Guaranty and Suretyship
Guaranty and Suretyship
Guaranty and Suretyship
Guaranty and
Suretyship
April 21, 2018
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5/23/18
ISSUE:
u WON the contract is a contract of guaranty or a suretyship
HELD:
The contract is a suretyship.
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5/23/18
RATIO:
The terms of a contract govern the rights and obligations of the contracting parties.
When the obligor undertakes to be jointly and severally liable, it means that the
obligation is solidary. If solidary liability was instituted to guarantee a principal
obligation, the law deems the contract to be one of suretyship.
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RATIO:
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.
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Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose
to enforce the notes against him alone or jointly with Astro.
Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.[19] It
may either be legal or conventional. Legal subrogation is that which takes place without agreement but by
operation of law because of certain acts.[20] Instances of legal subrogation are those provided in Article 1302 of the
Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties.[21]
Roxas acquiescence is not necessary for subrogation to take place because the instant case is one of the legal
subrogation that occurs by operation of law, and without need of the debtors knowledge.[22] Further, Philguarantee,
as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor
who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.
JUDGMENT:
CA affirmed.
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5/23/18
FACTS
u SOLIDBANK extended a credit line facility of about P10M to First Business
Paper Corp. (FBPC) with the terms and conditions stated in the letter-advise
u Among the documents required for the credit line was the 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.
u The 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.
u FBPC availed of 13 letters of credit and loans totaling P15,227,510.00 with
Kenneth Ng Li, Ma. Victoria Ng Li and Redentor Padilla as signatories over a
series of trust receipts
u Bank received information that spouses KNL and MVNL had fraudulently left
their home. Bank then filed a collection case against the spouses To, FBPC but
not upon KNLI and MVNL who had absconded.
u Spouses alleged that while they were part of FPBC, they had already divested
their shares as early as March when the surety was executed in May 1993.
u RTC ruled in favor of the Bank but absolved the spouses Toh of their liability
finding that they executed the C.G. while they were still part of the corp.
u CA ruled that the spouses should still be solidarily liable with FBCP since their
participation was not contingent on their positions in the corporation.
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5/23/18
ISSUE:
WON the spouses should be held liable
HELD:
Yes. However, there are other reasons why they are discharged.
RATIO:
Any doubt in the terms and conditions of the surety agreement should be resolved
in favor of the surety. (PNB vs. CA)
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Petition granted. CA decision reversed and set aside. Souses are discharged
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RATIO:
u Parties are bound by their admissions in their pleadings.
u The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay
continues until the principal becomes insolvent The raison detre for the rule is that there is nothing to prevent the creditor from
proceeding against the principal at any time. At any rate, if the surety is dissatisfied with the degree of activity displayed by the
creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the
creditor.
u It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor without change in the time
when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. In
order to constitute an extension discharging the surety, it should appear that the extension was for a definite period, pursuant to an
enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a
reservation of rights with respect to him. The contract must be one which precludes the creditor from, or at least hinders him in,
enforcing the principal contract within the period during which he could otherwise have enforced it, and precludes the surety from
paying the debt
JUDGMENT:
Petition is denied and CA decision is affirmed.
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5/23/18
FACTS:
u Echaus is the guarantor of the obligation of Guillermo Severino (P100,000),
pursuant to a compromise agreement with the plaintiff and relatives of the
deceased Melecio Severino.
u Part of the money is deposited subject to finality of the status of Fabiola
Severino as the natural child of the deceased.
u Echaus claims that he did not benefit from agreeing to be guarantor and hence
should not be liable for the obligation.
ISSUE:
WON there was lack of consideration on the part of the guarantor.
HELD: No.
FACTS:
u Echaus is the guarantor of the obligation of Guillermo Severino (P100,000),
pursuant to a compromise agreement with the plaintiff and relatives of the
deceased Melecio Severino.
u Part of the money is deposited subject to finality of the status of Fabiola
Severino as the natural child of the deceased.
u Echaus claims that he did not benefit from agreeing to be guarantor and hence
should not be liable for the obligation.
ISSUE:
WON there was lack of consideration on the part of the guarantor.
HELD: No.
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RATIO:
u A guarantor or surety is bound by the same consideration that makes the contract effective
between the principal parties thereto. (Pyle vs. Johnson, 9 Phil., 249.)
AS APPLIED TO THE FACTS:
u 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. But the true consideration of this contract was the detriment suffered
by the plaintiffs in the former action in dismissing that proceeding, and it is immaterial that no
benefit may have accrued either to the principal or his guarantor.
JUDGMENT:
CFI affirmed.
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5/23/18
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FACTS:
u Uy Tiam Enterprises and Freight Services (UTEFS) through Uy Tiam applied for credit
accommodations with Metrobank in 1977.
u Diño and Uy executed a Continuing Surety to guarantee the obligation, up to the amounts of P800,000
and P300,00 respectively.
u The initial obligation under the CA was paid so Uy Tiam applied again in 1979 for credit and executed a
Trust Receipt for the purpose. Diño and Uy were not privy to the second transaction.
u UTEFS was not able to comply with its obligations re: trust receipt forcing Metrobank to file a case
against the sureties.
u Metrobank filed a collection case with the RTC. RTC dismissed the complaint against Uy and Diño. On
appeal, CA reversed, holding that the CS covers continuing obligations.
ISSUE/S:
1. WON a surety may be still be held liable for a future obligation contracted after the original obligation
they guaranteed has been discharged even though they were not privy to the same.
2. If liable, the extent of the liability.
HELD:
1. Yes.
2. Up the amount guaranteed but not beyond.
RATIO:
1. A continuing guaranty is one which covers all transactions, including those arising in the future,
which are within the description or contemplation of the contract, of guaranty, until the
expiration or termination thereof. 10 A guaranty shall be construed as continuing when by the
terms thereof it is evident that the object is to give a standing credit to the principal debtor to be
used from time to time either indefinitely or until a certain period, especially if the right to recall
the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same
is to secure advances to be made "from time to time" the guaranty will be construed to be a
continuing one.
2. A guarantor may bond himself for less, but not for more than the principal debtor, both as
regards the amount and the onerous nature of the conditions.
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Atok Finance
Corp. vs. CA
(1993)
FACTS:
u Sanyu Chemical and Sanyu Trading,
along with individual private
stockholders of Sanyu Chemical
executed a Continuing Surety
Agreement in favor of Atok Finance
as creditor.
u Sanyu Chemical later assigned its
trade receivables to Atok Finance.
Failing to collect on its receivables,
Atok Finance sued Sanyu and the
individual sureties.
u RTC ruled in favor of Atok but IAC/CA
reversed the decision.
ISSUE/S:
u WON the Continuing Surety Agreement is held null and void as having been
executed without consideration and without a pre-existing principal obligation to
sustain it.
u WON the private respondents (sureties) are liable on the Deed of Assignment.
HELD:
1. NO, the CSA is valid.
2. YES.
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RATIO:
1. The suretyship agreement itself is valid and binding even before the principal obligation intended
to be secured thereby is born. Article 2053 should not be interpreted literally. Comprehensive or
continuing surety agreements are in fact quite common place in present day financial and
commercial practice. It is clear to us that the Rizal Commercial Banking Corporation and
the NARIC cases rejected the distinction which the Court of Appeals in the case at bar sought to
make with respect to Article 2053, that is, that the "future debts" referred to in that Article relate to
"debts already existing at the time of the constitution of the agreement but the amount [of which] is
unknown," and not to debts not yet incurred and existing at that time. Of course, 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 that
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.
2. The failure to collect on the trade receivables was a violation of the warranty of solvency by the
Assignor. By virtue of the CSA, the private respondents are still liable.
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5/23/18
FACTS:
u Alfredo Ching and Tañedo executed a continuing guaranty agreement over 7
promissory notes in favor of Allied Banking over the obligations of Cheng Ban Yek
Co. which eventually defaulted
u RTC ruled in favor of Allied Banking but CA declared Ching and Tañedo free from
any liability
u During the pendency of the case, Allied Bank in the Fourth Amendatory Agreement
extended the payment of the obligation without the consent of the surety
ISSUES:
1. WON the execution by the respondent Bank of the Fourth Amendatory Agreement
extinguished petitioner’s obligations as surety,
2. WON the "continuing guarantee" executed by the petitioner is a contract of (surety)
adhesion.
HELD:
1. NO
2. NO
RATIO/AS APPLIED TO THE FACTS:
1. 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. 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.
JUDGMENT: Petition denied and CA Affirmed.
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FACTS:
u Baylon signed as guarantor for a promissory note executed by Luanzon in favor of Tomacruz.
Luanzon also issued several checks. Baylon had persuaded Tomacruz that Luanzon is a
contractor and that Tomacruz could also invest in her business.
u However, Luanzon defaulted on the P/N, prompting Tomacuz to file a case against Baylon.
u RTC ruled in favor of Tomacruz and found the transaction to be a loan and not an investment.
CA affirmed RTC.
ISSUES:
1. WON the contract is a loan or an investment.
2. WON the creditor can proceed against the guarantor even though she has not yet exhausted
the property of the principal debtor.
HELD:
1. The contract is a loan.
2. No.
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5/23/18
RATIO:
1. If the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulation shall control.
2. The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies
against the debtor. It is axiomatic that the liability of the guarantor is only
subsidiary. All the properties of the principal debtor must first be exhausted before
his own is levied upon.
Thus, the creditor may hold the guarantor liable only after judgment has been
obtained against the principal debtor and the latter is unable to pay, "for obviously the
'exhaustion of the principal's property' — the benefit of which the guarantor claims —
cannot even begin to take place before judgment has been obtained." This rule is
embodied in article 2062 of the Civil Code which provides that the action brought by the
creditor must be filed against the principal debtor alone, except in some instances when
the action may be brought against both the debtor and the principal debtor.
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5/23/18
FACTS:
u David owed Wise & Co. money and the company sought to attach his property; hto
avoid the attachment, David got his Attorney Diosdado Tanglao to execute in his
favor a power of attorney authorizing him to sign for him as guarantor and to
mortgage his property in Pampanga to settle the civil case
u David was only able to pay part of the amount so Wise & Co. tried to recover the
rest from Tanglao
ISSUES:
1. WON the SPA executed by Tanglao made him a guarantor.
2. WON the creditor can proceed against Tanglao for the satisfaction of the debt.
HELD:
1. NO. The SPA merely authorized David to enter into a guaranty which he did not.
2. No.
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FACTS:
u Plaintiff Arroyo, present guardian of Tito Jocsing, filed a suit against Jungsay, former guardian
for absconding with his ward’s property which had by then ended up in the hands of third party
purchasers
u On appeal the ex-guardians claim that from the judgment award of P6000, P4400 should be
deducted as the value of the attached property of the guardian (in the hands of 3rd parties) and
raised the defense that excussion should be applied
ISSUES:
1. WON the benefit of excussion applies to the sureties.
2. WON the property attached should be deemed compliance.
HELD:
1. NO.
2. NO.
RATIO:
1. before the surety is entitled to the benefit of excussion, he must point out to the
creditor property of the principal debtor which can be sold and which is sufficient to
cover the amount of the debt.
AS APPLIED TO THE FACTS:
1. The property pointed out by the sureties is not sufficient to pay the indebtedness; it
is not salable; it is so incumbered that third parties have, as we have indicated, full
possession under claim of ownership without leaving to the absconding guardian a
fractional or reversionary interest without determining first whether the claim of one
or more of the occupants is well founded. In all these respects the sureties have
failed to meet the requirements of article 1832 of the Civil Code.
JUDGMENT:
Decision appealed from affirmed.
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FACTS:
u Luzon Steel sued Metal Manufacturing and Jose Sia its former manager for breach of contract and damages
u Luzon Steel obtained a writ of preliminary attachment on the properties but did not execute because Sia executed a counterbond
with Times Surety & Insurance Co. as surety
u Plaintiff and Sia later entered into a compromise agreement (without surety participating)
u When Sia failed to comply, plaintiff obtained a writ of execution against Sia and the counterbond
u Surety moved to quash the writ of execution which the CFI then granted and cancelled the counterbond, hence the appeal
ISSUES:
1. WON the judgment on the compromise discharged the surety from its obligation under the attachment counterbond.
2. WON the writ of execution could be issued against the surety without previous exhaustion of the debtor’s properties.
HELD:
1. NO.
2. YES.
RATIO:
1. Distinction must be made between counterbonds to obtain the lifting of a writ of attachment which makes these bonds security for the payment of any judgment
that the attaching party may obtain and are mere replacements of the property formerly attached. The lower court and the appellee herein appear to have relied
on doctrines of this Court concerning the liability of sureties in bonds filed by a plaintiff for the issuance of writs of attachment, without discriminating between
such bonds and those filed by a defendant for the lifting of writs of attachment already issued and levied. the liability of the sureties was fixed and conditioned
on the finality of the judgment rendered regardless of whether the decision was based on the consent of the parties or on the merits. A judgment entered on a
stipulation is nonetheless a judgment of the court because consented to by the parties. (Mercado vs. Macapayag)
1. The surety's contention is untenable. The counterbond contemplated in the rule is evidently an ordinary guaranty where the sureties assume a subsidiary
liability. This is not the case here, because the surety in the present case bound itself "jointly and severally" (in solidum) with the defendant; and it is prescribed
in Article 2059, paragraph 2, of the Civil Code of the Philippines that excusion (previous exhaustion of the property of the debtor) shall not take place "if he (the
guarantor) has bound himself solidarily with the debtor". The rule heretofore quoted cannot be construed as requiring that an execution against the debtor be
first returned unsatisfied even if the bond were a solidary one; for a procedural rule may not amend the substantive law expressed in the Civil Code, and further
would nullify the express stipulation of the parties that the surety's obligation should be solidary with that of the defendant.
2. A second reason against the stand of the surety and of the court below is that even if the surety's undertaking were not solidary with that of the principal debtor,
still he may not demand exhaustion of the property of the latter, unless he can point out sufficient leviable property of the debtor within Philippine territory. The
surety's contention is untenable. The counterbond contemplated in the rule is evidently an ordinary guaranty where the sureties assume a subsidiary liability.
This is not the case here, because the surety in the present case bound itself "jointly and severally" (in solidum) with the defendant; and it is prescribed in
Article 2059, paragraph 2, of the Civil Code of the Philippines that excusion (previous exhaustion of the property of the debtor) shall not take place "if he (the
guarantor) has bound himself solidarily with the debtor". The rule heretofore quoted cannot be construed as requiring that an execution against the debtor be
first returned unsatisfied even if the bond were a solidary one; for a procedural rule may not amend the substantive law expressed in the Civil Code, and further
would nullify the express stipulation of the parties that the surety's obligation should be solidary with that of the defendant.
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ISSUES:
1. WON the lower court acted with GAOD in issuing the writ of execution
HELD:
1. YES.
JUDGMENT:
Writ of execution set aside. Lower court ordered to conduct summary hearing
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5/23/18
ISSUES:
1. WON the Trust Agreement between PNB (thru Tomas Besa), the Cochingyan spouses through Catholic Church Mart (Trustor) and PNB (as
beneficiary) & novated the contract thereby releasing the individuals from their obligation under the indemnity agreements.
2. WON the extension of payment granted under the Trust Agreement extinguished the obligations.
HELD:
1. NO.
2. NO.
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