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Facts This is an action brought by plaintiffs to recover from defendant the sum of P10,000. The brief decision of the trial court held that the suit was premature, and absolved the defendant from the complaint, with the costs against the plaintiffs. Sellner wrote; …I will, within fifteen days after notice of such default, pay you in cash the sum of P10,000 and interest upon your surrendering to me the three thousand shares of stock of the Keystone Mining Co. held by you as security for the payment of said note. Issue Determination of defendant's status in the transaction referred to. Plaintiffs contend that he is a surety; defendant contends that he is a guarantor. Plaintiffs also admit that if defendant is a guarantor, articles 1830, 1831, and 1834 of the Civil Code govern. Held The points of difference between a surety and a guarantor are familiar to American authorities. A surety and a guarantor are alike in that each promises to answer for the debt or default of another. A surety and a guarantor are unlike in that the surety assumes liability as a regular party to the undertaking, while the liability as a regular party to upon an independent agreement to pay the obligation if the primary pay or fails to do so. A surety is charged as an original promissory; the engagement of the guarantor is a collateral undertaking. The obligation of the surety is primary; the obligation of the guarantor is secondary. It is perfectly clear that the obligation assumed by defendant was simply that of a guarantor, or, to be more precise, of the fiador whose responsibility is fixed in the Civil Code. The letter of Mr. Sellner recites that if the promissory note is not paid at maturity, then, within fifteen days after notice of such default and upon surrender to him of the three thousand shares of Keystone Mining Company stock, he will assume responsibility. Sellner is not bound with the principals by the same instrument executed at the same time and on the same consideration, but his responsibility is a secondary one found in an independent collateral agreement, Neither is Sellner jointly and severally liable with the principal debtors.
PICZON VS. PICZON 61 SCRA 67 (1974) BARREDO, J. Facts AGREEMENT OF LOAN KNOW YE ALL MEN BY THESE PRESENTS: That I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of and with postal address in the municipality of Catbalogan, Province of Samar, Philippines, in my capacity as the President of the corporation known as the "SOSINGLOBOS and CO., INC.," as controlling stockholder, and at the same time as guarantor for the same, do by these presents contract a loan of Twelve Thousand Five Hundred Pesos (P12,500.00), Philippine Currency, the receipt of which is hereby acknowledged, from the "Piczon and Co., Inc." another corporation, the main offices of the two corporations being in Catbalogan, Samar, for which I undertake, bind and agree to use the loan as surety cash deposit for registration with the Securities and Exchange Commission of the incorporation papers relative to the "Sosing-Lobos and Co., Inc.," and to return or pay the same amount with Twelve Per Cent (12%) interest per annum, commencing from the date of execution hereof, to the "Piczon and Co., Inc., as soon as the said incorporation papers are duly registered and the Certificate of Incorporation issued by the aforesaid Commission. IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan, Samar, Philippines, this 28th day of September, 1956. Issue: Whether or not Esteban was only a guarantor and not a surety. Ruling Under the terms of the contract, Annex A, Esteban Piczon expressly bound himself only as guarantor, and there are no circumstances in the record from which it can be deduced that his liability could be that of a surety. A guaranty must be express, (Article 2055, Civil Code) and it would be violative of the law to consider a party to be bound as a surety when the very word used in the agreement is "guarantor
MUNICIPALITY OF GASAN VS. MARASIGAN 63 PHIL. 51 DIAZ, J. Facts
DINO VS. CA 216 SCRA 9 (1992) PUNO, J. Facts
This is an action brought by the municipality of Gasan of the Province of Marinduque, against Miguel Marasigan, Angel R. Sevilla and Gonzalo L. Luna, to recover from them the sum of P3,780, alleging that it forms a part of the license fees which Miguel Marasigan failed to pay for the privilege granted him of gathering whitefish spawn (semillas de bañgus) in the jurisdictional waters of the plaintiff municipality during the period from January 1, 1931, to December 31 of said year. Error raised by the Defendant-Sureties; The court a quo erred in not absolving the defendants Angel R. Sevilla and Gonzalo L. Luna, sureties of the defendant Miguel Marasigan, notwithstanding the fact that resolution No. 161, by virtue of which said defendant subscribed the bond Exhibit B of the complaint, had been declared null and void by the provincial board and by the Executive Bureau. Issue: Whether or not a suretyship exist Ruling: In either case, it is a fact that, said contract ceased to have life or force to bind each of the contracting parties. It ceased to be valid from the time it was cancelled and this being so, neither the appellant Marasigan nor his sureties or the appellants were bound to comply with the terms of their respective contracts of fishing privilege and suretyship. This is so, particularly with respect to the sureties-appellants, because suretyship cannot exist without a valid obligation (art. 1824 of the Civil Code). The obligation whose compliance by the appellant Marasigan was guaranteed by the sureties-appellants, was exclusively that appearing in Exhibit A, which should begin on January 1, 1931, not on the 14th of said month and year, and end on December 31st next. They intervened in no other subsequent contract which the plaintiff and Miguel Marasigan might have entered into on or after January 14, 1931. Guaranty is not, presume; it must be expressed and cannot be extended beyond its specified limits (art. 1827 of the Civil Code). Therefore, after eliminating the obligation for which said suretiesappellants desired to answer with their bond, the bond necessarily ceased and it ceases to have effects. Consequently, said errors I and III are true and well founded.
PASTORAL VS. MUTUAL SECURITY INSURANCE 14 SCRA 1011 REYES, JBL. Facts It appears that on and from October 1, 1957, plaintiff Pedro C. Pastoral leased a crane to defendant Mapada & Company, Inc., at a monthly rental of P900.00, Exhibit A. The contract provides that if the crane be not returned 10 days after notice therefor, defendant will pay plaintiff P15,000, as the value of the crane. In compliance with paragraph 2(b) of Exhibit A, defendant on October 22, 1957, put up a surety bond, Exhibit B, in the total amount of P15,000 executed by appellant Mutual Security Insurance Corporation to fully and faithfully guarantee compliance by defendant of "all the conditions and obligations" under the lease contract. The surety company appealed, urging that the trial court erred in not holding that it was released from liability under the surety bond which had become null and void from the failure of plaintiff to report within five days to appellant the violation of the lease contract. Issue Ruling This Court has ruled that where the guaranty requires action by the creditor before the obligation becomes fixed, it is not binding until accepted (National Bank vs. Garcia, 47 Phil. 63; Texas Co. [Phil.] Inc. vs. Alonzo, 73 Phil. 90). The rule is grounded on common sense; otherwise, the debtor and the guarantor could easily defraud the creditor by inserting in the bond conditions that would render it nugatory. The suretyship contract, therefore, was not perfected and was not binding on Pastoral until November 21, 1957, when he received copy thereof and tacitly accepted it. By then two defaults had already occurred (even disregarding the extension agreement of October 31, hereinafter discussed); and Pastoral was in no position to give notice of them within 5 days after default, as required by the bond, because the latest happened on November 5. The 5-day period to notify expired November 10, and Pastoral only learned of the existence of the condition on November 21. Ad impossibilia nemor tenetur. In fact, by not notifying Pastoral earlier, the surety must be deemed to have waived the condition as to rentals already due, since a condition is deemed fulfilled when the obligor voluntarily prevents its fulfillment (Civ. Code, Art. 1186). The Court of Appeals held that Pastoral was duty-bound to know and secure copy of the surety contract within a reasonable time from its execution on October 22, 1957, and that not having done so, he was chargeable with its contents. We find no justification for this pronouncement. If anyone was obligated to notify Pastoral of the conditions attached to the bond, that one was the guarantor. Pastoral was not
obligated to inquire, since his assent to the condition was necessary; and if no acceptable bond was forthcoming, he could always rescind the lease of the machinery to Mapada & Co., Inc., and recover his crane. The Court of Appeals further held that the act of Pastoral in granting to the debtor on October 31, 1957 time up to the end of November, 1957 to pay the rentals that fell due on the first five days of October and November, without the surety's consent, constituted a material alteration that discharged the surety. We agree with appellant that this view is untenable. When Pastoral agreed on October 31 that the October and November rentals be paid at the end of November, he had not yet learned of them on November 21. On the latter date, the debtor was not yet in default, because the extension given had wiped out the previous failures to pay on October 5 and November 5. The first default after the bond had become effective in law (on November 21) occurred on the last day of November, and Pastoral gave notice thereof to the surety on the 5th day of December, within the five-day period prescribed by the bond. A contract of guaranty or suretyship is only prospective, and not retroactive in operation (Socony Vacuum, Corp. vs. Miraflores, 67 Phil. 304; El Venceder vs. Canlas, 44 Phil. 699; Asiastic Petroleum Co. vs. De Pio, 46 Phil. 167), unless a contrary intent is clearly shown. Consequently, Pastoral, was entitled to assume that the notice provided by the surety bond did not, and was not intended to include any defaults incurred prior to his acceptance. The surety, which drafted the bond, could have expressly provided, if it so chose, that the five-day notice therein provided should extend to the amounts of falling due on October 5 and November 5, but the surety failed to do so, and cannot blame Pastoral therefor.
WISE & CO. VS. TANGLAO 62 PHIL. 372 AVANCENA, C.J. Facts In the Court of First Instance of Manila, Wise & Co. instituted civil case No. 41129 against Cornelio C. David for the recovery of a certain sum of money David was an agent of Wise & Co. and the amount claimed from him was the result of a liquidation of accounts showing that he was indebted in said amount. In said case Wise & Co. asked and obtained a preliminary attachment of David's property. To avoid the execution of said attachment, David succeeded in having his Attorney Tanglao execute on January 16, 1932, a power of attorney (Exhibit A) in his favor, with the following clause: To sign for me as guarantor for himself in his indebtedness to Wise & Company of Manila, which indebtedness appears in civil case No. 41129, of the Court of First Instance of Manila, and to mortgage my lot (No. 517-F of the subdivision plan Psd-20, being a portion of lot No. 517 of the cadastral survey of Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said obligations to the Wise & Company, Inc., of Manila. Issue Ruling There is no doubt that under Exhibit, A, Tanglao empowered David, in his name, to enter into a contract of suretyship and a contract of mortgage of the property described in the document, with Wise & Co. However, David used said power of attorney only to mortgage the property and did not enter into contract of suretyship. Nothing is stated in Exhibit B to the effect that Tanglao became David's surety for the payment of the sum in question. Neither is this inferable from any of the clauses thereof, and even if this inference might be made, it would be insufficient to create an obligation of suretyship which, under the law, must be express and cannot be presumed. It appears from the foregoing that defendant, Tanglao could not have contracted any personal responsibility for the payment of the sum of P640. The only obligation which Exhibit B, in connection with Exhibit A, has created on the part of Tanglao, is that resulting from the mortgage of a property belonging to him to secure the payment of said P640. However, a foreclosure suit is not instituted in this case against Tanglao, but a purely personal action for the recovery of the amount still owed by David.
BABST. VS. CA, G.R. NO. 99398, January 26, 2001 YNARES-SANTIAGO, J. Facts Issue Ruling BPI gives no cogent reason in withholding its consent to the substitution, other than its desire to preserve its causes of action and legal recourse against the sureties of ELISCON. It must be remembered, however, that while a surety is solidarily liable with the principal debtor, his obligation to pay only arises upon the principal debtor’s failure or refusal to pay. A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not.  A surety is an insurer of the debt; he promises to pay the principal’s debt if the principal will not pay. In the case at bar, there was no indication that the principal debtor will default in payment. In fact, DBP, which had stepped into the shoes of ELISCON, was capable of payment. Its authorized capital stock was increased by the government.  More importantly, the National Development Company took over the business of ELISCON and undertook to pay ELISCON’s creditors, and earmarked for that purpose the amount of P4,015,534.54 for payment to BPI.
PALMARES VS. CA G.R. NO. 126490, March 31, 1998 REGALADO, J. Facts Issue Ruling The Civil Code pertinently provides: Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. 13 In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety. Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph of her contract are technical and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her manifestation in the contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the principal maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference to the existence of fraud is unavailing. Fraud must be established by clear and convincing evidence, mere preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and, expectedly, self-serving allegations. 14 Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. 16
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. 17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. 18 Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. 19 A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. 20 In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. 21 In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, 26 and as such is deemed an original promisor and debtor from the beginning. 27 This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. 28 In essence, the contract of a surety starts with the agreement, 29 which is precisely the situation obtaining in this case before the Court.
BAYLON VS. CA G.R. NO. 10994 August 17, 1999 GONZAGA-REYES, J. Facts Issue Ruling
the principal debtor before assuming to run after the alleged guarantor.
It is petitioner's contention that, even though she is held to be a guarantor under the terms of the promissory note, she is not liable because private respondent did not exhaust the property of the principal debtor and has not resorted to all the legal remedies provided by the law against the debtor. Petitioner is invoking the benefit of excussion pursuant to article 2058 of the Civil Code, which provides that The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. It is axiomatic that the liability of the guarantor is only subsidiary. All the properties of the principal debtor must first be exhausted before his own is levied upon. Thus, the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay, “for obviously the ‘exhaustion of the principal’s property’ - the benefit of which the guarantor claims - cannot even begin to take place before judgment has been obtained.” This rule is embodied in article 2062 of the Civil Code which provides that the action brought by the creditor must be filed against the principal debtor alone, except in some instances when the action may be brought against both the debtor and the principal debtor. Under the circumstances availing in the present case, we hold that it is premature for this Court to even determine whether or not petitioner is liable as a guarantor and whether she is entitled to the concomitant rights as such, like the benefit of excussion, since the most basic prerequisite is wanting - that is, no judgment was first obtained against the principal debtor Rosita B. Luanzon. It is useless to speak of a guarantor when no debtor has been held liable for the obligation which is allegedly secured by such guarantee. Although the principal debtor Luanzon was impleaded as defendant, there is nothing in the records to show that summons was served upon her. Thus, the trial court never even acquired jurisdiction over the principal debtor. We hold that private respondent must first obtain a judgment against