Guaranty-digest.docx

Escaño v. Ortigas, Jr. 526 SCRA 26 (June 29, 2007)

Facts: On April 28, 1980, Private Development Corporation of the Philippines (PDCP) entered into a loanagreement with Falcon Minerals, Inc. (Falcon) amounting to $320,000.00 subject to terms and conditions.[ “Nagpautang ang PDCP sa Falcon ng $320K On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey, and George T. Scholey executed an Assumption of Solidary Liability “to assume in [their] individual capacity, solidary liability with[Falcon] for due and punctual payment” of the loan contracted by Falcon with PDCP. Two (2) separate guaranties were executed to guarantee payment of the same loan by other stockholders and officers of Falcon, acting in their personal and individual capacities. One guaranty was executed by Escaño, Silos, Silverio, Inductivo and Rodriguez. Two years later, an agreement developed to cede control of Falcon to Escaño, Silos and Matti. Contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to Escaño, Silos and Matti. An Undertaking dated June 11, 1982 was executed by the concerned parties, namely: with Escaño, Silos and Matti as “SURETIES” and Ortigas, Inductivo and Scholeys as “OBLIGORS “Falcon eventually availed of the sum of $178,655.59 from the credit line extended by PDCP. It would also execute a Deed of Chattel Mortgage over its personal properties to further secure the loan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency of Php 5,031,004.07 which falcon did not satisfy despite demand.

Issue: Whether the obligation to repay is solidary, as contended by respondent and the lower courts, ormerely joint as argued by petitioners.

Held/Ruling: In case, there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code states that among them, “[t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.” Article 1210 supplies further caution against the broad interpretation of solidarity by providing: “The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility.” These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence. Note that Article 2047 itself specifically calls for the application of the provisions on joint

andsolidary obligations to suretyship contracts. Article 1217 of the Civil Code thus comes into play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid (i.e. , the surety). However, a significant distinction still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement for the sums they paid out to the creditor. In the case of joint and several debtors, Article1217 makes plain that the solidary debtor who effected the payment to the creditor “may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made.” Such solidary debtor will not be able to recover from the co-debtors the full amount already paid to the creditor, because the right to recovery extends only to the proportional share of the other co-debtors, and not as to the particular proportional share of the solidary debtor who already paid. In contrast, even as the surety is solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor has the right to recover the full amount paid, and not just any proportional share, from the principal debtor or debtors. Such right to full reimbursement falls within the other rights, actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the surety.

*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of P1.3M; Legal interest of 12% per annum on P 1.3M computed from March 14, 1994. Assailed rulings are affirmed. Costs against petitioners _____________________________________________________________________________________ ATOK FINANCE CORPORATION vs. COURT OF APPEALS G.R. No. 80078. May 18, 1993 FELICIANO, J.: 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. ISSUE: 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. The Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the Court of Appeals are hereby REVERSED and SET ASIDE. A new judgment is hereby entered REINSTATING the Decision of the trial court. _____________________________________________________________________________________ Bank of Commerce vs Flores G.R. No. 174006 December 8, 2010 Facts: Spouse Flores borrowed money from petitioner bank in the amount of Nine Hundred Thousand Pesos (P900,000.00) on Oct 1993. Respondents executed a Real Estate Mortgage5over the condominium unit as collateral, and the same was annotated at the back of CCT No. 2130. Two years later again the spouses borrowed One Million One Hundred Thousand Pesos (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 One Million Eleven Thousand Five Hundred Fifty-Five Pesos and 54 centavos(P1,011,555.54), as evidenced by Official Receipt No. 1477417issued 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 of Four Million Six Hundred Thirty-Three Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos (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, 2004together with the Certificate of Sale dated April 14, 2004issued 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.23 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 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 effect 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. _____________________________________________________________________________________

PHILIPPINE BLOOMING MILLS v. CA, GR No. 142381, 2003-10-15 Facts: Ching was the Senior Vice President of PBM. In his personal capacity and not as a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 binding himself On 24 March and 6 August 1980, TRB granted PBM letters of credit on application of Ching in his capacity as Senior Vice President of PBM. Ching later accomplished and delivered to TRB trust receipts, which acknowledged receipt in trust for TRB of the merchandise subject of the... letters of credit. On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as co-maker in the notarized Promissory Note evidencing this trust loan. On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the Securities and Exchange Commission ("SEC"), docketed as SEC Case No. 2250. On 9 July 1982, the SEC placed all of PBM's assets, liabilities, and obligations under the rehabilitation receivership of Kalaw, Escaler and Associates. On 13 May 1983, ten months after the SEC placed PBM under rehabilitation receivership, TRB filed with the trial court a complaint for collection against PBM and Ching. On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground that the SEC had already placed PBM under receivership. On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the ground that the trial court had no jurisdiction over the subject matter of the case. Issues: THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT PETITIONER ALFREDO CHING WAS LIABLE FOR OBLIGATIONS CONTRACTED BY PBM LONG AFTER THE EXECUTION OF THE DEED OF SURETYSHIP. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT THE PETITIONERS WERE LIABLE FOR THE TRUST RECEIPTS DESPITE THE FACT THAT PRIVATE RESPONDENT HAD PREVENTED THEIR FULFILLMENT. HE COURT OF APPEALS COMMITTED AN ERROR WHEN IT FOUND PETITIONER ALFREDO CHING LIABLE FOR P15,773,708.78 WITH LEGAL INTEREST AT 12% PER ANNUM UNTIL FULLY PAID DESPITE THE FACT THAT UNDER THE REHABILITATION PLAN OF PETITIONER PBM Ruling: The petition has no merit.

The case before us is an offshoot of the trial court's denial of Ching's motion to have the case dismissed against him. The petition is a thinly veiled attempt to make this Court reconsider its decision in the prior case of Traders Royal Bank v. Court of Appeals. [48] This Court has already resolved the issue of Ching's separate liability as a surety despite the rehabilitation proceedings before the SEC. Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of t... he 21 July 1977 Deed of Suretyship. Ching would like this Court to rule that his liability is limited, at most, to the amount stated in PBM's rehabilitation plan. Ching is still liable for the amounts stated in the letters of credit covered by the trust receipts. Other than his bare allegations, Ching has not shown proof of payment or settlement with TRB. Atty. Vicente Aranda, TRB's corporate secretary and First Vice President of its Human Resource Management Department, testified that the conditions in the TRB board resolution presented by Ching were not met or implemented The trial court found and the appellate court affirmed that the outstanding principal amounts as of the filing of the complaint with the trial court on 13 May 1983 WHEREFORE, we AFFIRM the decision of the Court of Appeals with MODIFICATION _____________________________________________________________________________________ SECURITY BANK v. RODOLFO M. CUENCA, GR No. 138544, 2000-10-03 Facts: On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in the amount of [e]ight [m]llion [p]esos (P8,000,000.00) to assist the latter in meeting the additional capitalization requirements of its logging... operations. To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit line, SIMC executed a Chattel Mortgage dated 23 December 1980 (Exhibit `A') over some of its machinery and equipment in favor of [Petitioner] SBTC. As additional security for the... payment of the loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-Credit Loan Facility, appellant SIMC made a first drawdown from its credit line with [Petitioner] SBTC in the amount of [s]ix [m]illion [o]ne [h]undred [t]housand [p]esos (P6,100,000.00) "Sometime in 1985, [Respondent] Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta. Ines.

Thus, SBTC filed a complaint for collection of sum of money on 14 June 1993, resulting after trial on the merits in a decision by the court a quo, x x x from which [Respondent] Cuenca... appealed." Issues: Whether or not the Honorable Court of Appeals erred in releasing Respondent Cuenca from liability as surety under the Indemnity Agreement for the payment of the principal amount Whether or not Respondent Cuenca's liability under the Indemnity Agreement was extinguished by the payments made by SIMC; C. Whether or not petitioner's Motion for Reconsideration was pro-forma; Whether or not service of the Petition by registered mail sufficiently complied with Section 11, Rule 13 of the 1997 Rules of Civil Procedure." Ruling: The Petition has no merit. Respondent contends that petitioner's Motion for Reconsideration of the CA Decision, in merely rehashing the arguments already passed upon by the appellate court, was pro forma; that as such, it did not toll the period for filing the present Petition for Review.[9] Consequently, the Petition was filed out of time. We disagree. A motion for reconsideration is not pro forma just because it reiterated the arguments earlier passed upon and rejected by the appellate court. Moreover, there is no clear showing of intent on the part of petitioner to delay the proceedings. An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code,... Petitioner contends that there was no absolute incompatibility between the old and the new obligations, and that the latter did not extinguish the earlier one. We reject these contentions. Clearly, the requisites of novation are present in this case. Pursuing another course, petitioner contends that Respondent Cuenca "impliedly gave his consent to any modification of the credit accommodation or otherwise waived his right to be notified of, or to give consent to, the same." In this case, petitioner's assertion - that respondent consented to the alterations in the credit accommodation -- finds no support in the text of the Indemnity Agreement Indeed, it has been held that a contract of surety "cannot extend to more than what is stipulated. It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety. We reject petitioner's submission that only Sta. Ines as the borrower, not respondent, was entitled to be notified of any modification in the original loan accommodation.

There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor-corporation. In this light, we find no more need to resolve the issue of whether the loan obtained before the expiry date of the credit accommodation has been paid. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. _____________________________________________________________________________________ Pacific Banking Corp vs. Intermediate Appellate Court and Roberto Regala, Jr. G.R. No. 72275 November 13, 1991 FACTS: Petitioner bank issued a credit card to private respondent’s wife, Celia Syjuco Regala. She applied on Oct. 24, 1975 and was issued and became effective on Oct. 29, 1975, going over the credit limit and even extending from the Oct. 29, 1976 one-year deadline. As a condition, private respondent, Roberto Regala, Jr., the husband, executed a Guarantor’s undertaking that makes him “jointly and severally liable for any and all indebtedness, obligations, charges or liabilities due and incurred by Celia Regala.” Celia’s incurred charges reached up to P92, 803.98 after more than one year of using the credit card but she failed to settle her account. The bank then sent demand letters to both Celia and Roberto. They still failed to settle, thus the bank filed a complaint with the trial court. In his demand letter, Roberto contended that his liability was limited only to P2, 000.00 a month, the agreed credit limit. Celia, on the other hand, remained silent. Having failed to appear at their pre-trial conference, they were both declared in default by the court. The RTC decided in favor of the petitioner bank, declaring Roberto to be jointly and severally liable to pay the total charges with wife Celia. Upon appeal, however, appellant court decided in favor of Roberto in that he is liable only for P2, 000.00. ISSUE/S: Is Roberto liable only to the extent of P2, 000.00? HELD: No. The Guarantor’s Undertaking was, in substance, a contract of surety. In suretyship, the surety binds himself solidarily with the principal debtor. As provided in Roberto’s Guarantor’s Undertaking, he bound himself “solidarily and jointly to pay Pacific Banking Corp. any and all indebtedness, obligations, charges or liabilities due and incurred by Celia Regala.” This was also a condition in applying for the bank’s credit card (#5 of the Terms and Conditions).

Art. 2054 is not applicable in this in limiting the guarantor’s liability as Roberto expressly bound himself up to the extent of debtor’s indebtedness, also waiving any “discharge in case of any change or novation of the terms and conditions in connection with the issuance of the credit card”. He bound himself as a surety continuously until all liabilities have been fully paid - including additional and future debts of Celia. Therefore, Roberto is held liable to the same extent as Celia. _____________________________________________________________________________________ Gateway Electronics Corp v Asianbank Corp | Velasco G.R. No. 172041 December 18, 2008 FACTS: In July 1996, Geronimo delos Reyes and Andrew delos Reyes executed separate but almost identical deeds of suretyship for Gateway in favor of respondent Asianbank Corporation. Later developments saw Asianbank extending to Gateway several export packing loans and secured by a chattel mortgage over Gateway’s equipment. Gateway initially made payments on its loan obligations, but later on defaulted. Asianbank extended the maturity dates of the loan several times. Gateway issued two checks but was dishonored for insufficiency of funds. Asianbank’s demand for payment upon Gateway and its sureties went unheeded. In December 1999, Asianbank filed a complaint for a sum of money against Gateway, Geronimo and Andrew. And in October 2003 the RTC rendered judgement in favor of Gateway. Gateway, Geronimo and Andrew appealed to the CA and then Gateway filed a petition of insolvency in November 2004. In October 2005 the CA affirmed the decision of the RTC. Gateway and Geronimo interposed a motion for reconsideration and followed by a Supplemental Motion for Reconsideration on January 2006. On December 2004, Gateway was declared insolvent by the RTC in Imus and directing all its creditor to appear before the court for the purpose of choosing the assignee of Gateway’s estate. In March 2006, the CA denied the motion for reconsideration. ISSUE: Whether or not an action commenced by a creditor against a judicially declared insolvent for the recovery of his claim should be dismissed and referred to the insolvency court. Whether or not claims against a surety may proceed independently from that against the principal debtor. Whether or not the surety cannot be made to pay since the principal cannot, owing to the order of insolvency, be made to pay its obligation. Whether or not a deed of suretyship would secure a loan obligation contracted three years after the execution of the surety deed. HELD: The petition is DENIED and the CA resolution AFFIRMED with modifications that any claim against Gateway, shall be pursued before the RTC in Cavite as the insolvency court.

RULING: The issuance of the insolvency order of December 2004 had the effect of automatically staying the civil action for a sum of money filed by Asian bank against Gateway. No creditor whose debt is provable under this Act shall be allowed, to prosecute to final judgement any action therefore against the debtor until the question of the debtor’s discharge shall have been determined, and any such suit proceeding shall, upon the application of the debtor or of any creditor, or the assignee, be stayed to await the determination of the court on the question of discharge. (Sec 60 of Act No. 1956) A creditor’s right to proceed against the surety exists independently of his right to proceed against the principal. Under Art 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. If the obligation is joint and several, the creditor has the right to proceed even against the surety alone. The rule that the obligation of a guarantor may be less, but cannot be more than the principal debtor. The rule cannot plausibly be stretched to mean that a guarantor or surety is freed from liability as such guarantor or surety in the event the principal debtor becomes insolvent or is unable to pay the obligation. The essence of a suretyship contract refers to an agreement where under one person, the surety, engages to be answerable for the debt, default, or miscarriages of another known as principal. A continuing guaranty is one which is not limited to a single transaction, but which 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.

G.R. No. 145578 November 18, 2005 JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners, vs. THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents. FACTS: Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President for Operations and VicePresident/Treasurer, respectively, of El Oro Engraver Corporation (“El Oro Corporation”). El Oro Corporation had a contract with the Philippine Army to supply the latter with “survival bolos.” To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands (“respondent bank”) for two commercial letters of credit. The letters of credit were in favor of El Oro Corporation’s suppliers, Tanchaoco Manufacturing Incorporated Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (“petitioner Jose Tupaz”) signed, in his personal capacity, a trust receipt corresponding to Letter

of Credit No. 2-00896-3 (for P564, 871.05). Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent bank’s counsel and its representative respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. ISSUE: Whether or not petitioners are solidarily liable with El Oro Corporation. HELD: A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent. As an exception, directors or officers are personally liable for the corporation’s debts only if they so contractually agree or stipulate in the trust receipt dated 9 October 1981, petitioners signed as officers of El Oro Corporation. By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporation’s obligation. Hence, for the trust receipt dated 9 October 1981, petitioners are not personally liable for El Oro Corporation’s obligation. For the trust receipt dated 30 September 1981, petitioner Jose Tupaz signed alone in his personal capacity, he did not indicate that he was signing as El Oro Corporation’s Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporation’s debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.

Prudential Bank v Intermediate Appellate Court and Anacleto Chi G.R. No. 74886 December 8, 1992 Through a letter of credit, the bank merely substitutes its own promise to pay for one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. Facts: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a 5-year deferred payment plan. To effect the payment, PRMI applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78 against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by PRMI through its president, Anacleto R. Chi, while the others were not. Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the PRMI which accepted delivery of the same. To enable PRMI to take delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust

receipt which was signed by Anacleto R. Chi in his capacity as President of PRMI company At the back of the trust receipt was printed a form to be accomplished by 2 sureties who, by the very terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the PRMI fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. . PRMI was able to take delivery of the textile machineries and installed the same at its factory site. Chi argued that presentment for acceptance was necessary to make PRMI liable. The trial court ruled that that presentment for acceptance was an indispensable requisite for Philippine Rayon’s liability on the drafts to attach. Issue : Whether or not presentment for acceptance was needed in order for PRMI to be liable under the draft. Held: Presentment for acceptance is defined as the production of a bill of exchange to a drawee for acceptance. Acceptance, however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts. Even if these were not sight drafts, thereby necessitating acceptance, it would be the Bank (Bank of America) — and not Philippine Rayon — which had to accept the same for the latter was not the drawee. The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an indispensable requisite for Philippine Rayon’s liability on the drafts to attach. Contrary to both courts’ pronouncements, Philippine Rayon immediately became liable upon Bank of America’s payment on the letter of credit. Such is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). In the instant case then, the drawee was necessarily the herein the Bank of America. It was to the latter that the drafts were presented for payment.

Bitanga vs. Pyramid Const. G.R. No. 173526 August 28, 2008 FACTS:

Pyramid filed with the RTC a Complaint for specific performance and damages with application for the issuance of a writ of preliminary attachment against the petitioner and wife Marilyn. Respondent alleged in its Complaint that, it entered into an agreement with Macrogen Realty, of which Bitanga is the President, to construct for the latter the Shoppers Gold Building located in Parañaque City. Respondent commenced civil, structural, and architectural works on the construction project. However, Macrogen failed to settle respondent’s progress billings. Petitioner, through his representatives and agents, assured respondent that the outstanding account of Macrogen would be paid and relying on the assurances made by petitioner, respondent continued the construction project. Later, respondent suspended work on the construction project since the conditions that it imposed for the continuation thereof, including payment of unsettled accounts, had not been complied with by Macrogen. Respondent instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings and project costs. Before the arbitration case could be set for trial, Pyramid and Macrogen entered into a Compromise Agreement, with petitioner acting as signatory for and in behalf of Macrogen Realty. Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the total amount of P6, 000,000.00 by instalments. Petitioner guaranteed the obligations of Macrogen Realty under the Compromise Agreement by executing a Contract of Guaranty in favor of respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and complete payment of the principal amount of liability of Macrogen. Upon joint motion of respondent and Macrogen Realty, the CIAC approved the Compromise Agreement. Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise Agreement. Hence respondent moved for the issuance of a writ of execution against Macrogen, which CIAC granted. The sheriff filed a return stating that he was unable to locate any property of Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank, Buendia Branch. Respondent then made, a written demand on petitioner, as guarantor of Macrogen to pay the liability or to point out available properties of the Macrogen within the Philippines sufficient to cover the obligation guaranteed. It also made verbal demands on petitioner. Yet, respondent’s demands were left unheeded. Petitioner filed with the RTC his Answer to respondent’s Complaint. As a special and affirmative defense, petitioner argued that the benefit of excussion was still available to him as a guarantor since he had set it up prior to any judgment against him. According to petitioner, respondent failed to exhaust all legal remedies to collect from Macrogen the amount due under the Compromise Agreement, considering that Macrogen Realty still had uncollected credits which were more than enough to pay for the same. Given these premise, petitioner could not be held liable as guarantor. ISSUE: WON petitioner cam avail of the benefit of excussion HELD:

petition denied for lack of merit; CA affirmed; Bitanga (alone; not including his wife who is not a party to the compromise agreement) is liable as per Compromise Agreement or the contract of guaranty. NO Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. This is what is otherwise known as the benefit of excussion Article 2060 of the Civil Code reads: Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latter’s demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt

It must be stressed that despite having been served a demand letter at his office, petitioner still failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code. Such failure on petitioner’s part forecloses his right to set up the defense of excussion. Worthy of note as well is the Sheriff’s return stating that the only property of Macrogen Realty which he found was its deposit of P20, 242.23 with the Planters Bank. Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote: Art. 2059. This excussion shall not take place: xxxx (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. As the Court of Appeals correctly ruled: We find untenable the claim that the Bitanga cannot be compelled to pay Pyramid because the Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had not genuinely controverted the return made by Sheriff Bisnar, who affirmed that, after exerting diligent efforts, he was not able to locate any property belonging to the Macrogen Realty, except for a bank deposit with the Planter’s Bank at Buendia, in the amount of P20, 242.23. It is axiomatic that the liability of the guarantor arises when the insolvency or inability of the debtor to pay the amount of debt is proven by the return of the writ of execution that had not been unsatisfied

AUTOCORP and Rodriguez vs. ISAC and BOC G.R. No. 166662 June 27, 2008 FACTS: Autocorp Group, represented by its President, Rodriguez, secured an ordinary re-export bond from private respondent Intra Strata Assurance Corporation (ISAC) in favor of public Bureau of Customs (BOC), to guarantee the re-export of 2 units of car (at 2 different dates) and/or to pay the taxes and duties thereon. Petitioners executed and signed two Indemnity Agreements with identical stipulations in favor of ISAC, agreeing to act as surety of the subject bonds In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their undertaking with the BOC to re-export the imported vehicles within the given period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as surety, to indemnify ISAC for the liability the latter may incur on the said bonds Autocorp failed to re-export the items guaranteed by the bonds and/or liquidate the entries or cancel the bonds, and pay the taxes and duties pertaining to the said items, despite repeated demands made by the BOC, as well as by ISAC. By reason thereof, the BOC considered the two bonds forfeited. Failing to secure from petitioners the payment of the face value of the two bonds, ISAC filed with the RTC an action against petitioners to recover a sum of money plus AF. ISAC impleaded the BOC “as a necessary party plaintiff in order that the reward of money or judgment shall be adjudged unto the said necessary plaintiff.” Petitioners filed a MTD, which was denied. RTC ordered Autocorp to pay ISAC and/or BOC the face value of the subject bonds plus AF. Autocorp’s MR was denied. CA affirmed the trial court’s decision. MR was denied. Hence this Petition for Review on Certiorari ISSUE: WON these bonds are now due and demandable, as there is yet no actual forfeiture of the bonds, but merely a recommendation of forfeiture, for no writ of execution has been issued against such bonds, therefore the case was prematurely filed by ISAC HELD: PETITION IS WITHOUT MERIT YES The Indemnity Agreements give ISAC the right to recover from petitioners the face value of the subject bonds plus attorney’s fees at the time ISAC becomes liable on the said bonds to the BOC, (specifically to re-export the imported vehicles within the period of six months from their date of entry) regardless of whether the BOC had actually forfeited the bonds, demanded payment thereof and/or received such payment. It must be pointed out that the Indemnity Agreements explicitly provide that petitioners shall be liable to indemnify ISAC “whether or not payment has actually been made by the [ISAC]” and ISAC may

proceed against petitioners by court action or otherwise “even prior to making payment to the [BOC] which may hereafter be done by [ISAC].” Article 2071 of the Civil Code provides: Art. 2071. The guarantor, even before having paid, may proceed against the principal debtor: (1) When he is sued for the payment; (2) In case of insolvency of the principal debtor; (3) When the debtor has bound himself to relieve him from the guaranty within a specified period, and this period has expired; (4) When the debt has become demandable, by reason of the expiration of the period for payment; (5) After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it cannot be extinguished except within a period longer than ten years; (6) If there are reasonable grounds to fear that the principal debtor intends to abscond; (7) If the principal debtor is in imminent danger of becoming insolvent. In all these cases, the action of the guarantor is to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor. NOTES: A demand is only necessary in order to put an obligor in a due and demandable obligation in delay, which in turn is for the purpose of making the obligor liable for interests or damages for the period of delay. Thus, unless stipulated otherwise, an extrajudicial demand is not required before a judicial demand, i.e., filing a civil case for collection, can be resorted to

Negotiable Instruments Case Digest: Ang V. Associated Bank (2007) G.R. No. 146511 September 5, 2007 Lessons Applicable: Consideration and Accommodation (Negotiable Instruments) FACTS: 

August 28, 1990: Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong (principal debtor) and petitioner Tomas Ang (co-maker) for the 2 promissory notes

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October 3 and 9, 1978: obtained a loan of P50,000 and P30,000 evidenced by promissory note payable, jointly and severally, on January 31, 1979 and December 8, 1978 Despite repeated demands for payment, the latest on September 13, 1988 and September 9, 1986, they failed to settle their obligations totalling to P539,638.96 as of July 31, 1990 Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000 Tomas Ang: bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party bank granted his co-defendant successive extensions of time within which to pay, without his knowledge and consent the bank imposed new and additional stipulations on interest, penalties, services charges and attorney's fees more onerous than the terms of the notes, without his knowledge and consent he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay, plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorney's fees, respectively. October 19, 1990: RTC held Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge per annum Lower Court: Granted against the bank, dismissing the complaint for lack of cause of action. CA: ordered Ang to pay the bank - bank is a holder CA observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit. With the bank as the "holder" of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party. Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration.

ISSUE: W/N Ang is liable as accomodation party even without consideration and his co-accomodation party was granted accomodation w/o his knowledge HELD: CA AFFIRMED 

At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had

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the authority to enforce its claims against both debtors accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other

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person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must sign for the purpose of lending his name or credit to some other person petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his name. since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, 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.