GUARANTY AND SURETYSHIP

Smith Bell vs PNB

G.R. No. 16482 February 1, 1922

FACTS

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

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

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

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

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

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

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

Issue:

Whether or not PNB is subsidiary liable?

Rulings:

 NO. The SC ruled that PNB’s liability is primary in nature.

 The contract by which the Bank obligated itself is both in form and effect an independent undertaking on the
part of the Bank directly to the Plaintiff; and inasmuch as the Plaintiff had compiled, or offered to comply, with
the terms of said contract, the Bank is bound by its promise to pay the purchase price.
 Its obligation to the Plaintiff is direct and independent. The debt must be considered a liquidated debt, in the
sense intended in article 1825 of the Civil Code; and the action is now maintainable by the Plaintiff directly
against the Bank without regard to the position of Harden.

 The Bank is to be considered strictly in the light of an independent promisor, a consequence would be that
Harden had no authority to change the order from end-drive to side-drive expellers; in other words, that the
Bank should be held to be obligated according to the terms of the order as it stood when the Bank entered into
the undertaking which is the subject of the suit.

Wise & Co. Vs Tanglao

G.R. No. L-42518 August 29, 1936

FACTS

 In the CFI of Manila, Wise & Co filed a civil case 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 the defendant Attorney Tanglao sign a
power of attorney in his favor, with a clause (considered a special POA to David) “ To sign as guarantor for
himself in his indebtedness to Wise & Company of Manila, and to mortgage the Attorney’s lot”

 Subsequently, David made a compromise with the petitioner by paying P340 leaving an unpaid balance of P296
and pledged the lot owned by the Atty as a guaranty for the balance.

 Wise & Co. now institutes this case against Tanglao for the recovery of said unpaid amount.

 There is no doubt that under POA, 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.

ISSUE

Whether or not Atty. Tanglao is liable?

RULING

 NO.
 The SC ruled that there is nothing stated in the Compromise Agreement 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.
 The only obligation which the Compromise Agreement, in connection with POA, 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.

 At any rate, even granting that Defendant Tanglao may be considered as a surety under the cited Compromise
the action does not yet lie against him on the ground that all the legal remedies against the debtor have not
previously been exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court of Spain of March 2,
1891).

 The Plaintiff has in its favor a judgment against debtor David for the payment of debt. It does not appear that
the execution of this judgment has been asked for and the Compromise, on the other hand, shows that David
has two pieces of property the value of which is in excess of the balance of the debt the payment of which is
sought of Tanglao in his alleged capacity as surety.

General Indemnity vs Alvarez

G.R. No. L-9434 March 29, 1957

FACTS:

 On February 1954, Appellee General Indemnity Co., Inc., filed a complaint in the CFI Manila against Appellant
Estanislao Alvarez for the recovery of the sum of P2,000 representing the amount of a loan allegedly taken by
the Appellant from the PNB, which the Appellee guaranteed with an indemnity bond, and for which Appellant,
as counter-guaranty, executed in Plaintiff's favor a mortgage on his share of land in a parcel of land .
 The complaint further alleged that the Appellant failed to pay said loan, together with interest, to PNB as a
result of which the bank deducted the amount thereof Plaintiff's deposit.

 Thereafter, Appellant averred that the loan in question was secured by him only in accommodation of one Hao
Lam, and that Plaintiff agreed not to take any steps against Appellant and the mortgage executed by him in
Plaintiff's favor until the latter had failed to obtain payment from said Hao Lam.

 Eight months later, Plaintiff filed a motion for summary judgment saying that Appellang presented no real and
meritorious defense and that it was entitled to a summary judgment in its favor, based on the affidavit of its
comptroller Pedro R. Mendiola essentially saying that:

o That he has personal knowledge of the indebtedness of the Defendant.

o Notwithstanding said several demands by Plaintiff, Defendant has failed and refused and still fails and
refuses to pay the same.

 The lower courts ruled in favour of Plaintiff. Thus this petition.

Issue:
Whether or not Defendant Alvarez is liable?

Ruling:

 NO. The SC ruled that there exists a controversy in the complaint and answer as to whether or not Appellee
had actually paid Appellant's obligation to the Philippine National Bank, a matter which should be decided in
the affirmative before Appellant, as surety, can claim reimbursement from Appellant, the principal debtor.
 However, Appellee is correct in saying that said defense is immaterial to its right to recovery, since the
mortgage deed executed by Appellant in its favor (the genuineness and due execution of which Appellant
admitted in his answer) shows Appellant to be the actual and only debtor, and Appellant is precluded from
varying this representation by parol evidence.

 In ruling for the Appellant, the SC opined that the last paragraph of Art. 2071 of the New Civil Code, provides
that the only action the guarantor can file against the debtor "to obtain release from the guaranty, or to
demand a security that shall protect him from any proceeding by the creditor and from the danger of
insolvency of the debtor."

 An action by the guarantor against the principal debtor for payment, before the former has paid the creditor, is
premature.