GUARANTY AND SURETYSHIP

would be paid in cash. Subsequently, the parties (with the

GUARANTY V. SURETY participation of respondent bank) executed an addendum
providing instead, that the petitioners would secure a loan
in the name of Agro Conglomerates Inc. for the total
AGRO v. CA, 348 SCRA 450 amount of the initial payments, while the settlement of
said loan would be assumed by Wonderland. Thereafter,
ISSUE: petitioner Soriano signed several promissory notes and
(1) On July 17, 1982, petitioner Agro Conglomerates, received the proceeds in behalf of petitioner-company.
Inc. as vendor, sold two parcels of land to Wonderland
Food Industries, Inc. In their Memorandum of By this time, we note a subsidiary contract of
Agreement, the parties covenanted that the purchase suretyship had taken effect since petitioners signed the
price of Five Million (P5,000,000.00) Pesos would be promissory notes as maker and accommodation party for
settled by the vendee, under the following terms and the benefit of Wonderland. Petitioners became liable as
conditions: accommodation party. An accommodation party is a
person who has signed the instrument as maker,
(1) One Million (P1,000,000.00) Pesos shall be paid in acceptor, or indorser, without receiving value therefor,
cash upon the signing of the agreement; and for the purpose of lending his name to some other
(2) Two Million (P2,000,000.00) Pesos worth of person and is liable on the instrument to a holder for
common shares of stock of the Wonderland Food value, notwithstanding such holder at the time of taking
Industries, Inc.; and the instrument knew (the signatory) to be an
(3) The balance of P2,000,000.00 shall be paid in four accommodation party.[8] He has the right, after paying the
equal installments, the first installment falling due, 180 holder, to obtain reimbursement from the party
days after the signing of the agreement and every six accommodated, since the relation between them has in
months thereafter, with an interest rate of 18% per effect become one of principal and surety, the
annum, to be advanced by the vendee upon the signing accommodation party being the surety. [9] Suretyship is
of the agreement. defined as the relation which exists where one person
has undertaken an obligation and another person is
(2) Whereas, the parties have agreed to qualify the also under the obligation or other duty to the obligee,
stipulated terms for the payment of the said ONE who is entitled to but one performance, and as
MILLION THREE HUNDRED SIXTY THOUSAND between the two who are bound, one rather than the
(P1,360,000.00) PESOS through loan from other should perform.[10] The suretys liability to the
the respondent bank Regent Savings & Loan Bank creditor or promisee of the principal is said to be
(formerly Summa Savings & Loan Association), direct, primary and absolute; in other words, he is
executed as Addendum to the previous Memorandum directly and equally bound with the principal.[11] And
of Agreement. the creditor may proceed against any one of the
solidary debtors.[12]
(3) This addendum was not notarized. Consequently, We do not give credence to petitioners assertion that,
petitioner Mario Soriano signed as maker several as provided by the addendum, their obligation to pay the
promissory notes, payable to the respondent promissory notes was novated by substitution of a new
bank. Thereafter, the bank released the proceeds of the debtor, Wonderland. Contrary to petitioners contention,
loan to petitioners. the attendant facts herein do not make a case of novation.
(4) During that time, the bank was experiencing financial Novation is the extinguishment of an obligation by
turmoil and was under the supervision of the Central the substitution or change of the obligation by a
Bank. Central Bank examiner and liquidator Cordula de subsequent one which extinguishes or modifies the first,
Jesus, endorsed the subject promissory notes to the either by changing the object or principal conditions, or by
bank's counsel for collection. The bank gave petitioners substituting another in place of the debtor, or by
opportunity to settle their account by extending payment subrogating a third person in the rights of the
due dates. Mario Soriano manifested his intention to re- creditor.[13] In order that a novation can take place, the
structure the loan, yet did not show up nor submit his concurrence of the following requisites[14] are
formal written request. In their answer, petitioners indispensable:
interposed the defense of novation and insisted there
was a valid substitution of debtor. They alleged that the 1) There must be a previous valid obligation;
addendum specifically states that although the 2) There must be an agreement of the parties
promissory notes were in their names, Wonderland shall concerned to a new contract;
be responsible for the payment thereof.
3) There must be the extinguishment of the old
ISSUE: contract; and
WON There is Surety
4) There must be the validity of the new
contract.
RULING:
In the instant case, the first requisite for a valid
Revealed by the facts on record, the conflict among
novation is lacking. There was no novation by substitution
the parties started from a contract of sale of a farmland
of debtor because there was no prior obligation which was
between petitioners and Wonderland Food Industries,
substituted by a new contract. It will be noted that the
Inc. As found by the trial court, no such sale materialized.
promissory notes, which bound the petitioners to pay,
A contract of sale is a reciprocal transaction. The were executed after the addendum. The addendum
obligation or promise of each party is the cause or modified the contract of sale, not the stipulations in the
consideration for the obligation or promise by the promissory notes which pertain to the surety contract. At
other. The vendee is obliged to pay the price, while the this instance, Wonderland apparently assured the
vendor must deliver actual possession of the land. In the payment of future debts to be incurred by the
instant case the original plan was that the initial payments petitioners. Consequently, only a contract of surety arose.
It was wrong for petitioners to presume a novation had
taken place. The well-settled rule is that novation is never RTC dismissed MB Lending’s complaint
presumed,[15] it must be clearly and unequivocally without prejudice to the filing of a separate action for a
shown.[16] sum of money against Sps. Azarraga. The offer
As it turned out, the contract of surety between Palmares made to pay the obligation is considered a
Wonderland and the petitioners was extinguished by the valid tender of payment sufficient to discharge her
rescission of the contract of sale of the farmland. With the secondary liability on the instrument. As co-maker,
rescission, there was confusion or merger in the persons Palmares is only secondarily liable on the instrument.
of the principal obligor and the surety, namely the
petitioners herein. The addendum which was dependent
thereon likewise lost its efficacy. CA reversed RTC and declared Palmares
liable to pay MB Lending the outstanding balance of
Petitioners had no legal or just ground to retain the 13.7k at 6% per month computed from the date the loan
proceeds of the loan at the expense of private was contracted until fully paid, penalty charges,
respondent. Neither could petitioners excuse themselves
attorney’s fees, and costs. Palmares is a surety since
and hold Wonderland still liable to pay the loan upon the
rescission of their sales contract. If petitioners sustained she bound herself to be jointly and severally liable with
damages as a result of the rescission, they should have Sps. Azarraga when she signed as co-maker. Therefore,
impleaded Wonderland and asked damages. The non- she is primarily liable and may be sued for the entire
inclusion of a necessary party does not prevent the court obligation.
from proceeding in the action, and the judgment rendered
therein shall be without prejudice to the rights of such
ISSUE
necessary party.[18] But respondent appellate court did not
err in holding that petitioners are duty-bound under the WON Palmares is a surety.
law to pay the claims of respondent bank from whom they
had obtained the loan proceeds. RULING:
SURETY; primarily liable
WHEREFORE, the petition is DENIED for lack of
merit. The assailed decision of the Court of Appeals dated Palmares expressly bound herself to be jointly and
October 17, 1994 is AFFIRMED. Costs against severally or solidarily liable with Sps. Azarraga;
petitioners. therefore, her liability is that of a surety. The rule that
ignorance of the contents of an instrument does not
ordinarily affect the liability of one who signs it also
PALMARES v CA, 288 SCRA 422
applies to contracts of suretyship. The mistake of a
FACTS
surety as to the legal effect of her obligation is ordinarily
no reason for relieving her of liability.
Pursuant to a promissory note, MB Lending
extended a 30k loan to Sps. Azarraga and Estrella
The undertaking to pay upon default of the
Palmares, payable on or before 12 May 1990, with
principal debtor does not automatically remove it
compounded interest at 6% per annum to be computed
from the ambit of a contract of suretyship. The
every 30 days from the date thereof.
second and third paragraphs of the promissory note do
not contain any other condition for the enforcement of
I, Mrs. Estrella Palmares, as the Co-
MB Lending’s right against Palmares. A contract of
maker of the above-quoted loan, have
suretyship is that wherein one lends his credit by joining
fully understood the contents of this
in the principal debtor's obligation, so as to render
Promissory Note for Short-Term Loan:
himself directly and primarily responsible with him, and
without reference to the solvency of the principal.
That as Co-maker, I am fully
aware that I shall be jointly and severally
Several attendant factors support the finding that
or solidarily liable with the above principal
Palmares is a surety.
maker of this note;
 When she was informed about the spouses’
That in fact, I hereby agree that
failure to pay, she immediately offered to settle
M.B. LENDING CORPORATION may
the account with MB Lending.
demand payment of the above loan from
me in case the principal maker, Mrs.  She presented the receipts of the payments
Merlyn Azarraga defaults in the payment already made, which were all issued in her name
of the note subject to the same and of the Azarraga spouses. This can only be
conditions above-contained. construed to mean that the payments made by
the principal debtors were considered by MB
Palmares and Sps. Azarraga were only able to pay Lending as creditable directly upon the account
16.3k. MB Lending filed a complaint against Palmares and inuring to the benefit of Palmares.
as the lone party-defendant, allegedly by reason of Sps.
Azarraga’s insolvency. Palmares’ main contention was A surety is bound equally and absolutely with the
that she is to be held liable only upon default of the principal, and as such is deemed an original promisor
principal debtor Sps. Azarraga. She avers that and debtor from the beginning. In suretyship, there is but
immediately after the loan matured, she offered to settle one contract, and the surety is bound by the same
the obligation, but MB Lending refused, and instead agreement which binds the principal. The contract of a
informed her that they would try to collect from Sps. surety starts with the agreement, which is precisely the
Azarraga. In addition, partial payment has been made. situation obtaining in this case.
 A surety is usually bound with his principal by
the same instrument, executed at the same time and None of these elements are present here. The mere fact
upon the same consideration; he is an original debtor, that MB Lending gave Sps. Azarraga an extended period
and his liability is immediate and direct. Where a written of time within which to comply with their obligation did
agreement on the same sheet of paper with and not effectively absolve Palmares from the consequences
immediately following the principal contract between the of her undertaking. Besides, the burden is on the surety
buyer and seller is executed simultaneously therewith, Palmares to show that she has been discharged by
providing that the signers of the agreement agreed to the some act of the creditor MB Lending.
terms of the principal contract, the signers were
"sureties" jointly liable with the buyer.
PP v. MANIEGO, 148 SCRA 30
Even if it were otherwise, demand on the
sureties is not necessary before bringing suit against civil liability for damages on said accused, is what is
them, since the commencement of the suit is a essentially called into question by the appellant in this
case.
sufficient demand. A surety is not even entitled, as a
matter of right, to be given notice of the principal's
The information for criminal proceedings for the crime
default. Inasmuch as the creditor owes no duty of active
of MALVERSATION committed as follows:
diligence to take care of the interest of the surety, his
mere failure to voluntarily give information to the surety
The accused, Lt. RIZALINO M. Ubay, a duly
of the default of the principal cannot have the effect of appointed officer in the Armed Forces of the
discharging the surety. The surety is bound to take Philippines in active duty, who, during the
notice of the principal's default and to perform the period specified above, was designated as
obligation. Disbursing Officer in the Office of the Chief of
Finance, GHQ, Camp Murphy, Quezon City,
Under NCC 1216, the creditor may proceed against and as such was entrusted with and had under
any one of the solidary debtors or some or all of his custody and control public funds, conspiring
them simultaneously. In accordance with the rule that, and confederating with co-accused, MILAGROS
in the absence of statute or agreement otherwise, a T. PAMINTUAN and JULIA T. MANIEGO, did
then and there, unlawfully, willfully and
surety is primarily liable, and with the rule that his proper
feloniously, with intent of gain and without
remedy is to pay the debt and pursue the principal for
authority of law, and in pursuance of their
reimbursement, the surety cannot at law, unless conspiracy, take, receive, and accept from his
permitted by statute and in the absence of any said co-accused several personal checks drawn
agreement limiting the application of the security, require against the Philippine National Bank and the
the creditor or obligee, before proceeding against the Bank of the Philippine Islands, of which the
surety, to resort to and exhaust his remedies against the accused, MILAGROS T. PAMINTUAN is the
principal, particularly where both principal and surety are drawer and the accused, JULIA T. MANIEGO,
equally bound. is the indorser, in the total amount of
Where a creditor refrains from proceeding against P66,434.50, cashing said checks and using for
the principal, the surety is not exonerated. Mere
this purpose the public funds entrusted to and
placed under the custody and control of the said
want of diligence or forbearance does not affect the
Lt. Rizalino M. Ubay, all the said accused
creditor's rights vis-a-vis the surety, unless the knowing fully well that the said checks are
surety requires him by appropriate notice to sue on worthless and are not covered by funds in the
the obligation. In the absence of proof of resultant aforementioned banks, for which reason the
injury, a surety is not discharged by the creditor's mere same were dishonored and rejected by the said
statement that the creditor will not look to the surety, or banks when presented for encashment, to the
that he need not trouble himself. The consequences of damage and prejudice of the Republic of the
the delay, such as the subsequent insolvency of the Philippines, in the amount of P66,434.50,
principal, or the fact that the remedies against the Philippine currency. 1
principal may be lost by lapse of time, are immaterial.
The raison d'être for the rule is that there is nothing Only Lt. Ubay and Mrs. Maniego were arraigned, Mrs.
to prevent the creditor from proceeding against the Pamintuan having apparently fled to the United States
in August, 1962. 2 Both Ubay and Maniego entered a
principal at any time.
plea of not guilty. 3
In order to constitute an extension discharging the
Court of First Instance, 4
surety:
 It should appear that the extension was for a Rizalino M. Ubay guilty beyond reasonable
definite period, pursuant to an enforceable doubt; Convicted him of the crime of
agreement between the principal and the creditor malversation
 It was made without the consent of the surety or
with a reservation of rights with respect to him In the absence of evidence against accused
 The contract must be one which precludes the Julia T. Maniego, the Court hereby acquits her,
creditor from enforcing the principal contract but both she and Rizal T. Ubay are hereby
within the period during which he could otherwise ordered to pay jointly and severally the amount
have enforced it, and which precludes the surety of P57,434.50 to the government. 5
from paying the debt
Maniego sought but the Court declined to negate her of principal and surety, the accommodation party
civil liability, but did reduce the amount thereof to P being the surety." 23
46,934.50. 7 She appealed to the Court of
Appeals 8 as Ubay had earlier done. 9 One last word. The Trial Court acted correctly in
adjudging Maniego to be civilly liable in the same
Ubay's appeal was subsequently dismissed by the criminal action in which she had been acquitted of the
Appellate Court because of his failure to file brief. 10 felony of Malversation ascribed to her, dispensing with
the necessity of having a separate civil action
On the other hand, Maniego submitted her brief in due subsequently instituted against her for the purpose. 24
course, and ascribed three (3) errors to the Court a
quo, to wit: WHEREFORE, the judgment of the Trial Court, being
entirely in accord with the facts and the law, is hereby
1) The Lower Court erred in holding her civilly affirmed in toto, with costs against the appellant.
liable to indemnify the Government for the value
of the cheeks after she had been found not
guilty of the crime out of which the civil liability TOWERS v. ORORAMA, 80 SCRA 262
arises.

2) Even assuming arguendo that she could MACHETTI v. HOSPICIO, 43 Phil 297
properly be held civilly liable after her acquittal,
it was error for the lower Court to adjudge her
liable as an indorser to indemnify the
government for the amount of the cheeks.

3) The Lower Court erred in declaring her civilly

liable jointly and severally with her co-defendant
Ubay, instead of absolving her altogether. 11

Because, in the Appellate Court's view, Maniego's

brief raised only questions of law, her appeal was
later certified to this Court pursuant to Section 17, in
relation to Section 31, of the Judiciary Act, as
amended, and Section 3, Rule 50 of the Rules of
Court. 12

The verdict must go against the appellant.

Appellant's contention that as mere indorser, she may

not be made liable on account of the dishonor of the
checks indorsed by her, is likewise untenable. Under
the law, the holder or last indorsee of a negotiable
instrument has the right to "enforce payment of the
instrument for the full amount thereof against all
parties liable thereon." 18 Among the "parties liable
thereon" is an indorser of the instrument i.e., "a
person placing his signature upon an instrument
otherwise than as maker, drawer, or acceptor **
unless he clearly indicates by appropriate words his
intention to be bound in some other capacity. " 19 Such
an indorser "who indorses without qualification," inter
alia "engages that on due presentment, ** (the
instrument) shall be accepted or paid, or both, as the
case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on
dishonor be duly taken, he will pay the amount thereof
to the holder, or to any subsequent indorser who may
be compelled to pay it." 20 Maniego may also be
deemed an "accommodation party" in the light of
the facts, i.e., a person "who has signed the
instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for
the purpose of lending his name to some other
person." 21 As such, she is under the law "liable on
the instrument to a holder for value,
notwithstanding such holder at the time of taking
the instrument knew ** (her) to be only an
accommodation party," 22 although she has the
right, after paying the holder, to obtain
reimbursement from the party accommodated,
"since the relation between them is in effect that