50. Machetti v.

Hospicio de San Jose, 43 Phil (1922) (Fidelity is the guarantor of Machetti,

construction of building, contract price was almost fully paid until it was found to be
substandard,
Now, while a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay. The one is the
insurer of the debt, the other an insurer of the solvency of the debtor.This
latter liability is what the Fidelity and Surety Company assumed in the
present case.The Fidelity and Surety Company having bound itself to pay only
the event its principal, Machetti, cannot pay it follows that it cannot be
compelled to pay until it is shown that Machetti is unable to pay.
The judgment appealed from is therefore reversed without costs and without
prejudice to such right of action as the cross-complainant, the Hospicio de
San Jose, may have after exhausting its remedy against the plaintiff Machetti.
So ordered.
Facts: By a written agreement, Machetti undertook to construct a building for Hospicio de San
Jose.One of the conditions was that Machetti obtain the guarantee of Fidelity & Surety Co. to the
amount of 12K. It was subsequently found out that the work had not been carried out in
accordance with the specifications. Hospicio refused to pay therefore Machetti brought an action
to recover the amount.
Issue: WON the undertaking assumed by FSC that of guarantor or surety?
Held: Circumstances may be shown which convert the contract into one of suretyship but that
does not exist. It appears that the contract is the guarantors separate undertaking in which the
principal does not join, that it 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
collateral undertaking separate and distinct from the latter. All these are features of a contract of
guaranty.
51. Lirag Textile v. SSS (Stocks, (re)purchase agreement is a debt
instrument, surety (bound to pay as long as debtor does not(not
cannot) pay), 12% as liquidated damages due to breach, bound to earn
legal interest from the time of demand, in this case, judicial i.e. the time of filing the action.)
Facts:
SSS (respondent) and Lirag Textile Mills (Petitioner) entered into a Purchased
Agreement which Respondent agreed to purchase preferred stocks of Petitioner
worth P1 million subject to conditions:
o For Petitioner to repurchase the shares of stocks at a regular interval of
one year and to pay dividends.
o Failure to redeem and pay the dividend, the entire obligation shall
become due and demandable and it shall be liable for an amount

equivalent to 12% of the amount then outstanding as liquidated

damages.
Basilio Lirag (Basilio) as President of Lirag Textile Mills signed the Agreement as a
surety to guarantee the redemption of the stocks, the payment of dividends and
other obligations.
Pursuant to the Agreement, Respondent paid Petitioner P500,000 on two occasions
and the latter issued 5,000 preferred stocks with a par value of P100 as
evidenced by Stock Certificate Nos. 128 and 139.
After sending Respondent sent demand letters, Petitioner and Basilio still made no
redemption nor made dividend payments.
Respondent filed an action for specific performance and damages against Petitioner:
Petitioner contends that there is no obligation on their part to redeem the stock
certificates since Respondent is still a preferred stock holder of the company and
such redemption is dependent upon the financial ability of the company.
On the part of Basilio, he contends that his liability only arises only if the company
is liable and does not perform its obligations under the Agreement.
Issue:
1) Whether or not the Purchase Agreement entered into by the Parties is a debt
instrument?
2) If so, Is Basilio liable as surety?
3) Whether or not Lirag is liable for the interest as liquidated damages?
Held:
1) YES, the Purchase Agreement is a debt instrument. The terms and conditions of the
Agreement show that parties intended the repurchase of preferred shares on the
respective scheduled dates to be an absolute obligation, which does not depend
on the financial ability of the corporation.
o This absolute obligation on the part of the Petitioner corporation is made
manifest by the fact that a surety was required to see to it that the obligation
is fulfilled in the event the principal debtors inability to do so.
o It cannot be said that SSS is a preferred stockholder. The rights given by the
Purchase Agreement to SSS are not rights enjoyed by ordinary stockholders.
Since there was a condition that failure to repurchase the stocks on the
scheduled dates renders the entire obligation due and demandable with
interest. These features clearly show that intent of the parties to be bound
therein as debtor and creditor and not as a corporation and stockholder.

2) YES, Basilio is liable as surety. Thus it follows that he cannot deny liability for
Lirags default. As surety, he is bound immediately to pay SSS the amount then
outstanding.
3) The award of liquidated damages represented by 12% of the amount then
outstanding is correct, considering that the petitioners in the stipulation of facts
admitted having failed to fulfill their obligations under the Agreement. The grant
of liquidated damages is expressly provided for the Purchase Agreement in case
of contractual breach.
Since Lirag did not deny its failure to redeem the preferred shares and the nonpayment of dividends which are overdue, they are bound to earn legal interest
from the time of demand, in this case, judicial i.e. the time of filing the action.

52. Severino v. Severino, 56 Phil 187 (1931) (guarantor or surety is bound by the same
consideration that makes the contract effective between the principal parties thereto, dismissal of
a lawsuit is a considerable consideration, Echaus is the guarantor of Guillermo Severino the
defendant, compromise agreement)
FACTS:
Melecio Severino upon his death, left considerable properties. To end litigation among heirs, a
compromise was effected where defendant Guillermo (son of MS) took over the property of
deceased and agreed to pay installment of 100K to plaintiff (wife of MS) payable first in 40K
cash upon execution of document in 3 equal installments. Enrique Echauz became guarantor.
Upon failure to pay the balance, plaintiff filed and action against the defendant and Echauz.
Enchauz contends that he received nothing from affixing his signature in the document and the
contract lacked the consideration as to him.
ISSUE: WON there is a consideration for the guaranty?
HELD:
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.
The 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 neither necessary that guarantor or surety should receive any part of the benefit, if such there
be accruing to his principal.
Thus, judgment affirmed.
53. Willex v. CA, 256 SCRA 478 (1996) (continuing guaranty, expreesly stipulated that
guaranty will cover sums obtained in the past, guaranty of a guaranty, Willex is liable to
IUCP)
Doctrine: It is never necessary that a guarantor or surety should receive any part or benefit, if
such there be, accruing to his principal
Facts:

1978: Inter-Resin took out a loan from Manila Bank. As additional security, Inter-Resin
and Investment Underwriting (IUCP) executed a Continuing Surety Agreement stating
that the are liable to Manila Bank solidarily for the loan taken out by Inter-Resin
1979: Inter-Resin and Willex Plastic executed a Continuing Guarantee for the loan which
Inter-Resin obtained from Investment Underwriting to the extent of P5M.
1981: Investment Underwriting (IUCP) paid Manila Bank P4M to satisfy Inter-Resins
1978 Obligation
Investment Underwriting (IUCP) then demanded payment of the P4M from both InterResin and Willex
o Inter-Resin paid IUCP P600K from the proceeds of its fire insurance
Willex denied obligation, it alleged that it is only a guarantor of the principal, hence its
liability was only secondary to the principal and that it did not receive consideration nor
benefit from the contract between the bank and Inter-Resin.
Willex insisted that IUCP should pursue Inter-Resin and apply to the loan the assets of
the latter first before going after it.
Willex further alleged that it is guarantor of a loan to Manila Bank and not to Interbank,
hence the Continuing Guaranty cannot be retroactive applied as contracts of suretyship
contemplates future dealing.

ISSUE: WON Willex is liable as guarantor for the loans obtained by Inter-Resin to IUCP? Yes
HELD:

Intent is controlling: clear from the evidence that the Continuing Guarantee executed by
Willex with Inter-Resin would cover sums obtained (in the past retroactive) and/or to
be obtained by Inter-Resin Industrial from Interbank 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 apply it to the
1978 loan.
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

54. De Guzman v. Santos, 68 Phil 371 (1939) (partnership

Pertinent Provision:
Article 1838 - Any guarantor who pays for the debtor shall be indemnified by the latter even
should the guaranty have been undertaken without the knowledge of the debtor.
Facts:

Toole, Abad and Santos formed a general partnership (Philippine-American Construction

Company) with capital of P14,000, P10,000 of which was loaned from Paulino
Candelaria. The partnership and the partners obligated themselves to pay solidarily.
The partners failed to pay which made Candelaria file an action to recover the amount of
the loan with interest and attorneys fees.
Upon the filing of the complaint, Candelaria obtained a writ of attachment against the
partners. The sheriff attached properties of the 3 partners, no partnership property was
attached.
In view of these attachments, the partnership represented by Abad, and Santiago Lucero
and Meliton as guarantors, executed a bond of P10,000 to release the attached properties.
In the bond executed, Santos neither intervened nor signed individually, but Abad
testified that it was Santos who induced him to get the signature of Lucero by taking
advantage of his relations with him.
The bond was approved and the attached properties were returned to their owners (the
partners).
A writ of execution was issued. However, the sheriff returned it with the statement that
the writ could not be executed as he found no property of the judgment debtors
(partners/partnership). In view of this, Candelaria moved for the issuance of a writ of
execution against Lucero and Meliton (guarantors) which the court granted.
De Guzman (admin of Lucero) refused to pay but was eventually compelled to pay
P5,565.55. Meliton also paid upon the bond signed by him the sum of P5,135.
Abad reimbursed them in the amount of P3,800 which de Guzman and Meliton divided
equally.
De Guzman demanded from Santos the return of P3,665.55, the balance advanced by de
Guzman to Candelaria, upon the latters refusal, she brought an action to recover such
amount.

Issue:

WON Santos is bound to pay de Guzman (admin of Lucero) what she had advanced to
Candelaria despite the fact that he neither applied for nor intervened in the execution of
the bond in any capacity.

Held:

Yes, Santos is bound to pay de Guzman.

 It is beyond question that Santos neither intervened nor signed the bond but it was
clear, and this was admitted, that the bond was filed to release the partners attached
properties.
Under article 1822 of the Civil Code, by guaranty one person binds himself to pay or
perform for a third person in case the latter should fail to do so; and article 1838
provides that any guarantor who pays for the debtor shall be indemnified by the latter
even should the guaranty have been undertaken without the knowledge of the debtor.
The obligation to pay is also sanctioned by article 1158 of the Civil Code which
provides that ...Any person who makes a payment for the account of another may
recover from the debtor the amount of the payment, unless it was made against the
express will of the latter. In the latter case he can only recover from the debtor in so
far as the payment has been beneficial to the latter.
Applying articles 1838 and 1156, it is obvious that Santos is legally bound to pay
what the de Guzman had advanced to Candelaria upon the judgment, notwithstanding
the fact that the bond had been given without his knowledge.
Furthermore, from the proven facts it cannot logically be deduced that Santos did not
have knowledge of the bond because:
1. His properties were attached and the attachment could not have been levied
without his knowledge
2. Because the said properties were returned to him and in receiving them he
was necessarily apprized of the fact that a bond had been filed to discharge
the attachment.
55. Municipality of Gasan v. Marasigan, 63 Phil 510 (1956) (license to fish, principl and sureties
no longer bound, suretyship cannot exist without valid obligation)
Facts
This is an action brought by the municipality of Gasan of the Province of Marinduque, against
Miguel Marasigan, Angel R. Sevilla and Gonzalo L. Luna, to recover from them the sum of
P3,780, alleging that it forms a part of the license fees which Miguel Marasigan failed to pay for
the privilege granted him of gathering whitefish spawn (semillas de bagus) in the jurisdictional
waters of the plaintiff municipality during the period from January 1, 1931, to December 31 of
said year.
Error raised by the Defendant-Sureties; The court a quo erred in not absolving the defendants
Angel R. Sevilla and Gonzalo L. Luna, sureties of the defendant Miguel Marasigan,
notwithstanding the fact that resolution No. 161, by virtue of which said defendant subscribed the
bond Exhibit B of the complaint, had been declared null and void by the provincial board and by
the Executive Bureau.
Issue: Whether or not a suretyship exist
Ruling:
In either case, it is a fact that, said contract ceased to have life or force to bind each of the
contracting parties. It ceased to be valid from the time it was cancelled and this being so, neither
the appellant Marasigan nor his sureties or the appellants were bound to comply with the terms of

their respective contracts of fishing privilege and suretyship. This is so, particularly with respect
to the sureties-appellants, because suretyship cannot exist without a valid obligation (art. 1824 of
the Civil Code). The obligation whose compliance by the appellant Marasigan was guaranteed by
the sureties-appellants, was exclusively that appearing in Exhibit A, which should begin on
January 1, 1931, not on the 14th of said month and year, and end on December 31st next. They
intervened in no other subsequent contract which the plaintiff and Miguel Marasigan might have
entered into on or after January 14, 1931. Guaranty is not, presume; it must be expressed and
cannot be extended beyond its specified limits (art. 1827 of the Civil Code). Therefore, after
eliminating the obligation for which said sureties-appellants desired to answer with their bond,
the bond necessarily ceased and it ceases to have effects. Consequently, said errors I and III are
true and well founded.

56. Smith Bell v. PNB, 42 Phil 733 (1922)

FACTS

On April 1918, Fred M. Harden applied to Smith, to buy 8 Anderson expellers end
drive, latest model, for the price of P80,000, to be paid on delivery. This would be
used for the extraction of coconut oil.
It was understood that these expellers would be manufactured in the US and delivery
would be in the month of February or March of the ensuing year.

In order to assure the prompt payment of the price upon delivery, an arrangement was
made between Harden and the Philippine National Bank (PNB) whereby the latter
bound itself to Smith, Bell & Co. for the payment of the contract price, but provided
that the expellers would delivered to them and must be new and in first class working
order.

Shortly after the contract was made, Harden appeared in the office of Smith, Bell &
Co. and requested them to change the order for the expellers from "end-drive" to
"side-drive;" and in obedience to this instruction, the house cabled to its agent in New
York to change the order accordingly, which was done.

On July 1919, Smith, Bell & Co. informed both Harden and PNB that the expellers
had arrived.

Shortly thereafter Harden, having examined the machinery in the Plaintiff's bodega,
advised the Bank that the expellers were not as ordered.

Consequently, the Bank naturally refused to accept and pay for the machinery, and the
Plaintiff disposed of them to the best advantage in the Manila market at a price which
was below the price at which Harden had agreed to take them.

The ground upon which the defense is chiefly rested is that the expellers tendered by
the Plaintiff were "side-drive" instead of "end-drive" expellers, and in support of this
contention Harden was produced by the Defendant as a witness, and he denied that
the order for expellers had been changed upon his instructions.

Issue:
Whether or not PNB is subsidiary liable?
Rulings:

NO. The SC ruled that PNBs liability is primary in nature.

The contract by which the Bank obligated itself is both in form and effect an
independent undertaking on the part of the Bank directly to the Plaintiff; and
inasmuch as the Plaintiff had compiled, or offered to comply, with the terms of said
contract, the Bank is bound by its promise to pay the purchase price.

Its obligation to the Plaintiff is direct and independent. The debt must be considered a
liquidated debt, in the sense intended in article 1825 of the Civil Code; and the action
is now maintainable by the Plaintiff directly against the Bank without regard to the
position of Harden.

The Bank is to be considered strictly in the light of an independent promisor, a

consequence would be that Harden had no authority to change the order from enddrive to side-drive expellers; in other words, that the Bank should be held to be
obligated according to the terms of the order as it stood when the Bank entered into
the undertaking which is the subject of the suit.

57. Wise & Co. V. Kelly, 37 Phil 696 (1918)

58. Rizal Commercial Banking Corp. v. Arro, 115 SCRA 777 (1982)
Facts:
Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensivesurety
agreement to guaranty, above all, any existing or future indebtedness of Davao Agricultural
Industries Corporation (Daicor), and/or induce the bank at anytime or from time to time to make
loans or advances or to extend credit to saidDaicor, provided that the liability shall not exceed ay
any time Php100,000.00.
A promissory note for Php100,000.00 (for additional capital to the charcoal buy andsell and the
activated carbon importation business) was issued in favor of petitionerRCBC payable a month
after execution. This was signed by Go in his personalcapacity and in behalf of Daicor.
Respondent Chua did not sign in said promissorynote. As the note was not paid despite demands,
RCBC filed a complaint for a sum of money against Daicor, Go and Chua.

The complaint against Chua was dismissed upon his motion, alleging that thecomplaint states
no cause of action against him as he was not a signatory to the noteand hence he cannot be held
liable. This was so despite RCBCs opposition, invokingthe comprehensive surety agreement
which it holds to cover not just the note inquestion but also every other indebtedness that Daicor
may incur from petitioner bank. RCBC moved for reconsideration of the dismissal but to no avail.
Hence, this petition.
Issue: WON respondent Chua may be held liable with Go and Daicor under the promissorynote,
even if he was not a signatory to it, in light of the provisions of thecomprehensive surety
agreement wherein he bound himself with Go and Daicor, assolidary debtors, to pay existing and
future debts of said corporation.
Held: Yes, he may be held liable. Order dismissing the complaint against respondent
Chuareversed and set aside. Case remanded to court of origin with instruction to set asidemotion
to dismiss and to require defendant Chua to answer the complaint.
Ratio:The comprehensive surety agreement executed by Chua and Go, as president andgeneral
manager, respectively, of Daicor, was to cover existing as well as futureobligations which Daicor
may incur with RCBC. This was only subject to the provisothat their liability shall not exceed at
any one time the aggregate principal amount of Php100,000.00. (Par.1 of said agreement).
The agreement was executed to induce petitioner Bank to grant any application for aloan
Daicor would request for. According to said agreement, the guaranty iscontinuing and shall
remain in full force or effect until the bank is notified of itstermination.
During the time the loan under the promissory note was incurred, the agreement wasstill in full
force and effect and is thus covered by the latter agreement. Thus, even if Chua did not sign the
promissory note, he is still liable by virtue of the suretyagreement. The only condition necessary
for him to be liable under the agreement was that Daicor is or may become liable as maker,
endorser, acceptor or otherwise.
The comprehensive surety agreement signed by Go and Chua was as an accessory obligation
dependent upon the principal obligation, i.e., the loan obtained by Daicor as evidenced by the
promissory note. The surety agreement unequivocally shows that it was executed to guarantee
futuredebts that may be incurred by Daicor with petitioner, as allowed under NCC Art.2053.
A guaranty may also be given as security for future debts, the amount of which isnot yet known;
there can be no claim against the guarantor until the debt is liquidated. A conditional obligation
may also be secured.
59. SOCONY v. Cho Siong, 52 Phil 612 (1928)
FACTS: Cho Siong entered into contract of agency for distribution of petroleum products,
assumed liability of former agent Tong Kuan. His agency bond was secured by Ong Guan Can.
Defaulted in the amount of P64.00
DOCTRINE: Under the terms of the bond signed by the surety, he did not answer for the
principal obligor save for the Latters acts by virtue of the contract of agency. He cannot be held

liable for the debt of a former agent, which the principal obligor assumed by virtue of another
contract, of which said surety was not even aware. A contract of suretyship is to be strictly
interpreted and is not to be extended beyond its terms.
60. Plaridel v. Galang Machinery, 100 Phil 679 (1957)
PL Galang & San Jose agreed that SJ would peel and cut veneer logs at P60 for PL. Galang. SJ
filed a performance bond of P30,600 from Plaridel Surety. PLG filed for advance payment &
expected delivery. It already sold the logs to a Japanese company but failed to deliver. PLG sued
& asks for bond payment.
Creditors suing on a suretyship bond may recover from the surety as part of their damages,
interest at the legal rate even if the surety would thereby become liable to pay more than the total
amount stipulated in the bond. The surety is made to pay interest, not by reason of the contract,
but by reason of its failure to pay when demanded and for having compelled the plaintiff to resort
to the courts to obtain payment. Interest does not run from the time the obligation becomes due,
but from the filing of the complaint.
61. Republic v. Pal-Fox Lumber, 43 SCRA 365 (1972)
62. Namarco v. Marquez, 26 SCRA 722 (1969)
63. Vizconde v. IAC, 149 SCRA 226 (1987)
FACTS:
Perlas called Vizconde and asked her to sell an 8 carat diamond ring on
a commission for P85k
Vizconde later returned the ring. Afterwards, Vizconde called on Perlas
and claimed that there was a sure buyer for the ring, Pilar Pagulayan
Pagulayan gave a post-dated check; Perlas and Vizconde signed a
receipt (Exh. A)
The check was dishonoured. After 9 days, Pagulayan paid Perlas P5k
against the value of the ring and gave 3 Certificates of Title to
guarantee delivery of the balance of such value (Exh D)
Perlas filed a complaint against Pagulayan and Vizconde for estafa.
TC and CA Vizconde and Pagulayan had assumed a joint agency in
favour of Perlas for the sale of the latters ring, which rendered them
criminally liable, upon failure to return the ring or deliver its agreed
value, under Art 315, par 1(b) of the Revised Penal Code
SOL GEN disagreed; Vizconde cant be convicted of estafa based on
the Exhibits presented
ISSUE: Whether Vizconde was considered as agent of Perlas or mere
guarantor of obligation of Pagulayan?
HELD: Mere guarantor
Nothing in the language of the receipt, Exh A, or in the proven
circumstances attending its execution can logically be considered as
evidencing the creation of an agency between Perlas, as principal, and
Vizconde as agent, for the sale of the formers ring.
If any agency was established, it was one between Perlas and
Pagulayan only, this being the logical conclusion from the use of the

singular I in said clause, in conjunction with the fact that the part of
the receipt in which the clause appears bears only the signature of
Pagulayan.
To warrant anything more than a mere conjecture that the receipt also
constituted Vizconde the agent of Perlas for the same purpose of
selling the ring, the cited clause should at least have used the plural
we, or the text of the receipt containing that clause should also have
carried Vizcondes signature.
The joint and several undertaking assumed by Vizconde in a separate
writing below the main body of the receipt, Exhibit A, merely
guaranteed the civil obligation Pagulayan to pay Perlas the value of the
ring in the event of her (Pagulayans) failure to return said article.
What is clear from Exh A is that the ring was entrusted to Pagulayan to
be sold on commission; there is no mention therein that it was
simultaneously delivered to and received by Vizconde for the same
purpose or, therefore, that Vizconde was constituted, or agreed to act
as, agent jointly with Pagulayan for the sale of the ring.
What Vizconde solely undertook was to guarantee the obligation of
Pagulayan to return the ring or deliver its value; and that guarantee
created only a civil obligation, without more, upon default of the
principal.
Upon the evidence, Vizconde was a mere guarantor, a solidary one to
be sure, of the obligation assumed by Pagulayan to complainant Perlas
for the return of the latters ring or the delivery of its value. Whatever
liability was incurred by Pagulayan for defaulting on such obligation
and this is not inquired into that of Vizconde consequent upon such
default was merely civil, not criminal.

64. Estate of Hemady v. Luzon Surety, 100 Phil 388 (1956)

Facts:
Luzon Surety (issued bonds for principals) files a claim against the estate of Hemady (issued
counterbonds as security for bonds) which the deceased guaranteed as surety when still alive.
Issue:
Whether or not a solidary guarantors liability is extinguished by his death.
Held:
The solidary guarantors liability is not extinguished by his death, and that in such event, the
Luzon Surety Co., had the right to file against the estate a contingent claim for reimbursement.
The contracts of suretyship entered into by K. H. Hemady in favor of Luzon Surety Co. not being
rendered intransmissible due to the nature of the undertaking, nor by the stipulations of the
contracts themselves, nor by provision of law, his eventual liability thereunder necessarily passed
upon his death to his heirs.
65. Wise & Co. V. Tanglao, 63 Phil 372 (1936)

Facts: Atty. Dionisio Tanglao (Cornelio Davids atty) by power of attorney mortgaged two real
properties belonging to him to secure the payment of a judgment credit of P640 obtained by Wise
& Co. against Cornelio David (agent of W&C). As Cornelio David paid only a part of the
indebtedness (P343), Wise & Co.filed an action against Atty. Tanglao to recover the unpaid
balance. (P296)
Issue: WON atty. Dionisio Tanglao is liable for the balance?
Held: No, Nothing is stated in the compromise agreement to the effect that Atty. Tanglao become
Davids surety for the payment of the judgment debt.
(1)
Tanglao did not contract any personal responsibility for the payment of the sum of P640. The
only obligation which he contracted was that resulting from the mortgage. However, a foreclosure
suit was not instituted against Atty. Tanglao but a purely personal action for the recovery of the
amount still owned by Atty. Tanglao.
(2)
Even granting that Atty. Tanglao may be considered a surety (or guarantor), the action does not lie
against him on the ground that all the legal remedies against him have not previously been asked
for and David has property sufficient to pay the balance of the debt the payment of which is
sought of Tanglao in his alleged capacity as surety.
A guaranty or surety must be expressed and cannot be presumed.Art 2058 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 legal remedies against the debtor.
66. Southern Motors v. Barbosa, 99 Phil 263 (1956)
1. The deed of mortgage executed by him specifically provides:chanroblesvirtuallawlibrary
That if said Mr. Alfredo Brillantes or herein mortgagor, his heirs, executors, administrators and
assigns shall well and truly perform the full obligations above-stated according to the terms
thereof, then this mortgage shall be null and void, otherwise it shall remain in full force and
effect, in which event herein mortgagor authorizes and empowers herein mortgagee-company to
take any of the following actions to enforce said payment;.
(a) Foreclose, judicially or extrajudicially, the chattel mortgage above referred to and/or also
this mortgage, applying the proceeds of the purchase price at public sale of the real property
herein mortgaged to any deficiency or difference between the purchase price of said chattel at
public auction and the amount of P2,889.53, together with its interest hereby secured; chan
roblesvirtualawlibraryor
(b) Simply foreclose this mortgage judicially in accordance with the provisions of section 2,
Rule 70, Rules of Court, or extra- judicially under the provisions of Act No. 3135 and Act No.
4118, to satisfy the full amount of P2,889.53, together with its interest of 12 per cent per annum.
2. The right of guarantors, under Article 2058 of the Civil Code of the Philippines, to demand
exhaustion of the property of the principal debtor, exists only when a pledge or a mortgage has
not been given as special security for the payment of the principal obligation. Guarantees, without

any such pledge or mortgage, are governed by Title XV of said Code, whereas pledges and
mortgages fall under Title XVI of the same Code, in which the following provisions, among
others, are found:chanroblesvirtuallawlibrary
ART. 2087. It is also of the essence of these contracts that when the principal obligation
becomes due, the things in which the pledge or mortgage consists may be alienated for the
payment to the creditor.
ART. 2126. The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it
was constituted.
3. It has been held already (Saavedra vs. Price, 68 Phil., 688), that a mortgagor is not entitled to
the exhaustion of the property of the principal debtor.
4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said
guarantor, who shall be entitled, however, to a deferment of the execution of said judgment
against him until after the properties of the principal debtor shall have been exhausted to satisfy
the obligation involved in the case.
Wherefore, the decision appealed from is hereby affirmed, with costs against the DefendantAppellant. It is SO ORDERED.
67. Saavedra v. Price, 68 Phil 699 (1939)
This is a proceeding instituted by the petitioner to annul the order of May 8, 1939, entered by the
Court of First Instance of Leyte, which provided for the sale at public auction of the real property
described in Transfer Certificate of Title No. 395 issued in favor of the petitioner, so that the
proceeds thereof may be applied to the payment of the credit of the respondent W.S. Price in the
sum of P15,000.
The judgment appealed from is modified and Rafael Martinez and Ceferino Ibaez are ordered to
pay the sum of P15,000 to plaintiff within the period of ninety days to be counted from the date
this decision becomes final, without pronouncement as to costs.
After the period of ninety days has elapsed and Rafael Martinez and Ceferino Ibaez failed to pay
the sum in question with the interest thereon, the respondent Price filed a motion praying that the
real property mortgaged be sold at public auction for the payment of his mortgage credit and its
interest. The motion was set for hearing on April 22, 1939, but on motion of the petitioner the
court postponed it definitely for May 6, 1939. On the 4th of said month, the attorneys for the
petitioner against sought the postponement of the hearing by reason of the bad weather then
prevailing, but the court proceeded with the hearing of the motion on the date fixed, and on the
8th of May it entered the order directing the sale of the mortgaged realty for the payment of the
judgment obtained by the respondent W.S. Price. The petitioner asked for the reconsideration of
the order and the court denied the motion filed to that effect.
The petitioner now claims that the respondent Judge acted with abuse of his discretion in not
transferring the hearing of the motion for the sale of the mortgaged realty and that he exceeded
his jurisdiction in ordering the sale of said property.lwphi1.nt

In connection with the first contention, we hold that the court made good use of its discretion in
denying the postponement on the ground that said hearing had already been postponed definitely
to another date upon petition of the petitioner herself. Furthermore, with respect to a mere motion
to sell the mortgaged realty, the court could hear it ex parte without the presence of the petitioner
because in the judgment rendered by the court and affirmed by this court, it had already been
ordered previously that if the defendants Rafael Martinez and Ceferino Ibaez should fail to pay
the debt of P15,000 within 90 days, the mortgaged realty must be sold in accordance with the law
(Government of the Philippine Islands vs. De las Cajigas, 55 Phil., 667).
As to the second point, it is contended that since the petitioner is not the debtor and as she, on the
other hand is the owner of the mortgaged realty, she merely acted as surety to Rafael Martinez,
the principal debtor, and as such she entitled to the benefit of the exhaustion of the property of the
principal debtor, in accordance with the provision of article 1830 of the Civil Code. Basing her
claim on this alleged defense, the petitioner contends that the court should not have ordered the
sale of the real property in question. We are of the opinion that this last contention is likewise
unfounded and untenable. In the first place, this alleged defense should have been interposed
before the judgment was rendered in this case and it is too late to raise it for the first time as a
ground for opposing the motion to sell the real property in question. In the second place, the
contention that the mortgaged real property belonging to the petitioner cannot be sold to pay the
debt for the reason that she is a mere surety of Rafael Martinez, finds no support in the law. It is a
fact that the principal debtors, according to the judgment of this court, are Rafael Martinez and
Ceferino Ibaez and that the mortgaged property belongs to the petitioner, but the lien imposed
upon the property was legal and valid in accordance with article 1857 (paragraph 3) of the Civil
Code, and in case of default, which took place herein, said property is subject to sale, in
accordance with the provisions of articles 1858 and 1876 of the same Code of sections 256 and
257 of the Code of Civil Procedure. It is true that the petitioner is a surety with regard to Rafael
Martinez and as such surety she is entitled to resort to the actions and remedies against him which
the law affords her, but we should not lose sight of the fact that she was sued not as a surety but
as a mortgage debtor for being the owner of the mortgaged property.
The order of May 8. 1939, appealed from, being in accordance with law, for the reason that it was
rendered by the respondent Judge in the exercise of his jurisdiction and discretion, the petition for
certiorari is hereby denied, with the costs to the petitioner. So ordered.
68. Imperial Assurance v. De Los Angeles, 111 SCRA 24 (1982)
This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No.
38824-R promulgated on July 19, 1967 entitled "The Imperial Insurance, Inc., petitioner vs. Hon.
Walfrido de los Angeles, Judge of the Court of First Instance of Rizal, Branch IV, Quezon City, et
al, respondents," the dispositive part of which reads:
WHEREFORE, the instant petition is dismissed and the writ of preliminary injunction issued by
the Court on January 31, 1967, is hereby dissolved, with costs against petitioner.
Although the counterbond contemplated in the aforequoted Sec. 17, Rule 57, of the Rules of
Court is an ordinary guaranty where the sureties assume a subsidiary liability, the rule cannot
apply to a counterbond where the surety bound itself "jointly and severally" (in solidum) with the

defendant as in the present case. The counterbond executed by the deceased defendant Felicisimo
V. Reyes, as principal, and the petitioner, The Imperial Insurance, Inc., as solidary quarantor to
lift the attachment in Civil Case No. Q-5213 is in the following terms:
WHEREFORE, WE, FELICISIMO V. REYES, of legal age, Filipino, and with postal address at
San Jose, San Miguel, Bulacan and/or 1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL
and THE IMPERIAL INSURANCE, INC., a corporation duly organized and existing under the
laws of the Philippines, as SURETY, in consideration of the dissolution of said attachment,
hereby JOINTLY AND SEVERALLY, bind ourselves in the sum of SIXTY THOUSAND PESOS
ONLY (P60,000.00), Philippine Currency, under the condition that in case the plaintiff recovers
judgment in the action, the defendant shall pay the sum of SIXTY THOUSAND PESOS
(P60,000.00), Philippine Currency, being the amount release for attachment, to be applied to the
payment of the judgment, or in default thereof, the Surety will, on demand, pay to the plaintiff
said amount of SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine Currency.
(Capitalizations supplied).
Manila, Philippines, June 30,1960. 13
The counterbond executed by the same parties in Civil Case No. Q-5214, likewise states.
WHEREFORE, we, FELICISIMO V. REYES, of legal age, Filipino, and with postal address at
San Jose, San Miguel, Bulacan, and/or 1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL
and THE IMPERIAL INSURANCE, INC., a corporation duly organized and existing under the
laws of the Philippines, as SURETY, in consideration of the dissolution of said attachment,
hereby JOINTLY and SEVERALLY, bind ourselves in the sum of FORTY THOUSAND PESOS
ONLY (P40,000.00), Philippine Currency, under the condition that in case the plaintiff recover
judgment in the action the defendant shall pay the sum of FORTY THOUSAND PESOS ONLY
(P40,000.00), Philippine Currency, being the amount released for attachment, to be applied to the
payment of the judgment, or in default thereof, the Surety will, on demand, pay to the plaintiffs
said amount of FORTY THOUSAND PESOS ONLY (P40,000.00), Philippine Currency.
(Emphasis supplied).
Manila, Philippines, June 30th, 1960. 14
Clearly, the petitioner, the Imperial Insurance, Inc., had bound itself solidarily with the principal,
the deceased defendant Felicisimo V. Reyes. In accordance with Article 2059, par. 2 of the Civil
Code of the Philippines, 15 excussion (previous exhaustion of the property of the debtor) shall not
take place "if he (the guarantor) has bound himself solidarily with the debtor." Section 17, Rule
57 of the Rules of Court cannot be construed 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." 1
WHEREFORE, the decision of the Court of Appeals promulgated on July 19,1967 in CA-G.R.
NO. 38824-R is affirmed and the order of the respondent judge dated January 19, 1967 and all
writs or orders issued in consequence or in pursuance thereof are also affirmed. The court of

origin is hereby ordered to proceed with the execution against the petitioner surety, the Imperial
Insurance Inc., with costs against said petitioner.
69. Luzon Steel v. Sia, 28 SCRA 58 (1969)
Luzon Steel Corporation has sued Metal Manufacturing of the Philippines and Jose O. Sia, the
former's manager, for breach of contract and damages. It obtained a writ of preliminary
attachment of the properties of the defendants, but the attachment was lifted upon a P25,000.00
counterbond executed by the defendant Sia, as principal, and the Times Surety & Insurance Co.,
Inc. (hereinafter designated as the surety), as solidary guarantor, in the following terms:
WHEREFORE, we JOSE O. SIA, as principal and the TIMES SURETY & INSURANCE CO.,
INC., as Surety, in consideration of the dissolution of attachment, hereby jointly and severally
bind ourselves in the sum of Twenty Five Thousand Pesos (P25,000.00), Philippine Currency, to
answer for the payment to the plaintiff of any judgment it may recover in the action in accordance
with Section 12, Rule 59, of the Rules of Court. (pp. 32, 45, Rec. on Appeal.)
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.
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. There is no record that the appellee surety has done so. Says
Article 2060 of the Civil Code of the Philippines:
ART. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up
against the creditor upon the latter's demand for payment from him, and point out to the creditor
available property of the debtor within Philippine territory, sufficient to cover the amount of the
debt.
70. Arroyo v. Jungsay, 34 Phil 589 (1916)
Plaintiff is Jose Arroyo, guardian of Tito Jocsing, an imbecile. Defendant is Florentino Jungsay
and his bondsmen. Florentino was the former guardian of Jocsing. The defendants
absconded with Jocsings funds.
A judgement was made by the lower court against the defendants for P6,000, together with
interest and costs, the bondsmen appealed.
Issue:
W/N the defendants should be credited with P4,400, the alleged value of certain property but is
in the exclusive possession of third parties under claim of ownership.
Held:

No. Defendants invoke the benefit of excussion in Article 1834 of the (old) Civil Code.
Excussion gives to the surety the benefit of a levy (excusion), even when a judgment is rendered
against both the surety and the principal. The effect of this is to stay proceedings against the
surety until judgment has been obtained against the principal debtor, and execution against his
property has proved insufficient.
The court however held that before the surety is entitled to this benefit, 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. (Article 1832 OCC, read Art 2060 NCC). According to Manresa, the claim
for the benefit of excussion have several elements: 1.) It must be claimed in a timely manner 2.)
Surety must designate property of the debtor where the debt is to be satisfied and importantly, 3.)
Such property must be realizable and that it be situated in Spanish territory. The same requisites
were cited in Hill &Co, 1.) The surety who wants to claim the benefit of excussion must demand
it in limine (on the institution of the proceedings) 2.) He must point out creditor property of the
principal debtor 3.) The property must not be incumbered, subject to seizure; and must furnish a
sufficient sum to have the discussion carried into effect The purpose of a bond is to secure
performance and the attachment of a property situated a great distance away or a property that is
not readily realizable would be a lengthy and extremely difficult proceeding. The surety is tasked
with designating the property because he the one to be benefitted by such task and the one most
interested in avoiding difficulties in its execution. In this case, the property the defendants want
credited to them is not sufficient to pay the indebtedness; it is not salable; it is so incumbered that
third parties have, full possession under claim of ownership. In all these respects the sureties have
failed to meet the requirements of article 1832 of the Civil Code. Where a guardian absconds or is
beyond the jurisdiction of the court, the proper method, under article 1834 of the Civil Code and
section 577 of the Code of Civil Procedure, in order to ascertain whether such guardian is liable
and to what extent, in order to bind the sureties on his official bond, is by a proceeding in the
nature of a civil action wherein the sureties are made parties and given an opportunity to be heard.
All this was done in the instant case Disposition: Lower court affirmed.
71. Cacho v. Valles, 45 Phil 107 (1932)
On October 29, 1920, the National Sporting Club, of Manila, obligated itself by a promissory
note payable at four months to pay to Jose Ma. Cacho, or order, the sum of P9,360, value received
for commercial purposes. Below the signature of said National Sporting Club, as signed by the
proper officers of the Club, the following personal guaranty was written: "We guarantee this
obligation." (Sgd.) J. A. Valles, J. L. Mateu, G. J. Heffting, Ed. Chesley, Baldomero Roxas. This
note was not paid at maturity; and an action was instituted thereon against the National Sporting
Club and the guarantors. To this action no defence was interposed either by the Club or any of the
guarantors except Baldomero Roxas, who, after denying generally the allegations of the
complaint, interposed a defence claiming the right of division as among the cosureties, and asking
that in case he should be found liable that he should be held responsible only for his aliquot part
of the debt, and praying also that before he should be required to pay such proportionate share the
property of the National Sporting Club should first be exhausted. After judgment had been given
upon the default of the National Sporting Club as obligor, the court, upon May 9, 1922, entered
judgment against the five guarantors requiring each of them to pay his pro rata share of the total

debt with interest in case the National Sporting Club itself should not satisfy the debt or should
appear to be insolvent upon execution of the judgment.
On June 20, 1922, the trial court upon motion modified the dispositive part of its decision as
against the guarantors by declaring that "in case either of the sureties shall turn out to be insolvent
his part shall fall proportionately upon the other sureties." From this order the defendant
Baldomero Roxas appealed to this court.
The sole question presented appeal in this appeal is one of law, which is, whether in case of the
insolvency of one or more of several simple sureties, those who remain solvent can be made to
pay the entire debt. It will be noted that the guaranty with which we are here concerned contains
no words making the cosureties solidarily liable either with the principal debtor or among
themselves, and accordingly the appellant Baldomero Roxas insists that the trial judge erred, in its
order of June 20, 1922, in declaring him responsible for any part of the debt over and above his
aliquot proportion.
The conditions under which the exhaustion of the property of principal debtor is required as a
condition precedent to the liability of the surety are stated in article 1831. Of the four conditions
there stated we are here concerned with the third only, which refers to the case where the debtor
has become bankrupt (quiebra o concurso del deudor); and it many be admitted that by the
combined force of article 1837 and subsection 3 article 1831, one of several sureties becomes
liable for his proportionate part of the share of any of his cosureties who may be declared
bankrupt. But the appealed decision makes the appellant liable in case any cosurety is found to be
insolvent. In this we think there was error.
There is a difference between being insolvent, which practically means exhaustion of assets, or
that money cannot be made out of a person upon execution, and the condition of a declared
bankrupt. The authors of the Code themselves were not unmindful of this distinction. Thus, we
note that in subsection 2 of article 1843 it is declared that a surety may proceed against the
principal debtor even before paying the debt in case of bankrupt or insolvency; but in subsection
2 of article 1831, with which we are here more especially concerned, the condition named is
bankruptcy. None of the sureties, so far as this record shows, has been declared bankrupt. The
benefit of division therefore has not been lost, and the rule declaring each surety liable only for
his aliquot part of the guaranteed debt, must hold.
When he declared that the solvent sureties should be liable proportionately for the part of any
insolvent surety, the trial judge in all probability had in mind the second paragraph of article 1844
of the Civil Code; but we think this article inapplicable for more than one reason. In the first
place, that article deals with the situation which arises when one surety has paid the debt to the
creditor and is seeking contribution from his cosureties. In the case before us the debt has not
been paid by any surety. In the second place, it is required in the third paragraph of said article,
that the surety paying the debt should have made payment by virtue of judicial proceedings or
when the principal debtor should have become insolvent or bankrupt. Nothing of the kind has
here happened. The article referred to is thus automatically excluded from operation.

In passing upon a question of the kind now before us it is to be remembered that the obligation of
the surety cannot be extended beyond its specified limits (Civ. Code, art. 1827); and it is not
legitimate for the court to adopt doubtful intendments against him.
In resume, a cosurety is entitled to the benefit of division from the very moment that he contracts
the obligation, except where there is stipulation to the contrary; but if any of the circumstances
enumerated in article 1831 should take place either because he expressly waives such a benefit
after making the contract of suretyship, or because he later binds himself solidarily with the
debtor or any of the other cosureties, or any of the cosureties becomes bankrupt or insolvent or
cannot be sued within the kingdom; and again, if such right is not availed of in due time, the
benefit of division will cease in any of these cases, as should the benefit of exhaustion of the
debtor's property. This is what the Code intended by inserting in the article under comment the
provision of paragraph 3, containing the reference their made. (12 Manresa, 284, 285.)
72. Mira Hermanos v. Manila Tobacconists, 74 Phil 367 (1943)
Facts: To secure the obligation of Manila Tobaconists up to the sum of 3,000 under contract with
Mira Hermanos who agreed to deliver to Manila Tobacconists merchandise for sale on
consignment under certain specified terms, Provident Insurance Co. executed a bond of 3,000.
Since the value of merchandise exceeded 3,000 Manila Compania de Seguros executed a bond of
2,000 with the same terms and conditions that the bonds would respond for the obligation of
Manila Tobacconists. Mira Hermanos sued the 2 insurance companies for the amount of 2,500
Provident only paid 60% of the debt and argued that Manila pay the remaining 40%
Issue: WON Provident Insurance Co. is entitled to the benefit of division.
Held: No, The benefit of division is applicable only where there are several guarantors or sureties
of only one debtor for the same debt. In the instant case, although the 2 bonds on their face appear
to guarantee the same debt co-extensively up to 2K that Provident Insurance Co. alone
extending beyond the sum up to 3K in reality said bonds do not guarantee the same debt.
Art. 2065 should there be several guarantors of only one debtor and for the same debt, the
obligation to answer for the same is divided among all. The creditor cannot claim from the
guarantors except shares which they are respectively bound to pay, unless solidarily has been
expressly stipulated. The benefit of division against the co-guarantors ceased in the same cases
and for the same reasons as the benefit of excussion against the principal debtor.
73. Tuason v. Machuca, 46 Phil 561 (1924)

Facts: Manila Compani

a de Seguros signed a note for 10,000 in favor of Tuason, Tuason Inc.
to guarantee a liability of Universal Trading Co, In turn, Universal
Trading Co. and its president, Antonio Machuca, in his personal
capacity, executed a document wherein they bound themselves
solidarily to reimburse Manila Compania de Seguros all of such sum it
may pay or become bound to pay, upon its obligation to Tuason,
Tuason Inc. whether or not it shall have actually paid such sums or any
part thereof. Universal Trading Co. was declared insolvent.

Tuason, Tuason, Inc. brought action against Manila Compania De

Seguros to recover the value of the note and obtained final judgment.
Later, Manila Compania De Seguros filed a complaint against Machuca
to recover the amount which Manila Compania De Seguros was
sentenced to pay Tuason, Tuason, Inc, plus attorneys fees, judicial
costs and sheriffs fees, and interest, although Manila Compania De
Seguros had not, in fact, paid the amount of the judgment.
Issue:
a) WON Tuason, Tuason Inc. Is entitled to the relief sought in view
of the above facts?
b) WON Tuason, Tuason Inc. has the right to recover from Machuca
more than the value of the note executed by Tuason, Tuason, Inc.
in favor of Manila Compania de Seguros?
Held:
a. Yes. It is indispensable that Universal Trading Co. became bound
by virtue of final judgment to pay the value of the note executed
by it in favor of Manila Compania de Seguros, and according to
the document executed solidarily by Universal Trading Co. and
Machuca, Machuca bound himself to pay Tuason, Tuason, Inc. as
soon as the latter may have become bound and liable, whether
or not it shall have actually paid.
b. Machuca must not be responsible for the expenses incurred by
Manila Compania De Seguros in the litigation between it and
Tuason, Tuason, Inc. and it cannot charge Machuca with expenses
it was compelled to make by reason of its fault. It is entitled only
to expenses incurred by it in the action against Machuca.
Art. 2071 the guarantor, even before having paid, may proceed against the
principal debtor:
1. When he is being sued for the payment
2. In the case of insolvency of the principal debtor
3. When the debtor has bound himself to relieve him from the guaranty
within specified period, and this period has expired
4. When the debt has become demandable, by reason of the expiration of
the period of the payment
5. After the lapse of ten years, when the principal obligation has no fixed
period for its maturity, unless it be such nature that it cannot be
extinguished except within a period longer than ten years
6. If there are reasonable grounds to fear that the principal debtor intends
to abscond
7. If the principal debtor is in imminent danger of becoming insolvent
In all these, cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any
proceedings by the creditor and from the danger of the insolvency of the
debtor.
74. PNB v. Luzon Surety, 68 SCRA 207 (1975)

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija
"declaring that the Philippine National Bank had acquired absolute ownership
of the rights, interests, and participation of the spouses Paulino Candelaria
and Dionisia Tecson in the parcels of land covered by Transfer Certificate of
Title No. T-6241 now Transfer Certificate of Title No. T-12343 and Transfer
Certificate of Title No. T-6242 now Transfer Certificate Of Title No. T-12344;
declaring that the defendant Luzon Surety Company acquired nothing by
virtue of the final bill of sale executed in its favor by the Provincial Sheriff,
Exhibits 6 and 7, except the right of redemption which had been lost;
ordering the cancellation of the notice of attachment, Entry No. 15019 NT6364 in favor of the Luzon Surety Company on Transfer Certificate of Title No.
NT-12343, as well as the certificate of sale in favor of the Luzon Surety
Company, Entry No. 32264, NT-6241, and the notice of attachment and
certificate of sale on transfer Certificate of Title No. NT-12344, Entries Nos.
15019, NT-3664, and No. 32264, No. NT-6241; and finally declaring the rights
of the Philippine National Bank to the said properties free from any claim, lien
or incumbrances in favor of the Luzon Surety Company. With costs against
the defendant." Form this judgement, the defendant Luzon Surety Company
appealed to this Court purely on question of law.
Inasmuch as the questions of fact as found by the trial court are not disputed,
we will quote hereunder the pertinent portion necessary for the decision of
this case:
In Civil Case No. 7647 of the Court of First Instance of Manila, entitled
Philippine National Bank vs. Paulino Candelaria, et al., the Philippine
National Bank attached the rights, interest and participation of Paulino
Candelaria and Dionisia Tecson in the parcels of land covered by
Transfer Certificates of Titles Nos. 21035 and 21045 of the Register of
Deeds of Nueva Ecija Exhibit B. The writ of attachment which is dated
March 25, 1949 was registered and annotated in Certificate of Title No.
21035, Exhibit F, and No. 21045, Exhibit G, on March 25, 1949. Transfer
Certificates of Title No. 21035, Exhibit F, was cancelled by Transfer
Certificates of Title No. NT-6241, Exhibit H, which in turn was cancelled
by Transfer Certificate of Title No. NT-12343, Exhibit J. Transfer
Certificate of Title No. NT-6242, Exhibit I, which in turn was cancelled
by Transfer Certificate of Title No. NT-12344, Exhibit K. All these
certificates of title carry the attachment in favor of the Philippine
National Bank. On October 13, 1950, Paulino Candelaria and Dionisia
Tecson assigned and conveyed to the Philippine National Bank several
parcels of land, among which were those covered by Transfer
Certificates of Title No. 21035 and 21045 in consideration of the
judgment rendered against them in Civil Case No. 7647. This deed of
assignment had not been registered or annotated in the certificate of
title. Pursuant to the judgment in Civil Case No. 7647, several parcels
of land, including the parcels of land in question then covered by
Transfer Certificates of Title No. N-6241 and NT-6242, were sold at
public auction in which the Philippine National Bank was the highest
bidder, and the Provincial Sheriffex-officio executed a certificate of sale
in favor of the Philippine National Bank dated April 1, 1952, Exhibit D.

This certificate of sale was registered and annotated on Transfer

Certificates of Title No. NT-12348 and NT-12344 on December 24,
1954.
In Civil Case No. 5633 of the Court of First Instance of Manila, entitled,
Rafael Viola vs. Ricardo Linsangan, et al., the rights interest and
participation of the spouses Paulino Candelaria and Dionisia Tecson in
the parcels covered by T.C.T. Nos. 21035 and 21646 were attached by
the Luzon Surety Company. The writ of attachment, Exhibit 2-A, was
registered and annotated on certificate of title on April, 5, 1949. By
virtue of the judgment rendered in the same Civil Case No. 5633, the
properties of Paulino Candelaria, including his rights, participation, and
interests in the lands now in question, covered by Transfer Certificates
of Title Nos. 12343 and 12344, were sold public auction, in which the
Luzon Surety Company was the highest bidder. The provincial Sheriff of
the Province of Nueva Ecija executed a certificate of sale in favor of the
Luzon Surety Company on October 10, 1951, Exhibit 5, which was
registered on the same date. Paulino Candelaria and his wife having
failed to redeem the property within the period prescribed by law, the
Provincial Sheriff executed the final bill of sale on November 29, 1952,
Exhibit 6, in favor of the Luzon Surety Company.
Various incidents took place in Cadastral Case No. 51, G.L.R.O. Record
No. 1045, with respect to the conflicting claims of the Philippine
National Bank and the Luzon Surety Company over the parcels of land
covered by Transfer Certificates of Title Nos. 12343 and 12344. The
Court, being of the opinion that the controversy between the parties
involved a contentious litigation, did not resolve the preference of the
parties, but ordered the registration and annotation of the final bill of
sale executed by the Provincial Sheriff in favor of the Philippine
National Bank and the Luzon Surety Company. The Philippine National
Rank registered the final bill of sale in its favor, but no action was
taken by the Luzon Surety Company. (Decision Record on Appeal, pp.
38-41).
The several errors assigned by appellant in its brief consist in substance in
that the trial court failed to hold (1) that the deed of assignment, Exhibit 15,
operated a complete payment and satisfaction of the judgment rendered in
favor of the Philippine National Bank by the Court of First Instance of Manila in
Civil Case No. 7647; (2) that said satisfaction of judgment served to
extinguish or dissolve the writ of attachment issued in favor of said bank; (3)
that the execution sale in favor of said bank was null and void since the
judgment sought to be executed had already been paid or satisfied; and (4)
that appellant is the absolute owner of the parcels of land in question by
virtue of the final bill of sale issued in its favor in Civil Case No. 5633.
There is no dispute that the writ of preliminary attachment in favor of
appellee in Civil Case No. 7647 of the Court of First Instance of Manila has
preference over the preliminary attachment in favor of appellant issued: in
Civil Case No. 5633, since appellees writ was registered prior to the

registration of the attachment in favor of appellant. There is also no dispute,

as admitted by appellant, that a sale by virtue of an attachment retroacts to
the date of the registration of the writ of attachment, and that the preference
of the attachment creditor is determined, not by the date of the execution
sale, but by the date of the registration of the writ. With this premise, it would
appear that appellee, has required a valid and preferential, title to the lands
in question by virtue of the final bill of sale executed in its favor by the sheriff
as a result of the auction sale held in Civil Case No. 76471. Since appellant
was merely a redemptioner who stepped into the shoes of the judgment
debtors in Civil Case No. 5633 and has failed to exercise the right of
redemption within the period prescribe by law, its right, if any, to the
properties in question has become forfeited.
It is claimed however that after judgment was rendered in favor of appellee in
Civil Case No. 7647 on September 12, 1950, the judgement debtors Paulino
Candelaria and Dionisia Tecson made on October 30, 1950 an assignment of
all their rights and interests over the parcels of land in question in satisfaction
of the judgment rendered in favor of appellee and that said assignment has
the effect of dissolving the writ of attachment issued in favor of appellee. And
if we are to hold, it is contended, that the assignment thus made has the
effect of dissolving the writ in favor of appellee, it follows that the writ issued
in favor of appellant became prior and preferential and the sale made in its
favor as a consequence thereof valid and absolute.
While it is true that a deed of assignment was made in favor of appellee by its
judgment debtors allegedly in satisfaction of the judgment render in its favor,
it appears however that the deed was never registered in the registry of
property and as such it has not ripened into a conveyance in contemplation
of law. The assignment failed to bind the land. And since the purpose of the
assignment is the transfer of the ownership of the land in payment of the
amount of the judgment which amounted to P63,737.53 and the conveyance
did not materialize because of failure of registration, it would be incongruous
to hold that assignment in contemplation of law operated to dissolve the writ
of attachment issued in favor of appellee. The best proof that appellee never
intended to consider such an assignment as a full satisfaction of the
judgment in its favor is the fact that it took steps to enforce its judgment
through an auction sale where it bought the property as the highest bidder
and was given a final bill of sale by the sheriff.
Moreover, there is no incompatibility between the deed of assignment and
the writ of attachment issued in favor of appellee, for the two can co-exist.
The first is merely one of the means by which appellee may avail of to insure
the transfer of the lands subject of the writ in satisfaction of the judgment
without in any way relinquishing the priority it has acquired over them by
virtue of the writ, whereas the second is a precautionary measure taken to
assert its rights over the land against third persons. Ordinarily a deed of
assignment may bind the assignee with regard to the land even if the deed is
not registered, but not so when the right of a third party is involved (Section
50, Act 496). This is the situation herein obtained. Because of a conflicting
right asserted by appellant, appellee deemed it best to carry out its writ of

execution to the extent allowed by law so that it may derive the full benefit
that the law grants to a prior lien holder. Under the law and equity, therefore ,
it is clear that the prior lien of appellee over the lands his not been lost with
the execution of the deed of assignment Exhibit 15.
Wherefore, the decision appealed from is affirmed, with costs against
appellant.
EXERPT:
75. Saenz v. Yap Chuan, 16 Phil 76 (1910)

Facts: By order of the court, Engracio Palanca, as judicial administrator

of an estate, gave a bond to guarantee his administration. The judicial
bond was executed by Palanca, Vizmanos, and others jointly and
severally in favor of the Government for the sum of 60K. In turn,
Palanca and 5 others executed in favor of Vizmanos another bond.
As guarantor in solidum of Palanca who was replaced by Yap
Chengtua as the new administrator, Vizmanos was ordered by the
court to pay to the estate the sum of 48K. Vizmanos paid 8K and still
owed 40K. Palanca could not pay Vizmanos.
Issue: WON the other creditors should reimburse Vizmanos each or a
total of 20K notwithstanding that Vizmanos had paid only 8K of his
bond?
Held: NO
1. Guarantors rights of reimbursement limited to amount paid
2. An action of subrogation is an action of indemnity

Art. 2067 the guarantor who pays is subrogated by virtue thereof of all the
rights which the creditor had against the debtor. If the guarantor has
compromised with the creditor, he cannot demand of the debtor more than
what he has really paid.
76. Manila Surety v. Batu Construction, 101 Phil 494 (1957)
77. Gen. Indemnity v. Alvarez, 100 Phil 1059 (1957)

Facts: General Indemnity Co. filed a complaint against Estanislao

Alvarez for the recovery of 2,000 representing the amount of a loan
allegedly taken by Alvarez from PNB, the payment of which General
Indemnity Co. guaranteed with an indemnity bond.
There exists a controversy in the complaint and answer as to
whether or not General Indemnity Co. had actually paid Alvarez
obligation to the PNB.
Issue: WON the action by the guarantor against the principal debtor for
payment before the guarantor has paid the creditor premature?

Held: Yes, An action by the guarantor against principal debtor for

payment before the guarantor has paid the creditor is, premature.
Under Art. 2071, a guarantor who has not paid the creditor can
proceed against the principal debtor only for the purpose of obtaining
release from the guaranty or security against an eventual insolvency of
the debtor.
Art. 2071 the guarantor, even before having paid, may proceed against the
principal debtor:
1. When he is being sued for the payment
2. In the case of insolvency of the principal debtor
3. When the debtor has bound himself to relieve him from the guaranty
within specified period, and this period has expired
4. When the debt has become demandable, by reason of the expiration of
the period of the payment
5. After the lapse of ten years, when the principal obligation has no fixed
period for its maturity, unless it be such nature that it cannot be
extinguished except within a period longer than ten years
6. If there are reasonable grounds to fear that the principal debtor intends
to abscond
7. If the principal debtor is in imminent danger of becoming insolvent
In all these, cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any
proceedings by the creditor and from the danger of the insolvency of the
debtor.
78. Radio Corp. Of the Phil. v. Roa, 62 Phil 211 (1935)
79. Villa v. Garcia Bosque, 49 Phil 126 (1926)
FACTS:
Rosa Villa y Monna, widow of Enrique Bota instituted in the Court of First Instance of Manila
filed a suit for the recovery of Php 20,509.71 with interest from the defendants Guillermo Garcia
Bosque, Jose Polivar Ruiz, R.G. France and F.H. Goulette. It was alleged that the plaintiff was
entitled from the sale of a printing establishment and bookstore located at 89 Escolta, Manila.
Acting through her attorney-in-fact, Manuel Pirretas y Monros. The trial judge ruled that the
defendants should pay the sum of Php 19,230.01 as capital with an interest of 7% plus Php
1,279.90 as interest accrued. On appeal, it was found that Villa, owner of La For de Catalua (the
said establishment) resided in Barcelona, Spain since September 17, 1909 and its through Atty.
Pirretas that the act of selling was executed to the defendants Garcia Bosque and Ruiz with the
following stipulations:
Php 15,000.00 to be paid on November 1,
Php 10,000.00 when the purchasers to take possession;
Php 15,000.00 at two years; and
Php 15,000.00 after 3 years
A total of Php 55,000.00 was the stipulated sum and if the sale was by installments, there would
be an interest of 7% per annum. In the same document France and Goulette obligated themselves
as solidary sureties. In 1920, Atty. Pirretas executed a document in January 22, 1920 purporting a
substitution of agency to Figueras Hermanos a mercantile entity transferring his legal

representation and power conferred by Villa. When the second installment comes, the purchasers
negotiated with Alfredo Rocha, of Figueras Hermanos, a payment of Php 5,800.00 and 5
promissory notes payable when agreed upon. However these notes were not paid promptly at
maturity. Further, Garcia Bosque converted the business establishment into a limited partnership
and then to a corporation Bota Printing Company. Figueras entered into an agreement reciting
that Gracia Bosque was indebted to Villa in the amount of Php 32,000.00

ISSUE:
Whether or not the act of Figueras as substitute agent of Atty. Pirretas was correct?
HELD:
NO. The act of substitution conferred no authority. The Court ruled that there is nothing here that
can be construed to authorize Figueras to discharge any of the debtors without payment or to
novate the contract by which their obligation is created.
80. Hospicio de San Jose v. Fidelity, 52 Phil 926 (1929)
t appears from the evidence that on July 17, 1916, one 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.
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 and the following endorsement in the English
language appears upon the contract:
MANILA, July 15, 1916.
FIDELITY AND SURETY COMPANY OF THE PHILIPPINE ISLANDS.
(Sgd) OTTO VORSTER,
Vice-President.
Machetti constructed the building under the supervision of architects
representing the Hospicio de San Jose and, as the work progressed, payments
were made to him from time to time upon the recommendation of the
architects, until the entire contract price, with the exception of the sum of the
P4,978.08, was paid. Subsequently it was found that the work had not been
carried out in accordance with the specifications which formed part of the
contract and that the workmanship was not of the standard required, and the
Hospicio de San Jose therefore answered the complaint and presented a
counterclaim for damages for the partial noncompliance with the terms of the
agreement abovementioned, in the total sum of P71,350. After issue was thus
joined, Machetti, on petition of his creditors, was, on February 27, 1918,
declared insolvent and on March 4, 1918, an order was entered suspending
the proceeding in the present case in accordance with section 60 of the
Insolvency Law, Act No. 1956.
The Hospicio de San Jose on January 29, 1919, filed a motion 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. 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. After trial, the Court of First Instance rendered judgment against the
Fidelity and Surety Company for P12,800 in accordance with the complaint.
The case is now before this court upon appeal by the Fidelity and Surety
Company form said judgment.
As will be seen, the original action which Machetti was the plaintiff and the
Hospicio de San Jose defendant, has been converted into an action in which
the Hospicio de San Jose is plaintiff and the Fidelity and Surety Company, the
original plaintiff's guarantor, is the defendant, Machetti having been
practically eliminated from the case.
But in this instance the guarantor's case is even stronger than that of an
ordinary surety. The contract of guaranty is written in the English language
and the terms employed must of course be given the signification which
ordinarily attaches to them in that language. In English the term "guarantor"
implies an undertaking of guaranty, as distinguished from suretyship. 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.
Now, while a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay. The one is the
insurer of the debt, the other an insurer of the solvency of the debtor.
(Saintvs. Wheeler & Wilson Mfg. Co., 95 Ala., 362; Campbell, vs. Sherman,
151 Pa. St., 70; Castellvi de Higgins and Higgins vs. Sellner, 41 Phil., 142;
;U.S. vs. Varadero de la Quinta, 40 Phil., 48.) This latter liability is what the
Fidelity and Surety Company assumed in the present case. The undertaking is
perhaps not exactly that of a fianzaunder the Civil Code, but is a perfectly
valid contract and must be given the legal effect if ordinarily carries. The
Fidelity and Surety Company having bound itself to pay only the event its
principal, Machetti, cannot pay it follows that it cannot be compelled to pay
until it is shown that Machetti is unable to pay. Such ability may be proven by
the return of a writ of execution unsatisfied or by other means, but is not
sufficiently established by the mere fact that he has been declared insolvent
in insolvency proceedings under our statutes, in which the extent of the
insolvent's inability to pay is not determined until the final liquidation of his
estate.
The judgment appealed from is therefore reversed without costs and without
prejudice to such right of action as the cross-complainant, the Hospicio de
San Jose, may have after exhausting its remedy against the plaintiff Machetti.
So ordered.

EXERPT:

Romulo Machetti, in a written agreement with Hospicio de San Jose undertook

to construct a bulding for P64,000, with the condition that the contractor
should obtain a "guarantee" of the Fidelity and Surety Company of the
Philippine Islands to the amount of 128,000 Php. For value received we
hereby guarantee compliance with the terms and conditions as outlined in
the above contract.
Petitioner constructed building and payments were made to him from time to
time until the contract price, except P4978.08 was paid. However, it was
found out that the work had not been carried out in the standard required, so
respondents answered the complaint and presented a counterclaim for
damages for the partial non-compliance with terms of the agreement, in the
total sum of P71,350. Machetti was then declared insolvent.
Respondent asked that F&S Co. be made cross-defendant to the exclusion of Machetti. The
original action which Machetti was the plaintiff and the Hospicio de San Jose defendant, has been
converted into an action in which the Hospicio de San Jose is plaintiff and the Fidelity and Surety
Company, the original plaintiff's guarantor, is the defendant, Machetti having been practically
eliminated from the case.
English the term "guarantor" implies an undertaking of guaranty, as distinguished from
suretyship. 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.
The guarantor only binds himself to pay if the principal cannot pay. 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.
The judgment appealed from is therefore reversed without costs and without
prejudice to such right of action as the cross-complainant, the Hospicio de
San Jose, may have after exhausting its remedy against the plaintiff Machetti.
So ordered.
81. PNB v. Manila Surety, 14 SCRA 776 (1965)

Facts: PNB was negligent in its duty under the power of attorney to
collect sums due to debtor from the latters debtor, thereby allowing
such funds to be exhausted by other creditors.

Issue: WON Manila Surety is exonerated from liability to PNB?

Held: Yes. Even if the assignment with the power of attorney from the
principal debtor was considered as a mere additional security, still, by
allowing the assigned funds to be exhausted without notifying Manila
Surety, PNB deprived the former of the possibility of taking recourse
against the security. PNB thereby exonerated Manila Surety, pursuant
to Art. 2080.
Art. 2080 the guarantors, even though they be solidarily, 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.