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CONTRACTS OF SECURITY Pacific Banking Corp. v. IAC and Regala Facts: Petitioner Pacific Banking Corp. filed a case for collection of sum of money against Respondent Roberto Regala. Petitioner Pacific argued that Roberto Regala is a guarantor of his wife, Celia Regala. Celia Regala obtained from the Petitioner the issuance and use of Pacificard credit card. As a Pacificard holder, she had purchased goods and/or services on credit under her Pacificard, for which the Petitioner advanced the cost amounting to P92,803.98 at the time of the filing of the complaint but Celia Regala failed to settle her account for the purchases made. Respondent Roberto Regala, as the guarantor, also refused to pay to Petitioner. In his defense, Respondent Roberto Regala argued that his liability would be limited to P2,000.00 per month as stipulated in the "Guarantor's Understanding." Issue: Whether or not Respondent Roberto Regala, as the guarantor, is liable for the total amount of P92,803.98 despite the stipulation in the "Guarantor's Understanding" that his liability would be limited to P2,000.00 per month Ruling: Respondent Roberto Regala, as the guarantor, is liable for the total amount of P92,803.98. The undertaking signed by Roberto Regala, Jr. although denominated "Guarantor's Undertaking," was in substance a contract of surety. As distinguished from a contract of guaranty where the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in case the latter should fail to do so, in a contract of suretyship, the surety binds himself solidarily with the principal debtor (Art. 2047, Civil Code of the Philippines). It is true that under Article 2054 of the Civil Code, "(A) guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. It is likewise not disputed by the parties that the credit limit granted to Celia Regala was P2,000.00 per month and that Celia Regala succeeded in using the card beyond the original period of its effectivity, October 29, 1979.

We do not agree however, that Roberto Jr.'s liability should be limited to that extent. Private respondent Roberto Regala, Jr., as surety of his wife, expressly bound himself up to the extent of the debtor's (Celia) indebtedness likewise expressly waiving any "discharge in case of any change or novation of the terms and conditions in connection with the issuance of the Pacificard credit card." Roberto, in fact, made his commitment as a surety a continuing one, binding upon himself until all the liabilities of Celia Regala have been fully paid. All these were clear under the "Guarantor's Undertaking" Roberto signed, thus:

. . . Any changes of or novation in the terms and conditions in connection with the issuance or use of said Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from the responsibility hereunder, it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia SyjucoRegala have been fully satisfied or paid. (p. 12, supra; emphasis supplied)

Private respondent Roberto Regala, Jr. had been made aware by the terms of the undertaking of future changes in the terms and conditions governing the issuance of the credit card to his wife and that, notwithstanding, he voluntarily agreed to be bound as a surety. As in guaranty, a surety may secure additional and future debts of the principal debtor the amount of which is not yet known (see Article 2053, supra). E. Zobel Inc. v. CA, Consolidated Bank and Trust Corp. (SOLIDBANK), and Spouses Claveria Facts: SOLIDBANK filed a case against the E. Zobel Inc. for collection of a sum of money. SOLIDBANK argued that E. Zobel Inc. is the guarantor of the Spouses Claveria in the contract of loan between SOLIDBANK and the Spouses Claveria in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2,875,000.00). However, the Spouses Claveria failed to pay such amount. E. Zobel Inc., as the guarantor, also refuses to pay. In its defense, E. Zobel Inc. argued that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency. Issue:

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Whether or not E. Zobel Inc., as the guarantor, is obliged to pay to SOLIDBANK Ruling: E. Zobel Inc., as the guarantor, is obliged to pay to SOLIDBANK. A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.

Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. As aptly observed by the trial court, the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties. Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by petitioner, finds no application to the case at bar. In Bicol Savings and Loan Association vs.Guinhawa, we have ruled that Article 2080 of the New Civil Code does not apply where the liability is as a surety, not as a guarantor. Machetti v. Hospicio de San Jose Facts: Hospicio de San Jose filed a case against the Fidelity & Surety Co.for a collection of a sum of money. Hospicio argued that the Fidelity & Surety Co. is the guarantor of Machetti in a contract between Machetti and Hospicio wherein Machetti, by a written agreement, undertook to construct a building

on Calle Rosario in the city of Manila for Hospicio, the contract price being P64,000. Machetti failed to comply with the specifications of the contract. Hence, Machetti was asked for damages but he was not able to pay and was even declared insolvent. Fidelity & Surety Co., being a guarantor, still refuses to pay to Hospicio. Issue: Whether or not the Fidelity & Surety Co., being the guarantor, is obliged to pay to Hospicio because of the insolvency of Machetti Ruling: The Fidelity & Surety Co. is not obliged to pay. 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. The Fidelity and Surety Company having bound itself to pay only 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 ability 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. ONG V PCIB FACTS Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products. Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively. Respondent Philippine Commercial International Bank filed a case for collection of a sum of money 1 against petitioners-spouses. Respondent bank sought to hold petitioners-spouses liable as sureties on the three (3) promissory notes they issued to secure some of BMC's loans, totalling five million pesos (P5,000,000.00). In the complaint, it was alleged that BMC needed additional capital for its business and applied for various loans and petitioners-spouses acted as sureties for these loans and issued three (3) promissory notes. Under the

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terms of the notes, it was stipulated that respondent bank may consider debtor BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or upon BMC's insolvency, or if it is declared to be in a state of suspension of payments. Respondent bank granted BMC's loan applications. On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC) after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof from petitioners-spouses On October 13, 1992, a Memorandum of Agreement (MOA) 2 was executed by debtor BMC, the petitioners-spouses as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which respondent bank is included). Thereafter, petitioners-spouses moved to dismiss 4 the complaint. They argued that under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMC's sureties in their contracts of loan with respondent bank The trial court denied the motion to dismiss. Petitioners-spouses appealed to the Court of Appeals which affirmed the trial court's ruling. Hence this appeal CONTENTION of PET-SPOUSE: First, the MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of collection cases against the BMC and this provision should benefit petitioners as sureties. Second, principal debtor BMC has been placed under suspension of payment of debts by the SEC; petitioners contend that it would prejudice them if the principal debtor BMC would enjoy the suspension of payment of its debts while petitioners, who acted only as sureties for some of BMC's debts, would be compelled to make the payment; petitioners add that compelling them to pay is contrary to Article 2063 of the Civil Code which provides that a compromise between the creditor and principal debtor benefits the guarantor and should not prejudice the latter. Lastly, petitioners rely on Article 2081 of the Civil Code which provides that: "the guarantor may set up against the creditor all the defenses which pertain

to the principal debtor and are inherent in the debt; but not those which are purely personal to the debtor." ISSUE: WON collection case filed against them should be dismissed based on Art. 2081 and 2063 RULING: Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMC's debts. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning. 5 Under the suretyship contract entered into by petitioners-spouses with respondent bank, the former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to respondent bank amounting to five million pesos (P5,000,000.00). Under Article 1216 of the Civil Code, 6 respondent bank as creditor may proceed against petitioners-spouses as sureties despite the execution of the MOA which provided for the suspension of payment and filing of collection suits against BMC. Respondent bank's right to collect payment from the surety exists independently of its right to proceed directly against the principal debtor Clearly, the collection suit filed by respondent bank against petitioners-spouses as sureties can prosper CASTELLVI de HIGGINS vs SELLNER FACTS This is an action brought by plaintiffs to recover from defendant the sum of P10,000.

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The basis of plaintiff's action is a letter written by defendant George C. Sellnerto John T. Macleod, agent for Mrs. Horace L. Higgins The brief decision of the trial court held that the suit was premature, and absolved the defendant from the complaint ISSUE The determination of defendant's status in the transaction referred to. Plaintiffs contend that he is a surety; defendant contends that he is a guarantor. RULING A surety and a guarantor are alike in that each promises to answer for the debt or default of another. A surety and a guarantor are unlike in thatthe surety assumes liability as a regular party to the undertaking, while the liability as a regular party to upon an independent agreement to pay the obligation if the primary pay or fails to do so. A surety is charged as an original promissory; the engagement of the guarantor is a collateral undertaking. The obligation of the surety is primary; the obligation of the guarantor is secondary It is perfectly clear that the obligation assumed by defendant was simply that of a guarantor, or, to be more precise, of the fiador whose responsibility is fixed in the Civil Code. The letter of Mr. Sellner recites that if the promissory note is not paid at maturity, then, within fifteen days after notice of such default and upon surrender to him of the three thousand shares of Keystone Mining Company stock, he will assume responsibility. Sellner is not bound with the principals by the same instrument executed at the same time and on the same consideration, but his responsibility is a secondary one found in an independent collateral agreement, Neither is Sellner jointly and severally liable with the principal debtors. With particular reference, therefore, to appellants assignments of error, we hold that defendant Sellner is a guarantor within the meaning of the provisions of the Civil Code. ESCANO vs ORTIGAS FACTS Private Development Corporation of the Philippines (PDCP) 1 entered into a loan agreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of US$320,000.00, Three stockholders-officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholeyexecuted an

Assumption of Solidary Liability whereby they agreed "to assume in [their] individual capacity, solidary liability with [Falcon] for the due and punctual payment" of the loan contracted by Falcon with PDCP. 3 In the meantime, two separate guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One Guaranty 4 was executed by petitioner Salvador Escaño (Escaño), while the other 5 by petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez) Two years later, an agreement developed to cede control of Falcon to Escaño, Silos and Joseph M. Matti (Matti). Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to Escaño, Silos and Matti. An Undertaking dated 11 June 1982 wasexecuted by the concerned parties, 7 namely: with Escaño, Silos and Matti identified in the document as "SURETIES," on one hand, and Ortigas, Inductivo and the Scholeys as "OBLIGORS," on the other Falcon subsequently defaulted. After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency which Falcon did not satisfy In order to recover the indebtedness, PDCP filed a complaint for sum of money with the RTC of Makati against Falcon, Ortigas, Escaño, Silos, Silverio and Inductivo. Escaño, Ortigas and Silos each sought to seek a settlement with PDCP Ortigas entered into his own compromise agreement 13 with PDCP, allegedly without the knowledge of Escaño, Matti and Silos. Thereby, Ortigas agreed to pay PDCP P1,300,000.00 as "full satisfaction of the PDCP's claim against Ortigas," 14 in exchange for PDCP's release of Ortigas from any liability or claim arising from the Falcon loan agreement, and a renunciation of its claims against Ortigas. ACETSa In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escaño, Silos and Matti, on the basis of the 1982 Undertaking In 1995, Ortigas filed a motion for Summary Judgment in his favor against Escaño, Silos and Matti.

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RTC issued the Summary Judgment, ordering Escaño, Silos and Matti to pay Ortigas, jointly and severally, the amount of P1,300,000.00, as well as P20,000.00 in attorney's fees CA dismissed the appeals and affirmed the Summary Judgment. ISSUE Whether petitioners were correctly held liable to Ortigas on the basis of the 1982 Undertaking in this Summary Judgment CONTENTION: Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming that the Undertaking did not provide for express solidarity. They cite Article 1207 of the New Civil Code, which states in part that "[t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." Respondent Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for the Undertaking, as the language used in the agreement "clearly shows that it is a surety agreement. Ortigas points out that the Undertaking uses the word "SURETIES" althroughout the document, in describing the parties. It is further contended that the principal objective of the parties in executing the Undertaking cannot be attained unless petitioners are solidarily liable "because the total loan obligation can not be paid or settled to free or release the OBLIGORS if one or any of the SURETIES default from their obligation in the Undertaking." RULING It isincumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence. The Undertaking does not contain any express stipulation that the petitioners agreed "to bind themselves jointly and severally" in their obligations to the Ortigas group, or any such terms to that effect. Hence, such obligation established in the Undertaking is presumed only to be joint.Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of jointness of obligations. We rule and so hold that he failed to discharge such burden Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in the Undertaking as "SURETIES", a term repeated no less than thirteen (13) times in the document As provided in Article 2047, in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract.

It appears that Ortigas's argument rests solely on the solidary nature of the obligation of the surety under Article 2047. In tandem with the nomenclature "SURETIES" accorded to petitioners and Matti in the Undertaking, however, this argument can only be viable if the obligations established in the Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place.That clearly is not the case here, notwithstanding the use of the nomenclature "SURETIES" in the Undertaking. Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor Note that Article 2047 itself specifically calls for the application of the provisions on solidary obligations to suretyship contracts. 44 Article 1217 of the Civil Code thus comes into play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid (i.e., the surety). 45However, a significant distinction still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement for the sums they paid out to the creditor. In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor who effected the payment to the creditor "may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made." Such solidary debtor will not be able to recover from the co-debtors the full amount already paid to the creditor, because the right to recovery extends only to the proportional share of the other co-debtors, and not as to the particular proportional share of the solidary debtor who already paid. In contrast, even as the surety is solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor has the right to recover the full amount paid, and not just any proportional share, from the principal debtor or debtors. Such right to full reimbursement falls within the other rights, actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the surety. DECISION: The Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5 October 1995 is MODIFIED by declaring that petitioners and Joseph M. Matti are only jointly liable, not jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00.

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PICZON vs PICZON FACTS This an appeal from the decision of the Court of First Instance of Samar in its Civil Case No. 5156, entitled Consuelo P. Piczon, et. al. vs. Esteban Piczon, et al., sentencing defendants-appellees, Sosing Lobos and Co., Inc., as principal, and Esteban Piczon, as guarantor, to pay plaintiffs-appellants "the sum of P12,500.00 with 12% interest from August 6, 1964 until said principal amount of P12,500.00 shall have been duly paid, and the costs." ISSUE Is defendant Esteban Piczon liable as a guarantor or a surety? RULING Appellants' pose cannot be sustained (that the trial court erred in considering defendant estebanpiczon as guarantor only and not as surety). Under the terms of the contract, Annex A, Esteban Piczon expressly bound himself only as guarantor, and there are no circumstances in the record from which it can be deduced that his liability could be that of a surety. A guaranty must be express, (Article 2055, Civil Code) and it would be violative of the law to consider a party to be bound as a surety when the very word used in the agreement is "guarantor." Moreover, as well pointed out in appellees' brief, under the terms of the pre-trial order, appellants accepted the express assumption of liability by Sosing-Lobos & Co., Inc. for the payment of the obligation in question, thereby modifying their original posture that inasmuch as that corporation did not exist yet at the time of the agreement, Piczon necessarily must have bound himself as insurer. PALMARES vs CA FACTS Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, together with petitioner EstrellaPalmares 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 Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint

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petitioner Palmares as the lone party-defendant,to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter.

RTC of Iloilo City rendered judgment dismissing the complaint without prejudice to the filing of a separate action for a sum of money against the spouses Azarraga who are primarily liable on the instrument Respondent CA, however, reversed the decision of the trial court, and rendered judgment declaring herein petitioner Palmares liable to pay respondent corporation; declared that petitioner Palmares is a surety since she bound herself to be jointly and severally or solidarily liable with the principal debtors, the Azarraga spouses, when she signed as a co-maker CONTENTION: Petitioner contends that the provisions of the second and third paragraph (of the promissory notes) are conflicting in that while the second paragraph seems to define her liability as that of a surety which is joint and solidary with the principal maker, on the other hand, under the third paragraph her liability is actually that of a mere guarantor because she bound herself to fulfill the obligation only in case the principal debtor should fail to do so, which is the essence of a contract of guaranty. More simply stated, although the second paragraph says that she is liable as a surety, the third paragraph defines the nature of her liability as that of a guarantor RULING 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. Surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.

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A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay.

18 Stated differently, a surety promises

to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay.

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A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so.

20 In other words, a

surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by

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the use of due diligence, the debt cannot be made out of the principal debtor.

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It is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall also be principally considered.

24 Several attendant factors in that genre lend

support to our finding that petitioner is a surety. For one, when petitioner was informed about the failure of the

principal debtor to pay the loan, she immediately offered to settle the account with respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal.

For another, and this is most revealing, petitioner presented the receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga spouses.

25 This can only be construed to mean that the payments made

by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner The concomitant and simultaneous compliance of petitioner's obligation with that of her principals only goes to show that, from the very start, petitioner considered herself equally bound by the contract of the principal makers. In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal,

26and as such is deemed an original

promisor and debtor from the beginning.27

This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal.

28 In essence, the contract of a surety starts with the

agreement,29

which is precisely the situation obtaining in this case before the Court. Also, petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the principal debtors who allegedly were the only ones who benefited from the proceeds of the loan A creditor's right to proceed against the surety exists independently of his right to proceed against the principal.

39Under Article 1216 of the Civil Code,

the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone the obligation of the surety is the same that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal SEVERINO vs SEVERINO

FACTS The plaintiff FabiolaSeverino is the recognized natural daughter of MelecioSeverino. Upon the death of MelecioSeverino, he left considerable property. Litigation ensued between his widow, Felicitas Villanueva, and FabiolaSeverino, on the one part, and other heirs of the deceased on the other part. In order to make an end of this litigation a compromise was effected Guillermo Severino (DEF), a son of MelecioSeverino, took over the property at the same time agreeing to pay P100,000 to Felicitas Villanueva and FabiolaSeverino This sum of money was made payable, first, P40,000 in cash upon the execution of the document of compromise, and the balance in three several payments of P20,000. To this contract the appellant Enrique Echaus affixed his name as guarantor Upon failure to pay the balance, plaintiff filed and action against the defendant and Echauz.Enchauz contends that he received nothing from affixing his signature in the document and the contract lacked the consideration as to him ISSUE: WON there is a consideration for the guaranty

RULING The promise of the appellant Echaus as guarantor is therefore binding. It is never necessary that a guarantor or surety should receive any part of the benefit, if such there be, accruing to his principal. But the true consideration of this contract was the detriment suffered bythe plaintiffs in the former action in dismissing that proceeding, andit is immaterial that no benefit may have accrued either to the principal or his guarantor DE GUZMAN vs SANTOS FACTS Jerry O. Toole, Antonio K. Abad and Anastacio R. Santos, the defendant, formed a general mercantile partnership under the style Philippine-American Construction Company, with a capital of P14,000, P10,000 of which were taken by way of loan from PaulinoCandelaria. The partnership and the copartners undertook and bound themselves to pay, jointly and severally, the said indebtedness in or before June, 1925.Having violated the conditions of the contract executed for the purpose, PaulinoCandelaria brought civil case No. 3838against the Philippine-American Construction Company and its copartners, for the recovery of the loan, plus interest thereon

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The Court of First Instance rendered judgment therein sentencing all the defendants to pay the plaintiff, jointly and severally, the sum of P9,317 On appeal, this judgment was affirmed by this court. A writ of execution of the affirmed judgment was issued and the herein plaintiff, in her capacity as judicial administratrixof the deceased Santiago Lucero, paid to the creditor PaulinoCandelaria the sum of P5,665.55 on account of the judgment. Upon the filing of the complaint in civil case No. 3838, PaulinoCandelaria obtained a writ of attachment against the then defendants. No property of the partnership Philippine-American Construction Company was attached.With this, the Philippine-American Construction Company moved for the discharge of the attached properties and offered to post a bond for P10,000. The court granted the motion The Philippine-American Construction Company, as principal, then represented by the partner Antonio K. Abad, and Santiago Lucero and Meliton Carlos, as guarantors, executed a bond for P10,000 in favor of PaulinoCandelaria for the lifting of the attachment under section 440 of the Code of Civil Procedure. After the issuance of the writ for the execution of the judgment rendered in civil case No. 3838, the sheriff returned the same with the statement that the writ could not be executed as he found no property of the judgment debtors. In view of this, PaulinoCandelaria moved for the issuance of a writ of execution against the guarantors of the defendants.The court granted the motion and issued a writ of execution against the plaintiff ISSUE: WON appellant Santos is bound to pay to the plaintiff what the latter had advanced to PaulinoCandelaria upon the bond which the deceased Santiago Lucero had executed RULING It is beyond question that the appellant neither intervened nor signed the bondbut it is clear, and this is admitted, that the bond was filed to release the attached properties. It was approved by the court and it resulted in the discharge of the attachment and the return of the attached properties to their respective owners. When the sheriff attempted to execute the judgment, he found that they had disappeared, for which reason the court subsequently issued a writ of execution against the guarantors. As a result of this last execution, the plaintiff was forced to pay and in fact paid the said sum to the creditor Candelaria

Under article 1822 of the Civil Code, by guaranty one person binds himself to pay or perform for a third person in case the latter should fail to do so; and article 1838 provides that any guarantor who pays for the debtor shall be indemnified by the latter even should the guaranty have been undertaken without the knowledge of the debtor. In the present case, the guarantor was the deceased Santiago Lucero, and the debtor is the defendant-appellant. Applying the provision of the last cited article, it is obvious that the appellant is legally bound to pay what the plaintiff had advanced to the creditor upon the judgment, notwithstanding the fact that the bond had been given without his knowledge. The obligation of the appellant to pay the plaintiff what he latter had advanced is further sanctioned by the general provisions of the Civil Code regarding obligation. Article 1158 provides that "payment may be made by any person, whether he has an interest in the performance of the obligation or not, and whether the payment is known and approved by the debtor or whether he is unaware of it. Any person who makes a payment for the account of another may recover from the debtor the amount of the payment, unless it was made against the express will of the latter. In the latter case he can only recover from the debtor in so far as the payment has been beneficial to the latter." According to this legal provision, it is evident that the plaintiff-appellant is bound to pay to the plaintiff what the latter had advanced to the creditor upon the judgment, and this is the more so because it appears that although Lucero executed the bond without his knowledge, nevertheless he did not object thereto or repudiate the same at any time

PHILIPPINE NATIONAL BANK, petitioner, vs.

LUZON SURETY CO., INC. and THE HONORABLE COURT OF APPEALS, respondent.

FACTS:

Defendant Augusto R. Villarosa, a sugar planter adhered to the Lopez Sugar Central Milling company, Inc. applied for a crop loan with the plaintiff, Philippine National Bank, which application was approved on March 6, 1952 in the amount of P32,400. Villarosa executed a Chattel Mortgage on standing crop to guaranty the crop loan.

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As of September 27, 1953 as shown in the accounts, there was a balance of P63,222.78 but as of the date when the complaint was filed on June 8, 1960, because of the interest accrued, it has reached a much higher sum. Due to its non-payment, plaintiff filed this complaint which sought reliefnot only against the planter but also against the 3 bondsmen, Luzon Surety, Central surety and Associated surety

ISSUE: Whether or not the CA was justified in absolving Luzon Surety Co., Inc. from liability to petitioner PNB.

RULING: The surety bond executed by and between the PNB on one hand and Augusto Villarosa and respondent Luzon Surety Company, Inc., on theother is hereby reproduced, viz:

―That we Augusto Villarosa, as principal and Luzon Surety Company, Inc., as surety, are held and firmly bound unto Philippine National Bank, Bacolod City , Philippines, in the sum of P10,000,for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns jointly and severally, firmly by these presents:‖

The foregoing evidences clearly the liability of Luzon Surety to petitioner PNB not merely as a guarantor but as a surety-liable as a regular party to the undertaking. Court further held that ―The principal obligation, therefore, has never been put in issue by then defendant. On the other hand it raised as its defense the alleged material alteration of the terms and conditions of the contract as the basis of its prayer for release. As a surety, said bonding company is charged as an original promissory and is an insurer of the debt. Accordingly, the alterations in the form of increases were made with the full consent by defendant as it was explicitly stated in the chattel mortgage that: the Mortgagee may increase or decrease the amount of the loan as well as the installment as it may deem convenient.

The next question to take up is the liability of Luzon Surety Co. for interest

which, it contends, would increase its liability to more than P10,000 which is

the maximum if its bond. The SC previously held however that:

―If a surety upon demand fails to pay, he can be held liable for interest, even

if in thus paying, the liability becomes more than that in the principal

obligation. The increased liability is not because of the contract but because

of the default and the necessity of judicial collection. It should be noted,

however, that the interest runs from the time the complaint is filed, not from

the time the debt becomes due and demandable.‖

ONG vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK

Facts:

Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products. Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively. On April 20, 1992, respondent Philippine Commercial International Bank (now Equitable-Philippine Commercial International Bank or E-PCIB) filed a case for collection of a sum of money against petitioners-spouses. The complaint alleged that in 1991, BMC needed additional capital for its business and applied for various loans, amounting to a total of five million pesos, with the respondent bank. Petitioners-spouses acted as sureties for these loans and issued three (3) promissory notes for the purpose. Under the terms of the notes, it was stipulated that respondent bank may consider debtor BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or upon BMC‘s insolvency, or if it is declared to be in a state of suspension of payments. Respondent bank granted BMC‘s loan applications. On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC) after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof from petitioners-spouses as sureties. On October 13, 1992, a Memorandum of Agreement (MOA) was executed by debtor BMC, the petitioners-spouses as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which respondent bank is included). The MOA took effect upon its approval by the SEC on November 27, 1992. Thereafter, petitioners-spouses moved to dismiss the complaint. They argued that as the SEC declared the principal debtor BMC in a state of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMC‘s sureties in their contracts of loan with respondent bank. Petitioners-spouses averred that respondent bank is barred from pursuing its collection case filed against them. Spouses Ong‘s Contention:

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Petitioners contend that it would prejudice them if the principal debtor BMC would enjoy the suspension of payment of its debts while petitioners, who acted only as sureties for some of BMC‘s debts, would be compelled to make the payment. They add that compelling them to pay is contrary to Article 2063 of the Civil Code which provides that a compromise between the creditor and principal debtor benefits the guarantor and should not prejudice the latter. Lastly, petitioners rely on Article 2081 of the Civil Code which provides that: "the guarantor may set up against the creditor all the defenses which pertain to the principal debtor and are inherent in the debt; but not those which are purely personal to the debtor." Petitioners aver that if the principal debtor BMC can set up the defense of suspension of payment of debts and filing of collection suits against respondent bank, petitioners as sureties should likewise be allowed to avail of these defenses. SC Ruling: We find no merit in petitioners‘ contentions. Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMC‘s debts. There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning. Under the suretyship contract entered into by petitioners-spouses with respondent bank, the former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to respondent bank amounting to five million pesos (P5,000,000.00). Under Article 1216 of the Civil Code, respondent bank as creditor may proceed against petitioners-

spouses as sureties despite the execution of the MOA which provided for the suspension of payment and filing of collection suits against BMC. Respondent bank‘s right to collect payment from the surety exists independently of its right to proceed directly against the principal debtor. In fact, the creditor bank may go against the surety alone without prior demand for payment on the principal debtor.

INTERNATIONAL FINANCE CORPORATION VS. IMPERIAL TEXTILE MILLS, INC.

Facts:

On December 17, 1974, International Finance Corporation (IFC) and Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan of US$7,000,000.00, payable in 16 semi-annual installments of US$437,500.00 with interest at the rate of 10%. On December 17, 1974, a ‗Guarantee Agreement‘ was executed where Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) agreed to guarantee PPIC‘s obligations. PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. The payments due on December 1, 1978, June 1, 1979 and December 1, 1979 were rescheduled as requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted. With PPIC‘s failure to pay, IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real properties owned by PPIC at Calamba, Laguna. On July 30, 1985, the deputy sheriff of Calamba, Laguna issued a notice of extrajudicial sale. IFC and DBP were the only bidders during the auction sale. IFC‘s bid was for P99,269,100.00 which was equivalent to US$5,250,000.00. The outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC failed to pay the remaining balance. Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. However, despite the demand made by IFC, the outstanding balance remained unpaid. IFC filed a complaint with the RTC Manila which held PPIC liable for the payment of the outstanding loan plus interests. It also ordered PPIC to pay IFC its claimed attorney‘s fees. However, the Court relieved ITM of its obligation as guarantor. Hence, the trial court dismissed IFC‘s complaint against ITM. CA reversed the decision stating ITM as guarantor.

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Issue: Whether or not ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan.

SC Ruling:

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. 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 Article 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. Indubitably therefore, ITM bound itself to be solidarily liable with PPIC. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable. Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against respondent.

We note that the CA denied solidary liability, on the theory that the parties

would not have executed a Guarantee Agreement if they had intended to

name ITM as a primary obligor and that ITM‘s undertaking was collateral to

and distinct from the Loan Agreement.

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. Evidently, the dispositive portion of the assailed Decision should be modified to require ITM to pay the amount adjudged in favor of IFC. WHEREFORE, Petition is GRANTED, and MODIFIED that ITM, is declared a surety and ORDERED to pay International Finance Corporation the same amounts adjudged against PPIC.

TEXAS CO. VS. ALONZO

Facts:

Leonor Bantug was sued for her agency contract with Texas Co. wherein Texas Co. filed a collection case against her and Alonso. It appears that to ensure faithful compliance of Bantug‘s obligations as agent to Texas.Co , Alonso bound herself solidarily to answer for Bantug‘s liability up to P2000 bond evidenced in a document. Bantug failed in the performance of her obligations and declared in default. Alonso averred that he merely acted as co-security of one Palanca and that no acceptance was made by Texas, Co of the bond thus not binding on him. It was shown that the execution of the bond was requested by Texas, Co. by virtue of the Additional Security clause in the agency contract: Additional Security. — The Agent shall whenever requested by the Company in addition to the guaranty herewith provided, furnish further guaranty or bond, conditioned upon the Agent's faithful performance of this contract, in such individuals of firms as joint and several sureties as shall be satisfactory to the Company. Trial court ordered Bantug and Alonso liable in solidum. CA reversed trial court‘s findings holding Alonso absolved of the guaranty undertaking.

Issue: Whether or not there is acceptance by creditor Texas Co to bind guarantor of the undertaking.

SC Ruling:

No acceptance. Though requested by creditor of the execution of the bond, from the foregoing Additional security clause it is apparent that before a bond is accepted by the petitioner, it has to be in such form and amount and with such sureties as shall be satisfactory hereto. Hence, must be approved by creditor Texas. A request for bond is not inference of approval thereto. Where there is merely an offer of, or proposition for, a guaranty, or merely a conditional guaranty in the sense that it requires action by the creditor before the obligation becomes fixed, it does not become a binding obligation until it is accepted and, unless there is a waiver of notice of such acceptance is given to, or acquired by, the guarantor, or until he has notice or knowledge

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that the creditor has performed the conditions and intends to act upon the guaranty. The acceptance need not necessarily be express or in writing, but may be indicated by acts amounting to acceptance. Where, upon the other hand, the transaction is not merely an offer of guaranty but amounts to direct or unconditional promise of guaranty, unless notice of acceptance is made a condition of the guaranty, all that is necessary to make the promise binding is that the promise should act upon it, and notice of acceptance is not necessary, the reason being that the contract of guaranty is unilateral. Appealed decision affirmed.

PHIL. PRYCE ASSURANCE CORP. VS. CA

Facts:

Phil. Pryce Assurance Corp. was sued by Gegroco, Inc. for the two surety bonds Pryce executed in behalf of its principal Sagum General Merchandise. Pryce averred in its defense that the checks ( ofSagum General Mechandise) which were to pay for the premiums bounced and were dishonored hence there is no contract to speak of. Trial Court rendered judgement in favor of Gegroco and against Pryce. Issue: Whether or not the bond accepted by creditor Gegroco is valid and enforceable against the surety, although the premium has not been paid by debtor Sagum to surety Pryce SC Ruling: Irrespective of payment or non-payment of the premium for the bond executed by surety accepted by creditor, such bond is enforceable against such surety. The Insurance Code states that: Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety.

Selegna Management and Development Corporation vs. UCPB Facts: Petitioners Selegna Management and Development Corporation and Spouses Edgardo and Zenaida Angeles were granted a credit facility in the

amount of P70 million by United Coconut Planters Bank. As security for this credit facility, petitioners executed real estate mortgages over several parcels of land and over several condominium units. Petitioners were likewise required to execute a promissory note in favor of respondent every time they availed of the credit facility. As required in these notes, they paid the interest in monthly amortizations. The parties stipulated in their Credit Agreement dated that failure to pay "any availment of the accommodation or interest, or any sum due" shall constitute an event of default, which shall consequently allow respondent bank to "declare [as immediately due and payable] all outstanding availments of the accommodation together with accrued interest and any other sum payable." In need of further business capital, petitioners obtained from UCPB an increase in their credit facility. For this purpose, they executed a Promissory Note for P103,909,710.82, which was to mature on March 26, 1999. In the same note, they agreed to an interest rate of 21.75 percent per annum, payable by monthly amortizations. Respondent later sent petitioners a formal demand letter, and decided to invoke the acceleration provision in their Credit Agreement. Respondent sent another letter of demand and a final demand on petitioners "to settle in full past due obligation to [UCPB] within five days from receipt of letter." In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the accrued interests. Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of petitioners‘ mortgaged properties. When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they requested UCPB to give them a period of sixty (60) days to update their accrued interest charges; and to restructure or, in the alternative, to negotiate for a takeout of their account. On May 25, 1999, the Bank denied petitioners‘ request. In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a Complaint for "Damages, Annulment of Interest, Penalty Increase and Accounting with Prayer for Temporary Restraining Order/Preliminary Injunction." Issue: Whether or not petitioners were in default, and whether petitioner‘s debt were considered liquidated SC Ruling: It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment of their obligation. In fact, the parties stipulated in their credit agreements, mortgage contracts and promissory notes that respondent was authorized to foreclose on the mortgages, in case of a default by petitioners. Mora solvendi, or debtor‘s default, is defined as a delay in the fulfillment of an obligation, by reason of a cause imputable to the debtor. There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the debtor delays

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performance; third, the creditor judicially or extrajudicially requires the debtor‘s performance. The Promissory Note expressly states that petitioners had an obligation to pay monthly interest on the principal obligation. From respondent‘s demand letter, it is clear and undisputed by petitioners that they failed to meet those monthly payments since May 30, 1998. Their nonpayment is defined as an "event of default" in the parties‘ Credit Agreement. Considering that the contract is the law between the parties, respondent is justified in invoking the acceleration clause declaring the entire obligation immediately due and payable. That clause obliged petitioners to pay the entire loan on January 29, 1999, the date fixed by respondent. UCPB had every right to apply for extrajudicial foreclosure on the basis of petitioners‘ undisputed and continuing default. Petitioners’ Debt Considered Liquidated Despite the Alleged Lack of Accounting Petitioners do not even attempt to deny the aforementioned matters. They assert, though, that they have a right to a detailed accounting before they can be declared in default. As regards the three requisites of default, they say that the first requisite -- liquidated debt -- is absent. Continuing with foreclosure on the basis of an unliquidated obligation allegedly violates their right to due process. They also maintain that their partial payment of P10 million averted the maturity of their obligation. A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of the relevant promissory notes and related documentation. Failure to furnish a debtor a detailed statement of account does not ipso facto result in an unliquidated obligation. Petitioners executed a Promissory Note, in which they stated that their principal obligation was in the amount of P103,909,710.82, subject to an interest rate of 21.75 percent per annum. Pursuant to the parties‘ Credit Agreement, petitioners likewise know that any delay in the payment of the principal obligation will subject them to a penalty charge of one percent per month, computed from the due date until the obligation is paid in full. It is in fact clear from the agreement of the parties that when the payment is accelerated due to an event of default, the penalty charge shall be based on the total principal amount outstanding, to be computed from the date of acceleration until the obligation is paid in full. Their Credit Agreement even provides for the application of payments. It appears from the agreements that the amount of total obligation is known or, at the very least, determinable. Moreover, when they made their partial payment, petitioners did not question the principal, interest or penalties demanded from them. They only sought additional time to update their interest payments or to negotiate a possible restructuring of their account. Hence, there is no basis for their allegation that a statement of account was necessary for them to know their obligation.

To be sure, their partial payment did not extinguish the obligation. The Civil Code states that a debt is not paid "unless the thing x xx in which the obligation consists has been completely delivered x xx." Besides, a late partial payment could not have possibly forestalled a long-expired maturity date. The only possible legal relevance of the partial payment was to evidence the mortgagee‘s amenability to granting the mortgagor a grace period. Because the partial payment would constitute a waiver of the mortgagee‘s vested right to foreclose, the grant of a grace period cannot be casually assumed; the bank‘s agreement must be clearly shown. Without a doubt, no express agreement was entered into by the parties. When creditors receive partial payment, they are not ipso facto deemed to have abandoned their prior demand for full payment. Article 1235 of the Civil Code provides: "When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with." Thus, to imply that creditors accept partial payment as complete performance of their obligation, their acceptance must be made under circumstances that indicate their intention to consider the performance complete and to renounce their claim arising from the defect. There are no circumstances that would indicate a renunciation of the right of respondent to foreclose the mortgaged properties extrajudicially, on the basis of petitioners‘ continuing default. On the contrary, it asserted its right by filing an application for extrajudicial foreclosure after receiving the partial payment. Clearly, it did not intend to give petitioners more time to meet their obligation. RCBC VS. ARRO Facts: In October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreement to guaranty among others, any existing indebtedness of Davao Agricultural Industries Corporation (DAICOR), and/or to induce the bank at anytime or from time to time thereafter, to make loans or advances, or to extend credit in any other matter to, or at the request, or for the account of DAICOR, provided that the liability shall not exceed at any one time the aggregate principal sum of P100,000.00. On May 29, 1977 a promissory note in the amount of P100,000.00 was issued in favor of petitioner bank payable on June 13, 1977. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of DIACOR. The promissory note was not fully paid despite repeated demands. Hence, petitioner bank filed a complaint for a sum of money against DIACOR, Enrique Go, Sr. and Residoro Chua. A motion to dismiss was filed by Chua on the ground that the complaint states no cause of action against him as he cannot be held liable under the promissory note because he did not sign the same.

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The respondent court rendered decision granting Chua‘s motion to dismiss. Petitioner bank filed a motion for reconsideration which respondent court denied. Issue: Whether or not private respondent Chua is liable to pay the obligation evidenced by the promissory note which he did not sign. SC Ruling: The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., president and general manager, respectively of DIACOR to cover existing as well as future obligations which DIACOR may incur with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00. The agreement was obviously executed to induce petitioner to grant any application for a loan DIACOR may desire to obtain from petitioner bank. The guaranty is a continuing one which shall remain in full force and effect until the bank is notified of its termination. At the time the loan of P100,000.00 was obtained from petitioner bank by DIACOR, the comprehensive surety agreement was admittedly in full force and effect. The loan was therefore covered by the said agreement, and private respondent Chua, even if he did not sign the promissory note is liable by virtue of the surety agreement. By the terms of the agreement, it can be clearly seen that the surety agreement was executed to guarantee future debts which DIACOR may incur with the petitioner bank, as is legally allowed under the Civil Code. Wherefore, the decision dismissing the complaint is reversed and set aside. The case is remanded to the court of origin. DiñO vs. CA Facts: In 1977, UyTiam Enterprises and Freight Services, thru its representative UyTiam, applied for and obtained credit accommodations from METROBANK in the sum of P700,000.00 To secure the aforementioned credit accommodations, Norberto Uy and Jacinto UyDiño executed separate Continuing Suretyships in favor of the latter. Having paid the obligation under the above letter of credit in 1977, UTEFS, through UyTiam, obtained another credit accommodation from METROBANK in 1979. It was applied for and obtained by UTEFS without the participation of Norberto Uy and Jacinto UyDiño as they did not sign the document denominated as 'Commercial Letter of Credit and Application.' Also, they were not asked to execute any suretyship to guarantee its payment. Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been opened and that the Continuing Suretyships separately executed in February, 1977 shall guarantee its payment. The 1979 letter of credit was negotiated. UTEFS executed and delivered to METROBANK a Trust Receipt. However, UTEFS did not

acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto UyDiño, demanding payment of the amount due. Informed of the amount due, UTEFS made partial payments to the Bank which were accepted by the latter. Diño, thru counsel, denied his liability for the amount demanded and requested METROBANK to send him copies of documents showing the source of his liability. The bank informed him that the source of his liability is the Continuing Suretyship which he in 1977. As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. METROBANK filed a complaint for collection of a sum of money and impleaded Diño and Uy as parties-defendants. Norberto Uy and Jacinto UyDiño filed a motion to dismiss the complaint on the ground of lack of cause of action. They maintained that the obligation which they guaranteed in 1977 has been extinguished since it has already been paid in the same year. Accordingly, the Continuing Suretyships executed in 1977 cannot be availed of to secure UyTiam's Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid obligation. It was further argued that they can not be held liable for the obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation. METROBANK filed its opposition to the motion to dismiss. It relied on Article 2053 of the Civil Code which provides: 'A guaranty may also be given as security for future debts, the amount of which is not yet known; . . . .' It was further asserted that the agreement was in full force and effect at the time the letter of credit was obtained in 1979 as sureties-defendants did not exercise their right to revoke it by giving notice to the bank. Issue: Whether or not defendants Jacinto UyDiño and Norberto Uy are liable for the obligation contracted by UyTiam under the Letter of Credit issued in 1979 by virtue of the Continuing Suretyships they executed in 1977? SC Ruling: When Uy and Diño executed the continuing suretyships in 1977, UyTiam was obligated to the Metrobank in the amount of P700,000.00 — and this was the obligation which both defendants guaranteed to pay. UyTiam paid this 1977 obligation — and such payment extinguished the obligation they assumed as guarantors/sureties. The 1979 Letter of Credit is different from the 1977 Letter of Credit which covered the 1977 account of UyTiam. Thus, the obligation under either is apart and distinct from the obligation created in the other, as evidenced by the fact that UyTiam had to apply anew for the 1979 transaction. And Diño and Uy, being strangers thereto, cannot be answerable thereunder.

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Metrobank did not serve notice to Diño and Uy when it extended to UyTiam the 1979 Letter of Credit at least to inform them that the continuing suretyships they executed in 1977 will be considered by the plaintiff to secure the 1979 transaction of UyTiam. There is no sufficient and credible showing that Diño and Uy were fully informed of the import of the Continuing Suretyships when they affixed their signatures thereon; that they are thereby securing all future obligations which UyTiam may contract with the plaintiff. On the contrary, Diño and Uy categorically testified that they signed the blank forms in the office of UyTiam at 623 Asuncion Street, Binondo, Manila, in obedience to the instruction of UyTiam, their former employer. They denied having gone to the office of the plaintiff to subscribe to the documents. Bank of Commerce vs Flores FACTS: Respondents are the registered owners of a condominium unit in Quezon City. Respondents borrowed money from petitioner bank in the amount of (P900,000.00). Respondents executed a Real Estate Mortgage over the condominium unit as collateral, and the same was annotated at the back of the CCT. Respondents again borrowed (P1,100,000.00) from petitioner bank, which was also secured by a mortgage over the same property. Respondents paid (P1,011,555.54), as evidenced by an Official Receipt issued by petitioner bank. On the face of the receipt, it was written that the payment was "in full payment of the loan and interest." Respondents then asked petitioner bank to cancel the mortgage annotations since the loans secured by the real estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded payment of (P4,633,916.67), representing the outstanding obligation of respondents. Petitioner bank applied for extra-judicial foreclosure of the mortgages over the condominium unit. Respondents assailed the validity of the foreclosure and auction sale of the property. They averred that the loans secured by the property had already been paid in full. Petitioner bank admitted that there were only two (2) mortgage loans annotated at the back of the CCT, but denied thatrespondents had already fully settled their outstanding obligations with the bank.It averred that several credit lines were granted by petitioner bank that were secured by promissory notes executed by him, and which were either increased or extended from time to time. ISSUE: Whether or not the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject property.

SC Ruling: The petition is meritorious. A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage contract. A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. In the instant case, the language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the back of the CCT, and as security for all amounts that respondents may owe petitioner bank.It is well settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered. WILLEX PLASTIC INDUSTRIES CORP. VS. CA Facts: Sometime in 1978, Inter-Resin Industrial Corporation (IRIC)opened a letter of credit with the Manila Banking Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two "Continuing Surety Agreement" whereby they bound themselves solidarily to pay Manilabank "obligations of every kind. In 1979, IRIC and Willex executed a "Continuing Guaranty" in favor of IUCP. Subsequently, IUCP paid to Manilabank the sum owed by Inter-Resin Industrial. Atrium Capital Corp., which succeeded IUCP and, later on succeeded by respondent, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it had paid to Manilabank. Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to secure the payment which the IUCP had paid to Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. In denying liability to Interbank for the amount, Willex argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial. The case then proceeded to trial. The trial court declared Inter-Resin Industrial to have waived the right to present evidence for its failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested its case without presenting any evidence. The trial court rendered judgment, ordering Inter-Resin Industrial and Willex Plastic jointly and severally to Interbank.

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On appeal, the Court of Appeals rendered a decision affirming the ruling of the trial court. Willex filed a motion for reconsideration praying that it be allowed to present evidence to show that Inter-Resin Industrial had already paid its obligation to Interbank, but its motion was denied. Issue: Whether or not under the "Continuing Guaranty" signed by Willex, it may be held jointly and severally liable with Inter-Resin Industrial for the amount by Interbank to Manilabank. SC Ruling: The contention is untenable. What Willex has overlooked is the fact that evidence aliunde was introduced in the trial court to explain that it was actually to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing Guaranty" was executed. Interbank adduced evidence to show that the "Continuing Guaranty" had been made to guarantee payment of amounts made by it to Manilabank and not of any sums given by it as loan to Inter-Resin Industrial. Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff of the credit accommodation granted to defendant IRIC by Manilabank, that the plaintiff required defendant IRIC to execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by the defendant Willex. Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken by Interbank it required Willex to sign a Continuing Guaranty." Nor does the record show any other transaction under which Inter-Resin Industrial may have obtained sums of money from Interbank. It can reasonably be assumed that Inter-Resin Industrial and Willex intended to indemnify Interbank for amounts which it may have paid Manilabank on behalf of Inter-Resin Industrial. Willex Plastic argues that the "Continuing Guaranty," being an accessory contract, cannot legally exist because of the absence of a valid principal obligation. Its contention is based on the fact that it is not a party either to the "Continuing Surety Agreement" or to the loan agreement between Manilabank and Interbank Industrial. Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a "guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal." Willex Plastic contends that the "Continuing Guaranty" cannot be retroactively applied so as to secure the payments made by Interbank under the two "Continuing Surety Agreements." Willex Plastic conteds that a contract of suretyship or guaranty should be applied prospectively.

Macondray& Co., Inc. vs. Pinon 2 SCRA 1109 August 31, 1961 Facts: On 11 May 1955 the plaintiff Macondray& Co. filed a complaint aginst defendant Pinon, et. Al. in the CFI of Manila alleging that upon representation and undertaking made by Ruperto K. Kangleon, then a member of the Senate, in a letter addressed to the plaintiff dated 30 January 1954, that he would guarantee payment of his vo-defendants obligations, should they fail to pay on the due date, on February 2 and 9, 1954, the plaintiff sold on credit and delivered to the defendants Perfecto Pinon and ConradoPiring, known in the theater and entertainment business as Tugak and Pugak, respectively and transacting business under a common name known as ―All Stars Productions‖ 127 rolls of cinematographic films, for the total sum of P6,985 payable on or before May 9, 1954, 12% interest thereon from the date of maturity and 20% thereof for attorney‘s fees in case of suit for collection. SC Ruling: Appellant Kangleon‘s very letter constitutes his undertaking of guaranty. ―Contracts shall be obligatory in whatever form they may have been entered into, provided all the essential elements for their validity is present‖. A contract of guaranty is not a formal contract and shall be valid in whatever form it may be, provided that it complies with the Statute of Frauds. Kangleon states that assuming that the letter constitutes a contract of guaranty, the films actually sold to the principal debtors were 127 rolls of F.G, release positive type825B, 35mm. x 1,000 ft at P 55 a roll, payable May 9, 1954, while what he undertook to guarantee payment was 10 rolls negative at 157 each and 100 rolls positive at 55 each, payable within three months ending April 1954. Citing Art. 2055 of the Civil Code that a guarantee cannot extend to more than what is stipulated therein, the appellant contends that he cannot be held liable for the contract in view of the variation in his undertaking. The total cost of what was actually sold to and bought by the principal debtors is P6,985, which is less that the total cost of what was originally intended to be bought by them amounting to P7,070. The variation was merely in kind and not in subject matter-cinematographic films – which did not render the appellants obligation more burdensome. Instead his obligation was rendered less onerous by the reduction in the original price of P7,070 to P6, 985. Wise & Co., Inc. vs. Tanglao 63 PHIL. 372 August 29, 1936 Facts: Plaintiff WCI obtained a preliminary attachment of Cornelio David‘s property. To avoid execution of said attachment, Cornelio David obtained a special power of attorney from his lawyer DionisioTanglao, authorizing him to sign for his lawyer as guarantor for himself in his indebtedness to plaintiff and

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to mortgage his lawyer‘s lot to guarantee said obligation to plaintiff. Cornelio David confessed judgement for P640 payable monthly and secured by a pledge to plaintiff of a house, apartment and a parcel of land recorded in the name of DionisioTanglao. David made only partial payment of said judgment debt. Plaintiff brought an action to recover the balance. SC Ruling: Under the power of attorney, tanglao empowered David to enter into a contract of suretyship and a contract of mortgage of the property described in the document. David, however, used said power of attorney only to mortgage the property and did not enter into a contract of suretyship. Nothing is stated in the compromise agreement to the effect that Tanglao became David‘s surety for the payment of the judgment debt. Neither is this inferable from any of the clauses thereof, even if this inference might be made, it would be insufficient to create an obligation of suretyship which under the law must be expressed and cannot be presumed. Solon v. Solon

Facts: Eugenion Solon during his lifetime bought a parcel of land on instalment from the Bureau of Lands describe as Lot 903 of the Banilad Friar Lands Estate having an area of 6 hectares, 46 ares, and 13 centaresassessd by the Bureau at P403 payable in 13 years (P31 1s payment and P21 for the next 12 years). Eugenio later with P126 as balance sold the land to Apolonia Solon (his daughter) for P1k who agreed to pay the installments still owing to the Bureau of Lands. Apolonia paid the entire balance later on. A year after their transaction, Eugenio died without livil a will. A TCT was issued in favour of Apolonia The latter took charge of the property, occupying it as her own through tenants from the time she bought the same, according to the evidence for the defendants, and from the death of Eugenio Solon, according to that for the plaintiffs.

Plaintiffs surnamed Solon, all of whom are children of the deceased Eugenio

Solon in his marriage with his widow Manuela Ibañez (2nd

marriage) filed this

suit maintaining that the transfer to Apolonia was false and simulated and

that if the same had been executed by Eugenio Solon, it was without just

consideration, they prayed among others (1) that said document be declared

null and void because false and simulated, (2) that they be adjudged the

absolute owners pro indiviso of the land in question together with the other

heirs of Eugenio Solon, Trial court ruled in favour of Apolonia.

ISSUE: WON the transaction between Eugenio and Apolonia was valid.

HELD Yes.the transfer of the land in question made by Eugenio Solon to

Apolonia Solon, according to Exhibit B, had taken place long before the

commencement of the suit of Macleod & Co. against Montalban , and

Eugenio Solon, as surety of said Montalban. It cannot therefore be believed

that Andres Montalban had been making statements to the effect that

Apolonia Solon had paid nothing for the transfer made in her favor by

Eugenio Solon, for the reason that the same was not real but only stimulated

and that it was made solely for the sole purpose of placing the land in

question beyond the reach of any action that might be brought by Macleod

&Company against said Eugenio Solon as surety to the obligation of

Montalban; and that Apolonia Solon had been telling her tenant named

Eugenio Labra that there had been an understanding among her brothers of

the whole blood that they would cede the said land to her as part of her

inheritance from their father, because, in the first place, there was no reason

to fear that Macleod & Company would bring an action against Eugenio

Solon for the collection of an amount greater than P5,000 which as surety, he

had bound himself to pay; and, in the second place, Apolonia Solon could

have made the above statement attributed to her for the simple reason that

she was then already the owners of the land aforesaid by virtue of the

purchase

When Eugenio Solon bound himself as surety for Andres Montalban for the

payment to Macleod & Company of the amount of P5,000 which Montalban

owed to the latter, he limited himself to giving as security, by way of

mortgage, the land descried as Lot 892 of of the Banilad Friar Lands

Estate. . It is not possible that Macleod & Company could have ever

contemplated bringing an action against Eugenio Solon to obtain possession

not only of the land expressly mortgaged to it, which, as has been said, is lot

No. 892 but also of any other belonging to him or of lot No. 903 itself, for the

purpose of collecting its credit against Andres Montalban, because that the

contract of suretyship in its favor does not admit of the interpretation that it

could make Eugenio Solon liable for an amount greater than P5,000 and that

it could require him to pay Montalban's indebtedness, should the latter fail to

do so, with lands other than that he had mortgaged. This is so because the

clauses of a contract of suretyship determine the extent of the liability of the

surety ; because said liability should not be extended farther than the clear

terms of the contract of guarantee by mere implications; and because the

surety should be liable only in the manner and to the extent, and under the

circumstances pointed out in the contract of suretyship or which may be

clearly deduced therefrom.

General Insurance Corp v. Republic

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Facts: the Central Luzon Educational Foundation, Inc. operating the Sison

and Aruego Colleges in Urdaneta, Pangasinan and the General Insurance

and Surety Corporation posted in favor of the Department of Education a

bond, the terms of which provide among others that:

1. The foundation will comply with all obligations, including the payment

of the salaries of all its teachers and employees, past, present, and

future.

2. The CLEF and the GISCas surety, are held bound, jointly and firmly,

unto DepEd in the sum of TEN THOUSAND PESOS (P10,000.00),

for the payment thereof we bind themselves, their heirs, executors,

administrators, successors, and assigns, jointly and severally.

3. WHEN the Secretary of Education is satisfied that said institution of

learning had defaulted in any of the foregoing particulars, this bond

may immediately thereafter be declared forfeited

4. LIABILITY of Surety under this bond will expire on June 15, 1955,

unless sooner revoked.

On the same day, May 15, 1954, the Central Luzon Educational Foundation,

Inc., TeofiloSison and Jose M. Aruego executed an indemnity agreement

binding themselves jointly and severally to indemnify the surety of ―xxx any

payments advances and expenses of whatever kind and nature, including

attorney's fees and legal costs, which the COMPANY may, at any time

sustain or incur‖ and to and to reimburse the Company of all sums and

amounts of money which the COMPANY or its representatives shall or may

pay or cause to be paid or become liable to pay, on account of or arising

from the execution of the above mentioned Bond."

On June 25, 1954, the surety advised the Secretary of Education that it was

withdrawing and cancelling its bond. It appears that on the date of execution

of the bond, the Foundation was indebted to two of its teachers for salaries,

to wit: to RemediosLaoag, in the sum of P685.64, and to H.B. Arandia, in the

sum of P820.00, or a total of P1,505.64. Demand for the above amount

having been refused, OSG filed a complaint for the forfeiture of the

bondon July 11, 1956.

GSIC set up special defenses and a cross-claim against the Foundation and

prayed that the complaint be dismissed and that it be indemnified by the

Foundation of any amount it might be required to pay the Government, plus

attorney's fees. For its part, the Foundation denied the cross-claim and

contended that, because RemediosLaoag owed Fr. Cinense the amount of

P820.65, there was no basis for the action; that the bond is illegal and that

the Government has no capacity to sue.

The surety also filed a third-party complaint against TeofiloSison and Jose M.

Aruego on the basis of the indemnity agreement. While admitting the

allegations of the third-party complaint, Sison and Aruego claimed that

because of the cancellation and withdrawal of the bond, the indemnity

agreement ceased to be of force and effect.

CFI rendered judgment holding the principal and the surety jointly and

severally liable to the Government in the sum of P10,000.00.

ISSUE: WON the surety is no longer liable on its bond after August 24, 1954

(when the 60-day notice of cancellation and withdrawal ended), or, at the

latest, after June 15, 1955. (NOTE that the action was filed on July 1956)

HELD: NO. It must be remembered that, by the terms of the bond the surety

guaranteed to the Government "compliance (by the Foundation) with all

obligations, including the payment of the salaries of its teachers and

employees, past, present and future‖. Now, it is not disputed that even before

the execution of the bond the Foundation was already indebted to two of its

teachers for past salaries. From the moment, therefore, the bond was

executed, the right of the Government to proceed against the bond accrued

because since then, there has been violation of the terms of the bond

regarding payment of past salaries of teachers at the Sison and Aruego

Colleges. The fact that the action was filed only on July 11, 1956 does not

militate against this position because actions based on written contracts

prescribe in ten years.

The surety cited some cases but those cases were not applied by the SC

because in those cases, the acts for which the bond was posted happened

after its expiration. In this case the right of the Government to collect on the

bond arose while the bond was in force, because, as earlier noted, even

before the execution of the bond, the principal had already been indebted to

its teachers.

Neither does the NARIC case support the surety's position. In that case, the bond provided that —

This bond expires on March 20th, 1949 and will be cancelled TEN DAYS after the expiration, unless the surety is notified of any existing

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obligation thereunder, or unless the surety renews or extends it in writing for another term.

and We held that giving notice of existing obligation was a condition precedent to further liability of the surety and that in default of such notice, liability on the bond automatically ceased.

Similarly, in the case of Santos, et. al. v. Mejia, et al., G.R. No. L-6383, December 29, 1953, the bond provided that —

Liability of the surety on this bond will expire in THIRTEEN DAYS and said bond will be cancelled 10 DAYS after its expiration unless surety is notified of any existing obligation thereunder.

and We held that the surety could not be held liable because the bond was cancelled when no notice of existing obligations was given within ten days.

In the present case, there is no provision that the bond will be cancelled unless the surety is notified of any claim and so no condition precedent has to be complied with by the Government before it can bring an action. Indeed, the provision of the bond in the NARIC and Santos cases that it would be cancelled ten days after its expiration unless notice of claim was given was inserted precisely because, without such a provision, the surety's liability for obligations arising while the bond was in force would subsist even after its expiration.

The 60-day notice is not a period of prescription of action. The provision

merely means that the surety can withdraw — as in fact it did in this case —

even before June 15, 1955 provided it gave notice of its intention to do so at

least 60 days in advance. If at all, the condition is a limitation on the right of

the surety to withdraw rather than a limitation of action on the bond.

The argument hat the bond is void for being contrary to public policy insofar

as it requires the surety to pay P10,000.00 regardless of the amount of the

salaries of the teachers is unavailing because the bond is penal in nature.

Article 1226 of the Code states that in obligation with a penal clause,

the penalty shall substitute the indemnity for damages and the payment

of interests in case of non-compliance, if there is no stipulation to the

contrary, and the party to whom payment is to be made is entitled to

recover the sum stipulated without need of proving damages because

one of the primary purposes of a penalty clause is to avoid such

necessity.The mere non-performance of the principal obligation gives

rise to the right to the penalty.

the surety contends that it was released from its obligation under the bond when on February 4, 1955, RemediosLaoag and the Foundation agreed that the latter would pay the former's salaries, which were then already due, on March 1, 1955. In support of this proposition, the surety cites Article 2079 of the Code which provides as follows:

An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. . . .

But the above provision does not apply to this case. The supposed extension of time was granted not by the Department of Education or the Government but by the teachers. The creditors on the bond are not the teachers but the Department of Education or the Government. Even granting that an extension of time was granted without the consent of the surety, still that fact would not help the surety, because as earlier pointed out, the Foundation was also arrears in the payment of the salaries of H. B. Arandia. The case of Arandia alone would be enough basis for the Government to proceed against the bond.

the surety contends that it cannot be made answer for more than the unpaid salaries of H. B. Arandia, which it claimed amounted to P720.00 only, because Article 2054 states that —

A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions.

Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor.

The penal nature of the bond would suffice to dispose of this claim. For whatever may be the amount of salaries due the teachers, the fact remains that the condition of the bond was violated and so the surety became liable for the penalty provided for therein.

PNB v. Luzon Surety

Facts: Villarosaa sugar planter adhered to the Lopez Sugar Central Milling Company, Inc. applied for a crop loan with the PNB. The application was approved in the amount of P32,400 and the planter Villarosa executed a Chattel Mortgage on standing crops to guarantee the crop loan. The credit line was increased and as of 27 September, 1953there was a balance of P63,222.78 but the amount increased as of the date of filing of the complaint because of the interest accrued. The complaint sought relief not only against the planter but also against the three (3) bondsmen, one of which is the

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Luzon Surety filed a bond in the sum of 10k to guarantee the faithful performance of the obligation of the planter with PNB. The bond executed by Luzon Surety undertook to "comply with all the terms and conditions stipulated in said crop loan contract," the same being incorporated in the bond as essential part thereof.The trial court adjudged in favor of the PNB, but the Court of Appeals reversedthe judgment, and absolved the surety on the ground that PNB's evidence did not establish a cause of action, since the bond made references to a crop loan contract executed in February, 1952, and therefore the chattel mortgage dated March 6, 1962 could not have been the obligation guaranteed by the surety bond; and that there had been material alterations in the principal obligation, if any, guaranteed by it.

ISSUE:1.WON was justified in absolving Luzon Surety Co., Inc. from liability to petitioner Philippine National Bank.

2.WON is liable for the interest which, it contends, would increase its liability to more than P10,000 which is the maximum of its bond.

HELD: No. CA did not give credence to an otherwise significant and unrebutted testimony of petitioner's witnessthat the chattel mortgage was the only contract executed by Villarosa evidencing the crop loan and upon which Luzon Surety agreed to assume liability up to the amount of P10,000.We have likewise gone over the answer of Luzon Surety Company dated June 17, 1960 (p. 73 Record on Appeal) and noted the following:

xxxxxxxxx

"3. Defendant LUZON admits the portion of paragraph 3 referring to the grant of P32,400 secured by a Chattel Mortgage dated March 6, 1952, copy of which is attached as Annex "A" of the complaint.

xxxxxxxxx

As special defenses:

"8. The terms and conditions of the surety bond as well as the contract it guaranteed was materially altered and or novated without the knowledge and consent of the surety, thereby releasing the latter from liability.

"11. The maximum liability, if any, of defendant LUZON is P10,000.00.

The principal obligation, therefore, has never been put in issue by then defendant now respondent Luzon Surety Co., Inc. On the other hand it raised

as its defense the alleged material alteration of the terms and conditions of the contract as the basis of its prayer for release. Even this defense of respondent Luzon Surety Co.,Inc. is untenable under the facts obtaining. As a surety, said bonding company is charged as an original promissor and is an insurer of the debt. While it is an accepted rule in our jurisdiction that an alteration of the contract is a ground for release, this alteration, We stress must be material.

In this case the alterations in the form of increases were made with the full consent of Luzon Surety because it is explicityly provided in the Chattel Mortgage that the Mortgagee may increase or decrease the amount of the loan as well as the installment as it may deem convenient.

2. If a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, the liability becomes more than that in the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection. It should be noted, however, that the interest runs from the time the complaint is filed, not from the time the debt becomes due and demandable.

Commonwealth Insurance v. CA

Facts:In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines, one, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to Elba Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes (Exhibits ‗A‘ to ‗L‘, inclusive – JIGS; Exhibits ‗V‘ to ‗BB‘, inclusive – ELBA) and secured by surety bonds (Exhibits ‗M‘ to ‗Q‘ inclusive – JIGS; Exhibits ‗CC‘ to ‗FF‘, inclusive – ELBA) executed by defendant-appellee Commonwealth Insurance Company (CIC). JIGS and ELBA defaulted in the payment of their respective loans. On October 30, 1984, appellant RCBC made a written demand (Exhibit ‗N‘) on appellee CIC to pay JIG‘s account to the full extend (sic) of the suretyship. A similar demand (Exhibit ‗O‘) was made on December 17, 1984 for appellee CIC to pay ELBA‘s account to the full extend (sic) of the suretyship. In response to those demands, appellee CIC made several payments from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There having been a substantial balance unpaid, appellant RCBC made a final demand for payment (Exhibit ‗P‘) on July 7, 1988 upon appellee CIC but the latter ignored it. Thus, appellant RCBC filed the Complaint for a Sum of Money on September 19, 1988 against appellee CIC.

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Issue: Whether or not petitioner should be held liable to pay legal interest over and above its principal obligation under the surety bonds issued by it.

Held: Yes.Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds. We are not persuaded. Petitioner‘s argument is misplaced. Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. GalangMachinero., Inc. and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection

]

Petitioner‘s liability under the suretyship contract is different from its liability under the law. There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds. However, it is clear from the above-cited jurisprudence that petitioner‘s liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement. The issue of petitioner‘s payment of interest is a matter that is totally different from its obligation to pay the principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore, unreasonable. Thus, we find no error in the appellate court‘s ruling that petitioner is liable to pay interest. Machetti vs. Hospicio de San Jose 43 Phil. 297 April 10, 1922 Facts: Machetti by a written agreement undertook to construct a building for Hospicio de San Jose the contract price being 64k. One of the conditions of the agreement was that the contractor should obtain the guarantee of Fidelity and Surety Co. to the amount of P12, 800. The following endorsement in the English language appears on the contract; ―for value received, we hereby guarantee compliance with the terms and conditions as outlined in the above contract‖. 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 from 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.

It was subsequently found that the work had not been carried in accordance with the specifications. Hospicio de San Jose refused to pay the balance of the contract price. Machetti brought an action to recover said amount. Hospicio de San Jose presented a counterclaim for damages resulting from the partial non-compliance of the agreement, in the total sum of P71,350. On petition of his creditors, Machetti was declared insolvent. Upon motion of Hospicio de San Jose, Fidelity & Surety Co. was made cross-defendant and proceedings continued as to it, to the exclusion of Machetti. Hospicio filed a complaint against the Fidelity and Surety Company asking for a judgment for P12,800 against the company upon its guaranty which was later granted by the CFI. Issue: WON CFI erred in granting the motion that Machetti be substituted by Fidelity and Surety Company, the original plaintiff's guarantor Held: NO. The contract of guarantee is given in English, and the terms employed must be given the significance which, ordinarily attaches to them in the language used. In English, the term ―guarantor‖ implies an undertaking of guaranty as distinguished from suretyship. It is 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 rest 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 collateral undertaking separate and distinct from the latter. All of these circumstances are distinguishing features of contracts of guaranty. While a surety undertakes to pay if the principal does not pay, a guarantor only binds himself to pay if the principal cannot pay. A surety is insurer of the debt; the guarantor is the insurer of the solvency of the debtor. The latter liability is what Fidelity & Surety Co. assumed in the present case. Fidelity & Surety Co. having bound itself to pay only in the event it‘s 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 to pay may be proven by the return of a writ of execution unsatisfied or by other means, but it is not sufficiently established by the mere fact that Machetti has been declared insolvent in an insolvency proceeding in which the extent of the insolvent’s liability to pay is not determined until the final liquidation of his estate. Towers Assurance Corp v. Ororama Supermarket Facts: See Hong, the proprietor of Ororama Supermart in CDO sued Spouses Ong for the collection of the sum of P58,400 plus litigation

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expenses and attorney's fees. Writ of preliminary attachment was issued. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City.

To lift the attachment, Spouses Ong filed a counterbondcounterbond in the amount of P58,400 with Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound themselves to pay solidarily to See Hong the sum of P58,400. Spouses Ong was later declared in default. The lower court rendered a decision, ordering not only the Ong spouses but also their surety, Towers Assurance Corporation, to pay solidarily to See Hong the sum of P58,400. The writ of execution was issued on March 14 against the judgment debtors and their surety. TAC filed a petition for certiorari where it assails the decision and writ of execution.

Issue: WON the court erred in issuing a writ of execution against the surety.

Held: No. The surety should have been given an opportunity to be heard as required in Sec. 17 of Rule 57 of the Rules of Court. Under this Section in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1) that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond.

The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor.

But certainly, the surety is entitled to be, heard before an execution can be issued against him since he is not a party in the case involving his principal. Notice and hearing constitute the essence of procedural due process.

WHEREFORE, the order and writ of execution, insofar as they concern Towers Assurance Corporation, are set aside. The lower court is directed to conduct a summary hearing on the surety's liability on its counterbond.

Finman General Assurance Corp. v. Salik

Facts: Salik, et al allegedly applied with Pan Pacific Overseas Recruiting Services, Inc. and were assured employment abroad by a certain Mrs. NormitaEgil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite numerous assurances of employment abroad given by Celia Arandia and Mrs. Egil, they were not employed. They filed a complaint with the POEA against Pan Pacific for violation of certain provision

of the Labor Code with claims for refund of a total amount of P30,000.00. POEA impleaded herein petitioner surety Finman General Assurance Corporation (hereinafter referred to as Finman), in the latter's capacity as Pan Pacific's bonding company. Summons were served upon both Pan Pacific and Finman, but they failed to answer. Despite being deemed in default for failing to answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to appear. Thus, ex-parte proceedings ensued.

Finman, in an answer which was not timely filed, alleged, among others, that herein private respondents do not have a valid cause of action against it; that Finman is not privy to any transaction undertaken by Pan Pacific with herein private respondents; that herein private respondents claims are barred by the statute of frauds and by the fact that they executed a waiver; that the receipts presented by herein private respondents are mere scraps of paper; that it is not liable for the acts of Mrs. Egil; that Finman has a cash bond of P75,000.00 only which is less than the required amount of P100,000.00; and that herein private respondents should proceed directly against the cash bond of Pan Pacific or against Mrs. Egil.

Drilon (then Sec. of Labor) issued an order for the payment of 5k each for Salik et al. jointly and severally on the part of Pan Pacific and Finman.

Issue: WON Drilon acted with grave abuse of discretion in directing Finman to pay jointly and severally with Pan Pacific the claims of Salik et al.

Held: No. In the case at bar, it remains uncontroverted that herein petitioner and Pan Pacific entered into a suretyship agreement. It is understood that under the suretyship agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from recruitment violation of Pan Pacific in keeping with Section 4, Rule V, Book I of the Implementing Rules of the Labor Code which provides that the surety bond will ―answer for valid and legal claims arising from violations of the conditions of the license or the contracts of employment and guarantee compliance with the provisions of the Code, its implementing rules and regulations”.

The nature of Finman‘s obligation under the Suretyship agreement makes it privy to the proceeding against the principal. As such Finman is bound, in the absence of collusion, by a judgment against the principal even though it was not a party to the proceedings. In some cases the court ruled that were the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal debtor ―that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter‖. Applying the foregoing principles to the case at bar, it can be very well said that even if herein Finman was not impleaded in the instant case, still it can be held jointly and severally liable for all claims arising from the recruitment violation of Pan Pacific. Moreover as correctly stated by the Solicitor General, private respondents have a legal

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claim against Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to provide a complete relief to private respondents, petitioner have to be impleaded in the case. As regards the third assigned error, herein petitioner maintains that the findings of fact made by the POEA upon which respondent Secretary of Labor based his questioned Orders are not supported by substantial evidence and are contrary to law, is likewise untenable. Well-settled is the rule that findings of facts of the respondent Secretary are generally accorded great weight unless there was grave abuse of discretion or lack of jurisdiction in arriving at such findings. In the case at bar, it is undisputed that when the case was first set for hearing, only the private respondents appeared, despite summons having been served upon both herein petitioner and Pan Pacific. This, notwithstanding, both herein petitioner and Pan Pacific were again notified of the scheduled hearing, but, as aforestated they also failed to appear. Owing to the absence of any controverting evidence, respondent Secretary of Labor admitted and considered private respondents' testimonies and evidence as substantial. Under the circumstances, no justifiable reason can be found to justify disturbance of the findings of facts of the Secretary of Labor, supported as they are by substantial evidence and in the absence of grave abuse of discretion ); and in line with the well established principle that the findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but at times even finality.

JN Development Corp. v. Phil. Export and Foreign Loan Guarantee Corp. Facts: Respondent Phil. Export filed a case against Petitioner for recovery of a sum of money. Respondent Argued that it is the guarantor of Petitioner of a contract of loan between Petitioner and Traders Royal Bank (TRB) whereby TRB would extend to Petitioner JN an Export Packing Credit Line for Two Million Pesos (P2,000,000.00). Petitioner was not able to pay the loan, so Respondent was the one who paid it. Despite such, Petitioner refuses to reimburse Respondent. In its defense, Petitioner JN argued that it is not liable to reimburse Respondent because Respondent did not exercise its right to exhaustion. Being so, Respondent waived its right to reimbursement Issue:

Whether or not Respondent, being a guarantor, can get reimbursement from Petitioner even if Respondent had not exercised its right to exhaustion Ruling: Respondent can get reimbursement. While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is made on him. Excussion, after all, is a right granted to him by law and as such he may opt to make use of it or waive it. Phil. Guarantee‘s waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The law clearly requires the debtor to indemnify the guarantor what the latter has paid. Machetti v. Hospicio de San Jose Facts: Hospicio de San Jose filed a case against the Fidelity & Surety Co.for a collection of a sum of money. Hospicio argued that the Fidelity & Surety Co. is the guarantor of Machetti in a contract between Machetti and Hospicio wherein Machetti, by a written agreement, undertook to construct a building on Calle Rosario in the city of Manila for Hospicio, the contract price being P64,000. Machetti failed to comply with the specifications of the contract. Hence, Machetti was asked for damages but he was not able to pay and was even declared insolvent. Fidelity & Surety Co., being a guarantor, still refuses to pay to Hospicio. Issue: Whether or not the Fidelity & Surety Co., being the guarantor, is obliged to pay to Hospicio because of the insolvency of Machetti Ruling: The Fidelity & Surety Co. is not obliged to pay. 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. The Fidelity and Surety Company having bound itself to pay only 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 ability may be proven by

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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 Tupaz v. CA Facts: BPI filed a case against Tupaz for collection of a sum of money. BPI argued that Tupaz is a guarantor of El Oro Corp. in a contract between El Oro and BPI regarding two commercial letters of credit. El Oro then failed to comply with its obligation to BPI. However, Tupaz, as a guarantor, still refused to pay BPI. In his defense, Tupaz argued that he is not obliged to pay BPI because BPI had not yet exhausted the properties of El Oro. Issue:Whether or not Tupaz, as guarantor, is obliged to pay BPI even if BPI had not yet exhausted the properties of El Oro Ruling:Tupaz is obliged to pay BPI. The benefit of excussion may be waived. Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his "liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx." The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation‘s principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981 Bitanga v. Pyramid Construction Engineering Corp. Facts: Respondent Pyramid filed a case against Petitioner Bitanga for collection of sum of money. Respondent Pyramid argued that Petitioner is the guarantor of Macrogen Realty in a contract entered into by Macrogen and Pyramid wherein the latter will construct for the former the Shoppers Gold Building, located at Dr. A. Santos Avenue corner Palayag Road, Sucat, Parañaque City. Macrogen then failed to failed to settle Respondent‘s progress billings. Petitioner Bitanga, as guarantor, also refused to pay to Respondent.

In his defense, Petitioner Bitanga argued that it is not liable because Respondent had not yet exhausted the properties of Macrogen. Issue: Whether or not Petitioner Bitanga, as guarantor, is liable to Respondent even if Respondent had not yet exhausted the properties of Macrogen Ruling:Petitioner Bitanga, as guarantor, is liable to Respondent. We further affirm the findings of both the RTC and the Court of Appeals that, given the settled facts of this case, petitioner cannot avail himself of the benefit of excussion. Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion. Article 2060 of the Civil Code reads:

Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latter‘s demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt.

The afore-quoted provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latter‘s demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt. It must be stressed that despite having been served a demand letter at his office, petitioner still failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code. Such failure on petitioner‘s part forecloses his right to set up the defense of excussion. Worthy of note as well is the Sheriff‘s return stating that the only property of Macrogen Realty which he found was its deposit of P20,242.23 with the Planters Bank.

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Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote:

Art. 2059. This excussion shall not take place: x xxx (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation.

De Guzman v. Santos Facts: Plaintiff De Guzman filed a case to recover a sum of money against Defendant Santos. De Guzman argued that he is the guarantor of Defendant Santos in a contract of loan between Defendant and PaulinoCandelaria. Defendant then failed to comply with his obligation. Hence, De Guzman was the one who paid to PaulinoCandelaria. However, Defendant refuses to reimburse De Guzman. In his defense, Defendant Santos argued that he is not liable to reimburse Plaintiff De Guzman because he did not give his consent to Plaintiff to be a guarantor. Issue:Whether or not Defendant, as the debtor, is obliged to reimburse Plaintiff, the guarantor, even if Defendant did not give his consent to Plaintiff to be a guarantor Ruling:Defendant is obliged to reimburse Plaintiff. In the present case, the guarantor was the deceased Santiago Lucero, now represented by the plaintiff in her capacity as judicial administratrix, and the debtor is the defendant-appellant. Applying the provision of the last cited article, it is obvious that the appellant is legally bound to pay what the plaintiff had advanced to the creditor upon the judgment, notwithstanding the fact that the bond had given without his knowledge. The obligation of the appellant to pay the plaintiff what the latter had advanced is further sanctioned by the general provisions of the Civil Code regarding obligations. Article 1158 provides that "payment may be made by any person, whether he has an interest in the performance of the obligation or not, and whether the payment is known and approved by the debtor or whether he is unaware of it. Any person who makes a payment for the account of another may recover from the debtor the amount of the payment, unless it was made against the express will of the latter. In the latter case he can only recover from the debtor in so far as the payment has been beneficial to the latter."

Mira Hermanos v. Manila Tobacconists Facts: Plaintiff Hermanos filed a case to recover a sum of money against Defendant Manila Tobacconists and its guarantor Respondent Provident Insurance. Hermanos argued that Defendant Manila Tobacconists failed to comply with its obligation in their contract wherein the former agreed to deliver to the latter merchandise for sale on consignment under certain specified terms and the latter agreed to pay to the former on or before the 20th day of each month the invoice value of all the merchandise sold during the preceding month. Respondent Provident Insurance, as the guarantor, also failed to pay. In its defense, Respondent Provident Insurance argued that it should have its benefit of division with Manila Compañia de Seguros, the co-guarantor. Issue: Whether or not Respondent Provident Insurance can exercise its benefit of division with Manila Compañia de Seguros, the co-guarantor Ruling: Respondent Provident Insurance cannot exercise its benefit of division. Appellant Provident Insurance Co. having limited the issue in this appeal to whether or not it is entitled to the "benefit of division" provided in article 1837 of the Civil Code, which reads as follows:

Art. 1837. Should there be several sureties of only one debtor for the same debt, the liability therefor shall be divided among them all. The creditor can claim from each surety only his proportional part unless liability in solidumhas been expressly stipulated. The right to the benefit of division against the co-sureties for their respective shares ceases in the same cases and for the same reason as that to an exhaustion of property against the principal debtor.

That article refers to several sureties of only one debtor for the same debt. In the instant case, although the two bonds on their face appear to guarantee the same debt co-extensively up to P2,000 — that of the Provident Insurance Co. alone extending beyond that sum up to P3,000 — it was pleaded and conclusively proven that in reality said bonds, or the two sureties, do not guarantee the same debt because the Provident Insurance Co. guarantees only the first P3,000 and the Manila Compañia de Seguros, only the excess

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over and above said amount up to P5,000. Article 1837 does not apply to this factual situation.