ROMULO MACHETTI v. HOSPICIO DE SAN JOSE and FIDELITY 9.
9. NOTE: The original action which Machetti was the plaintiff and
AND SURETY COMPANY OF THE PHILIPPINE ISLANDS
Doctrine: 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.
Facts:
1. On July 17, 1916, Mechetti, by a written agreement, undertook to
construct a building on Calle Rosario, Manila City, for Hospicio de San
Jose.
a. The contract price being P64,000
b. One of the conditions of the agreement was that the contractor
should obtain the guaranty of Fidelity and Surety Company
of the PH Islands (FIDELITY) in the amount of P128,000
c. The endorsement appears “For value received we hereby
guarantee compliance with the terms and conditions as
outlined in the above contract.” It was signed by Otto
Vorster, VP of Fidelity.
2. Machetti proceeded with the construction of the building. 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 price
of P4,987.08 was paid.
3. It was later on found out that the work was not carried out in accordance
with the specifications.
4. This prompted Hospicio to answer the complaint (it was not stated which
complaint was this one but see the note below) and present a counterclaim for
damages for the partial noncompliance with the terms of agreement for
the amount of P71,350.
5. Machetti was thereafter declared as insolvent on Feb. 27, 1918 and on
March 4, 1918, an order suspended the proceeding in the present case in
accordance with the insolvency law.
6. Thus, Hospicio filed a motion in Jan. 29, 1919 asking that Fidelity be
made cross defendant to the exclusion of Machetti and that
proceedings be continued as to said company but remain
suspended as to Machetti.
a. The motion was granted
b. this prompted Hospicio to file a complaint against fidelity asking
for a judgement of P12,800 against the company upon its
guaranty.
7. CGI: Rendered judgement against Fidelity and asked it to pay the
amount of P12,800.
8. hence, this petition.
Hospicio as defendant, has been converted into an action in which the
Hospicio plaintiff and Fidelity, Machetti’s guarantor, is the defendant,
Machetti having been practically eliminated from the case.
ISSUE: W/N Fidelity is considered as a guarantor – YES, but it must first be
established that Machetti is unable to pay after the liquidation of his estate befor
Fidelity can be compelled to pay Hospicio.
HELD:
1. Fidelity is considered as a guarantor and not merely as surety as can be
seen in the contract.
2. In this case, the contract of guaranty was written in the English language.
Thus, the terms employed must be interpreted in its ordinary reading.
a. The English term “guarantor” implies an undertaking of
guaranty as distinguished from surety. 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.
3. It appears in the contract that it is a guarantor’s separate undertaking in
which the principal does not join. Although it may seem that it is a
continuation of the contract of construction, it is a collateral
undertaking separate and distinct from the latter.
a. 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.
4. Fidelity, having bound itself to pay only when Machetti cannot pay it,
follows that it cannot be compelled to pay until it is shown that Machetti
is unable to pay.
a. 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.
b. (in short, it is still not certain that Machetti will be unable to pay
Hospicio because final liquidation of the estate must first be
completed. Thus, the decision of CFI ordering Fidelity to pay is
reversed.)
LIRAG v. SSS (1987)
Doctrine: The obligation of a surety differs from that of a guarantor in that the
surety insures the debt, whereas the guarantor merely insures solvency of the
debtor; and the surety undertakes to pay if the principal does not pay, whereas a
guarantor merely binds itself to pay if the principal is unable to pay. The essence
of his obligation as surety is to pay immediately without qualification whatsoever
if debtor does not pay.
FACTS:
1. Pursuant to their Purchase Agreement, SSS purchased from Lirag Textile
Mills, Inc. and its president Basilio Lirag preferred shares of stock worth P1M
(Preferred Stock Certi􏰀cates No. 128 & 139; P500k each = 1M)
2. Purchase Agreement provisions:
a. Par 3: provides for the repurchase by the Lirag Textile of the shares of
stock at intervals of 1 year beginning with the 4th year.
b. To guarantee the (1) redemption of the stocks purchased and (2) the
payment of dividends and other obligations of the Lirag, Lirag’s president
Basilio L. Lirag signed the Purchase Agreement as surety so that should
the corporation fail to perform any of its obligations, the surety shall
immediately pay the amounts then outstanding:
i. “…the SURETY hereby binds himself jointly and severally liable with the
VENDOR so that should the VENDOR fail to perform any of its obligations
hereunder, the SURETY shall immediately pay to the VENDEE the amounts
then outstanding.”
c. Par 5: If Lirag Textile fails to redeem, the entire obligation shall
immediately become due and demandable and the Lirag Textile shall be
liable for liquidated damages for 12% of the amount then outstanding
d. Par 6: SSS shall be allowed to have a representative in the Board of
Directors of the Lirag w/ the right to participate and vote therein
3. Despite multiple letters of demands sent by SSS, Lirag textile failed to redeem
the 2 Preferred Stock Certi􏰀cates and failed to pay the dividends
a. Allegedly due to financial problems such as unrestrained smuggling into
the country of textiles, scarcity of money and the unavailability of
fi􏰀nancing facilifities, labor problems, etc
4. Basilio Lirag also received letters of demand from the plaintiff requiring him
to make good his obligation as surety but to no avail
5. For failure of Lirag Textile and Basilio Lirag to comply with the terms of the
Purchase Agreement, SSS filed for specifi􏰀c performance and damages
praying for, among others:
a. the entire obligation of P1M which became due and demandable upon
defendants' failure to repurchase the stocks as scheduled;
b. dividends in the amount of P220,000.00;
c. liquidated damages of 12% of the amount then outstanding;
6. Lirag denied the existence of any obligation on their part to redeem the
preferred stocks, on the ground that the SSS became and still is a preferred
stockholder of the corporation so that redemption of the shares purchased
depended upon the fi􏰂nancial ability of said corporation.
a. Insofar as Basilio Lirag is concerned, it was alleged that his liability arises
only if the corporation is liable and does not perform its obligations
under the Purchase Agreement.
b. No liability on Lirag Textile has arisen because of the financial condition
upon which such liability was made to depend, particularly the non-
realization of any profi􏰀t or earned surplus.
c. Thus, the other claims for dividends, liquidated damages and exemplary
damages are allegedly without basis.
7. Lower court decided in favor of SSS and ordered Lirag Textile Mills, Inc. and
Basilio L. Lirag to pay jointly and severally
8. Hence, this petition.
a. Contention, AMONG OTHERS: Basilio Lirag is not liable to redeem
the P1M worth of preferred shares purchased by SSS from petitioner
corporation and the 8% cumulative dividend, it appearing that Basilio
Lirag was merely a surety and not an insurer of the obligation;
ISSUE: W/N the Purchase Agreement entered into by petitioners and
respondent SSS is a debt instrument — YES
(WoN Basilio as a surety is liable to redeem the shares?— YES)
RULING: The Purchase Agreement is a debt instrument. Lirag Textile and Basilio
Lirag, as surety, are liable for the (1) redemption, (2) dividends, (3) liquidated
damages.
THE PURCHASE AGREEMENT IS A DEBT INSTRUMENT
1. The terms and conditions show that the parties intended the repurchase of
the preferred shares on the scheduled dates to be an absolute obligation
which does not depend upon the fi􏰀nancial ability of corporation
a. This was made manifest by the fact that a surety was required to see to it
that the obligation is fulfilled in the event of the principal debtor's
inability to pay.
b. Note: DEBT is an obligation to pay money at some fi􏰂xed future time, or at a time
which becomes de􏰂finite & 􏰂fixed by acts of either party and which they expressly
or impliedly, agree to perform in the contract
2. A stockholder sinks or swims with the corporation so there is no obligation
to return the value of the stockholder’s shares by means of repurchase if the
 corporation incurs losses and financial reverses, much less guarantee such
repurchase through a surety.
a. So.. If the parties intended SSS to be merely a stockholder of Lirag Textile
corporation, it would have been sufficient that Preferred Certi􏰀cates
Nos. 128 and 139 were issued in its name.
b. But.. The parties did in fact execute the Purchase Agreement, at the same
time that Lirag Textile issued its preferred stock to the SSS
i. The Agreement serves to define􏰀 the obligations and to establish
􏰀firmly the liability of petitioners in case of breach of contract.
1. The Preferred Stock Certiificats must be read together with the
Purchase Agreement
3. The rights given by the Purchase Agreement to respondent SSS are rights not
enjoyed by ordinary stockholders.
a. The stipulations in the Agreement for the bene􏰀fit of the SSS show an
intention on the part of the SSS to facilitate a loan to the Lirag Textile.
b. In order to afford protection to SSS which otherwise is provided by
means of collaterals—the membership in the board is to have a watchdog
in the operation of the business of the corporation
4. Failure on the part of petitioner to repurchase the preferred shares on the
scheduled due dates renders the entire obligation due and demandable, with
petitioner in such eventuality liable to pay 12% of the then outstanding
obligation as liquidated damages.
a. Taken collectively, it clearly show the intent of the parties to be bound as
debtor and creditor, and not as corporation and stockholder.
problems), does not excuse Lirag from the payment thereof, because
Basilio L. Lirag, as surety, is liable for the dividends, etc.
8. The award of liquidated damages representing 12% of the amount then
outstanding is correct, considering that petitioners in the stipulation of facts
admitted having failed to fulfill their obligation.
a. The grant of liquidated damages in the amount stated is expressly
provided in the Purchase Agreement in case of contractual breach.
9. Basilio L. Lirag is precluded from denying his liability under the Purchase
Agreement.
a. Representation to "pay immediately to the VENDEE the amounts
outstanding" evidences his commitment as SURETY so he is estopped.
b. His signature = official􏰀 imprimatur as president, in his personal
capacity as majority stockholder, as surety & as solidary obligor.
c. The essence of his obligation as surety is to pay immediately without
quali􏰀fication whatsoever if Lirag Textile does not pay.
d. To have another interpretation of petitioner Lirag's liability as surety
would violate the integrity of the Purchase Agreement as well as the clear
and unmistakable intent of the parties to the same.

BASILIO LIRAG IS LIABLE AS SURETY

5. Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for
petitioner corporation's default.
6. As surety, Basilio L. Lirag is bound immediately to pay respondent SSS the
amount then outstanding.
a. "The obligation of a surety differs from that of a guarantor in that the
surety insures the debt, whereas the guarantor merely insures solvency of
the debtor; and the surety undertakes to pay if the principal does not pay,
whereas a guarantor merely binds itself to pay if the principal is unable to
pay.
7. NOTE: Dividends stipulated by the parties served evidently as interests.
a. The amount was fi􏰀xed at 8% pa and was not made to depend upon or
to fluctuate with the pro􏰀fits or surplus realized— a clear indication that
the parties intended to give fixed earnings on the principal loan.
b. The fact that the dividends were supposed to be paid out of net pro􏰀fits
and earned surplus, of which there were none(because of financial
SEVERINO V SEVERINO (ARTICLE 2048) ii. if no property should be found belonging to said
DOCTRINE A guarantor or surety is bound by the same consideration that defendant sufficient to satisfy the judgment in whole or
makes the contract effective between the principal parties thereto. in part, execution for the remainder should be issued
FACTS against the property of Enrique Echaus.
7. Enrique Echaus is contending that he received nothing for affixing his
1. Fabiola Severino is the daughter of Melecio Severino/
signature as guarantor to the contract and that in effect the contract was
a. Upon the death of Melecio, he left considerable property.
lacking in consideration as to him.
b. This caused the litigation between his widow, Felicitas
Villanueva, and Fabiola Severino, on the one part, and other
heirs of the deceased on the other part. ISSUE: WON Enrique is bound as guarantor YES
2. A compromise was effected by which Guillermo Severino, a son of RULING:
Melecio, took over the property pertaining to the estate of his father. 1. A guarantor or surety is bound by the same consideration that
a. He also agreed to pay P100,000 to Felicitas Villanueva and makes the contract effective between the principal parties thereto.
Fabiola Severino. 2. The compromise and dismissal of a lawsuit is recognized in law as a
b. This sum of money was made payable: valuable consideration.
i. P40,000: in cash upon the execution of the document a. The dismissal of the action which Felicitas Villanueva and
of compromise, Fabiola Severino had instituted against Guillermo Severino was
ii. 3 payments of 20,000 an adequate consideration to support the promise on the part of
3. To this contract the Enrique Echaus affixed his name as guarantor. Guillermo Severino to pay the sum of money stipulated in the
a. The first payment of P40,000 was made on the date when the contract which is the subject of this action.
contract of compromise was executed; 3. It is never necessary that the guarantor or surety should receive any part
b. Fabiola Severino received the sum of P10,000. of the benefit.
c. Of the remaining P60,000 unpaid, Fabiola Severino is entitled to 4. The true consideration of this contract was the detriment suffered by the
the sum of P20,000. plaintiffs in the former action in dismissing that proceeding.
4. It appears that at the time of the compromise agreement above-
mentioned was executed Fabiola Severino had not yet been judicially
recognized as the natural daughter of Melecio Severino.
a. It was stipulated that the last P20,000 corresponding to Fabiola
and the last P5,000 corresponding to Felicitas Villanueva should
retained on deposit until the definite status of Fabiola should be
established
5. The judicial decree to this effect was entered in the CFI.
a. However, she discovered the money to be held in suspension
has never in fact been paid.
6. Fabiola Severino, joined by her husband Ricardo Vergara, filed an action
in the CFI of Iloilo to recover 20,000 from Guillermo Severino and
Enrique Echaus, the guarantor.
a. the trial court gave judgment in favor of the plaintiffs to recover
the sum of P20,000 with lawful interest.
b. it was declared that
i. execution of this judgment should issue first against the
property of Guillermo Severino
WILLEX V. CA and INTERNATIONAL CORPORATE BANK 1. In 1978, Inter-Resin Industrial Corporation opened a letter of credit with
DOCTRINE: the Manila Banking Corporation.
The consideration necessary to support a surety obligation need not pass directly 2. To secure payment of the credit accommodation, Inter- Resin Industrial
to the surety, a consideration moving to the principal alone being sufficient. For and the Investment and Underwriting Corporation of the Philippines
a "guarantor or surety is bound by the same consideration that makes the contract (IUCP) executed two documents, both entitled "Continuing Surety
effective between the principal parties thereto. It is never necessary that a Agreement”:
guarantor or surety should receive any part or benefit, if such there be, accruing a. They bound themselves solidarily to pay Manilabank
to his principal." "obligations of every kind, on which the Inter-Resin Industrial
may now be indebted or hereafter become indebted to the
SUMMARY OF CONTRACTS: Manilabank."
CONTRACT PARTIES LIABILITY EFFECT/NOTES b. The two agreements are the same in all respects, except as to the
Letter of Credit Inter-Resin InterResin must limit of liability of the surety
(Principal (debtor) and pay Manila i. the first surety agreement being limited to
Contract) Manila Bank Bank US$333,830.00,
(creditor) ii. while the second one is limited to US$334,087.00.
Two Surety InterResin and Solidary IUCP paid 3. Inter-Resin Industrial, together with Willex Plastic Industries Corp.,
Agreements IUCP (dbtrs) liability to Manilabank; it executed a "Continuing Guaranty" in favor of IUCP whereby:
Manilabank (cr) Manilabank follows that a. "For and in consideration of the sum or sums obtained
InterResin shall and/or to be obtained by Inter-Resin Industrial Corporation"
pay IUCP from IUCP, Inter-Resin Industrial and Willex Plastic jointly and
Guaranty InterResin “jointly and For Creditor: see severally guaranteed "the prompt and punctual payment at
Agreement and Willex severally” Facts 3(a) maturity of the NOTE/S issued by the DEBTOR/S to the
(dbtrs) (solidary) to ISSUE: (see Facts extent of the aggregate principal sum of Php 5M and such
(creditor not 12(a) and 12(b)) interests, charges and penalties as hereafter may be specified."
specified) 4. IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-
InterResin paid Resin Industrial's outstanding obligation.
only insurance a. Atrium Capital Corp., which in the meantime had succeeded
proceeds; IUCP IUCP, demanded from Inter-Resin Industrial and Willex Plastic
demands full the payment of what it (IUCP) had paid to Manilabank.
payment 5. As neither one of the sureties(?) paid, Atrium filed this case in the court
below against Inter-Resin Industrial and Willex Plastic.
ANOTHER SUMMARY OF CONTRACTS  : a. Inter-Resin Industrial paid Interbank, which had in turn
Note: IUCP, Atrium and Interbank are all one company/party (succeeding succeeded Atrium, the sum of P687,500.00 representing the
each other. proceeds of its re insurance policy for the destruction of its
1. Letter of Credit: InterResin liable to Manila Bank properties.
2. Surety Agreement: InterResin and InterBank solidarily liable to 6. Inter-Resin Industrial admitted that the "Continuing Guaranty" was
Manilabank intended to secure payment to Atrium of the amount of P4,334,280.61
3. Guaranty Agreement: InterResin and Willex solidarily liable to which the latter had paid to Manilabank.
“Debtors of InterResin” which in this case is Interbank/IUCP a. Inter-Resin claimed, however, that it had already fully paid its
FACTS: obligation to Atrium Capital.
Note: [Maraming contracts huhu: Surety agreements and Guaranty 7. Willex Plastic denied the material allegations of the complaint and
agreement plus may change of parties kasi may acquisition/succession interposed, AMONG OTHERS, the following:
huhu] a. Assuming arguendo that main defendant is indebted to plaintiff,
 the former's liability is extinguished due to the accidental re that
destroyed its premises, which liability is covered by sufficient
insurance assigned to plaintiff
b. assumingarguendo, that the main defendant is indebted to
plaintiff, its account is now very much lesser than those stated
in the complaint because of some payments made by the former
c. WILLEX is only a guarantor of the principal obligor, and thus,
its liability is only secondary to that of the principal;
d. Plaintiff failed to exhaust the ultimate remedy in pursuing its
claim against the principal obligor
8. Interbank was substituted as plaintiff in the action.
9. The trial court rendered judgment, ordering Inter-Resin Industrial and
Willex Plastic jointly and severally to pay to Interbank the following
amounts:
a. P3,646,780.61, representing their indebtedness to the plaintiff;
with interest of 17% per annum from August 11, 1982, when
Inter-Resin Industrial paid P687,500.00 to the plaintiff, until full
payment of the said amount;
b. Liquidated damages equivalent to 17% of the amount due.
c. Attorney's fees and expenses of litigation equivalent to 20% of
the total amount due.
10. Inter-Resin Industrial and Willex Plastic appealed to the CA.
a. the Court of Appeals rendered a decision a rming the ruling of
the trial court.
11. Willex Plastic filed a motion for reconsideration praying that it be allowed
to present evidence to show that Inter-Resin Industrial had already paid
its obligation to Interbank.
a. motion was denied for lack of merit
12. Hence, this petition by Willex Plastic for the review.
a. Willex Plastic argues that under the "Continuing Guaranty," its
liability is:
i. for sums obtained by Inter-Resin Industrial from
Interbank,
ii. not for sums paid by the Interbank to Manilabank for
the account of Inter-Resin Industrial.
b. [PERSONAL UNDERSTANDING: so basically Willex is
denying liability saying:
i. it only guaranteed liability for MONEY DIRECTLY
obtained by InterResin from INTERBANK;
ii. Since no money was obtained by InterResin from
InterBank because what happened was:
1. InterBank paid Manilabank pursuant to Surety
Agreement because
2. Manilabank lent money to InterResin
3. SO “for sums obtained by Inter-Resin
Industrial from Interbank” did not take place]
c. Willex cites the portion of the guaranty:
d. For and in consideration of the sums obtained and/or to be
obtained by INTER-RESIN INDUSTRIAL
CORPORATION, hereinafter referred to as the DEBTOR/S,
from IUCP ( Atrium  Interbank) …..
ISSUE: Whether under the "Continuing Guaranty" petitioner Willex Plastic may
be held jointly and severally liable with Inter-Resin Industrial for the amount paid
by Interbank to Manilabank. [YES]
RULING:
1. Evidence explain that the Continuing Guaranty" was executed
a. to secure payment to Interbank (formerly IUCP) of amounts
paid by the latter to Manilabank
2. Interbank adduced evidence to show that the "Continuing Guaranty"
had been made to guarantee payment of amounts made by it
(IUCP/INTERBANK) to Manilabank and not of any sums given by it
as loan to Inter-Resin Industrial.
a. Interbank's witness testi ed under cross- examination by counsel
for Willex Plastic that Willex "guaranteed the exposure/of
whatever exposure of ACP [Atrium Capital] will later be made
because of the guarantee to Manila Banking Corporation."
3. At all events, Willex Plastic cannot now claim that its liability is limited
to any amount which Interbank, as creditor, might give directly to Inter-
Resin Industrial as debtor because, by failing to object to the parol
evidence presented, Willex Plastic waived the protection of the parol
evidence rule.
4. the trial court found that it was "to secure the guarantee made by plaintiff
of the credit accommodation granted to defendant IRIC [Inter-Resin
Industrial] by Manilabank
a. the Court of Appeals found it to be an undisputed fact that "to
secure the guarantee undertaken by plaintiff-appellee
[Interbank] of the credit accommodation granted to Inter-Resin
Industrial by Manilabank
IMPORTANT TO ART. 2048: Note: ART.2048: A guaranty is gratuitous,
unless there is stipulation to the contrary.
1. Willex Plastic argues that the "Continuing Guaranty," being an accessory
 contract, cannot legally exist because of the absence of a valid principal
obligation.
a. Its contention is based on the fact that it is not a party either to
the "Continuing Surety Agreement" or to the loan agreement
between Manilabank and Inter-Resin Industrial.
2. SC: the consideration necessary to support a surety obligation need not
pass directly to the surety, a consideration moving to the principal alone
being sufficient.
a. For a "guarantor or surety is bound by the same consideration
that makes the contract effective between the principal parties
thereto.
b. It is never necessary that a guarantor or surety should receive
any part or benefit, if such there be, accruing to his principal."
3. Personal Note:
a. The guarantor or surety becomes liable for a debt of
ANOTHER although he possesses NO DIRECT consideration
or personal interest over the principal obligation.
b. It is never necessary that a guarantor or surety should receive
any part or benefit, if such there be, accruing to his principal."
i. Benefit was to InterResin (payment of debt to
ManilaBank was secured by Interbank)
ii. Willex must pay Interbank because Interbank paid
ManilaBank
c. The SC discarded Willex’s contention that it shall not be liable
because it is not a party to the original loan agreement between
Inter-Resin and Manila Bank, and because it did not receive any
consideration.
d. SC: the guarantor or surety does not need to receive any
benefit or consideration. It is sufficient that such benefit or
consideration accrued to his principal. A guaranty is
gratuitous because no direct or personal interest of the
guarantor over the obligation is required.
OTHER RULING: ON RETROACTIVITY
4. Willex Plastic contends that the "Continuing Guaranty" cannot be
retroactively applied so as to secure the payments made by Interbank
under the two "Continuing Surety Agreements."
a. Willex Plastic invokes the ruling in El Vencedor v. Canlas and Diño
v. Court of Appeals in support of its contention that a contract of
suretyship or guaranty should be applied prospectively.
5. SC: Cases cited are not applicable in this case at bar.
a. In El Vencedor: nothing in the contract to show that the parties
intended the surety bonds to answer for the debts contracted
i. In contrast, in this case, the parties to the "Continuing
Guaranty" clearly provided that the guaranty would
cover "sums obtained and/or to be obtained" by
Inter-Resin Industrial from Interbank.
b. In Diño the issue was whether the sureties could be held liable
for an obligation contracted after the execution of the
continuing surety agreement.
i. It was held that by its very nature a continuing
suretyship contemplates a future course of dealing. "It
is prospective in its operation and is generally intended
to provide security with respect to future transactions."
c. By no means, however, was it meant in that case that in all
instances a contract of guaranty or suretyship should be
prospective in application.
i. 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.
6. Willex Plastic says that in any event it cannot be proceeded against
without rst exhausting all property of Inter-Resin Industrial.
a. Willex Plastic thus claims the benefit of excussion.
i. HOWEVER, a stipulation in the agreement embodies
an express renunciation of the right of excussion.
ii. “without first proceeding against and exhausting
DEBTOR/s properties.”
iii.
7. [PROCEDURAL] Finally it is contended that Inter-Resin Industrial had
already paid its indebtedness to Interbank and that Willex Plastic should
have been allowed by the Court of Appeals to adduce evidence to prove
this.
a. Suffice it to say that Inter-Resin Industrial had been given
generous opportunity to present its evidence but it failed to
make use of the same
b. Willex Plastic rested its case without presenting evidence.
DE GUZMAN V SANTOS (ARTICLE 2050)
DOCTRINE: 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.
FACTS:
1. Jerry O. Toole, Antonio K. Abad and Anastacio R. Santos formed a
general mercantile partnership under the style Philippine-American
Construction Company.
a. It had a capital of P14,000, P10,000 of which were taken by way
of loan from Paulino Candelaria.
2. The partnership and the co-partners undertook and bound themselves
to pay, jointly and severally, the said indebtedness.
3. Having violated the conditions of the contract executed for the purpose,
Paulino Candelaria brought a civil case of the CFI against the Philippine-
American Construction Company and its co-partners, for the recovery
of the loan.
4. The CFI rendered judgment sentencing all the defendants to pay P9,317,
with legal interest.
5. Upon filing of the complaint, Paulino Candeleria obtained a writ of
attachment against the then defendants by virtue of which the sheriff
attached properties of
a. Jerry O. Toole valued at P50;
b. Antonio K. Abad valued at P12,150;
c. Anastacio R. Santos valued at P2,733.
6. No property of the partnership Philippine-American Construction
Company was attached.
7. The Philippine-American Construction Company moved for the
discharge of the attached properties and offered to post a bond for
P10,000.
a. The court granted the motion.
8. The Philippine-American Construction Company, as principal, then
represented by the partner Antonio K. Abad, and Santiago Lucero and
Meliton Carlos, as guarantors, executed a bond for P10,000 in favor
of Paulino Candelaria for the lifting of the attachment.
a. In the bond thus executed, the defendant Anastacio R. Santos
neither intervened nor signed individually.
b. However, Abad testified that the Santos was the one who
induced him to get the signature of Lucero by taking advantage
of his good relations with him.
8. Upon the approval of the bond, the attachment was discharged and the
attached properties were returned to their owners.
9. After the issuance of the writ for the execution, the sheriff returned the
same with the statement that the writ could not be executed as he found no
property of the judgment debtors.
a. Then Paulino Candelaria moved for the issuance of a writ of
execution against the guarantors
10. The court granted the motion and issued a writ of execution against the
De Guzman, as judicial administratrix of the deceased Santiago Lucero,
and the other guarantor Meliton Carlos.
a. She was eventually compelled to pay to Paulino P5,565.55.
b. The co-guarantor Meliton Carlos also paid upon the bond
signed by him the sum of P5,135.
c. De Guzman and Carlos later recovered from Abad 3800.
11. When De Guzman demanded from Santos the payment of the money
due him, he refused.
a. he is not so bound under the law, because he neither applied for
nor intervened in the bond in any capacity.
ISSUE: WON Santos is liable to Lucero (represented by De Guzman) and Carlos
YES
RULING:
1. By guaranty one person binds himself to pay or perform for a third
person in case the latter should fail to do so.
2. 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;
a. 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.
b. In the present case, the guarantor was the deceased
Santiago Lucero.
i. Applying the provision of the last cited article,
Santos is legally bound to pay what Lucero had
advanced to the creditor upon the judgment,
notwithstanding the fact that the bond had given
without his knowledge.
ii. although Lucero executed the bond without his
knowledge, nevertheless he (Anastacio) did
notobject thereto or repudiate the same at any
time.
 3. The obligation of the appellant to pay the plaintiff what the latter had
advanced is further sanctioned by:
a. Article 1158 provides that "payment may be made by any person,
whether he has an interest in the performance of the obligation or not, and
whether the payment is known and approved by the debtor or whether he is
unaware of it. 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."
i. According to this legal provision, it is evident that the
Santos is bound to pay to Lucero what the latter had
advanced to the creditor upon the judgment.
4. From the proven facts it cannot logically be deduced that the appellant
did not have knowledge of the bond.
a. His properties were attached and the attachment could not have
been levied without his knowledge.
b. because the said properties were returned to him and in
receiving them he was necessarily apprised of the fact that a
bond had been filed to discharge the attachment.

****** the action is not addressed to the appellant as general partner of the
Philippine-American Construction Company, it nevertheless appears that his
liability to the plaintiff, as debtor in solidum of Paulino Candelaria, is recognized
and countenanced by articles 1158 and 1838 of the Civil Code.
Municipality of Gasan v. Marasigan
DOCTRINE: A suretyship does not exist without a valid obligation to
guarantee. Also, guarantee is not presumed.
FACTS:
1. On 9 December 1930, the Municipality of Gasan of the Province of
Marinduque put up a public auction for the privilege of gathering
whitefish spawn (semillas de bangus) from 1 January to 31 December 1931.
2. Graciano Napa and Miguel Marasigan bid and attached to their
respective bids the certificate of not being behind in the payment of any
tax, issued by the municipal treasurer of Gasan, Marinduque, as required
by the provisions of resolution No. 42, series of 1930, of the council of
the said municipality
3. Graciano Napa bid P5,000 and Miguel Marasigan bid P4,200. The
council, through Resolution 161 sold it to Marasigan for P4,200, payable
in quarterly in advance at the rate of P1,050 per quarter. Napa was
rejected because the certificate of not being behind payment of tax
should have been obtained from the treasury of Lemery, his native town.
4. To secure his compliance with the terms of the contract and pursuant to
the provisions of Resolution 128, Marasigan filed a bond, subscribed on
15 December 1930, by the defendants-appellants Angel R. Sevilla and
Gonzalo L. Luna, who bound themselves in said document to pay to the
Municipality the sum of P8,400, if Miguel Marasigan failed to deposit
one-fourth of P4,200 quarterly in advance to the treasury of Gasan.
Hence, they became sureties.
5. Before the Marasigan and the Municipality entered in to the contract and
the execution of the bond, Napa protested saying that the municipality
violated provisions of section 2323 of the Administrative Code in
rejecting his bid.
6. The provincial board, passing upon Graciano Napa's protest held that
resolution No. 161, where the municipal council of Gasan rejected
Graciano Napa's bid was invalid, and suggested that the privilege should
be, awarded to Graciano Napa who, was the higher bidder, in accordance
with the provisions of sections 2323 and 2319 of the Administrative
Code.
7. The Executive Bureau, concurred and declared that the concession made
to Marasigan was illegal in view of the fact that Napa was the highest
bidder.
8. Since the council could not get the board and bureau to reconsider, it
decided, in its Resolution 11, to award the privilege of gathering whitefish
spawn to Napa.
9. The Municipality gave him a period of six days, which was later extended
to seven days, from January 8, 1931, to deposit the sum of P500,
equivalent to 10 per cent of his bid of P5,000, with the municipal
treasurer of Gasan, so as to comply with the provisions of section 8 of
the conditions of the public, warning him that if he failed to do so, the
contract with Marasigan (Exhibit A), would automatically take effect.
10. Napa not only failed to make the deposit but also formally declared,
through his duly authorized representative, that he yielded the privilege
granted him to Marasigan or to any other person selected by the
municipal authorities.
11. On 15 January 1931, the President of the Municipality sent a letter to
Marasigan informing him that the contract they entered into would
become effective on January 14, 1931, to run until December 31, 1931.
12. They further requested him to appear before the session of the Municipal
Council on 16 January 1931 and to bring the contract and the bond to
be ratified and executed in his favor.
13. He was further informed to pay the P1,050 for as first quarter payment
within 10 days.
14. Prior to the sending of the letter (15 December), but after the adoption
by the municipal council of Gazan of its resolution No. 163 (This resolution
was just mentioned at this point) on December 16, 1930, and two days before
the provincial board declared said council's resolutions Nos. 161 and 163
invalid, the president of the Municipality notified the Marasigan that the
was suspended and that he should consider it ineffective as the question
of whose bid to accept was before the provincial board and the Executive
Bureau.
15. The Municipality of Gasan then filed an action to recover the sum of
P3,780 from Marasigan, Sevilla and Luna (the sureties) alleging that it
forms a part of the license fees which Marasigan failed to pay for the
privilege granted to him.
16. The CFI rendered sentenced defendants to pay jointly to the Municipality
P3,780 with legal interest thereon from 19 August 1932, until fully paid,
plus the costs of the suit. Hence, this appeal.
ISSUES
1. WON Sevilla and Luna are liable as sureties. No.
2. WON Marasigan is liable. Yes.
HOLDING:
On Sureties
1. The Municipality itself accepted the decision of the Provincial Board and
of the Executive Bureau, considering Napa as the highest bidder to the
extent of requiring him to make the deposit of P500 prescribed by the
conditions of the auction sale.
2. Coupling this with the letter dated December 16, 1930, notifying
Marasigan that the contract was ineffectual, it may be logically inferred
 from these facts that the contract regarding fishing privilege entered into 7. Marasigan’s excuse that the taxes he paid to Gasan was for his privilege
between the plaintiff and appellant Marasigan on December 11, 1930, to gather spawn from Boac is not supported for evidence.
not only was not consummated but was cancelled. 8. The only conclusion possible is that Marasigan made all such payments
3. The contract ceased to be valid from the time it was cancelled and thus, on account of a tacit contract entered into by him and the Municipality
neither Marasigan nor his sureties or the appellants were bound to after he had received the letter of January 15, 1931 (the one after Napa
comply with the terms of their respective contracts of fishing privilege waived his privilege)
and suretyship. 9. Thus, Marasigan owes and is bound to pay to the plaintiff municipality
4. This especially concerns the surties as a suretyship cannot exist the proceeds of one and one-third quarter, for the privilege of gathering
without a valid obligation (art. 1824). The obligation of Marasigan whitefish spawn enjoyed by him in 1931, at the rate of P4,200 a year or
guaranteed by the sureties, which should begin on January 1, not on the P1,400 (P1,050 for one quarter and P350 for one-third of a quarter)
14th. 10. But the Municipality must credit him with the sum of P420 deposited by
5. They intervened in no other subsequent contract which the plaintiff and him on 9 December 1930, and P840 paid by him on 29 June 29 1931, or
Miguel Marasigan might have entered into on or after January 14, 1931. the total amount of P1,260. In other words, Marasigan is bound to pay
Guaranty is is not presumed; it must be expressed and cannot be the sum of P140 to the plaintiff.
extended beyond its specified limits (art. 1827).
6. 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.
On Marasigan’s liability (not that relevant) (1-4 more of stipulation of facts)
1. Notwithstanding that the original contract was cancelled, the stipulation
of facts provide that 20 july 1931, Marasigan paid P16.20 to the municipal
treasurer of Gasan, as internal revenue tax on sales of whitefish (bañgus)
spawn amounting to P1,080 during the months of April, May and June,
1931.
2. Further, on 22 August 1931, Marasigan presented his sales book to the
municipal treasurer of Gasan, appearing that in the month of July 1931,
he sold whitefish spawn amounting to P85; in the month of August,
1931, none, and in the month of September, 1931, none.
3. Also, despite being a concessionaire of the privilege to gather whitefish
spawn in the jurisdictional waters of the municipality of Boac,
Marinduque, during the period from January 1 to December 31, 1931, he
paid the sales tax on the whitefish spawn in question only in the
municipality of Gasan, without having made any payment in the
municipality of Boac.
4. However, Marasigan also deposited P420, 10% of his bid pursuant to the
original contract, which has not yet been returned to him and another
P840 for the same original contract.
5. The court observed that Marasigan practically enjoyed the privilege
under the terms of the original contract, at least from the month of April
to the month of July 1931.
6. His payment for the gathering of spawn in Gasan and his books
containing sales of spawn bolster this fact.
Smith, Bell & Company, Ltd. v. Philippine National Bank
G.R. No. 16482
1 February 1922
Facts
 Smith, Bell & Co., Ltd. (Smith) filed an action to recover from
Philippine National Bank (PNB) a sum of money as damages for PNB’s
failure to accept delivery of machinery which had been ordered from
Smith by a certain Fred Harden, as well the purchase price the bank had
obligated itself to pay. The trial judge absolved the defendant; hence,
this appeal.
 On April 1918, Fred Harden desired to obtain eight expellers (a
machine used to extract oil from raw materials) from Smith in order to
extract coconut oil. The two parties entered into a contract on 25 April
1918 whereby Smith apparently “sold” to Harden 8 expellers for
P80,000 to be paid on delivery. The expellers were manufactured in the
US; further, it was stipulated that shipment would be on February or
March 1919.
 To assure prompt payment, an arrangement (through a letter) was made
between Harden and PNB whereby the latter would bound itself to pay
Smith upon the delivery of the expellers to Smith upon the condition
that the expellers were new, end-drive, and branded “Anderson.”
 A month later, Harden requested from Smith to change the order from
end-drive to side-drive (which is better, apparently). Smith contacted its
agent, and such change was done.
 When the expellers arrived and upon Harden’s examination, Harden
informed the bank that the expellers were not as ordered. The bank,
consequently, refused to accept and pay for the machinery. Smith
disposed of the machines to the best advantage in the market at a price
which was below the price at which Harden had agreed to take them.
 PNB argues that the expellers were side-drive and not that end-drive
which they had agreed to pay for, contending that it did not agree to
such change. The Court, however, finds this untenable as it was under
Harden’s instruction that the change happened.
promise, has gone through the trouble of importing the orders to the
Philippines.
 While the origin of the controversy stems from another contract
(between Harden and Smith), and the bank obligated itself for the
purpose of assuring payment, this does not make the bank secondarily
liable as regards the contract in this case. Its obligation to Smith is
direct and independent.
 As regard’s Harden’s authority to change the order: The change
could not affect the liability of PNB since the bank’s letter indicated
that the order be “new.” Moreover, the real purpose of the bank was to
supply its credit to enable Harden to buy the expellers—therefore,
Harden had the authority to change the order.
 On damages: Damages consist of:
o The difference between contract price and the amount realised
from the sale of the expellers in the Philippine market —
P22,400;
o Storage and insurance charges — P665.34; and
o Transportation expenses — P640.
o In the itemised statement of damages submitted by the
plaintiff, interest has been compounded monthly at 8%, but in
the absence of express stipulation this cannot be allowed.

Issue: W/N Smith, Bell & Co., Ltd. may recover from PNB — Yes.

Held
 The bank is bound by its promise to pay the purchase price. The
consideration for the promise is to be found in the credit extended to
Harden by Smith and in the fact that Smith, relying on the bank’s