Dio vs.

Court of Appeals (1992)

FACTS
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative
Uy Tiam, applied for and obtained credit accommodations from Metrobank in the
sum of Php700,000. This was secured by Continuing Suretyships separately
executed by petitioners Norberto Uy (who agreed to pay Php300, 000) and Jacinto
Dio (who bound himself liable up to Php800, 000). Uy Tiam paid the obligation
under this letter of credit in 1977. UTEFS obtained another credit accommodation in
1978, which was likewise settled before he applied and obtained another in 1979 in
the sum of Php815, 600. This sum covered UTEFS purchase of fertilizers from
Planters Products. Uy and Dio did not sign the application for this credit and were
not asked to execute suretyship or guarantee. UTEFS executed a trust receipt
whereby it agreed to deliver to Metrobank the goods in the event of non-sale, and if
sold, the proceeds will be delivered to Metrobank. However, UTEFS did not comply
with its obligation. As a result, Metrobank demanded payment from UTEFS and the
sureties, Uy and Dio. The sureties refused to pay on the ground that the obligation
for which they executed the continuing suretyship agreement has been paid. RTC
ruled in favor of the petitioners, CA affirmed.
Issue: WON petitioners are liable for payment of the 1979 transaction under the
continuing suretyship agreement they executed in 1977. Assuming that they are,
what is the extent of their liability?
HELD
The Supreme Court held that Uy and Dio are liable. The agreement they executed
in 1977 is a continuing suretyship, one which is not limited to a single transaction
but which contemplates a succession of liabilities, for which, as they accrue, the
guarantor becomes liable. The agreement that petitioners signed expressly
provided that it is a continuing guaranty and shall be in full force and effect until
written notice to the bank that it has been revoked by the surety. As to the 2nd
issue, petitioners are only liable up to the maximum limit fixed in the continuing
suretyship agreements (Php800, 000 for Dio and Php300, 000 for Uy). The law is
clear 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 (Art.
2054). CA decision ordering petitioners to pay P2, 397, 883.68 which represents the
amount due inclusive of interest and charges, is modified.

G.R. No. 127405

TOCAO vs. CA

FACTS
William T. Belo introduced Nenita A. Anay to petitioner Marjorie Tocao, who
conveyed her desire to enter into a joint venture with her for the importation and
local distribution of kitchen cookwares. Belo volunteered to finance the joint venture
and assigned to Anay the job of marketing the product. Under the joint venture,
Belo acted as capitalist, Tocao as president and general manager, and Anay as head
of the marketing department and later, vice-president for sales. The parties agreed
further that Anay would be entitled to shares of the annual net profits of the
business, commissions, sales, and demonstration services. They operated under the
name of Geminesse Enterprise.
The cookware business took off successfully. Anay was invited for a
distributor/dealer meeting in the USA and subsequently was awarded 37%
commission for her personal sales for her excellent job performance. October 9,
1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao

sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise.
Anay attempted to contact Belo demanding for her overriding commission for the
period of January 8, 1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. When her letters were not answered, Anay
then filed a complaint for sum of money with damages against Marjorie and Belo
before the RTC of Makati. The said trial court ruled in her favor. Petitioners appeal
to the CA was dismissed and MR was denied for lack of merit.
Belo, one of the petitioners, in his defense, denied contributing capital to the
business or receiving a share in its profits as he merely served as a guarantor of
Marjorie Tocao, who was new in the business and never participated in decision
making. He claimed that he wrote the memo granting the plaintiff 37% commission
upon her dismissal from the business venture at the request of Tocao, because Anay
had no other income. Hence, this petition.
ISSUE: WON Belo was only a guarantor of Tacao
HELD
NO. Belos claim that he was merely a "guarantor" has no basis since
there was no written evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or presiding over meetings of
Geminesse Enterprise plus his issuance of a memo giving Anay 37% commission on
personal sales belied this. On the contrary, it demonstrated his involvement as a
partner in the business.
His claim is belied by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under
Article 2053 of the Civil Code, he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that guaranty must be
"express," Article 1403, the Statute of Frauds, requires that "a special promise to
answer for the debt, default or miscarriage of another" be in writing.
G.R. No. 154183

August 7, 2003

SPS TOH VS SOLID BANK

FACTS
Respondent Solid Bank Corporation agreed to extend an omnibus line credit
facility worth P10 million in favor of respondent First Business Paper Corporation
(FBPC). The terms and conditions of the agreement as well as the checklist of the
documents necessary to open the credit line were stipulated in a letter-advise of
the Bank. One of the documents essential for the credit facility and submitted for
this purpose was the (c) ) Continuing Guaranty for any and all amounts signed by
petitioner-spouses Luis Toh and Vicky Tan Toh, and respondent-spouses Kenneth and
Ma. Victoria Ng Li. Spouses Luis Toh and Vicky Tan Toh were then Chairman of the
Board and Vice-President, respectively, of FBPC, while respondent-spouses Kenneth
Ng Li and Ma. Victoria Ng Li were President and General Manager, respectively, of
the same corporation.
On 10 May 1993, more than thirty (30) days from date of the "letter-advise,"
petitioner-spouses Luis Toh and Vicky Tan Toh and respondent-spouses Kenneth Ng
Li and Ma. Victoria Ng Li signed the required Continuing Guaranty, which was
embodied in a public document prepared solely by respondent Bank. The terms of
the instrument defined the contract arising therefrom as a surety agreement and
provided for the solidary liability of the signatories thereto for and in consideration
of "loans or advances" and "credit in any other manner to, or at the request or for
the account" of FBPC.

In 1994, respondent Bank received information that respondent-spouses Kenneth

Ng Li and Ma. Victoria Ng Li had fraudulently departed from their conjugal home.
Respondent Bank then filed a complaint for sum of money against FBPC, sps.
Kenneth and Victoria Ng Li, and sps. Luis and Vicky Toh before the RTC, Pasig City.
The said court ruled in favor of the respondent Bank but absolving petitionerspouses Luis and Vicky Toh of any liability to respondent Bank. Solid Bank Corp.
appealed the decision to the CA whereby the latter modified the decision of the trial
court holding the petitioner-spouses solidarily liable with FBPC to pay respondent
bank. A Motion for Reconsideration was denied.
Hence, this Petition for Review.
ISSUE WON the petitioner spouses are solidarily liable due to the execution of the
Continuing Guaranty
HELD
No. Although this Court holds that the Continuing Guaranty is a valid and binding
contract of petitioner-spouses as it is a public document that enjoys the
presumption of authenticity and due execution, we find that there were
illicit/irregular extensions as far as the letters of credit are concerned therefore
affecting the liability of herein petitioner spouses.
The foregoing extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the
waiver
stipulated
in
the
Continuing
Guaranty.
Evidently,
they
constitute illicit extensions prohibited under Art. 2079 of the Civil Code, "[a]n
extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty." This act of the Bank is not mere failure or
delay on its part to demand payment after the debt has become due, as was the
case in unpaid five (5) letters of credit which the Bank did not extend, defer or put
off, but comprises conscious, separate and binding agreements to extend the due
date, as was admitted by the Bank itself.
As a result of these illicit extensions, petitioner-spouses Luis Toh and
Vicky Tan Toh are relieved of their obligations as sureties of respondent
FBPC under Art. 2079 of the Civil Code.
Further, there were several suspicious circumstances (i.e. execution of the
Continuing Guaranty after 30 days from original acceptance period) that militate
against the enforcement of the Continuing Guaranty against the accommodation
sureties, the consequence of which is to discharge the surety, petitioners herein,
under Article 2080 of the Civil Code or the very least, mitigate the liability of the
surety up to the value of the property or lien released.
Wherefore, the decision of the CA was REVERSED and SET ASIDE,
REINSTATED and AFFIRMED the decision of the RTC.

and hereby

G.R. No. 160324 November 15, 2005

INTERNATIONAL FINANCE CORP vs. IMPERIAL TEXTILE MILLS, INC
FACTS
International Finance Corp. (IFC) and Philippine Polyamide Industrial Corp. (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 plus interest of 10% per annum on
the principal amount. A Guarantee Agreement was executed wherein Imperial
Textile Mills, Inc. (ITM) and Grand Textile Manufacturing Corp (Grandtex), being
parties thereto, agreed to guarantee PPICs obligations under the loan agreement.

PPIC religiously paid the first 3 installment schedules, however, defaulted thereafter.
IFC served notice of default demanding PPIC to pay the outstanding principal loan
and all its accrued interests. Despite such notice, PPIC failed to comply which
resulted to the extrajudicial foreclosure of mortgages owned by PPIC. The winning
bid amount still left a balance, from the outstanding loan, with US$2,833,967.00,
which PPIC still failed to pay. Consequently, IFC demanded IFC and Grandtex to pay
the outstanding balance, but to no avail.
IFC then filed a complaint with the RTC of Manila against PPIC and ITM for the
payment of the outstanding balance plus interests and attorneys fees. The trial
court held PPIC liable for the payment but relieved ITM of its obligation as
guarantor, thereby dismissing the complaint against ITM. IFC appealed the decision
to the CA. The appellate court reversed the decision of the trial court therefore
holding that ITM is not discharged from its obligation as guarantor of PPIC under the
Guarantee Agreement. The CA, however, held that ITMs liability as a guarantor
would arise only if and when PPIC could not pay. Since PPICs inability to comply
with its obligation was not sufficiently established, ITM could not immediately be
made to assume the liability.
Hence, this Petition.
ISSUE WON the respondent under the Guarantee Agreement is merely a guarantor
and not a surety
HELD
NO. ITM (respondent) is a surety. Article 2047 states that:
By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the
obligation of the principal in case the latter should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract
shall be called suretyship."
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.
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latters
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the
level of PPIC and could not be deemed merely secondarily liable.
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. And 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.
SPOUSES ALFREDO and SUSANA ONG
vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK
G.R. No. 160466
January 17, 2005
FACTS:
Baliwag Mahogany Corp. (BMC) needed additional capital for its business and
applied for various loans, amounting to a total of P 5M with the respondent bank,

PCIB. Alfredo (President) and Susana Ong (Treasurer) acted as sureties for these
loans and issued 3 promissory notes for the purpose. It was stipulated in the notes
that the bank may consider 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 BMCs insolvency, or if it is declared to be in a state of
suspension of payments. Thereafter, BMC filed a petition for rehabilitation and
suspension of payments with SEC after the creditors attached its properties. The
bank then sought the collection of the payment of the debt from the petitioners as
sureties.
PCIB filed a case for collection of a sum of money against petitioners-spouses.
A MOA was executed by BMC, the petitioners, and the consortium of creditor banks
of BMC (including PCIB). Petitioners then moved to dismiss the complaint arguing
that the MOA suspended any pending civil action against BMC. Hence, the benefits
of the MOA should also be extended to the petitioners as sureties. The trial court
denied the motion to dismiss. The CA affirmed the trial courts ruling that a creditor
can proceed against petitioners as surety independently of its right to proceed
against BMC.
ISSUE: Whether or not Art 2063 and 2081 of the NCC apply to suretyship contracts.
HELD:
NO, Articles 2063 and 2081 of the NCC refer to contracts of guaranty. They do not
apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of
BMCs 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 promisor and
debtor from the beginning.
SPOUSES ALFREDO and SUSANA ONG
vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK
G.R. No. 160466
January 17, 2005
FACTS:
Baliwag Mahogany Corp. (BMC) needed additional capital for its business and
applied for various loans, amounting to a total of P 5M with the respondent bank,
PCIB. Alfredo (President) and Susana Ong (Treasurer) acted as sureties for these
loans and issued 3 promissory notes for the purpose. It was stipulated in the notes
that the bank may consider 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 BMCs insolvency, or if it is declared to be in a state of
suspension of payments. Thereafter, BMC filed a petition for rehabilitation and
suspension of payments with SEC after the creditors attached its properties. The
bank then sought the collection of the payment of the debt from the petitioners as
sureties.
PCIB filed a case for collection of a sum of money against petitioners-spouses.
A MOA was executed by BMC, the petitioners, and the consortium of creditor banks
of BMC (including PCIB). Petitioners then moved to dismiss the complaint arguing
that the MOA suspended any pending civil action against BMC. Hence, the benefits
of the MOA should also be extended to the petitioners as sureties. The trial court
denied the motion to dismiss. The CA affirmed the trial courts ruling that a creditor

can proceed against petitioners as surety independently of its right to proceed

against BMC.
ISSUE: Whether or not Art 2063 and 2081 of the NCC apply to suretyship contracts.
HELD:
NO, Articles 2063 and 2081 of the NCC refer to contracts of guaranty. They do not
apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of
BMCs 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 promisor and
debtor from the beginning.
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC
vs.
EUGENIO B. RAMOS, and PILAR MIRANDA
G.R. No. L-20978
February 28, 1966
FACTS:
Associated Reclamation & Development Corporation executed a promissory note for
P11,765.00 in favor of General Acceptance & Finance Corporation. Philippine
American General Insurance Co., Inc. executed a surety bond to secure payment of
the aforementioned promissory note. Subsequently, the spouses Ramos and
Miranda signed a counter-guaranty agreement with real estate mortgage, in favor of
Philippine American General Insurance Co., Inc., against its liability under the surety
bond. The next day, the Ramos spouses and Associated Reclamation &
Development Corporation executed an indemnity agreement in favor of Philippine
American General Insurance Co., Inc., thereunder binding themselves "jointly and
severally" to indemnify the Philippine American General Insurance Co., Inc., for
whatever it may suffer under its aforesaid surety bond.
Philippine American General Insurance Co., Inc. filed a complaint in the CFI against
the Ramos spouses. Plaintiff alleged that Associated Reclamation & Development
Corporation failed to pay its obligation under the promissory note, as a result of
which plaintiff paid its liability under its surety bond in the sum of P11,765.
The Court of First Instance dismissed the case hence, this direct appeal to the Court.
ISSUE: Whether or not the plaintiff have a cause of action so as to proceed against
defendants without first proceeding against Associated Reclamation & Development
Corporation.
HELD:
YES, for the creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously under Art. 1216 of the NCC. It should not be
overlooked, also, that the indemnity agreement could not have been modified by
the counter-guaranty agreement, since the former was executed one day after the
latter.
Finally, even under the counter-guaranty agreement, the defendants as counterguarantors are not entitled to demand exhaustion of the properties of the principal

debtor. For it is a counter-guaranty with real estate mortgage. It is accepted that

guarantors have no right to demand exhaustion of the properties of the principal
debtor, under Article 2058 of the New Civil Code, where a pledge or mortgage has
been given as a special security (Saavedra vs. Price, 68 Phil. 688; Southern Motors
vs. Barbosa, 53 O.G. 137).
WILLEX PLASTIC INDUSTRIES vs. CA and INTERNATIONAL CORPORATE BANK
G.R. No. 103066
April 25, 1996
FACTS:
Inter-Resin Industrial Corporation 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 documents; both entitled "Continuing Surety Agreement", whereby they bound
themselves solidarily to pay Manilabank.
Thereafter, Inter-Resin Industrial, together with Willex Plastic Industries Corp.,
executed a "Continuing Guaranty" in favor of IUCP whereby "For and in
consideration of the sum or sums obtained and/or to be obtained by Inter-Resin
Industrial Corporation" from IUCP, Inter-Resin Industrial and Willex Plastic jointly
and severally guarantee "the prompt and punctual payment at maturity of the
NOTE/S issued by the DEBTOR/S to the extent of the aggregate principal sum of
FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests,
charges and penalties as hereafter may be specified."
Following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61
representing Inter-Resin Industrial's outstanding obligation. Atrium Capital Corp.,
which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial
and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As neither
one of the sureties paid, Atrium filed this case in the court below against Inter-Resin
Industrial and Willex Plastic.
Inter-Resin Industrial paid some of the amounts due. Willex Plastic denied the
material allegations of the complaint. It 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.
As already stated, the amount had been paid by Interbank's predecessor-in-interest,
Atrium Capital, to Manilabank pursuant to the "Continuing Surety Agreements"
made on December 1, 1978. In denying liability to Interbank for the amount, Willex
Plastic 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.
ISSUE: Whether under the "Continuing Guaranty", Willex Plastic may be held jointly
and severally liable with Inter-Resin Industrial for the amount by Interbank to
Manilabank.
HELD:
YES, Willex Plastic 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 Plastic Industries
Corporation."

Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the
guarantee undertaken by plaintiff-appellee, Interbank of the credit accommodation
granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee required
defendant-appellants to sign a Continuing Guaranty.
Willex Plastic admitted that it was "to secure the aforesaid guarantee, that
INTERBANK required principal debtor IRIC to execute a chattel mortgage in its favor,
and so a 'Continuing Guaranty' was executed on April 2, 1979 by WILLEX in favor of
INTERBANK for and in consideration of the loan obtained by IRIC."
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."
14. G.R. No. 96405 June 26, 1996
BALDOMERO INCIONG, JR., petitioner,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
FACTS:
Inciongs liability resulted from the promissory notes in the amount of
P50,000 which he signed with Rene Naybe and Gregorio Pantanosas, holding
themselves jointly and severally liable to private respondent Philippine Bank of
Communications. The promissory note expired without the promisors having their
obligation. Consequently, despite repeated demands sent by the private
respondent, the obligors still failed to respond and pay. Private respondent filed a
complaint for collection of sum of P50,000 against the three obligors. The complaint
was dismissed for failure to prosecute the case. However, the lower court
reconsidered the dismissal order and required the sheriff to serve the summons but
only the summons addressed to petitioner was served as the sheriff learned that
defendant Naybe had gone to Saudi Arabia.
In petitioners answer. he alleged that he was approached Rudy Campos, who told
him that he was a partner of Pio Tio, the branch manager of private respondent
bank, in the falcata logs operation business. Campos also intimated to him that
Rene Naybe was interested in the business and would contribute a chainsaw to the
venture. He added that, although Naybe had no money to buy the equipment, Pio
Tio had assured Naybe of the approval of a loan he would make with private
respondent. Campos then persuaded petitioner to act as a "co-maker" in the said
loan. Petitioner allegedly acceded but with the understanding that he would only be
a co-maker for the loan of P50,000. Furthermore, he alleged that five (5) copies of a
blank promissory note were brought to him by Campos at his office. He affixed his
signature thereto but in one copy, he indicated that he bound himself only for the
amount of P5,000. Thus, it was by trickery, fraud and misrepresentation that he was
made liable for the amount of P50,000.
The lower court held that, even granting that said limited amount had
actually been agreed upon, the same would have been merely collateral between
him and Naybe and, therefore, not binding upon the private respondent as creditorbank. The CA affirmed the lower courts decision. Petitioners motion for
reconsideration having been denied, he filed a petition for review on certiorari,
however, it was also denied.
ISSUE:
HELD:

WON Inciong should be held liable.

Yes. Inciong Petitioner also argues that the dismissal of the complaint against
Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a
release of his obligation, especially because the dismissal of the case against
Pantanosas was upon the motion of private respondent itself. He cites as basis for
his argument, Article 2080 of the Civil Code which provides that: The guarantors,
even though they be solidary, are released from their obligation whenever by some
act of the creditor, they cannot be subrogated to the rights, mortgages, and
preferences of the latter. However, petitioner signed the promissory note as a
solidary co-maker and not as a guarantor.
A solidary or joint and several obligation is one in which each debtor is liable
for the entire obligation, and each creditor is entitled to demand the whole
obligation. While a guarantor may bind himself solidarily with the principal debtor,
the liability of a guarantor is different from that of a solidary debtor. Thus, A
guarantor who binds himself in solidum with the principal debtor does not become a
solidary co-debtor to all intents and purposes. There is a difference between a
solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability
he assumes to pay the debt before the property of the principal debtor has been
exhausted, retains all the other rights, actions and benefits which pertain to him by
reason of the fiansa; while a solidary co-debtor has no other rights than those
bestowed upon him.
Because the promissory note involved in this case expressly states that the
three signatories therein are jointly and severally liable, any one, some or all of
them may be proceeded against for the entire obligation. The choice is left to the
solidary
creditor
to
determine
against
whom
he
will
enforce
collection. Consequently, the dismissal of the case against Judge Pontanosas may
not be deemed as having discharged petitioner from liability as well. As regards
Naybe, suffice it to say that the court never acquired jurisdiction over him.
Petitioner, therefore, may only have recourse against his co-makers, as provided by
law.
15. G.R. No. 113931 May 6, 1998
E. ZOBEL, INC., petitioner,
vs.
THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION,
and SPOUSES RAUL and ELEA R. CLAVERIA, respondents.
FACTS:
Spouses Claveria, doing business under the name "Agro Brokers," applied for
a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK)
in the amount P2,875,000.00 to finance the purchase of two (2) maritime barges
and one tugboat which would be used in their molasses business. The loan was
granted subject to the condition that respondent spouses execute a chattel
mortgage over the three (3) vessels to be acquired and that a continuing guarantee
be executed by petitioner E. Zobel, Inc., in favor of SOLIDBANK. The respondent
spouses agreed to the arrangement. Consequently, a chattel mortgage and a
Continuing Guaranty were executed.
Respondent spouses defaulted in the payment of the entire obligation upon
maturity. Hence, SOLIDBANK filed a complaint for sum of money with a prayer for a
writ of preliminary attachment, against the spouses and petitioner. Petitioner moved
to dismiss the complaint on the ground 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. SOLIDBANK opposed the motion contending that Article 2080 is
not applicable because petitioner is not a guarantor but a surety.

The RTC denied the motion to dismiss and decided in favor of the
respondents. The CA affirmed the RTCs decision.
ISSUE: 1. WON Article 2080 is applicable to petitioner.
2. WON petitioners obligations to SOLIDBANK under the continuing guaranty
is that of a surety.
HELD:
1. No. 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.
Strictly speaking, guaranty and surety are nearly related, and many of the
principles are common to both. However, under our civil law, they may be
distinguished thus: A surety is usually bound with his principal by the same
instrument, executed at the same time, and on the same consideration. He is
an original promissor and debtor from the beginning, and is held, ordinarily,
to know every default of his principal. Usually, he will not be discharged,
either by the mere indulgence of the creditor to the principal, or by want of
notice of the default of the principal, no matter how much he may be injured
thereby. On the other hand, the contract of guaranty is the guarantor's own
separate undertaking, in which the principal does not join. It is usually
entered into before or after that of the principal, and is often supported on a
separate consideration from that supporting the contract of the principal. The
original contract of his principal is not his contract, and he is not bound to
take notice of its non-performance. He is often discharged by the mere
indulgence of the creditor to the principal, and is usually not liable unless
notified of the default of the principal.
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.
2. Yes. 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 contract to determine the nature of the undertaking and the intention of
the parties. The contract clearly disclose that petitioner assumed liability to
SOLIDBANK, as a regular party to the undertaking and obligated itself as an
original promissor. It bound itself jointly and severally to the obligation with
the respondent spouses. In fact, SOLIDBANK need not resort to all other legal
remedies or exhaust respondent spouses' properties before it can hold
petitioner liable for the obligation.
16. G.R. No. 136603
January 18, 2002
EMILIO Y. TAEDO, petitioner,
vs.
ALLIED BANKING CORPORATION, respondent.
This is an appeal via certiorari from the decision of the Court of Appeals reversing
the ruling of the trial court and holding petitioner liable solidarily with defendant
Cheng Ban Yek Co., Inc. for all items of the money judgment and costs of suit.
FACTS:
Summary of judgment was rendered in favor of the plaintiff, Allied Bank
Corporation and against defendant Cheng Ban Yek and Co. on 9 causes of action.

The court also declared that the "Continuing Guaranty" as having been extinguished
after plaintiff branded it as a "worthless security" and preferred to avail, as it did
avail, of the provisional remedy of attachment; and declaring defendants Alfredo
Ching and Emilio Taedo relieved of their obligation under the said continuing
Guaranty.
The summary judgment has its roots in a complaint with preliminary
attachment filed by plaintiff bank to recover sums of money from defendant
corporation on its seven past due promissory notes with principal amounts totaling
P10,000,000, from defendants Alfredo Ching and Emilio Taedo under a Continuing
Guaranty providing for joint and several liability relative to the said promissory
notes. The preliminary attachment sought was granted upon the required bond and
was thereafter maintained despite defendant corporations efforts to have it
discharged.
Both plaintiff Allied Banking Corporation and the defendant Cheng Ban Yek &
Co., Inc. appealed from the summary judgment to the CA. The CA reversed and
modified the trial courts decision, declaring that the defendants Alfredo Ching and
Emilio Taedo solidarily liable with defendant Cheng Ban Yek Co., Inc. for all items of
the money judgment.
Petitioner Taedo filed a motion for reconsideration of the decision,
contending that while the case was pending before the CA, the Allied Bank and
Cheng Ban Yek & Co., Inc. agreed to extend the time of payment of the
indebtedness, without the consent of petitioner, thereby relieving him of his
obligation as guarantor or surety of such obligation. However, the CA denied the
motion for lack of merit.
ISSUE: 1. WON the execution by the respondent Bank of the Agreement
extinguished petitioners obligations as surety
2. WON the Continuing guarantee executed by the petitioner is a contract
of (surety) adhesion.
HELD: 1. The agreement between the respondent Allied Banking Corporation and
Cheng Ban Yek & Co., Inc. extended the maturity of the promissory notes without
notice or consent of the petitioner as surety of the obligations. However, the
"continuing guarantee" executed by the petitioner provided that he consents and
agrees that the bank may, at any time or from time to time extend or change the
time of payments and/or the manner, place or terms of payment of all such
instruments, loans, advances, credits or other obligations guaranteed by the surety.
Hence, the extensions of the loans did not release the surety.
2. Yes. Even if the "continuing guarantee" were considered as one of adhesion, we
find the contract of "surety" valid because petitioner was "free to reject it
entirely". Petitioner was a stockholder and officer of Cheng Ban Yek and Co., Inc. and
it was common business and banking practice to require "sureties" to guarantee
corporate obligations.