WAREHOUSE RECEIPTS AND GUARANTY DIGESTS (NET SOURCED –CREDS TO ALL AUTHORS)

PNB v. SE, ET AL. [18 April 1996; G.R. No. 119231]

SUMMARY: PNB, as endorsee of 5 Warehouse Receipts (quedans), demanded delivery of sugar stocks covered thereby.
Noah's Ark Sugar Refinery refused to comply, alleging that the original purchasers of the stocks never acquired
ownership because of failure to pay. PNB obtained favorable judgment, but the defendants asserted their
warehouseman's lien. SC upheld the warehouseman's lien in favor of the defendants. While the PNB is entitled to the
stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees.

NATURE: Petition to nullify the orders of the respondent Judge Se

FACTS:

• 1989 - In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinary issued the following Warehouse
Receipts (Quedans):

O Receipt No. 18062 - sugar deposited by Rosa Sy;

O Receipt No. 18080, - sugar deposited by RNS Merchandising (Rosa Ng Sy);

O Receipt No. 18081, - sugar deposited by St. Therese Merchandising (STM);

O Receipt No. 18086, - sugar deposited by STM; and

O Receipt No. 18087- sugar deposited by RNS Merchandising.

• Warehouse Receipts Nos. 18080 and 18081 were negotiated and endorsed to Luis Ramos. The other receipts were
negotiated and endorsed to Cresencia Zoleta.

• Ramos and Zoleta endorsed the quedans to PNB as security for 2 loans (P15.6M, P23.5M).

• They failed to pay the loan. PNB wrote to the Sugar Refinery and demanded delivery of the sugar stocks, but the latter
refused to comply.

• PNB filed a verified complaint for "Specific Performance with Damages and Application for Writ of Attachment" against
Noah's Ark Sugar Refinery, Alberto T. Looyuko (sole proprietor), Jimmy T. Go (managing partner) and Wilson T. Go
(Executive VP).

O RTC Judge Se denied the Application for Preliminary Attachment.

O Sugar Refinery and co-defendants filed an answer with counterclaim and third-party complaint. They claimed
to own the quedans and the sugar represented therein. Allegedly, RNS and STM purchased the sugar covered by
the quedans but the checks they gave as payment were dishonored. Considering that the buyers never acquired
ownership, their subsequent endorsers and PNB could not acquire a better right.

O Sy (of RNS) and Ng (of STM) alleged that the transaction was merely simulated.

• PNB filed a Motion for Summary Judgment.

O RTC - Denied. PNB filed a Petition for Certiorari with the CA.

O CA - Reversed; ordered RTC to render summary judgment in favor of PNB.

 Effect of ruling: Declared that defendants were not owners but were only warehousemen with respect to the
sugar stocks.

• RTC - Did not follow the CA; still dismissed PNB's complaint; also dismissed the counterclaim and third-party complaint.
PNB filed a Petition for Review on Certiorari at the SC.

• SC - Reversed; ordered a new judgment conforming to the CA's decision (in favor of PNB)

• Defendants filed a Motion for Clarification. SC held that the relief granted was precisely the relief set out in the final
and executory decision of the CA.

• Defendants filed an Omnibus Motion seeking deferment of the proceedings until they were heard on their claim for
warehouseman's lien.

O Meanwhile, PNB filed a Motion for the Issuance of Writ of Execution

O RTC granted the Omnibus Motion; PNB's motion was deferred.

• PNB filed a Manifestation with Urgent Motion to Nullify Court Proceedings.

O RTC held that there exists in favor of the defendants a valid warehouseman's lien under Sec. 27 of R.A. 2137.
Accordingly, execution of the judgment was ordered stayed and/or precluded until the full amount of
defendants' lien shall have been satisfied.

PETITIONER PNB ARGUES:

• Defendants have lost their right to recover their warehouseman’s lien because they failed to set up said claim
in their Answer before the RTC, and they did not appeal from the decision.

• Denial by the SC of the Motion for Clarification has foreclosed private respondents’ right to enforce their
warehouseman’s lien under the Warehouse Receipts Act.

PRIVATE RESPONDENTS ARGUE: They could not have claimed the right to a warehouseman’s lien in their Answer to the
complaint before the RTC as it would have been inconsistent with their original stand (claiming ownership of the stocks
covered by the quedans).

ISSUES AND HELD:

W/N the defendants have lost their right to recover their warehouseman's lien ⇒NO.

• In disposing of the private respondents’ motion for clarification, SC could not contemplate the matter of
warehouseman’s lien because the issue to be resolved then was the claim of private respondents for retaining
ownership of the stocks of sugar covered by the endorsed quedans.

• In other words: It was only in the SC's ruling on the Motion for Clarification that it was finally resolved that
defendants were not the owners of the sugar stocks. Hence, it was only after such ruling that defendants could
assert a different claim: their warehouseman's lien.

W/N Noah's Ark Sugar Refinery has the right to impose and collect warehouseman's lien ⇒YES.

• Stipulation in the Warehouse Receipts provides for such right:

 "Storage of the refined sugar quantities mentioned herein shall be free up to one (1) week from the date
of the quedans covering said sugar and thereafter, storage fees shall be charged in accordance with the
Refining Contract under which the refined sugar covered by this Quedan was produced."

• Even in the absence of such a provision, law and equity dictate the payment of the warehouseman’s lien
pursuant to Secs. 27 and 31 of the Warehouse Receipts Law (R.A. 2137):

SECTION 27. What claims are included in the warehouseman’s lien. ­ Subject to the provisions of section
thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in his hands, for
all lawful charges for storage and preservation of the goods; also for all lawful claims for money
advanced, interest, insurance, transportation, labor, weighing coopering and other charges and expenses
in relation to such goods; also for all reasonable charges and expenses for notice, and advertisement of
sale, and for sale of the goods where default has been made in satisfying the warehouseman’s lien.

SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien valid
against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.

• As warehousemen, private respondents cannot legally be deprived of their right to enforce their claim for
warehouseman’s lien for reasonable storage fees and preservation expenses. Pursuant to Sec. 31, they may
refuse to deliver the goods until the lien is satisfied.

• PNB cannot disclaim liability for the payment of the storage fees stipulated in the Warehouse Receipts, which
it also uses as basis for its claim for delivery of the sugar stocks (estopped). Its unconditional presentment of the
receipts carried with it the admission of the existence and validity of the terms, conditions and stipulations
written on the face of the Warehouse Receipts, including the unqualified recognition of the payment of
warehouseman’s lien for storage fees and preservation expenses. PNB may not now retrieve the sugar stocks
without paying the lien due private respondents as warehouseman.

• While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected
only upon payment of the storage fees.

Note: In accordance with Sec. 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a warehouseman’s lien is possessory in nature.

PNB v. HON. MARCELINO SAYO, NOAH’S ARK SUGAR REFINERY, ALBERTO LOOYUKO, JIMMY GO AND WILSON GO
[G.R. NO. 129918, JULY 9, 1998]

FACTS: Noahs Ark issued several warehouse reciepts covering sugar deposits by Rosa Sy, RNS Merchandising and St.
Therese Merchandising. Later, 4 of these receipts were negotiated to Luis Ramos and Cresencia Zoleta. Ramos and
Zoleta later used these receipts to secure a loan with PNB.

Ramos and Zoleta failed to pay the loan, so PNB is now demanding for the delivery of the sugar deposit covered by the
warehouse receipts. Noahs Ark refused to deliver such, and claims ownership over sugar deposits. For such reason, PNB
filed a complaint for specific performance with damages and writ of attachment against Noahs Ark.

RTC Manila denied the writ of attachment.

Noahs Ark claim that in an agreement, defendants agreed to sell Rosa Sy of RNS Merchandising and Teresita of St.
Therese Merchandising the volume of sugar deposited for 63M. They also claim that the vendees and first endorsers of
the receipts did not acquire ownership, thus the subsequent endorsers did not acquire a better right of ownership also.

Rosa Sy and Teresita Ng is saying that the transaction between them and defendants is a simulated sale, thus they are
not answerable in damages to him. PNB motion for summary judgment, thereupon filed a Petition for Certiorari with CA.

CA ordered RTC to render a summary judgment in favor of PNB.

Trial court rendered judgment dismissing plaintiffs complaint against private respondents for lack of cause of action and
likewise dismissed private respondents counterclaim against PNB and of the Third-Party Complaint and the Third-Party
Defendants Counterclaim. On September 4, 1992, the trial court denied PNBs Motion for Reconsideration.

On June 9, 1992, the PNB filed an appeal from the RTC decision with the Supreme Court, G.R. No. 107243, by way of a
Petition for Review on Certiorari under Rule 45 of the Rules of Court.

RULING:

SC: (a) to deliver to the petitioner Philippine National Bank, the sugar stocks covered by the Warehouse
Receipts/Quedans which are now in the latters possession as holder for value and in due course; or alternatively, to pay
(said) plaintiff actual damages in the amount of P39.1 million, with legal interest thereon from the filing of the complaint
until full payment; and

(b) to pay plaintiff Philippine National Bank attorneys fees, litigation expenses and judicial costs hereby fixed at the
amount of One Hundred Fifty Thousand Pesos (P150,000.00) as well as the costs.

While PNB is entitled to the sugar stocks as endorsee of the receipts, delivery to it shall only be effected upon payment
of the storage fees. Because it is imperative to the right of the warehouse man to demand payment of his lien.

ATOK FINANCE CORPORATION v. COURT OF APPEALS [G.R. No. 80078; May 18, 1993]

FACTS: On 27 July 1979, private respondents Sanyu Chemical Corporation as principal and Sanyu Trading Corporation
along with individual private stockholders of Sanyu Chemical as sureties, executed a Continuing Suretyship Agreement in
favor of Atok Finance as creditor.

In 1981, Sanyu Chemical assigned its trade receivables outstanding to Atok Finance in consideration of receipt from Atok
Finance of the amount of P105,000.00. The assigned receivables carried a standard term of thirty (30) days; it appeared,
however, that the standard commercial practice was to grant an extension of up to one hundred twenty (120) days
without penalties.

In 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo
Halili before the Regional Trial Court of Manila to collect a sum of money plus penalty charges starting from 1 September
1983. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade
receivables.

Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim
had prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended
that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its
execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.
After trial the trial court rendered a decision in favor of Atok Finance. On appeal the CA reversed and set aside the
decision of the trial court and entered a new judgment dismissing the complaint of Atok Finance.

ISSUES:

 Whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the
provisions of the Continuing Suretyship Agreement, or whether that Agreement must be held null and void as
having been executed without consideration and without a pre-existing principal obligation to sustain it.
 Whether private respondents are liable under the Deed of Assignment which they, along with the principal
debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby assigned.

HELD: Although obligations arising from contracts have the force of law between the contracting parties, (Article 1159 of
the Civil Code) this does not mean that the law is inferior to it; the terms of the contract could not be enforced if not
valid. So, even if, as in this case, the agreement was for a continuing suretyship to include obligations enumerated in the
agreement, the same could not be enforced. First, because this contract, just like guaranty, cannot exist without a valid
obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt (Art. 2053, C.C.), the
obligation contemplated in the case at bar cannot be considered 'future debt' as envisioned by this law.

There is no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which
served as the principal obligation between the parties. Furthermore, the 'future debts' alluded to in Article 2053 refer to
debts already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the
case at bar where the obligation was acquired two years after the agreement."

A guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of
securing the performance of another obligation which is denominated as the principal obligation. It is also true that
Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." Nevertheless, a guaranty
may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a
natural obligation." Moreover, Article 2053 of the Civil Code states that a guaranty may also be given as security for
future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is
liquidated. A conditional obligation may also be secured."

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

As regards the second issue, the contention of Sanyu Chemical was that Atok Finance had no cause of action under the
Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had ceased. It relied on
Article 1629 of the Civil Code which provides: In case the assignor in good faith should have made himself responsible
for the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it
shall last for one year only, from the time of the assignment if the period had already expired. If the credit should be
payable within a term or period which has not yet expired, the liability shall cease one year after the maturity."

The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the assignor
which were later assigned to the assignee. The debt alluded to in the law, is not the debt incurred by the assignor to the
assignee as contended by the appellant. Applying the said law to the case at bar, the records disclose that none of the
assigned receivables had matured when the Deed of Assignment was executed.

It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical.
Assignment of receivables is a commonplace commercial transaction today. It is an activity or operation that permits the
assignee to monetize or realize the value of the receivables before the maturity thereof. In other words, Sanyu Chemical
received from Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously benefitted from
the assignment. The payments due in the first instance from the trade debtors of Sanyu Chemical would represent the
return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such
receivables.

Article 1629 of the Civil Code is not material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of
the warranty of solvency; the liability of Sanyu Chemical was not ex lege but rather ex contractu. Under the Deed of
Assignment, the effect of non-payment by the original trade debtors was a breach of warranty of solvency by Sanyu
Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other
words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and
transferred by virtue of the Deed of Assignment. The obligations of individual private respondent officers and
stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations
of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of
Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the
Civil Code. It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a valid and
enforceable cause of action against Sanyu Chemical and the other private respondents.

EMMANUEL C. ONGSIAKO, ET AL., plaintiffs, v. THE WORLD WIDE INSURANCE & SURETY CO., INC., ET AL., defendants.
THE WORLD WIDE INSURANCE & SURETY CO. INC., crossclaimant-appellant, vs. CATALINA DE LEON, cross-defendant-
appellee.

FACTS: On November 10, 1951, Catalina de Leon executed in favor of Augusto V. Ongsiako a promissory note in the
amount of P1,200.00, payable ninety (90) days after date, with interest at 1 per cent per month. On the same date, a
surety bond was executed by Catalina de Leon, as principal, and the World Wide Insurance & Surety Co., Inc., as surety,
whereby they bound to pay said amount jointly and severally to Augusto V. Ongsiako. As the obligation was not paid on
its date of maturity either by Catalina de Leon or by the surety notwithstanding the demands made upon them,
Ongsiako brought this action on March 6, 1953 in the Municipal Court of Manila to recover the same from both the
principal and the surety. Judgment having been rendered for the, plaintiff, both defendants appealed to the court of first
instance. In the latter court, Catalina de Leon failed to answer and so she was declared in default. In due time the surety
company filed its answer setting up a counterclaim against plaintiff and a cross-claim against its co-defendant.

After hearing, the court rendered judgment ordering Catalina de Leon to pay plaintiff the sum of P1,200.00, with interest
at the rate of 1 per cent per month from February 10, 1952, and the sum of P300.00 as attorneys' fees, and costs.
Defendant Surety Company was likewise ordered to pay to plaintiff the same judgment but with the proviso that
"execution should not issue against defendant The World-Wide Insurance & Surety Co. Inc., until a return is made by the
Sheriff upon execution against defendant Catalina de Leon showing that the judgment against her remained unsatisfied
in whole or in part; and provided, further, that defendant Catalina de Leon shall reimburse to defendant Company
whatever amount the latter might pay under this judgment together with such expenses as may be necessary to
effectuate said reimbursement." From this judgment, the surety company appealed and the case is now before us
because, as certified by the Court of Appeals, it only involves questions of law. Augusto V. Ongsiako, having died in the
meantime, was substituted by his special administrators Emmanuel Ongsiako and Severino Santiangco. The surety bond
in question was executed in November 10, 1951 and among the important provisions it contains is the following: that
the principal and the surety "are held and firmly bound unto Dr. Augusto V. Ongsiako in the sum of One Thousand Two
Hundred Pesos (P1,200.00), Philippine Currency, for the payment of which well and truly to be made, we bind ourselves
. . . jointly and severally, firmly by these presents (and referring to the Promissory Note) "whose terms and conditions
are made parts hereof.' In said bond there also appears a special condition which recites:

The Liability of the World-Wide Insurance & Surety Co. Inc. under this bond will expire on February 10, 1952." The note
therein referred to, on the other hand, provides that the obligation is payable ninety days from date of issue, November
10, 1951, which means that its date of maturity is February 10, 1952. The evidence shows that neither the principal nor
the surety paid the obligation on said date of maturity and immediately thereafter demands for payment were made
upon them. Thus, it appears that as early as February 12, 1952, or two days thereafter, the creditor wrote to the surety
company a letter notifying it of the failure of its principal to pay the obligation and requesting that it make good its
guaranty under the bond (Exhibit B), which demand was reiterated in subsequent letters (Exhibits C, D and E). To these
demands, the company merely set up the defense that it only acted as a guarantor and as such its liability cannot be
exacted until after the property of the principal shall have been exhausted (Exhibit G).

ISSUE: WON THE LIABILITY OF THE SURETY TO EXPIRE ON MATURITY OF PRINCIPAL OBLIGATION ALSO CEASES ITS
RESPONSIBILITY?

RULING: NO. It should be noted that the principal obligation is payable ninety days from date of issue, which falls on
February 10, 1952. Only on this date can demand for payment be made on the principal debtor. If the debtor should fail
to pay and resort is made to the surety for payment on the next day, it would be unfair for the latter to allege that its
liability has already expired. And yet such is the stand taken by appellant. As the terms of the bond should be given a
reasonable interpretation, it is logical to hold that the liability of the surety attaches as soon as the principal debtor
defaults and notice thereof is given the surety within reasonable time to enable it to take steps to protect its interest.
This is what was done by appellee in the present case. After all, the surety has a remedy under the law which is to
foreclose the counter bond put up by the principal debtor. This is in effect what was done by the lower court.

Where one of the conditions of the bond filed by the surety provides that the latter's liability will expire on the date of
the maturity of the obligation," which it interposed as a defense to an action instituted therefor, such stipulation is
unfair and unreasonable for it practically nullifies the nature of the undertaking it had assumed.

This Court has taken note of the reprehensible attitude adopted by the surety company in this case by resorting to
improper means in an effort to evade its clear responsibility under the law. An instance of such attitude is the insertion
in the bond of a provision which in essence tends to nullify its commitment. This is a subtle way of making money thru
trickery and deception. Such practice should be stopped if only to protect honest dealers or people in financial stress
because of such improper conduct, this Court finds no justification for the present appeal and considers it frivolous and
unnecessary. For this appellant should be made to pay treble costs. Wherefore, the decision appealed from is affirmed,
with treble costs against appellant.

CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner, v. COURT OF APPEALS and PASCUAL M. PEREZ,
respondents.

FACTS: This is a petition to review the decision of the Court of Appeals which reversed the decision of the Court of First
Instance of Batangas in a case involving a claim for a sum of money against the estate of the late Nicasia Sarmiento,
administered by her husband Pascual M. Perez. On December 4, 1959, the petitioner issued two (2) surety bonds CSIC
Nos. 2631 and 2632 to guarantee compliance by the principal Pascual M. Perez Enterprises of its obligation under a
"Contract of Sale of Goods" entered into with the Singer Sewing Machine Co. In consideration of the issuance of the
aforesaid bonds, Pascual M. Perez, in his personal capacity and as attorney-in-fact of his wife, Nicasia Sarmiento and in
behalf of the Pascual M. Perez Enterprises executed on the same date two (2) indemnity agreements wherein he
obligated himself and the Enterprises to indemnify the petitioner jointly and severally, whatever payments advances and
damage it may suffer or pay as a result of the issuance of the surety bonds. In addition to the two indemnity
agreements, Pascual M. Perez Enterprises was also required to put up a collateral security to further insure
reimbursement to the petitioner of whatever losses or liabilities it may be made to pay under the surety bonds. Pascual
M. Perez therefore executed a deed of assignment on the same day, December 4, 1959, of his stock of lumber with a
total value of P400,000.00. On April 12, 1960, a second real estate mortgage was further executed in favor of the
petitioner to guarantee the fulfillment of said obligation.

Pascual M. Perez Enterprises failed to comply with its obligation under the contract of sale of goods with Singer Sewing
Machine Co., Ltd. Consequently, the petitioner was compelled to pay, as it did pay, the fair value of the two surety
bonds in the total amount of P144,000.00. Except for partial payments in the total sum of P55,600.00 and
notwithstanding several demands, Pascual M. Perez Enterprises failed to reimburse the petitioner for the losses it
sustained under the said surety bonds. The petitioner filed a claim for sum of money against the estate of the late
Nicasia Sarmiento which was being administered by Pascual M. Perez. In opposing the money claim, Pascual M. Perez
asserts that the surety bonds and the indemnity agreements had been extinguished by the execution of the deed of
assignment.

After the trial on the merits, the Court of First Instance of Batangas rendered judgment on April 15, 1968, the dispositive
portion of which reads:"WHEREFORE, considering that the estate of the late Nicasia Sarmiento is jointly and severally
liable to the Citizens' Surety and Insurance Co., Inc., for the amount the latter had paid the Singer Sewing Machine
Company, Ltd., the court hereby orders the administrator Pascual M. Perez to pay the claimant the sum of P144,000.00,
with interest at the rate of ten (10%) per cent per annum from the date this claim was filed, until fully paid, minus the
payments already made in the amount of P55,600.00."

ISSUE: WON the administrator's obligation under the surety bonds and indemnity agreements had been extinguished by
reason of the execution of the deed of assignment.

RULING: The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the
surety bonds was automatically extinguished. The subsequent acts of the private respondent bolster the fact that the
deed of assignment was intended merely as a security for the issuance of the two bonds. Partial payments amounting to
P55,600.00 were made after the execution of the deed of assignment to satisfy the obligation under the two surety
bonds. Since later payments were made to pay the indebtedness, it follows that no debt was extinguished upon the
execution of the deed of assignment. Moreover, a second real estate mortgage was executed on April 12, 1960 and
eventually cancelled only on May 15, 1962. If indeed the deed of assignment extinguished the obligation, there was no
reason for a second mortgage to still have to be executed. We agree with the two dissenting opinions in the Court of
Appeals that the only conceivable reason for the execution of still another mortgage on April 12, 1960 was because the
obligation under the indemnity bonds still existed. It was not yet extinguished when the deed of assignment was
executed on December 4, 1959. The deed of assignment was therefore intended merely as another collateral security
for the issuance of the two surety bonds. Recapitulating the facts of the case, the records show that the petitioner
surety company paid P144,000.00 to Singer on the basis of the two surety bonds it had issued in behalf of Pascual Perez
Enterprises. Perez in turn was able to indemnify the petitioner for its payment to Singer in the amount of P55,600.00
thus leaving a balance of only P88,400.00.
The petitioner surety company was more than adequately protected. Lumber worth P400,000.00 was assigned to it as
collateral. A second real estate mortgage was also given by Perez although it was later cancelled obviously because the
P400,000.00 worth of lumber was more than enough guaranty for the obligations assumed by the petitioner. As pointed
out by Justice Paras in his separate opinion, the proper procedure was for Citizens' Insurance and Surety Co., to collect
the remaining P88,400.00 from the sales of lumber and to return whatever remained to Perez. We cannot order the
return in this decisions because the Estate of Mrs. Perez has not asked for any return of excess lumber or its value. There
appears to have been other transactions, surety bonds, and performance bonds between the petitioner and Perez
Enterprises but these are extraneous matters which, the records show, have absolutely no bearing on the resolution of
the issues in this petition. With respect to the claim for interests and attorney's fees, we agree with the private
respondent that the petitioner is not entitled to either one. It had the means to recoup its investment and losses many
times over, yet it chose to litigate and delay the final determination of how much was really owing to it. WHEREFORE,
the petition is hereby DISMISSED.

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES v. ASIA PACES CORPORATION, ET AL.
[G.R. No. 187403; February 12, 2014]

FACTS: Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered into a sub-contracting
agreement with the Electrical Projects Company of Libya (ELPCO for the construction and erection of a double circuit
bundle phase conductor transmission line in the country of Libya. To finance its working capital requirements, ASPAC
obtained loans from foreign banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital) which were
secured by several Letters of Guarantee issued by Trade and Investment Development Corporation of the Philippines
(TIDCORP), then Philippine Export and Foreign Loan Guarantee Corp. Under the Letters of Guarantee, TIDCORP
irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to Banque Indosuez and PCI Capital
in the event of default by the latter.

As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO, and ASPAC’s President,
Nicolas C. Balderrama (Balderrama) had to execute several Deeds of Undertaking, binding themselves to jointly and
severally pay TIDCORP for whatever damages or liabilities it may incur under the aforementioned letters. In the same
light, ASPAC, as principal debtor, entered into surety agreements (Surety Bonds) with Paramount, Phoenix, Mega Pacific
and Fortune (bonding companies), as sureties, also holding themselves solidarily liable to TIDCORP, as creditor, for
whatever damages or liabilities the latter may incur under the Letters of Guarantee.

ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital. Demand letters to the bonding
companies were sent but to no avail. Taking into account the moratorium request issued by the Minister of Finance of
the Republic of the Philippines, TIDCORP and its various creditor banks, such as Banque Indosuez and PCI Capital, forged
a Restructuring Agreement extending the maturity dates of the Letters of Guarantee. The bonding companies were not
privy to the Restructuring Agreement and, hence, did not give their consent to the payment extensions. Nevertheless,
following new payment schedules, TIDCORP fully settled its obligations. Seeking payment for the damages and liabilities
it had incurred under the Letters of Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a
collection case against: (a) ASPAC, PICO, and Balderrama on account of their obligations under the deeds of undertaking;
and (b) the bonding companies on account of their obligations under the Surety Bonds.

The RTC partially granted TIDCORP’s complaint and thereby found ASPAC, PICO, and Balderrama jointly and severally
liable to TIDCORP but absolved the bonding companies from liability on the ground that the moratorium request and the
consequent payment extensions granted by Banque Indosuez and PCI Capital in TIDCORP’s favor without their consent
extinguished their obligations under the Surety Bonds. On appeal, the CA upheld the ruling of RTC. Hence, this appeal
filed by TIDCORP.

ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP under the Surety Bonds have been extinguished by
the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement.

HELD: NO. The Court finds that the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under
the Restructuring Agreement did not have the effect of extinguishing the bonding companies’ obligations to TIDCORP
under the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This is because
Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the
consent of the guarantor or surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of
ASPAC, the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it
may incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods and amounts.
No payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the
Civil Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP under the Surety Bonds.

The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt under the Letters
of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations
to the banks in the event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPAC’s loan
agreements to the banks. Under this arrangement, TIDCORP therefore acted as a guarantor, with ASPAC as the principal
debtor, and the banks as creditors.

Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions that should be treated
separately and distinctly from one another following the civil law principle of relativity of contracts "which provides that
contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is
aware of such contract and has acted with knowledge thereof." Verily, as the Surety Bonds concern ASPAC’s debt to
TIDCORP and not TIDCORP’s debt to the banks, the payments extensions would not deprive the bonding companies of
their right to pay their creditor (TIDCORP) and to be immediately subrogated to the latter’s remedies against the
principal debtor (ASPAC) upon the maturity date. It must be stressed that these payment extensions did not modify the
terms of the Letters of Guarantee but only provided for a new payment scheme covering TIDCORP’s liability to the
banks. In fine, considering the inoperability of Article 2079 of the Civil Code in this case, the bonding companies’
liabilities to TIDCORP under the Surety Bonds – except those issued by Paramount and covered by its Compromise
Agreement with TIDCORP – have not been extinguished.

MARIANO LIM v. SECURITY BANK CORPORATION [G.R. No. 188539; March 12, 2014]

DOCTRINE: A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the
obligee.

A bank or financing company, which anticipates entering into a series of credit transactions with a particular company,
normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By
executing such an agreement, the principal places itself in a position to enter into the projected series of transactions
with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond
for each financing or credit accommodation extended to the principal debtor.

FACTS:
• Mariano Lim executed a Continuing Suretyship in favor of Security Bank to secure “any and all types of credit
accommodation that may be granted by the bank hereinto and hereinafter” in favor of Raul Arroyo for the amount of
P2,000,000 which is covered by a Credit Agreement/Promissory Note.

• The Continuing Suretyship has the following stipulations:

3. Liability of the Surety. — The liability of the Surety is solidary and not contingent upon the pursuit of the Bank
of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of the
Guaranteed Obligations is not paid or performed on due date (at stated maturity or by acceleration), the Surety
shall, without need for any notice, demand or any other act or deed, immediately become liable therefor and
the Surety shall pay and perform the same.

xxx

a) "Guaranteed Obligations" — the obligations of the Debtor arising from all credit accommodations extended
by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or
novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as
appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses
which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as
defined hereinbelow.

• Debtor, Raul Arroyo, defaulted on his loan obligation.

• Lim received a Notice of Final Demand informing him that he was liable to pay the loan obtained by Raul and Edwin
Arroyo.

• Security Bank filed a complaint for sum of money against Lim and Arroyo for failure of Lim to comply with the demand.

ISSUE: Whether or not Lim may validly be held liable for Arroyo’s (principal debtor) loan obtained six months after the
execution of the Continuing Suretyship

HELD: YES. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the
obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety becomes liable for
the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive
any benefit therefrom.

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear. It states that petitioner, as
surety, shall, without need for any notice, demand or any other act or deed, immediately become liable and shall pay
"all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions,
restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing
to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all
expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as
defined hereinbelow." Such stipulations are valid and legal and constitute the law between the parties, as Article 2053
of the Civil Code provides that "[a] guaranty may also be given as security for future debts, the amount of which is not
yet known; . . . ." Thus, petitioner is unequivocally bound by the terms of the Continuing Suretyship. There can be no
cavil then that petitioner is liable for the principal of the loan, together with the interest and penalties due thereon,
even if said loan was obtained by the principal debtor even after the date of execution of the Continuing Suretyship.
BANK OF COMMERCE v. SPS. FLORES [G.R. NO. 174006; DECEMBER 8, 2010]

FACTS: Spouse Flores borrowed money from petitioner bank in the amount of P900,000.00 on Oct 1993. Respondents
executed a Real Estate Mortgage over the condominium unit as collateral, and the same was annotated at the back of
CCT No. 2130. Two years later again the spouses borrowed P1,100,000.00 from petitioner bank, which was also secured
by a mortgage over the same property annotated at the back of CCT No. 2130. On Jan 1996 respondents paid
P1,011,555.54, as evidenced by Official Receipt No. 1477417 issued by petitioner bank. On the face of the receipt, it was
written that the payment was "in full payment of the loan and interest."

Respondents then asked petitioner bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by
the real estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded
payment P4,633,916.67, then petitioner bank applied for extra-judicial foreclosure of the mortgages over the
condominium unit. The public auction sale was scheduled on September 4, 1998.

Respondents filed suit with the RTC, Quezon City, assailing the validity of the foreclosure and auction sale of the
property. RTC granted respondents’ prayer for issuance of a writ of preliminary injunction, restraining petitioner bank
from foreclosing on the mortgage and ordered that specific performance with damages and injunction filed by plaintiffs,
Sps. Andres and Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is hereby DISMISSED. Likewise,
the counterclaim filed by defendants, Bank of Commerce and Stephen Z. Taala against plaintiffs, Sps. Andres and Eliza
Flores is DISMISSED for insufficiency of evidence.

Upon appeal, CA rendered a Decision reversing the decision and the resolution of the RTC entering a new order:

(a) Ordering the cancellation of the real estate mortgage annotations on the dorsal side of CCT No. 2130 of the
Registry of Deeds of Quezon City;

(b) Ordering appellee Bank to issue a corresponding release of mortgages to plaintiffs- appellants’ CCT No. 2130;

(c) Declaring null and void the challenged extra-judicial foreclosure and public auction sale held on March 25,
2004 together with the Certificate of Sale dated April 14, 2004 issued in favor of appellee Bank; and,

(d) Appellees’ counterclaims are ordered dismissed, for lack of sufficient basis therefor.

ISSUE: WON the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans of
respondent spouses despite the full payment of the principal loans annotated on the title of the subject property.

HELD: Yes, A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage contract. Under Article 2053 of the Civil Code, a guaranty may be
given to secure even future debts; the amount of which may not be known at the time the guaranty is executed. This is
the basis for contracts denominated as a continuing guaranty or suretyship.

A continuing guaranty is not limited to a single transaction, but contemplates a future course of dealing, covering a
series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally
intended to provide security with respect to future transactions within certain limits, and contemplates a succession of
liabilities, for which, as they accrue, the guarantor becomes liable.

In other words, a continuing guaranty is one that 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. The
language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is
continuing in nature.
Thus, it was intended as security for the payment of the loans annotated at the back of CCT No. 2130, and as security for
all amounts that respondents may owe petitioner bank. It is well settled that mortgages given to secure future advance
or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure
future and other indebtedness can be gathered.

Respondents’ full payment of the loans annotated on the title of the property shall not affect the release of the
mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses and
such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the amounts that
they have incurred from petitioner bank, the property is burdened by the mortgage. Decision of the CA is REVERSED and
SET ASIDE. The decision of the Regional Trial Court dated December 4, 2002 is hereby REINSTATED.

AGLIBOT v. SANTIA [G.R. NO. 185945, DECEMBER 5, 2012]

FACTS: Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital Corporation
(PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a promissory note.
Allegedly as a guaranty for the payment of the note, Aglibot issued and delivered to Santia eleven (11) post-dated
personal checks drawn from her own account maintained at Metrobank.

Upon presentment of the checks for payment, they were dishonored by the bank for having been drawn against
insufficient funds or closed account. Santia thus demanded payment from PLCC and Aglibot of the face value of the
checks, but neither of them heeded his demand.

Consequently, eleven (11) Informations for violation of B.P. 22 were filed before the MTCC. MTCC acquitted Aglibot. On
appeal, the RTC rendered a decision absolving Aglibot and dismissing the civil aspect of the case on the ground of
“failure to fulfill a condition precedent of exhausting all means to collect from the principal debtor.”

On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the civil aspect of the case. Hence, the CA
ruled that Aglibot is personally liable for the loan. Thus, Aglibot filed this instant petition for certiorari. She argued that
she was merely a guarantor of the obligation and therefore, entitled to the benefit of excussion under Article of the
2058 of the Civil Code. She further posited that she is not personally liable on the checks since she merely contracted the
loan in behalf of PLCC.

ISSUES:

I. Whether or not Aglibot is entitled to the benefit of excussion?

II. II. Whether or not Aglibot is personally liable on the checks?

HELD: The petition is bereft of merit.

FIRST ISSUE: Aglibot cannot invoke the benefit of excussion. It is settled that the liability of the guarantor is only
subsidiary, and all the properties of the principal debtor, the PLCC in this case, must first be exhausted before the
guarantor may be held answerable for the debt. 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 contained 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 mentioned in Article 2059 when
the action may be brought against both the guarantor and the principal debtor.
The Court must, however, reject Aglibot‟s claim as a mere guarantor of the indebtedness of PLCC to Santia for want of
proof, in view of Article 1403(2) of the Civil Code, embodying the Statute of Frauds. Under the above provision,
concerning a guaranty agreement, which is a promise to answer for the debt or default of another, the law clearly
requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless
ratified, although under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public
document.

Contracts are generally obligatory in whatever form they may have been entered into, provided all the essential
requisites for their validity are present, and the Statute of Frauds simply provides the method by which the contracts
enumerated in Article 1403(2) may be proved, but it does not declare them invalid just because they are not reduced to
writing. Thus, the form required under the Statute is for convenience or evidentiary purposes only. On the other hand,
Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be express, and cannot extend to
more than what is stipulated therein. This is the obvious rationale why a contract of guarantee is unenforceable unless
made in writing or evidenced by some writing.

SECOND ISSUE: Aglibot is an accommodation party and therefore liable to Santia. The appellate court ruled that by
issuing her own post-dated checks, Aglibot thereby bound herself personally and solidarily to pay Santia, and dismissed
her claim that she issued her said checks in her official capacity as PLCC‟s manager merely to guarantee the investment
of Santia.

The facts present a clear situation where Aglibot, as the manager of PLCC, agreed to accommodate its loan to Santia by
issuing her own post-dated checks in payment thereof. She is what the Negotiable Instruments Law calls an
accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of
principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promisor and debtor from the beginning.

The liability is immediate and direct. It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument; nor is it correct to say that the holder for value is not a holder in due
course merely because at the time he acquired the instrument, he knew that the indorser was only an accommodation
party. Unlike in a contract of suretyship, the liability of the accommodation party remains not only primary but also
unconditional to a holder for value, such that even if the accommodated party receives an extension of the period for
payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such
extension does not release him because as far as a holder for value is concerned, he is a solidary co-debtor. Petition is
DENIED. Court of Appeals is AFFIRMED.

ORIX METRO LEASING AND FINANCE CORP v. CARDLINE INC. ET AL [GR NO. 201417, JANUARY 13, 2016]

FACTS: Cardline leased four machines from Orix as evidenced by three similarly-worded lease agreements. Cardline’s
principal stockholders and officers (individual respondents) – signed the suretyship agreements in their personal
capacities to guarantee Cardline’s obligations under each lease agreement. Cardline defaulted in paying the rent and
Orix formally demanded payment from Cardline but the latter refused to pay. Orix filed a complaint for replevin, sum of
money, and damages with an application for a writ of seizure against Cardline and the individual respondents before the
RTC. The RTC issued a writ of seizure allowing Orix to recover the machines from Cardline. The RTC declared the
respondents in default for failing to file an answer, and allowed Orix to present evidence ex parte. The RTC rendered
judgment in Orix’s favor and ordered the respondents to pay Orix. Orix filed a motion for the issuance of a writ of
execution which the RTC granted. Respondents assailed the issuance of the order before the Court of Appeals, arguing
that their rental obligations were offset by the market value of the returned machines and by the guaranty deposit. The
CA granted the petition, annulled the RTC’s order and prohibited the sheriff from executing the judgment. The CA ruled
that the respondents’ debt had been satisfied when Orix recovered the machines and received the security deposit.
Considering that the judgment had been satisfied in full, the RTC’s issuance of a writ of execution was no longer
necessary. In its petition, Orix argues that the individual respondents are solidarily liable to Orix and are not entitled to
the benefit of excussion while respondents contend that they merely acted as guarantors and not as sureties.

ISSUE: Whether the individual respondents are entitled to the benefit of excussion.

RULING: No. Even assuming that a party is liable only as a guarantor, he can be held immediately liable without the
benefit of excussion if the guarantor agreed that his liability is direct and immediate.

The terms of a contract govern the parties’ rights and obligations. When a party undertakes to be "jointly and severally"
liable, it means that the obligation is solidary. Furthermore, even assuming that a party is liable only as a guarantor, he
can be held immediately liable without the benefit of excussion if the guarantor agreed that his liability is direct and
immediate. In effect, the guarantor waived the benefit of excussion pursuant to Article 2059(1) of the Civil Code.

In the present case, the records show that the individual respondents bound themselves solidarily with Cardline. Section
31.1 of the lease agreements states that the persons who sign separate instruments to secure Cardline’s obligations to
Orix shall be jointly and severally liable with Cardline. Even assuming arguendo that the individual respondents signed
the continuing surety agreements merely as guarantors, they still cannot invoke the benefit of excussion. The surety
agreements provide that the individual respondents’ liability is "solidary, direct, and immediate and not contingent
upon" Orix’s remedies against Cardline. The continuing suretyship agreements also provide that the individual
respondents "individually and collectively waive(s) in advance the benefit of excussion xxx under Articles 2058 and 2065
of the Civil Code." Without any doubt, the individual respondents can no longer avail of the benefit of excussion.