Cases The case arose out of a business transaction
for the sale of dried sea cucumber for export to
Velasquez VS. Solidbank Corporation
Doctrines
 When a foreign bill is dishonoured by
non – acceptance or non – payment,
protest is necessary to hold the drawer
and indorsers liable. Verily, the failure
to protest the non – acceptance of the
sight draft will result in the discharge
from liability under the instrument
 However, even if an indorser of a sight
draft was discharged from liability for
failure of the holder to protest for non
– acceptance, he would still be liable
under his letter of undertaking since
the same is independent from his
liability under the sight draft. Thus,
liability subsists on it even if the sight
draft was dishonoured for non –
acceptance or non – payment.
 A person cannot be both the primary
debtor and the guarantor of his own
debt, this is inconsistent with the very
purpose of a guarantee which is for the
creditor to proceed against a 3rd person
if the debtor defaults in his obligation.
Certainly, to accept such argument
would make a mockery of commercial
transactions
 Parties are bound to fulfil what has
been expressly stipulated in the
contract
Facts
Velasquez is engaged in the export business
operating under the name Wilderness trading.
Solidbank Corporation is a domestic banking
corporation organized in the Philippine Laws
South Korea between Wilderness Trading, as
seller, and Goldwell Trading of South Korea, as
buyer.
To facilitate payment of the products, Goldwell
Trading opened a letter of credit in favour of
Wilderness Trading in the amount of 87,
500.00 US dollars with the Bank of Seoul Korea
Velasquez applied for credit accommodation
with Solidbank for pre – shipment financing.
The credit accommodation was granted.
Velasquez was successful in his first two
transactions both drawn on the letter of credit.
The 3rd transaction, however, yielded a
different result.
Velasquez submitted to Solidbank the
necessary documents for his 3rd
shipment/transaction. Wanting to be paid the
value of the shipment in advance, Velasquez
negotiated for a documentary sight draft to be
drawn on the letter of credit, chargeable to the
account of Bank of Seoul.
As a condition for the issuance of the sight
draft, Velasquez executed a letter of
understanding in favour of Solidbank. Under
the terms of the letter of undertaking,
Velasquez promised that the draft will be
accepted and paid by Bank of Seoul. Velasquez
also held himself liable if the sight draft was
not accepted.
By virtue of the letter of understanding,
Solidbank advanced the value of the shipment.
Solidbank then sent all the documents
pertinent to the export transaction to the Bank
of Seoul.
Solidbank failed to collect on the sight draft as
it was dishonoured by non – acceptance by the
Bank of Seoul because of the following
 Late shipment
 Forged inspection certificate
 Absence of countersignature of the
negotiating bank on the inspection
certificate
 Goldwell Trading likewise issued a stop
payment order on the sight draft
because most of the bags of dried sea
cucumber exported by Velasquez
contained soil.
Solidbank agreed to purchase the draft and
credit Velasquez its value upon the
undertaking that he will reimburse the amount
in case the sight draft is dishonoured. The bank
would certainly not have agreed to grant
Velasquez an advance export payment were it
not for the letter of undertaking. The
consideration for the letter of undertaking was
Velasquez promise to pay Solidbank the value
of the draft if it was dishonoured for any
reason by the Bank of Seoul.

Due to the dishonour of the sight draft and the

stop payment order, Solidbank demanded
restitution of the sum advanced. Velasquez
failed to heed the demand.

The argument of Velasquez is that his liability

under the sight draft was extinguished when
Solidbank failed to protest its non –
acceptance, as required under the Negotiable
Instruments Law. He also alleged that the
letter of undertaking is not binding because it
is a superfluous document, and that he did not
violate any of the provision of the letter of
credit.

ISSUE: W/N Velasquez should be liable to

respondent under the sight draft or the letter
of undertaking.

HELD:

Petitioner is not liable under the sight draft but

he is liable under his letter of undertaking;
liability under the letter of undertaking was
not extinguished by non – protest of the
dishonour of the sight draft. It bears stressing
that it is a separate contract from the sight
draft. The liability of Velasquez under the
letter of undertaking is direct and primary.
Autocorp Group VS. Intra Strata Assurance
Corporation
Doctrine
 Demand, whether judicial or
extrajudicial, is not required before an
obligation becomes due and
demandable - 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 interest
or damages for the period of delay.
Thus, unless otherwise stipulated, an
extrajudicial demand is not required
before a judicial demand
 The provisions of the civil code on
guarantee, other than the benefit of
excussion, are applicable and available
to the surety.
 An agreement whereby the sureties
bound themselves to be liable in case
of an extension or renewal of the
bond, without the necessity of
executing another indemnity
agreement for the purpose and
without the necessity of being notified
of such extension or renewal, is valid,
and that there is nothing in it that
militates against the law, good
customs, good morals, public order or
public policy.
Facts
Autocorp represented by its President
Rodriguez, secured an ordinary re – export
bond from private respondent Intra Strata
Assurance Corp (ISAC) in favour Bureau of
Customs to guarantee the re – export of one
unit of Hyundai Excel 4 – door 1.5 LS and or to
pay the taxes and duties thereon.
Autocorp obtained another ordinary re –
export bond from ISAC in favour of Bureau of
Customs (BOC) to guarantee the re – export of
one unit Hyundai Sonata and or to pay taxes
and duties thereon.
Autocorp and Rodriguez executed and signed 2
indemnity agreements with identical
stipulations in favour of ISAC, agreeing to act
as surety of the subject bonds. Rodriguez
signed the indemnity agreements both as
President of Autocorp and in his personal
capacity.
In total, ISAC issued the subject bonds to
guarantee compliance by Autocorp and
Rodriguez with their undertaking with the BOC
to re – export the imported vehicles within the
given period and the taxes and or duties due
thereon. In turn, Autocorp and Rodriguez
agreed, as surety, to indemnify ISAC for the
liability that ISAC may incur on the said bonds.
Autocorp Group failed to re – export the items
guaranteed by the bonds and or liquidate the
entries or cancel bonds and pay the taxes and
duties pertaining to the said items despite
repeated demands made by the BOC, as well
as by ISAC. Thus, the BOC considered the 2
bonds, forfeited.
Failing to secure from Autocorp and Rodriguez
the payment of the value of the bonds, despite
several demands sent to each of them as
surety ISAC filed with the RTC an action against
them to the recover the sum of money plus
interest and damages.
ISSUE: W/N these bonds are now due and
demandable?
HELD
The petition was without merit
The petitioners become liable to indemnify
ISAC at the same time the bonds issued by
ISAC were placed at the risk of forfeiture by
the BOC for non – compliance by petitioners
with its undertaking
The subjects bonds become due and
demandable upon the failure of Petitioner
Autocorp Group to comply with a condition set
forth in its undertaking with the BOC,
specifically to re – export the imported
vehicles within the period of 6 months from
their date of entry. Since it issued the subject
bonds, ISAC then also became liable to the
BOC. At this point, the Indemnity Agreement
already give ISAC the right to proceed against
petitioners
The indemnity agreements, therefore, 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 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 even prior
to making payment to the BOC which may
hereafter be done by ISAC.
Liability of Rodriguez
Rodriguez argued that he is merely a guarantor
and that his liability arises only when the
person with whom he guarantees the credit,
Autocorp in this case, fails to pay the
obligation.
Rodriguez invokes Article 2079 of the Civil
Code on Extinguishment of Guaranty which
provides that
“An extension granted to the debtor by the
creditor without the consent of the guarantor
extinguishes the guaranty. The mere failure on
the part of the creditor to demand payment
after the debt has become due does not of
itself constitute any extension of time referred
to herein”
Rodriguez argues that there was an
amendment as to the effectivity of the bonds,
and this constitute a modification of the
agreement without his consent, thereby
exonerating him from any liability.
The argument of Rodriguez is wrong – the use
of the term guarantee in a contract does not
ipso facto mean that the contract is one of
guaranty. It thus, ruled that both petitioners
assumed liability as a regular party and
obligated themselves as original promisors
(this could be inferred in the provisions of the
Indemnity Agreement of this case) which
provides that Autocorp Group and Rodriguez
agree at all times to jointly and severally
indemnify the ISAC.
Thus, even if there was a modification as to the
effectivity of the bonds, petitioners would still
be liable since they had authorized ISAC to
consent to the granting of any extension,
modification, alteration and or renewal of the
subject bonds, as expressly set out in the
Indemnity Agreements.
De Los Santos VS. Vibar
Doctrines
 A person’s act of nodding his/her head
showed his/her consent to be a
guarantor. If it is not the intention of
the person to be a guarantor, he
should have immediately expressed his
objection to be a guarantor. A positive
or a negative reaction is expected of
him.
 A person’s act of “nodding her head”
and at the same time even smiling,
expressed her voluntary assent to the
insertion of the word “guarantor” after
her signature. It is the same as saying
that she agreed to the insertion.
 It is axiomatic (obvious) that the
written word “guarantor” prevails over
the typewritten word “witness” – in
case of conflict, the written word
prevails over the printed word. When
an instrument consist partly of written
words and partly of a printed form,
and the two are inconsistent, the
former controls the latter because the
written words are the latest expression
of the will of the parties.
 Estoppel is a doctrine that prevents a
person from adopting an inconsistent
position, attitude or action if it will
result in injury to another.
 In the absence of proof, any allegation
that the signature of a party on
promissory notes, credit line
agreements were forged, the court is
constrained to uphold their
genuineness.
Facts
De Los Santos and Vibar were former co –
workers in the Medical Department of the
Social Security System. They were close and
trusted friends for 33 years
De los Santos introduced De Leon to Vibar. De
Leon needed money and borrowed 100K from
Vibar. De Leon issued a promissory note and
bound himself to pay the loan with monthly
interest of 3%. De Los Santos signed as a
guarantor of De Leon’s loan.
De Leon asked Vibar for another loan.
Together with De Los Santos and Avelina
Conte, De Leon went to Vibar’s house. Vibar
and her sister Atty. Bautista were present in
the same gathering. After some discussions,
they all agreed that the outstanding 100K loan
together with the accrued interest would be
deducted from the new loan of 500K
De Leon signed a typewritten promissory note,
which he brought with him, acknowledging the
debt of 500K with monthly interest, and
penalty in case of default. Then, De Los Santos
signed as a witness under the phrase “signed in
the presence of”. However, Atty. Bautista
brought up the need for De Los Santos to sign
as guarantor. Thereupon, De Leon, in his own
handwriting, inserted the word “guarantor”
besides De Los Santos name, as she nodded
her head to what De Leon was doing.
On maturity date, De Leon failed to pay any of
the monthly instalments. Vibar made several
verbal demands on De Leon for payment but to
no avail.
Vibar counsel then sent De Leon a demand
letter asking for payment of the principal loan
with interest and penalties. De Leon failed to
respond.
Vibar’s counsel again sent a demand letter not
only to De Leon as principal debtor but also to
De Los Santos. De Los Santos was being made
to answer for De leon’s debt as the latter’s
guarantor.
De Los Santos then remitted to Vibar 15K to
pay one month’s interest on the loan.
However, this was the only payment De Los
Santos made to Vibar as De Los Santos claimed
she had no money to pay the full amount of
the loan.
Thus, Vibar filed an action for recovery of
money in court against De Leon and De Los
Santos. De Leon did not file an answer and the
court declared him in default. De Los Santos,
on the other hand, filed an answer denying
that she signed as a guarantor of De Leon’s
loan.
ISSUE:
 W/N De Los Santos is liable as
guarantor of De Leon’s loan from
Vibar?
 W/N there exists a contract of
guaranty to hold De Los Santos liable
for the loan of De Leon, the principal
debtor?
insertion was made with the express consent
of De Los Santos.
Beside, Vibar would not have extended a loan
to De Leon without the representation of De
Los Santos. De Los Santos arranged for De Leon
and Vibar to meet so that De Leon could
borrow money from Vibar. De Los Sanots
vouched for De Leon’s capacity to pay.
As to the second promissory note, Vibar would
not have granted another loan which bigger
than the first loan without the guaranty of De
Los Santos. It was only natural for Vibar to
commit to the second bigger loan subject at
least to the same guarantee as the first smaller
loan.
De Los Santos even wrote to the Register of
Deeds inquiring on the status of the property,
hoping that the property could answer for De
Leon’s loan and save her from personally
paying as guarantor.

HELD:

The Supreme Court held that De Los Santos

was a guarantor of De Leon’s loan.

The promissory note indicates that De Los

Santos signed as a witness, as manifested by
the typewritten format. However, the word
“guarantor” as handwritten beside De Los
Santos name makes her a guarantor. From the
records of the case and the evidence
presented, the court is convinced that the
Bitanga VS. Pyramid Construction Engineering
Corporation
Doctrines
 In the contract of guaranty 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.
 What is the meaning of benefit of
excussion? – under a contract of
guarantee, the guarantor binds himself
to the creditor to fulfil 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 known as the benefit of
excussion.
 In order for the guarantor to make use
of the benefit of excussion, he must set
it up against the creditor upon the
latter’s demand for payment and point
out to the creditor available property
of the debtor within the Philippines
sufficient to cover the amount of the
debt.
Facts
Pyramid entered into an agreement with
Macrogen Realty, of which Bitanga is the
President, to construct for the latter the
Shoppers Gold Building
Pyramid commenced civil, structural and
architectural works on the construction
project. However, Macrogen Realty failed to
settle Pyramid’s progress billings.
Bitanga, through his representatives and
agents, assured Pyramid that the outstanding
account of Macrogen Realty would be paid,
and requested Pyramid to continue working on
the construction project. Relying on the
assurance made by Bitanga, who was no less
than the President of Macrogen Realty,
Pyramid continued the construction project.
Pyramid suspended work on the construction
project since the conditions that it imposed for
the continuation thereof, had not been
complied with by Macrogen Realty.
Pyramid instituted with the Construction
Industry Arbitration Commission (CIAC) a case
for arbitration against Macrogen Realty
seeking payments. Bitanga, through counsel,
asked Pyramid to have an amicable
settlement.
Before the case could be set for trial, Pyramid
and Macrogen Realty entered into a
compromise agreement with Bitanga acting as
signatory for and in behalf of Macrogen Realty.
Under the Compromise Agreement, Macrogen
Realty agreed to pay Pyramid. Macrogen also
agreed that if it would default in the payment,
immediate execution could issue against it for
the unpaid balance, without need of
judgement or decree from any court. Bitanga
guaranteed the obligation of Macrogen Realty
under the Compromise Agreement by a
executing a contract of guaranty in favour of
pyramid.
However, Macrogen Realty failed and refused Realty which he found was its deposit with a
to pay. Hence, Pyramid moved for the issuance bank. Thus, it precludes Bitanga from
of a writ of execution against Macrogen Realty interposing the defense of excussion. Under
Article 2059 (9) the benefits of excussion
The sheriff was unable to locate any property
cannot be set up as a defense
of Macrogen Realty, except its bank deposit of
20K with a bank. “if it may be presumed that an execution on
the property of the principal debtor would not
Pyramid then made a written demand on
result in the satisfaction of the obligation”
Bitanga, as guarantor of Macrogen Realty, or
to point out available properties of the
Macrogen Realty within the Philippines
sufficient to cover the obligation guaranteed.
Yet, respondent’s demands were left
unheeded.

Thus, Pyramid said, Bitanga’s obligation as a

guarantor was already due and demandable.

ISSUE: W/N there is a contract of guarantee

HELD: Yes, it is a contract of guarantee,

Bitanga cannot avail himself of the benefit of
excussion. Under a contract of guarantee, the
guarantor binds himself to the creditor to fulfil
the obligation of the principal debtor in case
the latter 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.

It must be stressed that despite having been

served a demand letter at his office, Bitanga
still failed to point out to Pyramid, the
properties of Macrogen Realty sufficient to
cover its debt. Such failure on Bitanga part
forecloses his right to set up the defenses of
excussion.

Worthy of note as well is the sheriff’s return

stating that the only property of Macrogen
Gateway Electronics Corporation & Delos
Reyes VS. Asianbank Corporation
Doctrine
 The issuance of an order declaring the
a corporation insolvent after the
insolvency court finds the
corresponding petition for insolvency
to be meritorious shall stay all pending
civil actions against the corporation’s
property.
 Thus, once an order of insolvency
nevertheless issues, all civil
proceedings against the corporation
property are, by statutory command,
automatically stayed.
 A surety of the distressed corporation
can be sued separately to enforce its
liability as such, notwithstanding a
Securities and Exchange Commission
(SEC) order declaring the former under
a state of suspension of payment.
 A comprehensive or continuing surety
agreements are in fact quite
commonplace in present day financial
and commercial practice. A bank or
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
communication extended to the
principal debtor
 A continuing guaranty is one which
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.
 Omnibus credit line refers to a credit
facility whence a borrower may avail
of various kinds of credit loans.
 A SURETY IS AN INSURER OF THE
DEBT, WHEREAS A GUARANTOR IS AN
INSURER OF THE SOLVENCY OF THE
DEBTOR. A suretyship is an
undertaking that the debt shall be
paid. 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.
 A surety binds himself to perform if
the principal does not, without regard
to his ability to do o.
Facts
Gateway is a domestic corporation that used
to be engaged in the semi - conductor
business. Geronimo Delos Reyes was its
president and one Andrew Delos Reyes its
executive vice – president
Geronimo and Andrew executed separate but
almost identical deeds of suretyhip for
Gateway in favour of Asianbank Corporation.
Later developments saw asianbank extending
to gateway several export packing loans.
Gateway initially made payments on its loan
obligation, but eventually defaulted. Upon
gateway’s request, Asianbank extended the insolvent after the insolvency court finds the
maturity dates of the loan several times. These corresponding petition for insolvency to be
extensions bore the conformity of 3 gateway’s meritorious shall stay all pending civil action
officers, among them Andrew. against the petitioner’s property

Gateway issued checks as payment, but both
checks were dishonoured for insufficiency of
funds. Asianbank demands for payment made
upon by gateway and its sureties went
unheeded.
Thus, Asianbank filed with the court a
complaint for a sum of money against
gateway, Geronimo and Andrew.
Gateway alleged its financial difficulties
Andrew alleged that the deed of suretyship he
executed covering purchased line, credit line
and the promissory note, the payment of
which was extended several times without his
consent.
Geronimo is liable applying the provisions of
law, A surety binds himself to perform if the
principal does not, without regard to his ability
to do so. In other words ,a surety undertakes
directly for the payment and is so responsible
at once if the principal debtor makes default.
Thus, a creditor’s right to proceed against the
surety exists independently of his right to
proceed against the principal.
A suit against the surety, insofar as the surety’s
solidary liability is concerned is not affected by
an insolvency proceeding instituted by or
against the principal debtor.

Geronimo, alleged that the subject deed of

suretyship, assuming the authenticity of his
signature on it, was signed without his wife’s
consent and should be considered only as a
continuing offer. He also contended that he
never consented to the repeated loan maturity
date extensions given by Asianbank to
gateway.

ISSUE: W/N CA erred in holding that the

repeated extensions granted by Asianbank to
GEC without notice to and the express consent
of petitioner GBR did not discharge petitioner
GBR from his liabilities as surety GEC.

HELD:

Gateway may be discharged from liability but

not Geronimo.

Gateway having been declared insolvent the

issuance of an order declaring the gateway