporation >'F!? and respondent "hilippine "olyamide'ndustrial !orporation >""'!? entered into a loan agreement wherein 'F! e*tended to ""'! aloan payable in #2 semi5annual installments with interest at the rate of #&@ per annum on theprincipal amount of the loan ad)anced and outstanding from time to time. 0 guarantee agreementwas e*ecuted with 'mperial 6e*tile Mills, 'nc. >'6M?, Arand 6e*tile Manufacturing !orporation>Arandte*? and 'F! as parties.

'6M and Arandte* agreed to guarantee ""'!s obligations under the loan agreement. 6here wasa reschedule of payments as re(uested by ""'!. Cespite the rescheduling of the installmentpayments, howe)er, ""'! defaulted. Hence, 'F! ser)ed a written notice of default to ""'!



demanding the latter to pay the outstanding principal loan and all its accrued interests. Cespitesuch notice, ""'! failed to pay the loan andits interests. 'F!, together with CB", applied for thee*tra1udicial foreclosure of mortgages onthe real estate, buildings, machinery, e(uipment plantand all impro)ements owned by ""'!. 'F! and CB" were the only bidders during the auctionsale. ""'! failed to pay the remaining balance, thus, 'F! demanded '6M and Arandte*, asguarantors of ""'!, to pay the outstanding balance. Howe)er, despite the demand made by 'F!,the outstanding balance remained unpaid. !onse(uently, 'F! filed a complaint against ""'! and'6M for the payment of the outstanding balance plus interests and attorneys fees.

6he <6! held ""'! liable for the payment of the outstanding loan plus interests and attorneysfees. Howe)er, the trial court relie)ed '6M of its obligation as guarantor. On appeal of the case,the !0 re)ersed the decision of the trial court. 6he !0, howe)er, held that '6Ms liability as aguarantor would arise only if and when ""'! could not pay. Since ""'!s inability to comply withits obligation was not sufficiently established, '6M could not immediately be made to assume theliability. Hence, this petition.

'ssue& 7O4 '6M is a surety, and thus solidarily liable with ""'! for the payment of the loan.

Held& '6M is a surety, and thus solidarily liable with ""'! for the payment of the loan.

atio& 0s 0rticle $&+- pro)ides, a suretyship is created when a guarantor binds itself solidarilywith the principal obligor. 7hile referring to '6M as a guarantor, the agreement specifically statedthat the corporation was D1ointly and se)erallyE liable. 't further stated that '6M was a primaryobligor, not a mere surety. '6M thereby brought itself to the le)el of ""'! and could not bedeemed merely secondarily liable. 6hose words emphasie the nature of their liability, whichthelaw characteries as a suretyship. 6herefore, '6M bound itself to be solidarily liable with""'!for the latters obligations under the loan agreement with 'F!

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CredTran Case Assignment