CARMEN CASTELLVI DE HIGGINS and HORACE L. HIGGINS, plaintiffs-appellants, vs.

GEORGE
C. SELLNER, defendant-appellee

FACTS:

1. The basis of plaintiff's action is a letter written by defendant George C. Sellner to John T. Macleod,
agent for Mrs. Horace L. Higgins, on May 31, 1915.
2. The letter provides among others that “ I hereby obligate and bind myself, my heirs, successors and
assigns that if the promissory note executed the 29th day of May, 1915 by the Keystone Mining Co.,
W.H. Clarke, and John Maye, jointly and severally, in your favor and due six months after date for
Pesos 10,000 is not fully paid at maturity with interest”.
3. Plaintiffs contend that he is a surety; defendant contends that he is a guarantor.

ISSUE: WON the respondent is a guarantor or a surety?

HELD:

1. The respondent is a guarantor.

2. In terminology at least, no distinction is made in the Civil Code between the obligation of a surety and
that of a guarantor.
3. Its point of difference are the following;
 A surety and a guarantor are unlike in that the 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.

4. Pursuant to Civil Code, it states that “"By fianza (security or suretyship) one person binds himself to pay
or perform for a third person in case the latter should fail to do so, this provision provides of a
GUARANTY and But "If the surety binds himself in solidum with the principal debtor provides for a
SURETY”
5. 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
6. 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.
7. Thus, 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.

1
ROMULO MACHETTI, plaintiff-appelle, vs. HOSPICIO DE SAN JOSE, defendant-appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS, defendant-appellant

FACTS:

1. On July 17, 1916, Plaintiff Romulo Machetti, by a written agreement undertook to construct a building
on Calle Rosario in the city of Manila for the Hospicio de San Jose, the contract price being P64,000.
2. One of the conditions of the agreement was that the contractor should obtain the "guarantee" of the
Fidelity and Surety Company of the Philippine Islands to the amount of P128,800.
3. V-Pres of FSCP wrote a guarantee letter on July 16, 1916 in favor with the Petitioner.
4. The petitioner now construct a building under the supervision of Hospicio de San Jose.
5. Hospicio de San Jose failed to settle P4,978.08 against the petitioner.
6. Likewise, it was noted that the construction was not done in accordance to the specification provided in
the contract, hence, HDSJ claim for damages for the partial noncompliance against the Petitioner.
7. Petitioner thereafter was declared Insolvent.
8. HDSj filed a motion ask for the asking that the Fidelity and Surety Company be made cross-defendant to
the exclusion of Machetti and that the proceedings be continued as to said company, but still remain
suspended as to Machetti.
9. This motion was granted and on February 7, 1920, the Hospicio filed a complaint against the Fidelity
and Surety Company asking for a judgement for P12,800 against the company upon its guaranty.

ISSUE: WON the respondent is a guarantor or a surety.

HELD: It was a guarantee.

10. The contract of guaranty is written in the English language anf that it provide that "guarantor" implies an
undertaking of guaranty, as distinguished from suretyship.
11. It is very 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 appear affirmatively that the contract is the guarantor's separate
undertaking in which the principal does not join, that its rests 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 a collateral undertaking separate and distinct from the latter. All of these circumstances are
distinguishing features of contracts of guaranty.

12. 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.
13. 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.

2
 G.R. No. 34642 September 24, 1931
FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees,
vs. GUILLERMO SEVERINO, ET AL., defendants. ENRIQUE ECHAUS, appellant.

FACTS:

14. The plaintiff Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased,
former resident of Occidental Negros.

15. Upon the death of Melecio Severino a number of years ago, he left considerable property and litigation
ensued between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs
of the deceased on the other part.

16. In order to make an end of this litigation a compromise was effected by which Guillermo Severino, a
son of Melecio Severino, took over the property pertaining to the estate of his father at the same time
agreeing to pay P100,000 to Felicitas Villanueva and Fabiola Severino.

17. 1st payment of P 40,000 was made and P10,000 was given to the petioner.

18. The P60,000 remaining was not paid. P 20,000 of that amount belong to Fabiola.

19. The proof shows that the money claimed in this action has never been paid and is still owing to the
plaintiff; and the only defense worth noting in this decision is the assertion on the part of Enrique
Echaus that he received nothing for affixing his signature as guarantor to the contract which is the
subject of suit and that in effect the contract was lacking in consideration as to him.

ISSUE: WON Echauswas a guarantor whne he affix his signature in the document even without receiving any
consideration.

HELD:

 Yes , he considered as a guarantor.

 A guarantor or surety is bound by the same consideration that makes the contract effective between the
principal parties thereto.
 The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration; and the
dismissal of the action which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo
Severino was an adequate consideration to support the promise on the part of Guillermo Severino to pay
the sum of money stipulated in the contract which is the subject of this action.
 The promise of the appellant Echaus as guarantor therefore binding.
 It is never necessary that the guarantor or surety should receive any part of the benefit, if such there be,
accruing to his principal.

GATEWAY ELECTRONICS CORPORATION and GERONIMO B. DELOS REYES, JR.,

petitioners, vs. ASIANBANK CORPORATION, respondent.

FACTS:

3
 1. Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that used to be engaged in
the semi-conductor business. During the period material, petitioner Geronimo B. delos Reyes, Jr. was its
president and one Andrew delos Reyes its executive vice-president.
2. Geronimo and Andrew Delos Reyes executed a Separate but identical Deeds of Suretyship in favor of the
respondent bank in the amount of $3 Million.
3. Stated in the Deeds among others was that they shall be solidary, direct and immediate liable to the
creditor.
4. A loan was granted to the Petitioner Corporation for USD 1,700,883.48 and this was secured by a chattel
mortgage.
5. Petitioner corporation defaulted in its payment.
6. Two check was issued in favor with the respondent bank but it was dishonored for insufficiency of funds.
7. Respondent filed a complaint for a sum of money against Gateway, Geronimo, and Andrew in RTC-
Makati.
8. Andrew also filed an answer alleging, among other things, that the deed of suretyship he executed covering
the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line did not
include PN No. FCD-0599-2749, the payment of which was extended several times without his consent.
9. Likewise, Geronimo, on the other hand, alleged that the subject deed of suretyship, assuming the
authenticity of his signature on it, was signed without his wife’s consent and should, thus, be considered as
a mere continuing offer.
10. Further, Geronimo’s allegation was export packing credit loan is separate and distinct from an omnibus
credit line.
11. RTC ruled in favor with the respondent bank.
12. CA Affirmed the decision of RTC.
13. Meanwhile, RTC in Imus, Cavite declared Gateway insolvent and directing all its creditors to appear before
the court on a certain date for the purpose of choosing among themselves the assignee of Gateway’s estate
which the court’s sheriff has meanwhile placed in custodia legis.
14. A MR was filed to the CA because of insolvency but it was denied.
15. Hence this petition.

ISSUE:

16. WON the respondent bank cannot recover to the petitioner because of insolvency.
17. WON the DEED of Surety cannot be admitted as evidence in court because of failure of the respondent
bank to present its original copy
18. WON an extension granted to the debtor by the creditor without the consent of the guarantor extinguishes
the guaranty.

HELD:
1. Applying the aforequoted provisions in Sec. 18 of Act No. 1956, it can rightfully be said that the issuance
of the insolvency order of December 2, 2004 had the effect of automatically staying the civil action for a
sum of money filed by Asianbank against Gateway.

4
2. Moreover, Asianbank argues that the stay of the collection suit against Gateway is without bearing on the
liability of Geronimo as a surety, adding that claims against a surety may proceed independently from that
against the principal debtor.
3. Pursuing the point, Asianbank avers that Geronimo may not invoke the insolvency of Gateway as a defense
to evade liability.
4. As provided in Article 2047 of the Civil Code,

“By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor 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 is called a suretyship.

5. In the case decided by the court, it held that “A creditor’s right to proceed against the surety exists
independently of his right to proceed against the principal. Under 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”.
6. Clearly, Asianbank’s right to collect payment for the full amount from Geronimo, as surety, exists
independently of its right against Gateway as principal debtor;13 it could thus proceed against one of them
or file separate actions against them to recover the principal debt covered by the deed on suretyship, subject
to the rule prohibiting double recovery from the same cause.
7. In the contention of Geronimo that the DEED of Surety cannot be admitted as evidence because of failure
of the respondent bank to present its original copy has no merit.

 Geronimo had not specifically denied, and, thus, is deemed to have admitted, the genuineness and
due execution of the deed in question.

 Owing to Geronimo’s virtual admission of the genuineness and due execution of the deed of
suretyship, Asianbank, contrary to the view of Gateway and Geronimo, need not present the
original of the deed during the hearings.
8. Likewise, the court ruled that the provisions of the subject deed of suretyship indicate a continuing
suretyship.
9. In the case decide by the court, a surety is not bound under any particular principal obligation until that
principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the
suretyship agreement itself is valid and binding even before the principal obligation intended to be secured
thereby is born, any more than there would be in saying that obligations which are subject to a condition
precedent are valid and binding before the occurrence of the condition precedent.

10. Comprehensive or continuing surety agreements are in fact quite commonplace in present day
financial and commercial practice. A bank or financing company which anticipates entering into a
series of credit transactions with a particular company, commonly requires the projected principal
debtor to execute a continuing surety agreement along with its sureties. By executing such an
agreement, the principal places itself in a position to enter into the projected series of transactions
5
 with its creditor; with such suretyship agreement, there would be no need to execute a separate
surety contract or bond for each financing or credit accommodation extended to the principal
debtor.

11. Evidently, under the deed of suretyship, Geronimo undertook to secure all obligations obtained under the
Domestic Bills Purchased Line and Omnibus Credit Line, without any specification as to the period of the
loan.

12. The Deed of Suretyship was intended to secure future loans for which these facilities were opened in the
first place.

13. In light of the provision in the deed of surity, Geronimo verily waived his right to notice of the maturity of
notes, drafts, overdraft, and other credit obligations for which Gateway shall become indebted. This waiver
necessarily includes new agreements resulting from the novation of previous agreements due to changes in
their maturity dates.

14. Additionally, the court ruled that “The transfer of Gateway’s property to the insolvency assignee, if this be
the case, does not negate Geronimo’s right of subrogation, for such right may be had or exercised in the
insolvency proceedings. The possibility that he may only recover a portion of the amount he is liable to pay
is the risk he assumed as a surety of Gateway. Such loss does not, however, render ineffectual, let alone
invalidate, his suretyship.”

E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST
CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA, respondents.

FACTS:

1. Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers,"
applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK)
in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2,875,000.00) to
finance the purchase of two (2) maritime barges and one tugboat 3 which would be used in their
molasses business.
2. 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 Ayala
International Philippines, Inc., now herein petitioner E. Zobel, Inc., in favor of SOLIDBANK.
3. Consequently, a chattel mortgage and a Continuing Guaranty 4 were executed.
4. Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, on
January 31, 1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of
preliminary attachment, against respondents spouses and petitioner.
5. Petitioner 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.
6. SOLIDBANK opposed the motion contending that Article 2080 is not applicable because
petitioner is not a guarantor but a surety.
6
 7. RTC ruled that the petitioner E. Zobel, Inc. signed as surety.
8. Even though the title of the document is "Continuing Guaranty", the Court's interpretation is not
limited to the title alone but to the contents and intention of the parties more specifically if the
language is clear and positive.
9. CA affirmed the decision of the RTC.

ISSUE: WON the petitioner is a guarantor or a surety?

HELD:

1. It was a surety.
2. 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. 7 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.
3. A surety is usually bound with his principal by the same instrument, executed at the same time,
and on the same consideration.
4. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every
default of his principal.
5. 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.
6. It appears that the contract executed by petitioner in favor of SOLIDBANK, albeit denominated
as a "Continuing Guaranty," is a contract of surety.

the undersigned agrees to guarantee, and does hereby guarantee, the punctual payment, at maturity or upon
demand, to you of any and all such instruments, loans, advances, credits and/or other obligations herein before
referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or
owing to you by the Borrower, together

7. The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party
to the undertaking and obligated itself as an original promisor.
8. 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.
9. The trial court interpretation of a contract is not limited to the title alone but to the contents and
intention of the parties.
10. The decision of the CA was affirmed.

7
 G.R. No. 140047 July 13, 2004

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, petitioner, vs.

V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO;
SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND FIRST
INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents

FACTS:

1. On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing and
Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq to Ajyal Trading and Contracting Company, a firm
duly licensed with the Kuwait Chamber of Commerce for a total contract price of ID5,416,089/046 (or
about US$18,739,668).

2. On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent 3-Plex
International, Inc. (hereinafter 3-Plex), a local contractor engaged in construction business, entered into
a joint venture agreement with Ajyal wherein the former undertook the execution of the entire Project,
while the latter would be entitled to a commission of 4% of the contract price.

3. On 8 April 1981, respondent 3-Plex, not being accredited by or registered with the Philippine Overseas
Construction Board (POCB), assigned and transferred all its rights and interests under the joint venture
agreement to VPECI, a construction and engineering firm duly registered with the POCB.

4. 3-Plex and VPECI entered into an agreement that the execution of the Project would be under their joint
management.

5. The SOB required the contractors to submit (1) a performance bond (5% of the CP); (2) an advance
payment bond which 10 % of the CP.

6. To comply with these requirements, respondents 3-Plex and VPECI applied for the issuance of a
guarantee with petitioner Philguarantee, a government financial institution empowered to issue
guarantees for qualified Filipino contractors to secure the performance of approved service contracts
abroad.

7. Petitioner Philguarantee approved respondents' application. Subsequently, letters of guarantee8 were

issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the performance and
advance payment bonds, but they were not accepted by SOB.

8. What SOB required was a letter-guarantee from Rafidain Bank, the government bank of Iraq. Rafidain
Bank then issued a performance bond in favor of SOB on the condition that another foreign bank, not
Philguarantee, would issue a counter-guarantee to cover its exposure.

8
9. Al Ahli Bank of Kuwait was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it
required a similar counter-guarantee in its favor from the petitioner. Thus, three layers of guarantees had
to be arranged.

10. Petitioner Philguarantee issued in favor of Al Ahli Bank of Kuwait Performance Bond Guarantee and
Advance Payment Guarantee

11. These letters of guarantee were secured by (1) a Deed of Undertaking12 executed by respondents VPECI,
Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and
Iluminada Santos; and (2) a surety bond13 issued by respondent First Integrated Bonding and Insurance
Company, Inc. (FIBICI).

12. On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract15 for the
construction.

13. Under the Contract, the Joint Venture would supply manpower and materials, and SOB would refund to
the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the exchange rate of 1
Dinar to 3.37777 US Dollars.

14. The construction was not completed on 15 November 1982 as scheduled.

15. On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment
of its performance bond counter-guarantee.

16. On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had
already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding
reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related
expenses

17. On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank,
and reiterated the joint and solidary obligation of the respondents to reimburse the petitioner for the
advances made on its counter-guarantee.

18. The petitioner thus paid Al Ahli Bank of Kuwait representing principal loan, interest and penalty
charges demanded by the latter bank.

19. On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment of the
amount of P47,872,373.98 plus accruing interest, penalty charges, and 10% attorney's fees pursuant to
their joint and solidary obligations under the deed of undertaking and surety bond.

20. When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a
sum of money against the respondents before the RTC of Makati City.

9
HELD:

From the findings of the Court of Appeals and the trial court, it is clear that the payment made by the petitioner
guarantor did not in any way benefit the principal debtor, given the project status and the conditions obtaining at
the Project site at that time. Moreover, the respondent contractor was found to have valid defenses against SOB,
which are fully supported by evidence and which have been meritoriously set up against the paying guarantor,
the petitioner in this case. And even if the deed of undertaking and the surety bond secured petitioner's guaranty,
the petitioner is precluded from enforcing the same by reason of the petitioner's undue payment on the guaranty.
Rights under the deed of undertaking and the surety bond do not arise because these contracts depend on the
validity of the enforcement of the guaranty.

The petitioner guarantor should have waited for the natural course of guaranty: the debtor VPECI should have,
in the first place, defaulted in its obligation and that the creditor SOB should have first made a demand from the
principal debtor. It is only when the debtor does not or cannot pay, in whole or in part, that the guarantor should
pay.

SPOUSES ALFREDO and SUSANA ONG, petitioners, vs. PHILIPPINE COMMERCIAL

INTERNATIONAL BANK, respondent.

FACTS:

1. Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of
finished wood products.
2. Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively.
3. 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
4. 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).
5. BMC needed additional capital for its business and applied for various loans, amounting to a total of five
million pesos, with the respondent bank.
6. On November 22, 1991, Respondent bank considered debtor BMC in default of its obligations and sought to
collect payment thereof from petitioners-spouses as sureties.
7. Petitioners-spouses moved to dismiss the complaint and 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.
8. RTC denied the motion to dismiss and it was affirmed by the CA, hence, this appeal.
10
ISSUE:

1. WON petitioner will be prejudice 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
2. WON petitioner as sureties can also set up the defense of suspension of payment of debts as provided in the
MOA and filing of collection suits against respondent same with the principal debtor.

HELD:
 NO, the suretyship contract entered into by petitioners-spouses with respondent bank, the former
obligated themselves to be solidarily bound with the principal debtor BMC.
 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.

 The provisions of the MOA regarding the suspension of payments by BMC and the non-filing of
collection suits by the creditor banks pertain only to the property of the principal debtor BMC,
 Firstly, in the rehabilitation receivership filed by BMC, only the properties of BMC were mentioned in
the petition with the SEC
 Secondly, there is nothing in the MOA that involves the liabilities of the sureties whose properties are
separate and distinct from that of the debtor BMC
 Petition is dismissed.

INTERNATIONAL FINANCE CORPORATION, Petitioner, vs. IMPERIAL TEXTILE MILLS, INC.,*

Respondent.

FACTS:
1. On December 17, 1974, [Petitioner] International Finance Corporation (IFC) and [Respondent] 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 sixteen (16) semi-annual installments.

2. "On December 17, 1974, a ‘Guarantee Agreement’ was executed with x x x Imperial Textile Mills, Inc.
(ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties thereto.

3. PPIC paid several installment, however, they defaulted in some.

4. IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings,
machinery, equipment plant and all improvements owned by PPIC.

5. However, despite of the foreclosure, the loan was not fully paid.

11
6. Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance.

7. However, despite the demand made by IFC, the outstanding balance remained unpaid.

8. IFC filed a complaint with the RTC of Manila against PPIC and ITM for the payment of the outstanding
balance plus interests and attorney’s fees.

9. IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC’s obligations
proceeding from the Loan Agreement.

10. However, ITM asserts that, by the terms of the Guarantee Agreement, it was merely a guarantor16 and not a
surety

11. RTC relieved ITM of its obligation as guarantor, hence, IFC appealed to the CA.

12. CA affirmed the decision of the RTC insofar as exonerating ITM from the obligation and held that ITM will
only liable only if and when PPIC could not pay.

ISSUE:
 Whether or not ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC,
for the payment of the loan.
HELD:
 ITM is a surety.
 The obligations of the guarantors are meticulously expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and
unconditionally guarantee, asprimary obligors and not as sureties merely, the due and
punctual payment of the principal of, and interest and commitment charge on, the Loan, and
the principal of, and interest on, the Notes, whether at stated maturity or upon prematuring, all
as set forth in the Loan Agreement and in the Notes
 Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a
surety.
 It became a surety when it bound itself solidarily with the principal obligor.
 The law provides that “"Article 2047. 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 creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.
 Likewise, the Court does not find any ambiguity in the provisions of the Guarantee Agreement.
 When qualified by the term "jointly and severally," the use of the word "guarantor" to refer to a "surety"
does not violate the law.
 The use of the word "guarantee" does not ipso facto make the contract one of guaranty.
 This Court has recognized that the word is frequently employed in business transactions to describe the
intention to be bound by a primary or an independent obligation.
 The very terms of a contract govern the obligations of the parties or the extent of the obligor’s liability.

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  Thus, this Court has ruled in favor of suretyship, even though contracts were denominated as a
"Guarantor’s Undertaking" 26 or a "Continuing Guaranty.

 On this point, 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.

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. HON. JOSE P. ARRO, Judge of
the Court of First instance of Davao, and RESIDORO CHUA, respondents.

FACTS;

1. On October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreements to
guaranty among others, any existing indebtedness of Davao Agricultural Industries Corporation (referred
to therein as Borrower, and as Daicor in this decision), and/or induce the bank at any time or from time to
time thereafter, to make loans or advances or to extend credit in other manner to, or at the request, or for
the account of the Borrower, either with or without security, and/or to purchase on discount, or to make
any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or
other evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may
become liable, provided that the liability shall not exceed at any one time the aggregate principal sum of
P100,000.00.

2. On April 29, 1977 a promissory note in the amount of P100,000.00 was issued in favor of petitioner
payable on June 13, 1977.

3. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor.

4. The promissory note was not fully paid despite repeated demands; hence, on June 30, 1978, petitioner
filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and Residoro Chua

5. Residoro Chua alleged in the motion that he can not be held liable under the promissory note because it
was only Enrique Go, Sr. who signed the same in behalf of Daicor and in his own personal capacity.

6. Petitioner Bank alleged that by virtue of the execution of the comprehensive surety agreement, private
respondent is liable because said agreement covers not merely the promissory note subject of the
complaint, but is continuing; and it encompasses every other indebtedness the Borrower may, from time to
time incur with petitioner bank.

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7. Respondent court dismissed the complaint against Chua simply on the reasons that 'Chua is not a signatory
to the promissory note and that promissory note because said note is not conformable to the
Comprehensive Surety Agreement hence Chua is not liable.

ISSUE: WON private respondent RESIDORO CHUA is liable to pay the obligation evidence by the
promissory note dated April 29,1977 which he did not sign, in the light of the provisions of the comprehensive
surety agreement which petitioner and private respondent had earlier executed on October 19, 1976.

HELD: Yes, he liable to pay the obligation.

 The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr.,
President and General Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as
future obligations which Daicor 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 guaranty is a continuing one which shall remain in full force and effect until the bank is notified of
its termination
 The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an
accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by
Daicor as evidenced by a promissory note.
 By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee
future debts which Daicor may incur with petitioner.
 The law provides that “A guaranty may also be given as security for future debts, the amount of which is
not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional
obligation may also be secured”.

WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF APPEALS and
INTERNATIONAL CORPORATE BANK, respondents

FACTS:

1. In 1978, Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation.

2. To secure payment of the credit accomodation, Inter-Resin Industrial and the Investment and Underwriting
Corporation of the Philippines (IUCP) executed two documents, both entitled "Continuing Surety
Agreement" and dated December 1, 1978, whereby they bound themselves solidarily to pay Manilabank
"obligations of every kind, on which the [Inter-Resin Industrial] may now be indebted or hereafter become
indebted to the [Manilabank

3. The two agreements are the same in all respects, except as to the limit of liability of the surety, the first
surety agreement being limited to US$333,830.00, while the second one is limited to US$334,087.00.

4. On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a
"Continuing Guaranty" in favor of IUCP

5. On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61
representing Inter-Resin Industrial's outstanding obligation.

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6. On February 23 and 24, 1981, 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.

7. As neither one of the sureties paid, Atrium filed this case in the court below against Inter-Resin Industrial
and Willex Plastic.

8. On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded Atrium, the sum of
P687,600.00 representing the proceeds of its fire insurance policy for the destruction of its properties.

9. Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to secure payment to Atrium of
the amount of P4,334,280.61 which the latter had paid to Manilabank.

10. Willex Plastic denied the material allegations of the complaint and interposed that WLLLEX is only a
guarantor of the principal obliger, and thus, its liability is only secondary to that of the principal and thus,
Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against the principal obliger.

11. Interbank was substituted by the INTERNATIONAL CORPORATE BANK.

12. The trial court ordered Inter-Resin Industrial and Willex Plastic to jointly and severally pay the Interbank.

13. CA affirmed the decision of the trial court.

14. Hence this petition.

ISSUE:

a. WON under the "Continuing Guaranty" signed on April 2, 1979 petitioner Willex Plastic may be held
jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to Manilabank.

b. WON Continuing Guaranty," being an accessory contract, cannot legally exist because of the absence
of a valid principal obligation.
c. WON Continuing Guaranty" cannot be retroactivelt applied so as to secure payments made by Interbank
under the two "Continuing Surety Agreements.
d. WON liability cannot be proceeded against without first exhausting all property of Inter-Resin
Industrial.

HELD:

a. Yes, they are jointly and severally liable .

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  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.

 It has been held that explanatory evidence may be received to show the circumstances under which a
document has been made and to what debt it relates.

 At all events, Willex Plastic cannot now claim that its liability is limited to any amount which
Interbank, as creditor, might give directly to Inter-Resin Industrial as debtor because, by failing to
object to the parol evidence presented, Willex Plastic waived the protection of the parol evidence
rule.
 Based on the admission of Willex, a "Continuing Guaranty was executed by them.

b. Willex Plastic argument that the "Continuing Guaranty," being an accessory contract, cannot legally
exist because of the absence of a valid principal obligation is untenable.

 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.
 In an analogous case,” The loan was, therefore, covered by the said agreement, and private
respondent, even if he did not sign the promissory note, is liable by virtue of the surety agreement”
c. The parties to the "Continuing Guaranty" clearly provided that the guaranty would cover "sums obtained
and/or to be obtained" by Inter-Resin Industrial from Interbank.

 In the case decided by the court , it held that although a contract of suretyship is ordinarily not to
be construed as retrospective, in the end the intention of the parties as revealed by the evidence is
controlling.
 We held that a contract of suretyship "is not retrospective and no liability attaches for defaults
occurring before it is entered into unless an intent to be so liable is indicated.
d. Willex Plastic thus claims the benefit of excussion.

Art. 2059. This excussion shall not take place:

(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;

 This stipulation embodies an express renunciation of the right of excussion. Stated that:

The pertinent portion of the "Continuing Guaranty" executed by Willex Plastic and Inter-
Resin Industrial in favor of IUCP (now Interbank) reads:

If default be made in the payment of the NOTE/s herein guaranteed you and/or your
principal/s may directly proceed against Me/Us without first proceeding against and
exhausting DEBTOR/s propertiesin the same manner as if all such liabilities constituted
My/Our direct and primary obligations

 In addition, Willex Plastic bound itself solidarily liable with Inter-Resin Industrial under
the same agreement.

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