III. GUARANTY AND SURETYSHIP (Articles 2047-2084) debtor.
debtor. In fact, the creditor bank may go against the surety alone without prior demand for payment
• Ong v. PCIB, G.R. No.160466, January 17, 2005 - PIA
G.R. No. 160466             January 17, 2005
SPOUSES ALFREDO and SUSANA ONG, petitioners, vs. PHILIPPINE COMMERCIAL
INTERNATIONAL BANK, respondent.
SUMMARY: Baliwag Mahogany Corporation (BMC) is engaged in production and manufacture of
finished wood products and has Alfredo Ong and Susana Ong as President and Treasurer,
respectively. In 1991, BMC needed additional capital for its business and applied for loans with PCIB
amounting P5M, which the Spouses acted as surety for, executing 3 promissory notes therefor. It
was stipulated in the promissory notes that PCIB may consider debtor B,C in default and demand
payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its
properties, or upon BMC’s insolvency, or if it is declared to be in a state of suspension of payments.
BMC filed a petition for rehabilitation and suspension of payments with SEC after its properties were
attached by PCIB who then considered BMC in default and sought to collect payment from Spouses
as sureties. The Spouses moved to dismiss the complaint arguing that since SEC declared BMC, the
principal debtor in a state of suspension of payments, and under a MOA they executed, creditor
banks agreed to temporarily suspend any pending civil action against BMC, such should be
extended to the Spouses who acted as BMC’s sureties in their contracts of loan. They rely on Article
2081 of the Civil Code and aver that if the principal debtor BMC can set up the defense of
suspension of payment of debts and filing of collection suits against PCIB, Spouses Ong as sureties
should likewise be allowed to avail of these defenses.
ISSUE: WON Spouses Ong, as sureties, may set up the defense of suspension of payment of debts
as the principal debtor PCIB did / WON Art 2081 appply
The SC held that their reliance on Articles 2063 and 2081 of the Civil Code is misplaced as these
refer to contracts of guaranty and do not apply to suretyship contracts. Spouses are not guarantors
but sureties of BMC’s debts.
Difference of guaranty and suretyship:
GUARANTOR SURETY
insures the solvency of the debtor an insurer of the debt itself
contract of guaranty gives rise to a subsidiary directly, equally and absolutely bound
obligation on the part of the guarantor with the principal debtor for the payment
of the debt and is deemed as an original
promissor and debtor from the beginning
Principle of Excussion: Only after the creditor has In a suretyship contract, the benefit of
proceeded against the properties of the principal excussion is not available to the surety
debtor and the debt remains unsatisfied that a as he is principally liable for the payment
guarantor can be held liable to answer for any unpaid of the debt.
amount
he obligates himself to pay the debt if
the principal debtor will not pay,
regardless of whether or not the latter is
financially capable to fulfill his obligation
Under the suretyship contract entered into by Spouses Ong with PCIB the former obligated
themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to PCIB
amounting to five million pesos (₱5,000,000). Under Article 1216 of the Civil Code, PCIB as creditor
may proceed against Spouses Ong as sureties despite the execution of the MOA which provided for
the suspension of payment and filing of collection suits against BMC. The bank’s right to collect
payment from the surety exists independently of its right to proceed directly against the principal
on the principal debtor.
FACTS: Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the
manufacture and export of finished wood products. Alfredo and Susana Ong are its President and
Treasurer, respectively.
On April 20, 1992, Philippine Commercial International Bank (now Equitable-Philippine
Commercial International Bank or E-PCIB) filed a case for collection of a sum of money
against Spouses Ong. PCIB sought to hold the Spouses liable as sureties on the three (3)
promissory notes they issued to secure some of BMC’s loans, totalling five million pesos
(₱5,000,000).
The complaint alleged that in 1991, BMC needed additional capital for its business and applied
for various loans, amounting to a total of five million pesos, with PCIB. Spouses acted as
sureties for these loans and issued three (3) promissory notes for the purpose. Under the
terms of the notes, it was stipulated that PCIB may consider debtor BMC in default and
demand payment of the remaining balance of the loan upon the levy, attachment or
garnishment of any of its properties, or upon BMC’s insolvency, or if it is declared to be in a
state of suspension of payments. PCIB granted BMC’s loan applications.
On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments
with the Securities and Exchange Commission (SEC) after its properties were attached by
creditors. PCIB considered debtor BMC in default of its obligations and sought to collect
payment thereof from Spouses as sureties. In due time, Spouses Ong filed their Answer.
On October 13, 1992, a Memorandum of Agreement was executed by debtor BMC, the Spouses
as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which
respondent bank is included). The MOA took effect upon its approval by the SEC on November
27, 1992.3
Thereafter, Spouses Ong moved to dismiss the complaint. They argued that as the SEC
declared the principal debtor BMC in a state of suspension of payments and, under the MOA,
the creditor banks, including PCIB, agreed to temporarily suspend any pending civil action
against the debtor BMC, the benefits of the MOA should be extended to the Spouses who
acted as BMC’s sureties in their contracts of loan with PCIB. Spouses Ong averred that PCIB is
barred from pursuing its collection case filed against them.
The trial court denied the motion to dismiss. Spouses Ong appealed to the Court of Appeals
which affirmed the trial court’s ruling that a creditor can proceed against them as surety
independently of its right to proceed against the principal debtor BMC.
SPOUSES ONG: claim that the collection case filed against them by PCIB should be dismissed for:
1. MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of
collection cases against the BMC and this provision should benefit petitioners as sureties. 
2. Principal debtor BMC has been placed under suspension of payment of debts by the SEC;
they contend that it would prejudice them if the BMC would enjoy the suspension of
payment of its debts while they, who acted only as sureties for some of BMC’s debts,
would be compelled to make the payment; petitioners add that compelling them to pay is
contrary to Article 2063 of the Civil Code which provides that a compromise between the
creditor and principal debtor benefits the guarantor and should not prejudice the latter. 
3. Spouses rely on Article 2081 of the Civil Code which provides that: "the guarantor
may set up against the creditor all the defenses which pertain to the principal
debtor and are inherent in the debt; but not those which are purely personal to the
debtor." Petitioners aver that if the principal debtor BMC can set up the defense of
suspension of payment of debts and filing of collection suits against PCIB, Spouses
Ong as sureties should likewise be allowed to avail of these defenses.
ISSUE: WON Art 2063 and 2081 applies to the case at bar / WON Spouses Ong, as sureties, may
set up the defense of suspension of payment of debts as the principal debtor PCIB did
 regardless of whether or not the latter is
RULING: NO. IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement
financially capable to fulfill his obligation
as to costs.
SO ORDERED.
creditor can go directly against the
RATIO:  surety although the principal debtor is
Reliance on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to solvent and is able to pay or no prior
contracts of guaranty. They do not apply to suretyship contracts. Spouses are not guarantors demand is made on the principal debtor.
but sureties of BMC’s debts. There is a sea of difference in the rights and liabilities of a guarantor
and a surety.  Under the suretyship contract entered into by Spouses Ong with PCIB the former obligated
GUARANTOR SURETY themselves to be solidarily bound with the principal debtor BMC for the payment of its debts
to PCIB amounting to five million pesos (₱5,000,000). Under Article 1216 of the Civil Code, PCIB
as creditor may proceed against Spouses Ong as sureties despite the execution of the MOA
insures the solvency of the debtor an insurer of the debt itself
which provided for the suspension of payment and filing of collection suits against BMC. The
bank’s right to collect payment from the surety exists independently of its right to proceed
contract of guaranty gives rise to a subsidiary directly, equally and absolutely bound directly against the principal debtor. In fact, the creditor bank may go against the surety
obligation on the part of the guarantor with the principal debtor for the payment alone without prior demand for payment on the principal debtor.
of the debt and is deemed as an original
promissor and debtor from the beginning
The provisions of the MOA regarding the suspension of payments by BMC and the non-filing
of collection suits by the creditor banks pertain only to the property of the principal debtor
Principle of Excussion: Only after the creditor has In a suretyship contract, the benefit of BMC. Firstly, in the rehabilitation receivership filed by BMC, only the properties of BMC were
proceeded against the properties of the principal excussion is not available to the surety mentioned in the petition with the SEC. Secondly, there is nothing in the MOA that involves the
debtor and the debt remains unsatisfied that a as he is principally liable for the payment liabilities of the sureties whose properties are separate and distinct from that of the debtor
guarantor can be held liable to answer for any unpaid of the debt. BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the creditor-banks
amount was approved by the SEC whose jurisdiction is limited only to corporations and corporate
assets. It has no jurisdiction over the properties of BMC’s officers or sureties.
he obligates himself to pay the debt if
the principal debtor will not pay, Clearly, the collection suit filed by PCIB against Spouses Ong as sureties can prosper. The trial
court’s denial of petitioners’ motion to dismiss was proper.
• International Finance Corp. v. Imperial Textile Mills, G.R. No.160324, November 15, 2005 - EV By virtue of PPIC’s failure to pay, IFC, together with DBP, applied for the extrajudicial foreclosure of
G.R. No. 160324 November 15, 2005 mortgages. During the auction sale, IFC’s bid was for US$5,250,000.00. The outstanding loan,
INTERNATIONAL FINANCE CORPORATION, Petitioner,  however, amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC failed to
vs. pay the remaining balance.
IMPERIAL TEXTILE MILLS, INC., Respondent.
*

DECISION
PANGANIBAN, J.:
The terms of a contract govern the rights and obligations of the contracting parties. When
the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. 
If solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to
be one of suretyship.
The creditor in the present Petition was able to show convincingly that, although
denominated as a "Guarantee Agreement," the Contract was actually a surety. Notwithstanding the
use of the words "guarantee" and "guarantor," the subject Contract was indeed a surety, because its
terms were clear and left no doubt as to the intention of the parties.
Summary:
Petitioner International Finance Corporation (IFC) and Respondent Philippine Polyamide Industrial
Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan of
US$7,000,000.00.
A ‘Guarantee Agreement’ was executed with Imperial Textile Mills (ITM), Grandtex and IFC as
parties thereto. ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan
agreement.
PPIC paid the first three installments. The remaining installments were rescheduled as requested by
PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted. Hence, IFC
served a written notice of default to PPIC demanding the latter to pay the outstanding principal loan
and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its interests.
Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding
balance. However, despite the demand made by IFC, the outstanding balance remained unpaid.
Thereafter, IFC filed a complaint with the RTC of Manila against PPIC and ITM for the payment of
the outstanding balance plus interests and attorney’s fees.
ISSUE: WON ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan?—YES
The present controversy arose from the two contracts: (1) the Loan Agreement and (2) the
Guarantee Agreement between ITM and Grandtex, on the one hand, and IFC on the other.
Petitioner IFC: claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC’s
obligations proceeding from the Loan Agreement.
Respondent ITM: asserts that, by the terms of the Guarantee Agreement, it was merely a guarantor
and not a surety.
The premise of the Guarantee Agreement is found in its preambular clause, which reads:
"Whereas,
"(A) By an Agreement of even date herewith between IFC and PHILIPPINE POLYAMIDE INDUSTRIAL
CORPORATION (herein called the Company), which agreement is herein called the Loan Agreement, IFC agrees
to extend to the Company a loan (herein called the Loan) of seven million dollars ($7,000,000) on the terms therein
set forth, including a provision that all or part of the Loan may be disbursed in a currency other than dollars, but
only on condition that the Guarantors agree to guarantee the obligations of the Company in respect of the Loan as
hereinafter provided.
 "(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in consideration of
IFC entering into said Agreement, have agreed so to guarantee such obligations of the Company."18
The obligations of the guarantors are meticulously expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as
primary obligors and not as sureties merely, the due and punctual payment of the principal of, and interest and
commitment charge on, the Loan, and the principal of, and interest on, the Notes, whether at stated maturity or
upon prematuring, all as set forth in the Loan Agreement and in the Notes."
While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was
"jointly and severally" liable. To put emphasis on the nature of that liability, the Contract further
stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing:
that at bottom, and to all legal intents and purposes, it was a surety.
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter’s
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of
PPIC and could not be deemed merely secondarily liable.
The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified
by the term "jointly and severally," the use of the word "guarantor" to refer to a "surety" does not
violate the law. As Article 2047 provides, a suretyship is created when a guarantor binds itself
solidarily with the principal obligor. Likewise, the phrase in the Agreement -- "as primary obligor and
not merely as surety" -- stresses that ITM is being placed on the same level as PPIC. Those words
emphasize the nature of their liability, which the law characterizes as a suretyship.
The use of the word "guarantee" does not ipso facto make the contract one of guaranty. This Court
has recognized that the word is frequently employed in business transactions to describe the
intention to be bound by a primary or an independent obligation. The very terms of a contract govern
the obligations of the parties or the extent of the obligor’s liability. Thus, this Court has ruled in favor
of suretyship, even though contracts were denominated as a "Guarantor’s Undertaking" or a
26
"Continuing Guaranty.”
We note that the CA denied solidary liability, on the theory that the parties would not have executed
a Guarantee Agreement if they had intended to name ITM as a primary obligor. The appellate court
opined that ITM’s undertaking was collateral to and distinct from the Loan Agreement. On this point,
the Court stresses that a suretyship is merely an accessory or a collateral to a principal obligation.
Although a surety contract is secondary to the principal obligation, the liability of the surety is direct,
primary and absolute; or equivalent to that of a regular party to the undertaking. A surety becomes
liable to the debt and duty of the principal obligor even without possessing a direct or personal
interest in the obligations constituted by the latter.
Thus, the SC held that Imperial Textile Mills, Inc. is a surety to Philippine Polyamide Industrial
Corporation. ITM is ordered to pay International Finance Corporation the same amounts adjudged
against PPIC in the assailed Decision.
FACTS:
On December 17, 1974, Petitioner International Finance Corporation (IFC) and Respondent
Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC
extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semi-annual installments
of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with interest at the rate
of 10% per annum on the principal amount of the loan advanced and outstanding from time to
time. The interest shall be paid in US dollars semi-annually on June 1 and December 1 in each year
and interest for any period less than a year shall accrue and be pro-rated on the basis of a 360-day
year of twelve 30-day months.
On December 17, 1974, a ‘Guarantee Agreement’ was executed with x x x Imperial Textile
Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties
thereto. ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan agreement.
PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. The
payments due on December 1, 1978, June 1, 1979 and December 1, 1979 were rescheduled as
requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC
defaulted. Hence, on April 1, 1985, IFC served a written notice of default to PPIC demanding
the latter to pay the outstanding principal loan and all its accrued interests. Despite such
notice, PPIC failed to pay the loan and its interests.
By virtue of PPIC’s failure to pay, IFC, together with DBP, applied for the extrajudicial
foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all
improvements owned by PPIC, located at Calamba, Laguna, with the regional sheriff of Calamba,
Laguna. On July 30, 1985, the deputy sheriff of Calamba, Laguna issued a notice of extrajudicial
sale. IFC and DBP were the only bidders during the auction sale. IFC’s bid was for ₱99,269,100.00
which was equivalent to US$5,250,000.00 (at the prevailing exchange rate of ₱18.9084 = US$1.00).
The outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of
US$2,833,967.00. PPIC failed to pay the remaining balance.
Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
outstanding balance. However, despite the demand made by IFC, the outstanding balance
remained unpaid.
Thereafter, on May 20, 1988, IFC filed a complaint with the RTC of Manila against PPIC and ITM
for the payment of the outstanding balance plus interests and attorney’s fees.
RTC: held PPIC liable for the payment of the outstanding loan plus interests. It also ordered
PPIC to pay IFC its claimed attorney’s fees. However, the trial court relieved ITM of its
obligation as guarantor. Hence, the trial court dismissed IFC’s complaint against ITM.
Thus, apropos the decision dismissing the complaint against ITM, IFC appealed to the CA.
CA: reversed the Decision of the trial court, insofar as the latter exonerated ITM from any
obligation to IFC. According to the appellate court, ITM bound itself under the "Guarantee
Agreement" to pay PPIC’s obligation upon default. ITM was not discharged from its
obligation as guarantor when PPIC mortgaged the latter’s properties to IFC. The CA, however,
held that ITM’s liability as a guarantor would arise only if and when PPIC could not pay. Since
PPIC’s inability to comply with its obligation was not sufficiently established, ITM could not
immediately be made to assume the liability. 
Dispositive portion of the CA decision:
"WHEREFORE, the appeal is PARTIALLY GRANTED. The decision of the trial court is MODIFIED to read as
follows:
"1. Philippine Polyamide Industrial Corporation is ORDERED to pay [Petitioner] International Finance Corporation,
the following amounts:
‘(a) US$2,833,967.00 with accrued interests as provided in the Loan Agreement;
‘(b) Interest of 12% per annum on accrued interest, which shall be counted from the date of filing of the instant
action up to the actual payment;
‘(c) ₱73,340.00 as attorney’s fees;
‘(d) Costs of suit.’
"2. The guarantor Imperial Textile Mills, Inc. together with Grandtex is HELD secondarily liable to pay the amount
herein adjudged to [Petitioner] International Finance Corporation."
The assailed Resolution denied both parties’ respective Motions for Reconsideration.
The September 30, 2003 Resolution of the CA denied reconsideration. Hence, this Petition.
ISSUE:
WON ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan?—YES
HELD: the Petition is granted; CA decision modified in the sense that Imperial Textile Mills, Inc. is
declared a surety to Philippine Polyamide Industrial Corporation. ITM is ordered to pay
International Finance Corporation the same amounts adjudged against PPIC in the assailed
Decision.
RATIO:
Main Issue: Liability of Respondent Under the Guarantee ITM Agreement
The present controversy arose from the following Contracts: (1) the Loan Agreement dated
December 17, 1974, between IFC and PPIC; and (2) the Guarantee Agreement dated December
17, 1974, between ITM and Grandtex, on the one hand, and IFC on the other.
Petitioner IFC: claims that, under the Guarantee Agreement, ITM bound itself as a surety to
PPIC’s obligations proceeding from the Loan Agreement.
Respondent ITM: for its part, asserts that, by the terms of the Guarantee Agreement, it was
merely a guarantor and not a surety. Moreover, any ambiguity in the Agreement should be
construed against IFC -- the party that drafted it.
Language of the Contract
The premise of the Guarantee Agreement is found in its preambular clause, which reads:
"Whereas,
"(A) By an Agreement of even date herewith between IFC and PHILIPPINE POLYAMIDE
INDUSTRIAL CORPORATION (herein called the Company), which agreement is herein called the
Loan Agreement, IFC agrees to extend to the Company a loan (herein called the Loan) of seven
million dollars ($7,000,000) on the terms therein set forth, including a provision that all or part of the
Loan may be disbursed in a currency other than dollars, but only on condition that the Guarantors
agree to guarantee the obligations of the Company in respect of the Loan as hereinafter provided.
"(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in consideration
of IFC entering into said Agreement, have agreed so to guarantee such obligations of the Company."
The obligations of the guarantors are meticulously expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally
guarantee, as primary obligors and not as sureties merely, the due and punctual payment of the
principal of, and interest and commitment charge on, the Loan, and the principal of, and interest on,
the Notes, whether at stated maturity or upon prematuring, all as set forth in the Loan Agreement
and in the Notes."
The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument on
those words. This Court is not convinced that the use of the two words limits the Contract to
a mere guaranty. The specific stipulations in the Contract show otherwise.
Solidary Liability Agreed to by ITM
While referring to ITM as a guarantor, the Agreement specifically stated that the corporation
was "jointly and severally" liable. To put emphasis on the nature of that liability, the Contract
further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant
only one thing: that at bottom, and to all legal intents and purposes, it was a surety.
Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latter’s
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of
PPIC and could not be deemed merely secondarily liable.
Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM’s liability
commenced only when it guaranteed PPIC’s obligation. It became a surety when it bound itself
solidarily with the principal obligor. Thus, the applicable law is as follows:
"Article 2047. By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the
obligation of the principal 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 shall be called suretyship.”
The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on "Joint and Solidary
Obligations." Relevant to this case is Article 1216, which states:
"The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected."
Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against
respondent.
No Ambiguity in the Undertaking
The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When
qualified by the term "jointly and severally," the use of the word "guarantor" to refer to a
"surety" does not violate the law. As Article 2047 provides, a suretyship is created when a
23
guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the
Agreement -- "as primary obligor and not merely as surety" -- stresses that ITM is being
placed on the same level as PPIC. Those words emphasize the nature of their liability, which
the law characterizes as a suretyship.
The use of the word "guarantee" does not ipso facto make the contract one of guaranty. This
Court has recognized that the word is frequently employed in business transactions to
describe the intention to be bound by a primary or an independent obligation. The very terms
of a contract govern the obligations of the parties or the extent of the obligor’s liability. Thus,
this Court has ruled in favor of suretyship, even though contracts were denominated as a
"Guarantor’s Undertaking" or a "Continuing Guaranty.”
26
Contracts have the force of law between the parties, who are free to stipulate any matter not contrary
to law, morals, good customs, public order or public policy. None of these circumstances are
present, much less alleged by respondent. Hence, this Court cannot give a different meaning to the
plain language of the Guarantee Agreement.
Indeed, the finding of solidary liability is in line with the premise provided in the "Whereas"
clause of the Guarantee Agreement. The execution of the Agreement was a condition
precedent for the approval of PPIC’s loan from IFC. Consistent with the position of IFC as
creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a
breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning
ignorance of its solidary liability. The literal meaning of the stipulations control when the
terms of the contract are clear and there is no doubt as to the intention of the parties.
We note that the CA denied solidary liability, on the theory that the parties would not have executed
a Guarantee Agreement if they had intended to name ITM as a primary obligor. The appellate court
opined that ITM’s undertaking was collateral to and distinct from the Loan Agreement. On this point,
the Court stresses that a suretyship is merely an accessory or a collateral to a principal
obligation. Although a surety contract is secondary to the principal obligation, the liability of
the surety is direct, primary and absolute; or equivalent to that of a regular party to the
undertaking. A surety becomes liable to the debt and duty of the principal obligor even
without possessing a direct or personal interest in the obligations constituted by the latter.
ITM’s Liability as Surety
With the present finding that ITM is a surety, it is clear that the CA erred in declaring the
former secondarily liable. A surety is considered in law to be on the same footing as the
principal debtor in relation to whatever is adjudged against the latter. Evidently, the
dispositive portion of the assailed Decision should be modified to require ITM to pay the
amount adjudged in favor of IFC.
Other issues: 
In addition to the main issue, ITM raised procedural infirmities allegedly justifying the
denial of the present Petition. Before the trial court and the CA, IFC had allegedly instituted different
arguments that effectively changed the corporation’s theory on appeal, in violation of this Court’s
previous pronouncements. ITM further claims that the main issue in the present case is a question
37
of fact that is not cognizable by this Court. These contentions deserve little consideration.
 Alleged Change of Theory on Appeal:Petitioner’s arguments before the trial court (that ITM was based on a misapprehension of facts, which particularly related to certain stipulations in the
was a "primary obligor") and before the CA (that ITM was a "surety") were related and intertwined in Guarantee Agreement -- stipulations that had not been disputed by the parties. This circumstance
the action to enforce the solidary liability of ITM under the Guarantee Agreement. We emphasize compelled the Court to review the Contract firsthand and to make its own findings and conclusions
that the terms "primary obligor" and "surety" were premised on the same stipulations in Section 2.01 accordingly.
of the Agreement. Besides, both terms had the same legal consequences. There was therefore
effectively no change of theory on appeal. At any rate, ITM failed to show to this Court a disparity
between IFC’s allegations in the trial court and those in the CA. Bare allegations without proof
deserve no credence.
As to the issue that only questions of law may be raised in a Petition for Review, the
39

Court has recognized exceptions, one of which applies to the present case. The assailed Decision

• E. Zobel, Inc. v. Court of Appeals, G.R. No. 113931, May 6, 1998 – MARKO
• Tacao v. Court of Appeals, G.R. No. 127405, October 4, 2000 – YODH
G.R. No. 127405 October 4, 2000
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA
A. ANAY, respondents.
YNARES-SANTIAGO, J.:
SUMMARY: Respondent Anay met with petitioner William Belo. Belo then introduced Anay to
Petitioner Tocao. All three of them decided to enter into a join venture for the importation and local
distribution of kitchenware. The Company was called Geminesse Enterprise a sole proprietorship
registered in Marjorie Tocao’s name.
Belo agreed to finance the venture while Anay acted as the head for the marketing department.
Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%)
of the sales she would make; and (4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of Belo’s assurances that he was sincere,
dependable and honest when it came to financial commitments.
The West Bend Company then invited Anay to a distributor/dealer meeting in Wisconsin, USA.
Tocao then endorsed Anay to the Visa Section of the US embassy with the following letter:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired
the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and  a
business partner of our company, will attend in response to the invitation." (Italics supplied.) 3
Later, Tocao then wrote a letter to the Cubao Sales office stating that Anay was no longer the vice
president of Geminesse Enterprise. Anay then filed for damages against Tocao and Belo. Belo’s
defense was that he denied contributing capital to the business or receiving a share in its profits as
he merely served as a guarantor of Marjorie Tocao, who was new in the business.
Issue: WON Belo was a mere guarantor. No.
SC: On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in
the face of the established fact that he presided over meetings regarding matters affecting the
operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than
that he had a proprietary interest in the business. His claim that he was merely a guarantor is
belied by that personal act of proprietorship in the business. Moreover, if he was indeed a
guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,20 he should have
presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides
that guaranty must be "express," Article 1403, the Statute of Frauds, requires that "a special
promise to answer for the debt, default or miscarriage of another" be in writing. 21
FACTS: Former marketing adviser of Technolux in Bangkok, Thailand private respondent Nenita
A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok.
Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the product
considering her experience and established relationship with West Bend Company, a manufacturer
of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as
president and general manager, and Anay as head of the marketing department and later, vice-
president for sales.
Anay organized the administrative staff and sales force while Tocao hired and fired employees,
determined commissions and/or salaries of the employees, and assigned them to different branches.
The parties agreed that Belo’s name should not appear in any documents relating to their
transactions with West Bend Company. Instead, they agreed to use Anay’s name in securing
distributorship of cookware from that company.
The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the
business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of
the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement was not
reduced to writing on the strength of Belo’s assurances that he was sincere, dependable and honest when it came
to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off
successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao’s name, with office at 712 Rufino Building, Ayala Avenue, Makati City.
Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West
Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach,
California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie
Tocao who, as president and general manager of Geminesse Enterprise, even wrote a letter to the
Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation." (Italics supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao 4 for her excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo 5 entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87." Belo
explained to her that said commission was apart from her ten percent (10%) share in the profits.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter 6 addressed to the
Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.7 Anay attempted to contact Belo. She wrote
him twice to demand her overriding commission for the period of January 8, 1988 to February 5,
1988 and the audit of the company to determine her share in the net profits. When her letters were
not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The following
year, 1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988;
(2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also
prayed for an audit of the finances of Geminesse Enterprise from the inception of its business
operation until she was "illegally dismissed" to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) "overriding commission" on the
remaining 150 West Bend cookware sets before her "dismissal."
DEFENSE:
In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was
"neither reduced in writing, nor ratified," was "either unenforceable or void or inexistent." As far
as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have
been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole
 proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of
Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her
compensation or dismissal, such complaint should have been lodged with the Department of Labor and
not with the regular court.
Petitioners further alleged that Anay filed the complaint on account of "ill-will and resentment "
because Marjorie Tocao did not allow her to "lord it over in the Geminesse Enterprise." Anay had acted
like she owned the enterprise because of her experience and expertise. Hence, petitioners were the
ones who suffered actual damages "including unreturned and unaccounted stocks of Geminesse
Enterprise," and "serious anxiety, besmirched reputation in the business world, and various damages
not less than P500,000.00." They also alleged that, to "vindicate their names," they had to hire counsel
for a fee of P23,000.00.
Belo denied that Anay was supposed to receive a share in the profit of the business. He,
however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%)
share in the gross sales of the cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao , who
was new in the business. He attended and/or presided over business meetings of the venture in his
capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the
memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the
business venture at the request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on
gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in
her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds
with interest. Because she treated Anay as her "co-equal," Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and 1988
pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits of
the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets
available for disposition when plaintiff was wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering
January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.
SO ORDERED."
The trial court held that there was indeed an "oral partnership agreement between the plaintiff
and the defendants," based on the following:
(a) there was an intention to create a partnership; (b) a common fund was established through
contributions consisting of money and industry, and (c) there was a joint interest in the profits. The
testimony of Elizabeth Bantilan, Anay’s cousin and the administrative officer of Geminesse Enterprise
from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend Company
stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that
with Marjorie’s financial contribution and Anay’s experience, the combination of the two would be
invaluable to the partnership, also supported that conclusion. Belo’s claim that he was merely a
"guarantor" has no basis since there was no written evidence thereof as required by Article 2055 of the
Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the
contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to
bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of
the Civil Code provides that a partnership may be "constituted in any form." The fact that Geminesse
Enterprise was registered in Marjorie Tocao’s name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was registered with
the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as
well as damages or share in the profits "realized from the appropriation of the partnership business
and goodwill." An innocent partner thus possesses "pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time he was
wrongfully expelled."
Petitioners’ appeal to the Court of Appeals 11 was dismissed, but the amount of damages awarded by the trial
court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for
Reconsideration was denied by the Court of Appeals for lack of merit. 12 Petitioners Belo and Marjorie Tocao are
now before this Court on a petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the damages
awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership
existed between them and private respondent Anay because Geminesse Enterprise "came into
being" exactly a year before the "alleged partnership" was formed, and that it was very unlikely that
petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing,
without any "memorandum whatsoever regarding the alleged partnership."13
ISSUES:
WON there was a Partnership (Yes. Irrelevant)
WON Belo was a mere Guarantor (No.)
RULING:
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil
Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the
Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant
to Article 1809 of the Civil Code, in order to determine private respondent’s ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period
covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in
the amount of P50,000.00 and attorney’s fees in the amount of P25,000.00.
SO ORDERED.
RATIO:
ON PARTNERSHIP (SKIP)
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both
the trial and appellate courts. This Court cannot set aside factual findings of such courts absent any showing that
there is no evidence to support the conclusion drawn by the court a quo.14 In this case, both the trial court and the
Court of Appeals are one in ruling that petitioners and private respondent established a business partnership. This
Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. 15 It may be constituted in any form; a public instrument is
necessary only where immovable property or real rights are contributed thereto. 16 This implies that since a contract
of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable
property or real rights are involved, what matters is that the parties have complied with the requisites of a
partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code 17 did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the matter states:
 Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case "Q: Of course. Now, I am showing to you certain documents already marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated
of failure to comply with the requirements of article 1772, first paragraph. `Cubao overrides’ 8-21-87 with ending August 21, 1987, will you please go over this and tell the Honorable Court whether you ever came across
this document and know of your own knowledge the amount ---

Petitioners admit that private respondent had the expertise to engage in the business of distributorship of
cookware. Private respondent contributed such expertise to the partnership and hence, under the law, she was the
industrial or managing partner. It was through her reputation with the West Bend Company that the partnership was
able to open the business of distributorship of that company’s cookware products; it was through the same efforts
A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a certain percentage for promotions, advertising,
incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: ‘Overrides Marjorie Ann Tocao P21,410.50’
this means that you have received this amount?

that the business was propelled to financial success. Petitioner Tocao herself admitted private respondent’s
indispensable role in putting up the business when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there were no one to sell yet, it’s only me there then her
and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz
these two (2) people were given the designation of marketing managers of which definitely Nita as superior to them
would be the Vice President." 18
By the set-up of the business, third persons were made to believe that a partnership had indeed been forged
between petitioners and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West
Bend Company to Roger Muencheberg of the same company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have
cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory Vista. She has also
gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key
people and build up the organization. All they need is the finance and the products to sell." 19
BELO WAS NOT MERELY A GUARANTOR
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay P21,410.50’, what is this?
A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her expertise in the business
she is vital to my business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is your way of indicating
that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one is ---

A: That is the same thing, sir.

On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in the
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’ the amount there you will acknowledge you have
face of the established fact that he presided over meetings regarding matters affecting the received that?
operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a
A: Yes, sir.
stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than Q: Again in concept of commission, representation, promotion, etc.?

that he had a proprietary interest in the business. His claim that he was merely a guarantor is A: Yes, sir.
belied by that personal act of proprietorship in the business. Moreover, if he was indeed a Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same amount?
guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code,20 he should have
A: Yes, sir.
presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides
that guaranty must be "express," Article 1403, the Statute of Frauds, requires that "a special Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

promise to answer for the debt, default or miscarriage of another" be in writing. 21 A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She claimed that
A: Yes, sir." (Italics supplied.)30
she herself financed the business. Her and petitioner Belo’s roles as both capitalists to the
partnership with private respondent are buttressed by petitioner Tocao’s admissions that petitioner
If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that they shall
Belo was her boyfriend and that the partnership was not their only business venture together. They
receive the same income in the business. In a partnership, each partner must share in the profits
also established a firm that they called "Wiji," the combination of petitioner Belo’s first name, William,
and losses of the venture, except that the industrial partner shall not be liable for the losses. 31 As an
and her nickname, Jiji.23 The special relationship between them dovetails with petitioner Belo’s claim
industrial partner, private respondent had the right to demand for a formal accounting of the
that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business
business and to receive her share in the net profit.32
operation, petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
products.24 The inevitable conclusion, therefore, was that petitioners merged their respective capital
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
and infused the amount into the partnership of distributing cookware with private respondent as the
August 19, 1987 was merely the name of that enterprise. 33 While it is true that in her undated
managing partner.
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of "kitchenwares, cookwares, utensils, skillet," 34 she also admitted that the
ON EMPLOYER-EMPLOYEE RELATIONSHIP
enterprise was only "60% to 70% for the cookware business," while 20% to 30% of its business
activity was devoted to the sale of water sterilizer or purifier. 35 Indubitably then, the business name
The business venture operated under Geminesse Enterprise did not result in an employer-employee
Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for
relationship between petitioners and private respondent. While it is true that the receipt of a
petitioner Tocao’s various business activities, which included the distributorship of cookware.
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,25 the evidence in the case at bar controverts an employer-employee relationship between
Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted and
the parties. In the first place, private respondent had a voice in the management of the affairs of the
unremitted stocks of Geminesse Enterprise amounting to P208,250.00." 36 Obviously a ploy to offset
cookware distributorship, 26 including selection of people who would constitute the administrative staff
the damages awarded to private respondent, that claim, more than anything else, proves the
and the sales force. Secondly, petitioner Tocao’s admissions militate against an employer-employee
existence of a partnership between them. In Idos v. Court of Appeals, this Court said:
relationship. She admitted that, like her who owned Geminesse Enterprise, 27 private respondent
received only commissions and transportation and representation allowances 28 and not a fixed
"The best evidence of the existence of the partnership, which was not yet terminated (though in the
salary.29 Petitioner Tocao testified:
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x."37

It is not surprising then that, even after private respondent had been unceremoniously booted out of
the partnership in October 1987, she still received her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap
for herself and/or for petitioner Belo financial gains resulting from private respondent’s efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even shout at private respondent
in front of other people. 38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation, 39 and resulted
in a falling out between the two. However, a mere falling out or misunderstanding between
partners does not convert the partnership into a sham organization.40 The partnership exists
until dissolved under the law. Since the partnership created by petitioners and private respondent
has no fixed term and is therefore a partnership at will predicated on their mutual desire and
consent, it may be dissolved by the will of a partner. Thus:

"x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each
partner’s capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not
that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for
damages." 41

An unjustified dissolution by a partner can subject him to action for damages because by the
mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners
to have the power,  although not necessarily the right  to dissolve the partnership.42

In this case, petitioner Tocao’s unilateral exclusion of private respondent from the partnership
is shown by her memo to the Cubao office plainly stating that private respondent was, as of
October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise.43 By that
memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as
having ceased to be associated with the partnership in the carrying on of the business.
Nevertheless, the partnership was not terminated thereby; it continues until the winding up of
the business.44

The winding up of partnership affairs has not yet been undertaken by the partnership.1âwphi1 This
is manifest in petitioners’ claim for stocks that had been entrusted to private respondent in the
pursuit of the partnership business.

The determination of the amount of damages commensurate with the factual findings upon which it is based is
primarily the task of the trial court. 45 The Court of Appeals may modify that amount only when its factual findings are
diametrically opposed to that of the lower court, 46 or the award is palpably or scandalously and unreasonably
excessive.47 However, exemplary damages that are awarded "by way of example or correction for the public
good,"48 should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly,
the award of moral damages of P100,000.00 was excessive and should be likewise reduced to P50,000.00.
Similarly, attorney’s fees that should be granted on account of the award of exemplary damages and petitioners’
evident bad faith in refusing to satisfy private respondent’s plainly valid, just and demandable claims, 49 appear to
have been excessively granted by the trial court and should therefore be reduced to P25,000.00.
• Astro Electronics Corp. v. Phil. Export and Foreign Loan Guarantee Corporation, G.R. No. 136729,
September 23, 2003 - MONA
[G.R. No. 136729. September 23, 2003.]
ASTRO ELECTRONICS CORP. and PETER ROXAS, Petitioners, v. PHILIPPINE EXPORT AND FOREIGN
LOAN GUARANTEE CORPORATION, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.
SUMMARY: Astro was granted several loans by Philtrust amounting to P3,000,000.00 with interest
and secured by three promissory notes, signed by petitioner Roxas twice, as President of Astro and
in his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of Philtrust
Bank, as President of Astro and as surety. Thereafter, Philguarantee, with the consent of Astro,
guaranteed in favor of Philtrust the payment of 70% of Astro’s loan, subject to the condition that
upon payment by Philguarantee of said amount, it shall be proportionally subrogated to the rights of
Philtrust against Astro.
As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of
the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a
complaint for sum of money with the RTC. Roxas disclaims any liability on the instruments, alleging
that he merely signed the same in blank and the phrases "in his personal capacity" and "in his official
capacity" were fraudulently inserted without his knowledge.
 
ISSUE: WON Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded
by the RTC – YES
RULING: Roxas signed twice: first, as president of Astro and second, in his personal capacity. In
signing his name aside from being the President of Astro, Roxas became a co-maker of the
promissory notes and cannot escape any liability arising from it.
 
Under the Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers, promising that they will pay to the order of the payee or any holder according to
its tenor.
Thus, even without the phrase "personal capacity," Roxas will still be primarily liable as a joint and
several debtor under the notes considering that his intention to be liable as such is manifested by the
fact that he affixed his signature on each of the promissory notes twice which necessarily would
imply that he is undertaking the obligation in two different capacities, official and personal. A closer
examination of the signatures affixed by Roxas on the promissory notes readily reveals that portions
of his signatures covered portions of the typewritten words "personal capacity" indicating with
certainty that the typewritten words were already existing at the time Roxas affixed his signatures.
The three promissory notes uniformly provide:
"FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to
PHILTRUST BANK or order . . ."
 
An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed by two or
more persons, makes them solidarily liable. Also, the phrase "joint and several" binds the makers
jointly and individually to the payee so that all may be sued together for its enforcement, or the
creditor may select one or more as the object of the suit
Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary
care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign
a document without first informing himself of its contents and consequences.
Such continuing suretyship agreement even re-enforced his solidary liability to Philtrust because as
a surety, he bound himself jointly and severally with Astro’s obligation.
 
Roxas’ acquiescence is not necessary for subrogation to take place because the instant case is one
of legal subrogation that occurs by operation of law, and without need of the debtor’s knowledge.
Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against
Roxas and Astro because the "guarantor who pays is subrogated by virtue thereof to all the rights
which the creditor had against the debtor."
 
FACTS:
 
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to
P3,000,000.00 with interest and secured by three promissory notes: PN No. PFX-254 dated
December 14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981 for
P400,000.00 and PN No. 15477 dated August 27, 1981 for P2,000,000.00. In each of these
promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in
his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of
Philtrust Bank, as President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the
payment of 70% of Astro’s loan, subject to the condition that upon payment by Philguarantee
of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro.
 
As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid
70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and
Roxas a complaint for sum of money with the RTC of Makati.
 
In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he
merely signed the same in blank and the phrases "in his personal capacity" and "in his
official capacity" were fraudulently inserted without his knowledge.
 
RTC: After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive
portion:
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the
plaintiff and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then
(sic) to pay, jointly and severally, the plaintiff the sum of P3,621,187.52 representing the total obligation
of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at the stipulated
rate of 16% per annum and stipulated penalty charges of 16% per annum computed from January 1,
1985 until the amount is fully paid. With costs. SO ORDERED.
The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as
President of Astro, then he should have signed only once in the promissory note.
 
CA: On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that
Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the
presumption that private transactions have been fair and regular must be sustained.
 
ISSUE: WON Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded
by the RTC - YES
RULING: WHEREFORE, finding no error with the decision of the Court of Appeals dated December
10, 1998, the same is hereby AFFIRMED in toto. SO ORDERED.
 
RATIO: The answer is in the affirmative.
 
Astro’s loan with Philtrust Bank is secured by three promissory notes. These promissory
notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed
twice: first, as president of Astro and second, in his personal capacity. In signing his name
aside from being the President of Astro, Roxas became a co-maker of the promissory notes
and cannot escape any liability arising from it.
 
Under the Negotiable Instruments Law, persons who write their names on the face of
promissory notes are makers, promising that they will pay to the order of the payee or any
holder according to its tenor.
 
Thus, even without the phrase "personal capacity," Roxas will still be primarily liable as a
joint and several debtor under the notes considering that his intention to be liable as such is
manifested by the fact that he affixed his signature on each of the promissory notes twice
which necessarily would imply that he is undertaking the obligation in two different
capacities, official and personal.
Unnoticed by both the TC and the CA, a closer examination of the signatures affixed by Roxas
on the promissory notes readily reveals that portions of his signatures covered portions of
the typewritten words "personal capacity" indicating with certainty that the typewritten words
were already existing at the time Roxas affixed his signatures thus demolishing his claim that
the typewritten words were just inserted after he signed the promissory notes. If what he
claims is true, then portions of the typewritten words would have covered portions of his
signatures, and not vice versa.
 
As to the third promissory note, the copy submitted is not clear so that this Court could not discern
the same observations on the notes.
Nevertheless, the following discussions equally apply to all three promissory notes.
 
The three promissory notes uniformly provide:
"FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to
PHILTRUST BANK or order . . ."
already paid the value of 70% of Roxas and Astro Electronics Corp.’s loan obligation, in
compliance with its contract of "Guarantee" in favor of Philtrust.
 
Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes
him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes
place without agreement but by operation of law because of certain acts. Instances of legal
subrogation are those provided in Article 1302 of the Civil Code. Conventional subrogation, on the
other hand, is that which takes place by agreement of the parties.
Roxas’ acquiescence is not necessary for subrogation to take place because the instant case
is one of legal subrogation that occurs by operation of law, and without need of the debtor’s
knowledge. Further, Philguarantee, as guarantor, became the transferee of all the rights of
Philtrust as against Roxas and Astro because the "guarantor who pays is subrogated by
virtue thereof to all the rights which the creditor had against the debtor."

 
An instrument which begins with "I", "We", or "Either of us" promise to pay, when signed by
two or more persons, makes them solidarily liable. Also, the phrase "joint and several" binds
the makers jointly and individually to the payee so that all may be sued together for its
enforcement, or the creditor may select one or more as the object of the suit. Having signed
under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to
enforce the notes against him alone or jointly with Astro.
 
Roxas’ claim that the phrases "in his personal capacity" and "in his official capacity" were inserted on
the notes without his knowledge was correctly disregarded by the RTC and the CA. It is not disputed
that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and
appellate court, Roxas did not offer any explanation why he did so. It devolves upon Roxas to
overcome the presumptions that private transactions are presumed to be fair and regular and
that a person takes ordinary care of his concerns. Aside from his self-serving allegations,
Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his
claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not
equivalent to proof under our Rules of Court.
 
Roxas is the President of Astro and reasonably, a businessman who is presumed to take
ordinary care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that
he will not sign a document without first informing himself of its contents and consequences.
Clearly, he knew the nature of the transactions and documents involved as he not only executed
these notes on two different dates but he also executed, and again, signed twice, a "Continuing
Suretyship Agreement" notarized on July 31, 1981, wherein he guaranteed, jointly and severally with
Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement
even re-enforced his solidary liability to Philtrust because as a surety, he bound himself
jointly and severally with Astro’s obligation. Roxas cannot now avoid liability by hiding under the
convenient excuse that he merely signed the notes in blank and the phrases "in his personal
capacity" and "in his official capacity" were fraudulently inserted without his knowledge.
 
Lastly, Philguarantee has all the right to proceed against petitioner. It is subrogated to the
rights of Philtrust to demand for and collect payment from both Roxas and Astro since it
• Spouses Toh v. Solidbank, G.R. No. 154183, August 7, 2003 - JESS - Among the documents essential for credit facility was the Continuing Guaranty for any and all
G.R. No. 154183. August 7, 2003. *

SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID BANK CORPORATION, FIRST BUSINESS
PAPER CORPORATION, KENNETH NG LI and MA. VICTORIA NG LI, respondents.
TOPIC: III. GUARANTY AND SURETYSHIP (Articles 2047-2084)
Ponente: Bellosillo, J.
Under Art. 2055 of the Civil Code, the liability of a surety is measured by the terms of his contract, and while he is
liable to the full extent thereof, his accountability is strictly limited to that assumed by its terms.
Evidently, they constitute illicit extensions prohibited under Art. 2079 of the Civil Code, “[a]n extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes the guaranty.”
SUMMARY:
- Respondent Solid Bank Corporation agreed to extend an “omnibus line” credit facility worth P10M
in favor of respondent FBPC.
amounts signed by Spouses Toh- Chairman of Board, VP; Spouses Li- President, and General
Manager of FBPC, this was signed on May 10 1993.
- Terms of the instrument defined the contract arising therefrom as a surety agreement and
provided for solidary liability of the signatories thereto for and in consideration of “loans/
advances” and “credit in any other manner to, or at the request/ for the account” of FBPC
- The Continuing Guaranty set forth no maximum limit on the indebtedness that respondent
FBPC may incur and for which the sureties may be liable, stating that the credit facility
“covers any and all existing indebtedness of, and such other loans and credit facilities which
may hereafter be granted to FIRST BUSINESS PAPER CORPORATION.”
- The surety also contained a de facto acceleration clause if “default be made in the payment
of any of the instruments, indebtedness, or other obligation” guaranteed by petitioners and
respondents. So as to strengthen this security, the Continuing Guaranty waived rights of the
sureties against delay or absence of notice or demand on the part of respondent Bank, and
 gave future consent to the Bank’s action to “extend or change the time payment, and/or the
manner, place or terms of payment,” including renewal, of the credit facility or any part thereof
in such manner and upon such terms as the Bank may deem proper without notice to or further
assent from the sureties.
1993 June 16- FBPC started to avail of the credit facility, opened 13 letters of credit, obtained loans
totaling P15,227,510, and executed a series of trust receipts over goods allegedly purchased from
proceeds of loans.
1994 Jan 13- Bank received info that respondent-spouses Li had fraudulently departed from their
conjugal home [absconded], hence, the next day, Bank served demand letter upon FBPC and
petitioner Toh invoking the acceleration clause in trust receipts of FBPC and claimed payment for
P10,539,758.68 as unpaid overdue accounts on letters of credit PLUS interests AND penalties
within 24 hours from receipt thereof; bank also invoked the Continuing Guaranty executed by
petitioner-spouses Toh who were the only parties known, to be within national jurisdiction to answer
sureties for the credit facility of FBPC
Bank filed complaint for sum of money with ex parte application for a writ of preliminary attachment
against FBPC, spouses Li, and spouses Toh.
Petitioner Spouses Toh main contention: Continuing Guaranty is not legally valid and binding
against them for having been executed long after they had withdrawn from FBPC; and surety
agreement has been extinguished by material alterations
Respondent Bank main contention: The notarization of Continuing Guaranty discredits the
uncorroborated assertions against authenticity and due execution thereof, and TC decision in civil
case finding surety agreement to be valid and binding is now res judicata for failure of petitioners to
appeal therefrom.
ISSUES:
WON the extensions of letters of credit made by Bank are covered by the waiver stipulated in the
Continuing Guaranty (No)
WON Spouses Toh are solidarily liable with bank by signing the Continuing Guaranty (No)
WON Spouses Toh are relieved from their obligations as sureties of respondent FBPC (Yes)
HELD: FBPC liable to pay Bank the principal of P10,539,758.68 + 12% interest per annum until fully
paid, but absolving petitioner Toh of any liability of Bank
An extension of the period for enforcing the indebtedness does not by itself bring about the
discharge of the sureties unless the extra time is not permitted within the terms of the waiver,
i.e., where there is no payment or there is deficient settlement of the marginal deposit and the 25%
consideration, in which case the illicit extension releases the sureties. Under Art. 2055 of the Civil
Code, the liability of a surety is measured by the terms of his contract, and while he is liable
to the full extent thereof, his accountability is strictly limited to that assumed by its terms
- The foregoing extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the waiver
stipulated in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under
Art. 2079 of the Civil Code, “[a]n extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty.” This act of the Bank is not mere failure or delay on its
part to demand payment after the debt has become due, as was the case in unpaid 5 letters of credit
which the Bank did not extend, defer or put off, but comprises conscious, separate and binding
agreements to extend the due date, as was admitted by the Bank itself
- As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan Toh are
relieved of their obligations as sureties of respondent FBPC under Art. 2079 of the Civil
Code.
- Further, we note several suspicious circumstances that militate against the enforcement of the
Continuing Guaranty against the accommodation sureties.
1. Firstly, the guaranty was executed more than 30 days from the original acceptance period
as required in the “letter-advise.”
2. Thereafter, barely 2 days after the Continuing Guaranty was signed, corporate agents of
FBPC were replaced on 12 May 1993 and other adjustments in the corporate structure of
FBPC ensued in the month of June 1993, which the Bank did not investigate although
such were made known to it.
- The consequence of these omissions is to discharge the surety, petitioners herein, under
Art. 2080 of the Civil Code,  or at the very least, mitigate the liability of the surety up to the
59
value of the property or lien released—
If the creditor x x x has acquired a lien upon the property of a principal, the creditor at once becomes charged
with the duty of retaining such security, or maintaining such lien in the interest of the surety, and any release
or impairment of this security as a primary resource for the payment of a debt, will discharge the surety to the
extent of the value of the property or lien released x x x x [for] there immediately arises a trust relation
between the parties, and the creditor as trustee is bound to account to the surety for the value of the security
in his hands.60
- For the same reason, the grace period granted by respondent Bank represents unceremonious
abandonment and forfeiture of the 15% marginal deposit and the 25% partial payment as fixed in the
“letter-advise.” These payments are unmistakably additional securities intended to protect both
respondent Bank and the sureties in the event that the principal debtor FBPC becomes insolvent
during the extension period. Compliance with these requisites was not waived by petitioners in
the Continuing Guaranty. For this unwarranted exercise of discretion, respondent Bank bears
the loss; due to its unauthorized extensions to pay granted to FBPC, petitioner-spouses Luis
Toh and Vicky Tan Toh are discharged as sureties under the Continuing Guaranty.
- The foregoing omission or negligence of respondent Bank in failing to safe-keep the
security provided by the marginal deposit and the 25% requirement results in the material
alteration of the principal contract and consequently releases the surety. 61
FACTS:
- RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an “omnibus line” credit
facility worth P10 million in favor of respondent First Business Paper Corporation (FBPC).
 The terms and conditions of the agreement as well as the checklist of documents
necessary to open the credit line were stipulated in a “letter-advise” of the Bank dated May
16 1993 addressed to FBPC and to its President, respondent Kenneth Ng Li. 1
 The “letter-advise”  was effective upon “compliance with the documentary requirements.”
2 3
- The documents essential for the credit facility and submitted for this purpose were the:
(a) Board Resolution/ excerpts of the Board of Directors Meeting, duly ratified by a Notary Public,
authorizing the loan and security arrangement as well as designating the officers to negotiate and
sign for FBPC specifically stating authority to mortgage, pledge and/or assign the properties of the
corporation;
(b) Agreement to purchase Domestic Bills; and,
(c) Continuing Guaranty for any and all amounts signed by petitioner-spouses Luis Toh and Vicky
Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li.   4
spouses Luis Toh and Vicky Tan Toh were then Chairman of the Board and Vice-
President, respectively, of FBPC
respondent-spouses Kenneth Ng Li and Ma. were President and General Manager,
Victoria Ng Li respectively, of the same corporation.5
- It is not disputed that the credit facility as well as its terms and conditions was not cancelled or
terminated, and that there was no prior notice of such fact as required in the “letter-advise,” if any
was done.
- On 10 May 1993, more than 30 days from date of the “letter-advise,” petitioner-spouses Luis Toh
and Vicky Tan Toh and respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li signed the
required Continuing Guaranty, which was embodied in a public document prepared solely by
respondent Bank.  6
 The terms of the instrument defined the contract arising therefrom as a surety agreement
and provided for the solidary liability of the signatories thereto for and in consideration of
“loans or advances” and “credit in any other manner to, or at the request or for the
account” of FBPC.
 The Continuing Guaranty set forth no maximum limit on the indebtedness that
respondent FBPC may incur and for which the sureties may be liable, stating that the
credit facility “covers any and all existing indebtedness of, and such other loans and credit
facilities which may hereafter be granted to FIRST BUSINESS PAPER CORPORATION.”
 The surety also contained a de facto acceleration clause if “default be made in the
payment of any of the instruments, indebtedness, or other obligation” guaranteed by
petitioners and respondents. So as to strengthen this security, the Continuing Guaranty
waived rights of the sureties against delay or absence of notice or demand on the part of
respondent Bank, and gave future consent to the Bank’s action to “extend or change the
time payment, and/or the manner, place or terms of payment,” including renewal, of the
credit facility or any part thereof in such manner and upon such terms as the Bank may
deem proper without notice to or further assent from the sureties.
 The effectivity of the Continuing Guaranty was not contingent upon any event/ cause other
than the written revocation thereof with notice to the Bank that may be executed by the
sureties.
- On 16 June 1993 respondent FBPC started to avail of the credit facility and procure letters of
credit.  
7 FBPC liable to pay respondent Solid Bank Corporation the principal of P10,539,758.68 plus 12%
- On 17 November 1993 FBPC opened 13 letters of credit and obtained loans totaling
P15,227,510.
- As the letters of credit were secured, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng Li
and Redentor Padilla as signatories executed a series of trust receipts over the goods allegedly
purchased from the proceeds of the loans. 9
- On 13 January 1994 respondent Bank received information that respondent-spouses
Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently departed from their conjugal home.   10
- On 14 January 1994 the Bank served a demand letter upon FBPC and petitioner Luis Toh invoking
the acceleration clause  in the trust receipts of FBPC and claimed payment for P10,539,758.68 as
11
unpaid overdue accounts on the letters of credit plus interests and penalties within 24 hours from
receipt thereof.  The Bank also invoked the Continuing Guaranty executed by petitioner-spouses
12
Luis Toh and Vicky Tan Toh who were the only parties known, to be within national jurisdiction to
answer as sureties for the credit facility of FBPC. 13
- On 17 January 1994 respondent Bank filed a complaint for sum of money with ex
parte application for a writ of preliminary attachment against FBPC, spouses Kenneth Ng Li and Ma.
Victoria Ng Li, and spouses Luis Toh and Vicky Tan Toh, docketed as Civil Case No. 64047 of RTC-
Br. 161, Pasig City.  Alias summonses were served upon FBPC and spouses Luis Toh and Vicky
14
Tan Toh but not upon Kenneth Ng Li and Ma. Victoria Ng Li who had apparently absconded. 15
- Meanwhile, with the implementation of the writ of preliminary attachment resulting in the
impounding of purported properties of FBPC, the trial court was deluged with third-party claims
contesting the propriety of the attachment.  In the end, the Bank relinquished possession of all the
16
attached properties to the third-party claimants except for 2 insignificant items as it allegedly could
barely cope with the yearly premiums on the attachment bonds. 17
- Petitioner-spouses Luis Toh and Vicky Tan Toh filed a joint answer to the complaint where they
admitted being part of FBPC from its incorporation on 29 August 1991, which was then known as
“MNL Paper, Inc.,” until its corporate name was changed to “First Business Paper
Corporation.”  They also acknowledged that on 6 March 1992 Luis Toh was designated as one of the
18
authorized corporate signatories for transactions in relation to FBPC’s checking account with
respondent Bank.  Meanwhile, for failing to file an answer, respondent FBPC was declared in
19
default.
20
Spouses Toh:
- Petitioner-spouses however could not be certain whether to deny or admit the due
execution and authenticity of the Continuing Guaranty.  They could only allege that they were
21
made to sign papers in blank and the Continuing Guaranty could have been one of them.
- Still, as petitioners asserted, it was impossible and absurd for them to have freely and consciously
executed the surety on 10 May 1993, the date appearing on its face  since beginning March of that
22
year they had already divested their shares in FBPC and assigned them in favor of respondent
Kenneth Ng Li although the deeds of assignment were notarized only on 14 June 1993.   23
- Petitioners also contended that through FBPC Board Resolution dated 12 May 1993 petitioner
Luis Toh was removed as an authorized signatory for FBPC and replaced by respondent-
spouses Kenneth Ng Li and Ma. Victoria Ng Li and Redentor Padilla for all the transactions of FBPC
with respondent Bank.  They even resigned from their respective positions in FBPC as reflected
24
in the 12 June 1993 Secretary’s Certificate submitted to the SEC  as petitioner Luis Toh was
25
succeeded as Chairman by respondent Ma. Victoria Ng Li, while one Mylene C. Padilla took the
place of petitioner Vicky Tan Toh as Vice-President. 26
- Finally, petitioners averred that sometime in June 1993 they obtained from respondent Kenneth Ng
Li their exclusion from the several surety agreements they had entered into with different
banks, i.e., Hongkong and Shanghai Bank, China Banking Corporation, Far East Bank and Trust
Company, and herein respondent Bank.  As a matter of record, these other banks executed
27
written surety agreements that showed respondent Kenneth Ng Li as the only surety of
FBPC’s indebtedness. 28
TC:
- On 16 May 1996 the TC promulgated its Decision in Civil Case No. 64047 finding respondent
interest per annum from finality of the Decision until fully paid, but absolving petitioner-spouses
Luis Toh and Vicky Tan Toh of any liability to respondent Bank.   29
- The court a quo found that petitioners “voluntarily affixed their signature[s]” on the Continuing
Guaranty and were thus “at some given point in time willing to be liable under those forms,”  although
30
it held that petitioners were not bound by the surety contract since the letters of credit it was
supposed to secure were opened long after petitioners had ceased to be part of FBPC. 31
- TC described the Continuing Guaranty as effective only while petitioner-spouses were
stockholders and officers of FBPC since respondent Bank compelled petitioners to underwrite
FBPC’s indebtedness as sureties without the requisite investigation of their personal solvency and
capability to undertake such risk.  
32
- The lower court also believed that the Bank knew of petitioners’ divestment of their shares in
FBPC and their subsequent resignation as officers thereof as these facts were obvious from the
numerous public documents that detailed the changes and substitutions in the list of authorized
signatories for transactions between FBPC and the Bank, including the many trust receipts being
signed by persons other than petitioners,  as well as the designation of new FBPC officers which
33
came to the notice of the Bank’s Vice-President Jose Chan Jr. and other officers. 34
- On 26 September 1996 the RTC-Br. 161 of Pasig City denied reconsideration of its Decision.
- On 9 October 1996 respondent Bank appealed the Decision to the CA, docketed as CA-G.R. CV
No. 55957.  Petitioner-spouses did not move for reconsideration nor appeal the finding of the trial
36
court that they voluntarily executed the Continuing Guaranty.
Respondent Solid Bank:
- Maintains on the other hand that the CA is presumed to have passed upon all points raised by
petitioners’ Reply with Motion for Oral Argument as this pleading formed part of the records of the
appellate court.
- It also debunks the claim of petitioners that they were inexperienced and ignorant parties who were
taken advantage of in the Continuing Guaranty since petitioners are astute businessmen who are
very familiar with the “ins” and “outs” of banking practice.
- The Bank further argues that the notarization of the Continuing Guaranty discredits the
35
uncorroborated assertions against the authenticity and due execution thereof, and that
the Decision of the TC in the civil case finding the surety agreement to be valid and binding is
now res judicata for failure of petitioners to appeal therefrom.
- As a final point, the Bank refers to the various waivers made by petitioner-spouses in the
Continuing Guaranty to justify the extension of the due dates of the letters of credit.

CA: ISSUES:
- The appellate court modified the Decision of the TC and held that by signing the Continuing (1) WON Spouses Toh were deprived of their right to due process (NO)
Guaranty, petitioner-spouses became solidarily liable with FBPC to pay respondent Bank the
amount of P10,539,758.68 as principal with 12% interest per annum from finality of the judgment (2) WON the Continuing Guaranty is a valid and binding contract of petitioner-Spouses Toh (YES)
until completely paid.  
37

- The CA ratiocinated that the provisions of the surety agreement did not “indicate that Spouses Luis (3) WON the extensions of letters of credit made by Bank are covered by the waiver stipulated in the
and Vicky Toh x x x signed the instrument in their capacities as Chairman of the Board and Vice- Continuing Guaranty (No)
President, respectively, of FBPC only.”  Hence, the court a quo deduced, “[a]bsent any such
38

indication, it was error for the TC to have presumed that the appellees indeed signed the same not in (4) WON Spouses Toh are solidarily liable with bank by signing the Continuing Guaranty (No)
their personal capacities.”  
39
WON Spouses Toh are relieved from their obligations as sureties of respondent FBPC (Yes)
- The appellate court also ruled that as petitioners failed to execute any written revocation of the
Continuing Guaranty with notice to respondent Bank, the instrument remained in full force and
effect when the letters of credit were availed of by respondent FBPC. 40
HELD:
- Finally, the CA rejected petitioners’ argument that there were “material alterations” in the WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the CA dated 12 December
provisions of the “letter-advise,” i.e., that only domestic letters of credit were opened when the credit 2001 in CA-G.R. CV No. 55957, Solid Bank Corporation v. First Business Paper Corporation, Kenneth Ng Li, Ma.
facility was for importation of papers and other materials, and that marginal deposits were not paid, Victoria Ng Li, Luis Toh and Vicky Tan Toh, holding petitioner-spouses Luis Toh and Vicky Tan Toh solidarily liable
with First Business Paper Corporation to pay Solid Bank Corporation the amount of P10,539,758.68 as principal
contrary to the requirements stated in the “letter-advise.”  
41

- The simple response of the appellate court to this challenge was:
1. The “letter-advise” itself authorized the issuance of domestic letters of credit, and
2. The several waivers extended by petitioners in the Continuing Guaranty, which included
changing the time and manner of payment of the indebtedness, justified the action of
respondent Bank not to charge marginal deposits. 42
- Petitioner-spouses moved for reconsideration of the Decision, and after respondent Bank’s comment, filed a
lengthy Reply with Motion for Oral Argument.  
43
with 12% interest per annum until fully paid, and its Resolution of 2 July 2002 denying reconsideration thereof are
REVERSED and SET ASIDE.
The Decision dated 16 May 1996 of RTC-Br. 161 of Pasig City in Civil Case No. 64047, Solid
Bank Corporation v. First Business Paper Corporation, Kenneth Ng Li, Ma. Victoria Ng Li, Luis Toh
and Vicky Tan Toh, finding First Business Paper Corporation liable to pay respondent Solid
Bank Corporation the principal of P10,539,758.68 plus 12% interest per annum until fully paid,
but absolving petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to respondent

Solid Bank Corporation is REINSTATED and AFFIRMED. No costs.

- On 2 July 2002 reconsideration of the Decision was denied on the ground that no new matter was raised to SO ORDERED.
warrant the reversal or modification thereof.  Hence, this Petition for Review.
     
44

RULING:
Petitioner-spouses Luis Toh and Vicky Tan Toh:
(1) WON Spouses Toh were deprived of their right to due process (NO)
- Argue that the CA denied them due process when it did not grant their motion for reconsideration
- To begin with, we find no merit in petitioners’ claim that the CA deprived them of their right to due
and without “bother[ing] to consider [their] Reply with Motion for Oral Argument.” 
process when the court a quo did not address specifically and explicitly their Reply with Motion for
- They maintain that the Continuing Guaranty is not legally valid and binding against them for
Oral Argument. While the Resolution of the appellate court of 2 July 2002 made no mention thereof
having been executed long after they had withdrawn from FBPC.
in disposing of their arguments on reconsideration, it is presumed that “all matters within an issue
- Lastly, they claim that the surety agreement has been extinguished by the material alterations
raised in a case were laid before the court and passed upon it.”  In the absence of evidence to the
thereof and of the “letter-advise” which were allegedly brought about by
45

contrary, we must rule that the court a quo discharged its task properly. Moreover, a reading of the
(a) the provision of an acceleration clause in the trust receipts;
assailed Resolution clearly makes reference to a “careful review of the records,” which undeniably
(b) the flight of their co-sureties, respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li;
includes the Reply with Motion for Oral Argument, hence there is no reason for petitioners to
(c) the grant of credit facility despite the non-payment of marginal deposits in an amount beyond the
asseverate otherwise.
credit limit of P10 million pesos
(d) the inordinate delay of the Bank in demanding the payment of the indebtedness;
(2) WON the Continuing Guaranty is a valid and binding contract of petitioner-Spouses Toh
(e) the presence of ghost deliveries and fictitious purchases using the Bank’s letters of credit and
(YES)
trust receipts;
- This Court holds that the Continuing Guaranty is a valid and binding contract of petitioner-spouses
(f) the extension of the due dates of the letters of credit without the required 25% partial payment per
as it is a public document that enjoys the presumption of authenticity and due execution.
extension;
Although petitioners as appellees may raise issues that have not been assigned as errors by
(g) the approval of another letter of credit, L/C 93-0042, even after respondent-spouses Kenneth Ng
respondent Bank as party-appellant, i.e., unenforceability of the surety contract, we are bound by the
Li and Ma. Victoria Ng Li had defaulted on their previous obligations; and,
consistent finding of the courts a quo that petitioner-spouses Luis Toh and Vicky Tan Toh
(h) the unmistakable pattern of fraud.
“voluntarily affixed their signature[s]” on the surety agreement and were thus “at some given
point in time willing to be liable under those forms.”  In the absence of clear, convincing and
46
more than preponderant evidence to the contrary, our ruling cannot be otherwise.
- Similarly, there is no basis for petitioners to limit their responsibility thereon so long as they were
corporate officers and stockholders of FBPC. Nothing in the Continuing Guaranty restricts their
contractual undertaking to such condition or eventuality. In fact the obligations assumed by
them therein subsist “upon the undersigned, the heirs, executors, administrators, successors and
assigns of the undersigned, and shall inure to the benefit of, and be enforceable by you, your
successors, transferees and assigns,” and that their commitment “shall remain in full force and effect
until written notice shall have been received by [the Bank] that it has been revoked by the
undersigned.”
- Verily, if petitioners intended not to be charged as sureties after their withdrawal from
FBPC, they could have simply terminated the agreement by serving the required notice of
revocation upon the Bank as expressly allowed therein.  In Garcia v. CA  we ruled—
47 48
Regarding the petitioner’s claim that he is liable only as a corporate officer of WMC, the surety agreement
shows that he signed the same not in representation of WMC or as its president but in his personal capacity.
He is therefore personally bound. There is no law that prohibits a corporate officer from binding himself
personally to answer for a corporate debt. While the limited liability doctrine is intended to protect the
stockholder by immunizing him from personal liability for the corporate debts, he may nevertheless divest
himself of this protection by voluntarily binding himself to the payment of the corporate debts. The petitioner
cannot therefore take refuge in this doctrine that he has by his own acts effectively waived.
- But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety agreement they signed so
must we also hold respondent Bank to its representations in the “letter-advise” of 16 May
1993. Particularly, as to the extension of the due dates of the letters of credit, we cannot exclude
from the Continuing Guaranty the preconditions of the Bank that were plainly stipulated in the “letter-
advise.” Fairness and justice dictate our doing so, for the Bank itself liberally applies the provisions
of cognate agreements whenever convenient to enforce its contractual rights, such as, when it
harnessed a provision in the trust receipts executed by respondent FBPC to declare its entire
indebtedness as due and demandable and thereafter to exact payment thereof from petitioners as
sureties.  In the same manner, we cannot disregard the provisions of the “letter-advise” in sizing up
49
the panoply of commercial obligations between the parties herein.
- Insofar as petitioners stipulate in the Continuing Guaranty that respondent Bank “may at any time,
or from time to time, in [its] discretion x x x extend or change the time payment,” this provision even
if understood as a waiver is confined per se to the grant of an extension and does not surrender the
prerequisites therefor as mandated in the “letter-advise.” In other words, the authority of the Bank
to defer collection contemplates only authorized extensions, that is, those that meet the
terms of the “letter-advise.”
- Certainly, while the Bank may extend the due date at its discretion pursuant to the Continuing
Guaranty, it should nonetheless comply with the requirements that domestic letters of credit be
supported by 15% marginal deposit extendible 3 times for a period of 30 days for each extension,
subject to 25% partial payment per extension. This reading of the Continuing Guaranty is consistent
with Philippine National Bank v. CA  that any doubt on the terms and conditions of the surety
50
agreement should be resolved in favor of the surety.
(3) WON the extensions of letters of credit made by Bank are covered by the waiver stipulated
in the Continuing Guaranty (No)
- Furthermore, the assurance of the sureties in the Continuing Guaranty that “[n]o act or omission of
any kind on [the Bank’s] part in the premises shall in any event affect or impair this guaranty”  must 51
also be read “strictissimi juris” for the reason that petitioners are only accommodation
sureties, i.e., they received nothing out of the security contract they signed.  Thus said, the acts or
52
omissions of the Bank conceded by petitioners as not affecting nor impairing the surety contract
refer only to those occurring “in the premises,” or those that have been the subject of the waiver in
the Continuing Guaranty, and stretch to no other. Stated otherwise, an extension of the period for
enforcing the indebtedness does not by itself bring about the discharge of the sureties
unless the extra time is not permitted within the terms of the waiver, i.e., where there is no
payment or there is deficient settlement of the marginal deposit and the 25% consideration, in which
case the illicit extension releases the sureties. Under Art. 2055 of the Civil Code, the liability of a
surety is measured by the terms of his contract, and while he is liable to the full extent
thereof, his accountability is strictly limited to that assumed by its terms.
- It is admitted in the Complaint of respondent Bank before the TC that several letters of credit were
irrevocably extended for 90 days with alarmingly flawed and inadequate consideration—the
indispensable marginal deposit of 15% and the 25% prerequisite for each extension of 30 days. It
bears stressing that the requisite marginal deposit and security for every 30-day extension
specified in the “letter-advise” were not set aside or abrogated nor was there any prior notice
of such fact, if any was done.
- Moreover, these irregular extensions were candidly admitted by Victor Ruben L. Tuazon, an
account officer and manager of respondent Bank and its lone witness in the civil case—
Q: You extended it even if there was no marginal deposit?
A: Yes.
Q: And even if partial payment is less than 25%?
A: Yes x x x x
Q: You have repeatedly extended despite the insufficiency partial payment requirement?
A: I would say yes.
53
- The foregoing extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the waiver
stipulated in the Continuing Guaranty. Evidently, they constitute illicit extensions prohibited under
Art. 2079 of the Civil Code, “[a]n extension granted to the debtor by the creditor without the consent
of the guarantor extinguishes the guaranty.” This act of the Bank is not mere failure or delay on its
part to demand payment after the debt has become due, as was the case in unpaid 5 letters of credit
which the Bank did not extend, defer or put off, but comprises conscious, separate and binding
agreements to extend the due date, as was admitted by the Bank itself—
Q How much was supposed to be paid on 14 September 1993, the original LC of P1,655,675.13?
:
A: Under LC 93-0017 first matured on 14 September 1993. We rolled it over, extended it to December
13, 1993 but they made partial payment that is why we extended it.
Q The question to you now is how much was paid? How much is supposed to be paid on September
: 14, 1993 on the basis of the original amount of P1,655,675.13?
A: Whenever this obligation becomes due and demandable except when you roll it over so there is
novation there on the original obligations  (italics supplied).
55
(4) WON Spouses Toh are solidarily liable with bank by signing the Continuing Guaranty (No)
WON Spouses Toh are relieved from their obligations as sureties of respondent FBPC (Yes)
- As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan Toh are
relieved of their obligations as sureties of respondent FBPC under Art. 2079 of the Civil
Code.
- Further, we note several suspicious circumstances that militate against the enforcement of the
Continuing Guaranty against the accommodation sureties.
3. Firstly, the guaranty was executed more than 30 days from the original acceptance period
as required in the “letter-advise.”
4. Thereafter, barely 2 days after the Continuing Guaranty was signed, corporate agents of
FBPC were replaced on 12 May 1993 and other adjustments in the corporate structure of
FBPC ensued in the month of June 1993, which the Bank did not investigate although
such were made known to it.
- By the same token, there is no explanation on record for the utter worthlessness of the trust
receipts in favor of the Bank when these documents ought to have added more security to
the indebtedness of FBPC. The Bank has in fact no information whether the trust receipts were
indeed used for the purpose for which they were obtained.  To be sure, the goods subject of the
56
trust receipts were not entirely lost since the security officer of respondent Bank who
conducted surveillance of FBPC even had the chance to intercept the surreptitious transfer of
the items under trust: “We saw 2 delivery vans with Plates Nos. TGH 257 and PAZ 928 coming out
of the compound x x x [which were] taking out the last supplies stored in the compound.”  In addition,
57
the attached properties of FBPC, except for 2 of them, were perfunctorily abandoned by respondent
Bank although the bonds therefor were considerably reduced by the trial court. 58
- The consequence of these omissions is to discharge the surety, petitioners herein, under
Art. 2080 of the Civil Code,  or at the very least, mitigate the liability of the surety up to the
59
value of the property or lien released—
If the creditor x x x has acquired a lien upon the property of a principal, the creditor at once becomes charged
with the duty of retaining such security, or maintaining such lien in the interest of the surety, and any release
or impairment of this security as a primary resource for the payment of a debt, will discharge the surety to the
extent of the value of the property or lien released x x x x [for] there immediately arises a trust relation
between the parties, and the creditor as trustee is bound to account to the surety for the value of the security
in his hands.60
- For the same reason, the grace period granted by respondent Bank represents unceremonious
abandonment and forfeiture of the 15% marginal deposit and the 25% partial payment as fixed in the
“letter-advise.” These payments are unmistakably additional securities intended to protect both
respondent Bank and the sureties in the event that the principal debtor FBPC becomes insolvent
during the extension period. Compliance with these requisites was not waived by petitioners in
the Continuing Guaranty. For this unwarranted exercise of discretion, respondent Bank bears
• Filipinas Textile Mills v. Court of Appeals, G.R. No. 119800, November 12, 2003 - ALVIN
G.R. No. 119800. Nov. 12, 2003
FILIPINAS TEXTILE MILLS, INC. and BERNARDINO VILLANUEVA, Petitioners, vs. CA and
STATE INVESTMENT HOUSE, INC. Respondents.
Summary: Filtex applied to SIHI for domestic letters of credit to finance the purchase of raw
materials for its textile business. SIHI accepted such application. Villanueva executed a
comprehensive surety agreement, where he guaranteed, jointly and severally with Filtex, the
payment at maturity to SIHI of all the indebtedness of Filtex. To ensure payment of the sight drafts,
Filtex issued to SIHI several trust receipts covering the merchandise sold. Under the trust receipts,
Filtex agreed to hold the merchandise in trust for SIHI, with liberty to sell the same for SIHIs account
but without authority to make any other disposition of the said goods. Because of Filtex’s failure to
pay its outstanding obligation despite demand, SIHI filed a Complaint praying that the petitioners be
ordered to pay, jointly and severally, the principal amount.
Villanueva contended that the comprehensive surety agreement is null and void for lack of consent
of Filtex and SIHI. He also alleged that SIHI materially altered the terms and conditions of the
comprehensive surety agreement by granting Filtex an extension of the period for payment thereby
releasing him from his obligation as surety.
 
Should Villanueva be held to the comprehensive surety agreement?
YES. The consent of Filtex to the surety may be assumed from the fact that Villanueva was the
signatory to the sight drafts and trust receipts on behalf of Filtex. Moreover, in its Answer with
Counterclaim. Filtex admitted the execution of the comprehensive surety agreement with the only
qualification that it was not a means to induce SIHI to issue the domestic letters of credit. Clearly,
had Filtex not consented to the comprehensive surety agreement, it could have easily objected to its
validity and specifically denied the same. SIHI's consent to the surety is also understood from the
fact that it demanded payment from both Filtex and Villanueva.
 
As regards the purported material alteration of the terms and conditions of the comprehensive surety
agreement, we rule that the extension of time granted to Filtex to pay its obligation did not release
Villanueva from his liability. As this Court held in Palmares vs. CA:
 
"The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even
if such delay continues until the principal becomes insolvent…
The raison d'etre for the rule is that there is nothing to prevent the creditor from proceeding against
the principal at any time. At any rate, if the surety is dissatisfied with the degree of activity displayed
by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to
all the rights and remedies of the creditor.
 
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the
creditor without change in the time when the debt might be demanded, does not constitute an
the loss; due to its unauthorized extensions to pay granted to FBPC, petitioner-spouses Luis
Toh and Vicky Tan Toh are discharged as sureties under the Continuing Guaranty.
- Finally, the foregoing omission or negligence of respondent Bank in failing to safe-keep the
security provided by the marginal deposit and the 25% requirement results in the material
alteration of the principal contract, i.e., the “letter-advise,” and consequently releases the
surety.  This inference was admitted by the Bank through the testimony of its lone witness that
61
“[w]henever this obligation becomes due and demandable, except when you roll it over, (so) there is
novation there on the original obligations.” As has been said, “if the suretyship contract was made
upon the condition that the principal shall furnish the creditor additional security, and the security
being furnished under these conditions is afterwards released by the creditor, the surety is wholly
discharged, without regard to the value of the securities released, for such a transaction amounts to
an alteration of the main contract.”
62
extension of the time of payment, which would release the surety. In order to constitute an extension
discharging the surety, it should appear that the extension was for a definite period, pursuant to an
enforceable agreement between the principal and the creditor, and that it was made without the
consent of the surety or with a reservation of rights with respect to him. The contract must be one
which precludes the creditor from, or at least hinders him in, enforcing the principal contract within
the period during which he could otherwise have enforced it, and precludes the surety from paying
the debt."
 
Tinga, J.:
Facts:
On Dec. 6, 1985, SIHI instituted a Complaint for the collection of the sum of ₱3,118,949.75,
with interest, penalties, exemplary damages, attorneys fees and costs of suit against herein
petitioners Filtex and Villanueva.
In its Complaint, SIHI alleged that sometime in 1983, Filtex applied for domestic letters of credit
to finance the purchase of various raw materials for its textile business. Finding the
application to be in order, SIHI issued on various dates domestic letters of credit authorizing
Indo-Philippine Textile Mills, Inc. ("Indo-Phil"), Texfiber Corporation ("Texfiber"), and Philippine
Polyamide Industrial Corporation ("Polyamide") "to value" on SIHI such drafts as may be drawn by
said corporations against Filtex for an aggregate amount not exceeding ₱3,737,988.05.
Filtex used these domestic letters of credit to cover its purchase of various textile materials
from Indo-Phil, Texfiber and Polyamide. Upon the sale and delivery of the merchandise, Indo-
Phil, Texfiber and Polyamide issued several sight drafts on various dates with an aggregate
value of ₱3,736,276.71 payable to the order of SIHI, which were duly accepted by Filtex.
Subsequently, the sight drafts were negotiated to and acquired in due course by SIHI which paid the
value thereof to Indo-Phil, Texfiber and Polyamide for the account of Filtex.
 
Allegedly by way of inducement upon SIHI to issue the aforesaid domestic letters of credit
and "to value" the sight drafts issued by Indo-Phil, Texfiber and Polyamide, Villanueva
executed a comprehensive surety agreement on Nov. 9, 1982, whereby he guaranteed, jointly
and severally with Filtex, the full and punctual payment at maturity to SIHI of all the
indebtedness of Filtex. The essence of the comprehensive surety agreement was that it shall
be a continuing surety until such time that the total outstanding obligation of Filtex to SIHI
had been fully settled.
In order to ensure the payment of the sight drafts aforementioned, Filtex executed and issued
to SIHI several trust receipts of various dates, which were later extended with the issuance of
replacement trust receipts all dated June 22, 1984, covering the merchandise sold. Under the
trust receipts, Filtex agreed to hold the merchandise in trust for SIHI, with liberty to sell the
same for SIHI's account but without authority to make any other disposition of the said
goods. Filtex likewise agreed to hand the proceeds, as soon as received, to SIHI "to apply" against
any indebtedness of the former to the latter. Filtex also agreed to pay SIHI interest at the rate of 25%
per annum from the time of release of the amount to Indo-Phil, Texfiber and Polyamide until the
same is fully paid, subject to SIHI's option to reduce the interest rate. Furthermore, in case of delay
in the payment at maturity of the aggregate amount of the sight drafts negotiated to SIHI, said
amount shall be subject to two percent (2%) per month penalty charge payable from the date
of default until the amount is fully paid.
 
Because of Filtex's failure to pay its outstanding obligation despite demand, SIHI filed a
Complaint on Dec. 6, 1985 praying that the petitioners be ordered to pay, jointly and severally,
the principal amount of ₱3,118,949.75, plus interest and penalties, attorney's fees, exemplary
damages, costs of suit and other litigation expenses.
 
In its Answer with Counterclaim, Filtex interposed special and affirmative defenses, i.e., the
provisions of the trust receipts, as well as the comprehensive surety agreement, do not
reflect the true will and intention of the parties, full payment of the obligation, and lack of
cause of action. For his part, Villanueva interposed the same special and affirmative defenses and
added that the comprehensive surety agreement is null and void and damages and attorney's
fees are not legally demandable. The petitioners, however, failed to specifically deny under
oath the genuineness and due execution of the actionable documents upon which the
Complaint was based.
 
RTC: On July 23, 1990, the RTC of Manila rendered judgment holding Filtex and Villanueva
jointly and severally liable to SIHI. Dissatisfied, Filtex and Villanueva filed an Appeal, primarily
contending that they have fully paid their indebtedness to SIHI and asserting that the letters of credit,
sight drafts, trust receipts and comprehensive surety agreement upon which the Complaint is based
are inadmissible in evidence supposedly because of non-payment of documentary stamp taxes as
required by the Internal Revenue Code.
CA: In its assailed Decision, the CA debunked the petitioners' contention that the letters of
credit, sight drafts, trust receipts and comprehensive surety agreement are inadmissible in
evidence ruling that the petitioners had "in effect, admitted the genuineness and due
execution of said documents because of their failure to have their answers placed under
oath, the complaint being based on actionable documents in line with Section 7, Rule 8 of the
Rules of Court." The appellate court also ruled that there remained an unpaid balance as of Jan.
31, 1989 of ₱868,881.11 for which Filtex and Villanueva are solidarily liable.
 
The appellate court denied the petitioners' MR in its Resolution, ruling that the petitioners
failed to raise new and substantial matters that would warrant the reversal of its Decision.
However, due to certain typographical oversights, the CA modified its Decision and stated that the
correct unpaid balance as of Jan. 31, 1989 was actually ₱7,868,881.11, excluding litigation and
other miscellaneous expenses and filing fees.
 
In asking this Court to reverse and set aside the aforementioned Decision and Resolution of
the CA, the petitioners argued that the appellate court should not have admitted in evidence
the letters of credit, sight drafts, trust receipts and comprehensive surety agreement for lack
of the requisite documentary stamps thereon.
 
 They hypothesized that their implied admission of the genuineness and due execution of these
documents for failure to specifically deny the same under oath should not be equated with an
admission in evidence of the documents and an admission of their obligation. They also maintained
that they have fully paid the obligation and, in fact, have made an excess payment in the amount of
₱415,722.53. In addition, Villanueva asserted that the comprehensive surety agreement which
he executed is null and void, inadmissible in evidence and contains material alterations.
Thus, he claimed that he should not be held solidarily liable with Filtex.
 
Traversing the allegations in the instant petition, SIHI stated in its Comment19 that in their respective
answers to the complaint, the petitioners expressly admitted the due execution of the letters of
credit, sight drafts and trust receipts and their obligation arising from these documents. Having done
so, they could no longer question the admissibility of these documents. Moreover, their allegation of
inadmissibility of these documents is inconsistent with their defense of full payment. SIHI also
reasoned that the documentary stamps, assuming they are required, are for the sole account of
Filtex not only because the letters of credit were issued at its instance and application but also
because it was the issuer and acceptor of the trust receipts and sight drafts, respectively. As regards
the petitioners' allegation of full payment, SIHI stressed that the appellate court had already resolved
this issue in its favor by ruling that there remained an unpaid balance of ₱7,868,881.11 as of Jan.
31, 1989 for which the petitioners were held solidarily liable. Besides, by quoting substantial portions
of their appellants' Brief in the instant petition, the petitioners merely repeated the issues that have
already been passed upon by the appellate court. Finally, SIHI asserted the validity and admissibility
of the comprehensive surety agreement.
 
Issue:
WON the letters of credit, sight drafts, trust receipts and comprehensive surety agreement are
admissible in evidence despite the absence of documentary stamps thereon as required by the
Internal Revenue Code. (YES)
 
Held:
We rule in the affirmative. As correctly noted by the respondent, the Answer with Counterclaim and Answer, of
Filtex and Villanueva, respectively, did not contain any specific denial under oath of the letters of credit,
sight drafts, trust receipts and comprehensive surety agreement upon which SIHI's Complaint was based,
thus giving rise to the implied admission of the genuineness and due execution of these documents. Under
Sec. 8, Rule 8 of the Rules of Court, when an action or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution
of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and
sets forth what he claims to be the facts.
 
In Benguet Exploration, Inc. vs. CA,2this Court ruled that the admission of the genuineness and due execution of a
document means that the party whose signature it bears admits that he voluntarily signed the document or it was
signed by another for him and with his authority; that at the time it was signed it was in words and figures exactly as
set out in the pleading of the party relying upon it; that the document was delivered; and that any formalities
required by law, such as a seal, an acknowledgment, or revenue stamp, which it lacks, are waived by him.
Moreover, under Section 173 of the Internal Revenue Code the liability for payment of the stamp taxes is imposed
on "the person making, signing, issuing, accepting, or transferring" the document. As correctly pointed out by SIHI,
Filtex was the issuer and acceptor of the trust receipts and sight drafts, respectively, while the letters of credit were
issued upon its application. On the other hand, Villanueva signed the comprehensive surety agreement. Thus,
being among the parties obliged to pay the documentary stamp taxes, the petitioners are estopped from claiming
that the documents are inadmissible in evidence for non-payment thereof.
 
Interestingly, the petitioners questioned the admissibility of these documents rather belatedly, at the
appeal stage even. Their respective answers to SIHI's Complaint were silent on this point. The rule is well-
settled that points of law, theories, issues and arguments not adequately brought to the attention of the TC
need not, and ordinarily will not, be considered by a reviewing court as they cannot be raised for the first
time on appeal because this would be offensive to the basic rules of fair play, justice and due process.
Hence, the petitioners can no longer dispute the admissibility of the letters of credit, sight drafts, trust receipts and
comprehensive surety agreement. However, this does not preclude the petitioners from impugning these
documents by evidence of fraud, mistake, compromise, payment, statute of limitations, estoppel and want of
consideration.
 
This brings us to the petitioners' contention that they have already fully paid their obligation to SIHI and
have, in fact, overpaid by ₱415,722.53. This matter is purely a factual issue . In Fortune Motors (Phils.)
Corporation vs. CA,28 it was held that "the jurisdiction of this Court in cases brought before it from the CA under
Rule 45 of the Rules of Court is limited to reviewing or revising errors of law. It is not the function of this Court to
analyze or weigh evidence all over again unless there is a showing that the findings of the lower court are totally
devoid of support or are glaringly erroneous as to constitute serious abuse of discretion. Factual findings of the CA
are conclusive on the parties and carry even more weight when said court affirms the factual findings of the TC."29
 
It should be noted that the issue of overpayment as well as the proof presented by the petitioners on this
point merely rehash those submitted before the CA. The appellate court affirmed the TC and passed upon this
issue by exhaustively detailing the amounts paid as guaranty deposit, the payments made and the balance due for
every trust receipt. This Court shall not depart from the findings of the TC and the appellate court, supported by the
preponderance of evidence and unsatisfactorily refuted by the petitioners, as they are.
 
As a final issue, Villanueva contended that the comprehensive surety agreement is null and
void for lack of consent of Filtex and SIHI. He also alleged that SIHI materially altered the
terms and conditions of the comprehensive surety agreement by granting Filtex an extension
of the period for payment thereby releasing him from his obligation as surety. We find these
contentions specious.
 
In the first place, the consent of Filtex to the surety may be assumed from the fact that
Villanueva was the signatory to the sight drafts and trust receipts on behalf of Filtex.
Moreover, in its Answer with Counterclaim. Filtex admitted the execution of the comprehensive
surety agreement with the only qualification that it was not a means to induce SIHI to issue
the domestic letters of credit. Clearly, had Filtex not consented to the comprehensive surety
agreement, it could have easily objected to its validity and specifically denied the same.
SIHI's consent to the surety is also understood from the fact that it demanded payment from
both Filtex and Villanueva.
 
As regards the purported material alteration of the terms and conditions of the
comprehensive surety agreement, we rule that the extension of time granted to Filtex to pay
its obligation did not release Villanueva from his liability. As this Court held in Palmares vs. CA:
"The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the
surety, even if such delay continues until the principal becomes insolvent…
The raison d'etre for the rule is that there is nothing to prevent the creditor from proceeding
against the principal at any time. At any rate, if the surety is dissatisfied with the degree of
activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself
and become subrogated to all the rights and remedies of the creditor.
 
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by
the creditor without change in the time when the debt might be demanded, does not
constitute an extension of the time of payment, which would release the surety. In order to
constitute an extension discharging the surety, it should appear that the extension was for a
definite period, pursuant to an enforceable agreement between the principal and the creditor,
and that it was made without the consent of the surety or with a reservation of rights with
respect to him. The contract must be one which precludes the creditor from, or at least
hinders him in, enforcing the principal contract within the period during which he could
otherwise have enforced it, and precludes the surety from paying the debt."
 
Lastly, with regard to Villanueva's assertion that the 25% annual interest to be paid by Filtex in case
it failed to pay the amount released to suppliers was inserted by SIHI without his consent, suffice it to
say that the trust receipts bearing the alleged insertion of the 25% annual fee are countersigned by
him. His pretension of lack of knowledge and consent thereto is obviously contrived.
In view of the foregoing, we find the instant petition bereft of merit.
WHEREFORE, premises considered, the petition is DENIED and the assailed Decision and Resolution of the CA
concurring with the decision of the TC are hereby AFFIRMED. Costs against the petitioners.
• Severino v. Severino, G.R. No. 34642, September 24, 1931 - RINA
G.R. No. 34642           September 24, 1931
FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees,
vs.
GUILLERMO SEVERINO, ET AL., defendants.
ENRIQUE ECHAUS, appellant.
 
STREET, J.:
 
SUMMARY: Melecio Severino died, leaving considerable property and litigation ensued between his
widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs of the deceased
on the other part. In order to make an end of this litigation a compromise was effected by which
Guillermo Severino, a son of Melecio, took over the property at the same time agreeing to pay
P100,000 to Felicitas and Fabiola. This sum of money was made payable, first, P40,000 in cash
upon the execution of the document of compromise, and the balance in three several payments of
P20,000 at the end of one year; two years, and three years respectively. To this contract Enrique
Echaus affixed his name as guarantor. Upon failure to pay, Fabiola instituted an action against
Guillermo and Echaus. Echaus then contends that he received nothing for affixing his signature as
guarantor to the contract which is the subject of suit and that in effect the contract was lacking in
consideration as to him.
 
ISSUE: W/N there is consideration for the guaranty (NO)
 
RULING: The judgment appealed from is in all respects correct, and the same will be affirmed, with
costs against the appellant. So ordered.
 
The point is not well taken. A guarantor or surety is bound by the same consideration that makes the
contract effective between the principal parties thereto. The compromise and dismissal of a
lawsuit is recognized in law as a valuable consideration; and the dismissal of the action
which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino
was an adequate consideration to support the promise on the part of Guillermo Severino to
pay the sum of money stipulated in the contract which is the subject of this action. The
promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the
guarantor or surety should receive any part of the benefit, if such there be, accruing to his
principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in
the former action in dismissing that proceeding, and it is immaterial that no benefit may have
accrued either to the principal or his guarantor.
 
CASE: This action was instituted in the CFI of Iloilo by Fabiola Severino, with whom is joined her
husband Ricardo Vergara, for the purpose of recovering P20,000 from Guillermo Severino and
Enrique Echaus, the latter in the character of guarantor for the former. The trial court gave judgment
in favor of the plaintiffs to recover the sum of P20,000 with lawful from November 15, 1929, the date
of the filing of the complaint, with costs. But it was declared that execution of this judgment should
issue first against the property of Guillermo Severino, and if no property should be found belonging
to said defendant sufficient to satisfy the judgment in whole or in part, execution for the remainder
should be issued against the property of Enrique Echaus as guarantor. From this judgment Echaus
appealed, but his principal, Guillermo Severino, did not.
 
FACTS:
 
Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, former
resident of Occidental Negros. Upon the death of Melecio, he left considerable property and
litigation ensued between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part,
and other heirs of the deceased on the other part. In order to make an end of this litigation a
compromise was effected by which Guillermo Severino, a son of Melecio, took over the
property pertaining to the estate of his father at the same time agreeing to pay P100,000 to
Felicitas and Fabiola. This sum of money was made payable, first, P40,000 in cash upon the
execution of the document of compromise, and the balance in three several payments of P20,000 at
the end of one year; two years, and three years respectively. To this contract Enrique Echaus
affixed his name as guarantor. The first payment of P40,000 was made on July 11, 1924, the date
when the contract of compromise was executed; and of this amount Fabiola Severino received the
sum of P10,000. Of the remaining P60,000, all as yet unpaid, Fabiola Severino is entitled to the sum
of P20,000.
 
It appears that at the time of the compromise agreement was executed Fabiola had not yet
been judicially recognized as the natural daughter of Melecio, and it was stipulated that the
last P20,000 corresponding to Fabiola and the last P5,000 corresponding to Felicitas
Villanueva should be retained on deposit until the definite status of Fabiola as natural
daughter of Melecio should be established. The judicial decree to this effect was entered in the
CFI of Occidental Negros on June 16, 1925, and as the money which was contemplated to be
held in suspense has never in fact been paid to the parties entitled thereto, it results that the
point respecting the deposit referred to has ceased to be of moment.
 
The proof shows that the money claimed in this action has never been paid and is still owing to
the plaintiff; and the only defense worth noting in this decision is the assertion on the part of
Enrique Echaus that he received nothing for affixing his signature as guarantor to the
contract which is the subject of suit and that in effect the contract was lacking in
consideration as to him.
 
ISSUE: W/N there is consideration for the guaranty (NO)
 
RULING: The judgment appealed from is in all respects correct, and the same will be affirmed, with
costs against the appellant. So ordered.
 
The point is not well taken. A guarantor or surety is bound by the same consideration that makes the
contract effective between the principal parties thereto. The compromise and dismissal of a
lawsuit is recognized in law as a valuable consideration; and the dismissal of the action
which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino
was an adequate consideration to support the promise on the part of Guillermo Severino to
pay the sum of money stipulated in the contract which is the subject of this action. The
promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the
• Willex Plastic Industries Corp. v. Court of Appeals, G.R. No. 103066, April 25, 1996 - VAL
G.R. No. 103066 April 25, 1996
WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF APPEALS and
INTERNATIONAL CORPORATE BANK, respondents.
MENDOZA, J.:
SUMMARY: Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking
Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment
and Underwriting Corporation of the Philippines (IUCP) executed two documents, both entitled "Continuing
Surety Agreement". Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a
"Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or sums obtained
and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin Industrial and Willex
Plastic jointly and severally guaranteed "the prompt and punctual payment at maturity of the NOTE/S
issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of P5M and such interests,
charges and penalties as hereafter may be specified." Following demand upon it, IUCP paid to Manilabank
the sum of P4,334,280.61 representing Inter-Resin Industrial's outstanding obligation. Atrium Capital Corp.,
which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the
payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed a case
against Inter-Resin Industrial and Willex Plastic. Inter-Resin Industrial paid Interbank, which had in turn
succeeded Atrium, the sum of P687,600.00 representing the proceeds of its fire insurance policy for the
destruction of its properties. In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty"
was intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to
Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. Interbank was
substituted as plaintiff in the action.
Whether under the "Continuing Guaranty" petitioner Willex Plastic may be held jointly and severally liable
with Inter-Resin Industrial for the amount paid by Interbank to Manilabank- YES
 
SC: ARGUMENT OF WILLEX: In denying liability to Interbank for the amount, Willex Plastic argues
that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from
Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
 
As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium Capital,
to Manilabank pursuant to the "Continuing Surety Agreements" made on December 1, 1978.
The contention of Willex is untenable. What Willex Plastic has overlooked is the fact that evidence
aliunde was introduced in the trial court to explain that it was actually to secure payment to Interbank
(formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing Guaranty" was
executed. In its complaint below, Interbank's predecessor-in-interest, Atrium Capital, alleged:
5. to secure the guarantee made by plaintiff of the credit accommodation
granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff
required defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage in
its favor and a Continuing Guaranty which was signed by the other defendant
WPIC [Willex Plastic].
 
Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff (Interbank) of
the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the
plaintiff required defendant IRIC to execute a chattel mortgage in its favor and a Continuing
Guaranty which was signed by the defendant Willex Plastic Industries Corporation." Similarly, the
6
Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken by
plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by
Manilabank, plaintiff-appellee required defendant-appellants to sign a Continuing Guaranty." Nor
does the record show any other transaction under which Inter-Resin Industrial may have obtained
sums of money from Interbank. It can reasonably be assumed that Inter-Resin Industrial and Willex
guarantor or surety should receive any part of the benefit, if such there be, accruing to his
principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in
the former action in dismissing that proceeding, and it is immaterial that no benefit may have
accrued either to the principal or his guarantor.
Plastic intended to indemnify Interbank for amounts which it may have paid Manilabank on behalf of
Inter-Resin Industrial.
 
ARGUMENT OF WILLEX: the "Continuing Guaranty," being an accessory contract, cannot legally
exist because of the absence of a valid principal obligation. Its contention is based on the fact that it
8
is not a party either to the "Continuing Surety Agreement" or to the loan agreement between
Manilabank and Interbank Industrial.
 
Put in another way the consideration necessary to support a surety obligation need not pass directly
to the surety, a consideration moving to the principal alone being sufficient. For a "guarantor or
surety is bound by the same consideration that makes the contract effective between the principal
parties thereto. It is never necessary that a guarantor or surety should receive any part or benefit, if
such there be, accruing to his principal."
9
 
ARGUMENT OF WILLEX: the "Continuing Guaranty" cannot be retroactively applied so as to secure
payments made by Interbank under the two "Continuing Surety Agreements." Willex Plastic invokes
the ruling in El Vencedor v. Canlas and Diño v. Court of Appeals in support of its contention that a
11 12
contract of suretyship or guaranty should be applied prospectively.
The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we
held that a contract of suretyship "is not retrospective and no liability attaches for defaults occurring
before it is entered into unless an intent to be so liable is indicated." There we found nothing in the
contract to show that the parties intended the surety bonds to answer for the debts contracted
previous to the execution of the bonds. In contrast, in this case, the parties to the "Continuing
Guaranty" clearly provided that the guaranty would cover "sums obtained and/or to be obtained" by
Inter-Resin Industrial from Interbank. On the other hand, in Diño v. Court of Appeals the issue was
whether the sureties could be held liable for an obligation contracted after the execution of the
continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates
a future course of dealing. "It is prospective in its operation and is generally intended to provide
security with respect to future transactions." By no means, however, was it meant in that case that in
all instances a contrast of guaranty or suretyship should be prospective in application.
FACTS: Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the
Manila Banking Corporation. To secure payment of the credit accommodation, Inter-Resin
Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP)
executed two documents, both entitled "Continuing Surety Agreement" and dated December
1, 1978, whereby they bound themselves solidarily to pay Manilabank "obligations of every kind, on
which the [Inter-Resin Industrial] may now be indebted or hereafter become indebted to the
[Manilabank]." The two agreements (Exhs. J and K) are the same in all respects, except as to the
limit of liability of the surety, the first surety agreement being limited to US$333,830.00, while
the second one is limited to US$334,087.00.
On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed
a "Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or sums
obtained and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin
Industrial and Willex Plastic jointly and severally guaranteed "the prompt and punctual payment at
maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of
FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and
penalties as hereafter may be specified."
On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of
P4,334,280.61 representing Inter-Resin Industrial's outstanding obligation. (Exh. M-1) On
February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had succeeded IUCP,
demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had
paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in the court
below against Inter-Resin Industrial and Willex Plastic.
On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded
Atrium, the sum of P687,600.00 representing the proceeds of its fire insurance policy for the
destruction of its properties.
In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to
secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to
Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital.
On the other hand, Willex Plastic denied the material allegations of the complaint and
interposed the following Special Affirmative Defenses:
(a) Assuming arguendo that main defendant is indebted to plaintiff, the former's
liability is extinguished due to the accidental fire that destroyed its
premises, which liability is covered by sufficient insurance assigned to
plaintiff;
(b) Again, assuming arguendo, that the main defendant is indebted to plaintiff,
its account is now very much lesser than those stated in the complaint
because of some payments made by the former;
(c) The complaint states no cause of action against WILLEX;
(d) WLLLEX is only a guarantor of the principal obliger, and thus, its
liability is only secondary to that of the principal;
(e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim
against the principal obliger;
(f) Plaintiff has no personality to sue.
On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then proceeded to trial.
On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the right to present evidence for its
failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested its case without
presenting any evidence. Thereafter Interbank and Willex Plastic submitted their respective memoranda.
TC: ordering Inter-Resin Industrial and Willex Plastic jointly and severally to pay to Interbank
the following amounts:
(a) P3, 646,780.61, representing their indebtedness to the plaintiff, with interest of 17% per annum
from August 11, 1982, when Inter-Resin Industrial paid P687,500.00 to the plaintiff, until full
payment of the said amount;
(b) Liquidated damages equivalent to 178 of the amount due; and
(c) Attorney's fees and expenses of litigation equivalent to 208 of the total amount due.
Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex Plastic filed its brief, while Inter-
Resin Industrial presented a "Motion to Conduct Hearing and to Receive Evidence to Resolve Factual Issues and
to Defer Filing of the Appellant's Brief." After its motion was denied, Inter-Resin Industrial did not file its brief
anymore.
CA: affirming the ruling of the TC
Willex Plastic filed a motion for reconsideration praying that it be allowed to present evidence to show that Inter-
Resin Industrial had already paid its obligation to Interbank, but its motion was denied on December 6, 1991.
Hence this petition.
ISSUE: whether under the "Continuing Guaranty" signed on April 2, 1979 petitioner Willex Plastic
may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to
Manilabank. (YES)
RULING: WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the
petitioner.
RATIO:  ARGUMENT OF WILLEX: In denying liability to Interbank for the amount, Willex Plastic
argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin
Industrial from Interbank, not for sums paid by the latter to Manilabank for the account of
Inter-Resin Industrial. In support of this contention Willex Plastic cites the following portion of the
"Continuing Guaranty":
For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN
INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or
your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or
other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby
jointly and severally and unconditionally guarantee unto you and/or your principal/s,
successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S
issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to
the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00),
Philippine Currency, and such interests, charges and penalties as may hereinafter be
specified.
As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium
Capital, to Manilabank pursuant to the "Continuing Surety Agreements" made on December 1,
1978.
The contention of Willex is untenable. What Willex Plastic has overlooked is the fact that evidence
aliunde was introduced in the trial court to explain that it was actually to secure payment to
Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing
Guaranty" was executed. In its complaint below, Interbank's predecessor-in-interest, Atrium
Capital, alleged:
5. to secure the guarantee made by plaintiff of the credit accommodation
granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the
plaintiff required defendant IRIC [Inter-Resin Industrial] to execute a chattel
mortgage in its favor and a Continuing Guaranty which was signed by the
other defendant WPIC [Willex Plastic].
In its answer, Inter-Resin Industrial admitted this allegation although it claimed that it had already
paid its obligation in its entirety. On the other hand, Willex Plastic, while denying the allegation in
question, merely did so "for lack of knowledge or information of the same." But, at the hearing of the
case on September 16, 1986, when asked by the trial judge whether Willex Plastic had not filed a
crossclaim against Inter-Resin Industrial, Willex Plastic's counsel replied in the negative and
manifested that "the plaintiff in this case [Interbank] is the guarantor and my client [Willex
Plastic] only signed as a guarantor to the guarantee." 2
For its part Interbank adduced evidence to show that the "Continuing Guaranty" had been made
to guarantee payment of amounts made by it to Manilabank and not of any sums given by it
as loan to Inter-Resin Industrial. Interbank's witness testified under cross examination by counsel
for Willex Plastic that Willex "guaranteed the exposure/of whatever exposure of ACP [Atrium Capital]
will later be made because of the guarantee to Manila Banking Corporation." 3
It has been held that explanatory evidence may be received to show the circumstances under which
a document has been made and to what debt it relates. At all events, Willex Plastic cannot now
4
claim that its liability is limited to any amount which Interbank, as creditor, might give directly
to Inter-Resin Industrial as debtor because, by failing to object to the parol evidence
presented, Willex Plastic waived the protection of the parol evidence rule. 5
Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff
(Interbank) of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by
Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel mortgage in its favor
and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries
Corporation." 6
Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee
undertaken by plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-
Resin Industrial by Manilabank, plaintiff-appellee required defendant-appellants to sign a
Continuing Guaranty." These factual findings of the trial court and of the Court of Appeals are
binding on us not only because of the rule that on appeal to the Supreme Court such findings are
entitled to great weight and respect but also because our own examination of the record of the trial
court confirms these findings of the two courts. 7
 
Nor does the record show any other transaction under which Inter-Resin Industrial may have
obtained sums of money from Interbank. It can reasonably be assumed that Inter-Resin
Industrial and Willex Plastic intended to indemnify Interbank  In the present case the circumstances so clearly indicate that the bond given by
for amounts which it may have paid Manilabank on behalf of Inter-Resin Industrial.
 
Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was "to secure the
aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin Industrial] to
execute a chattel mortgage in its favor, and so a "Continuing Guaranty" was executed on April 2,
1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of
INTERBANK for and in consideration of the loan obtained by IRIC [Inter-Resin Industrial]."
 
ARGUMENT OF WILLEX: the "Continuing Guaranty," being an accessory contract, cannot
legally exist because of the absence of a valid principal obligation. Its contention is based on
8 (2) If he has bound himself solidarily with the debtor;
the fact that it is not a party either to the "Continuing Surety Agreement" or to the loan
agreement between Manilabank and Interbank Industrial.
 
SC: Put in another way the consideration necessary to support a surety obligation need not
pass directly to the surety, a consideration moving to the principal alone being sufficient. For
a "guarantor or surety is bound by the same consideration that makes the contract effective
between the principal parties thereto. It is never necessary that a guarantor or surety should
receive any part or benefit, if such there be, accruing to his principal." In an analogous case,
9 10
this Court held:
At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the
purpose of having an additional capital for buying and selling coco-shell charcoal and
importation of activated carbon, the comprehensive surety agreement was admittedly
in full force and effect. The loan was, therefore, covered by the said agreement, and
private respondent, even if he did not sign the promissory note, is liable by virtue of
the surety agreement. The only condition that would make him liable thereunder is
that the Borrower "is or may become liable as maker, endorser, acceptor or
otherwise." There is no doubt that Daicor is liable on the promissory note evidencing
the indebtedness.
The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Daicor as evidenced by a promissory note.
 
ARGUMENT OF WILLEX: the "Continuing Guaranty" cannot be retroactively applied so as to
secure payments made by Interbank under the two "Continuing Surety Agreements." Willex
Plastic invokes the ruling in El Vencedor v. Canlas and Diño v. Court of Appeals in support of its
11 12
contention that a contract of suretyship or guaranty should be applied prospectively.
 
SC: The cases cited are, however, distinguishable from the present case. In El Vencedor v.
Canlas we held that a contract of suretyship "is not retrospective and no liability attaches for defaults
occurring before it is entered into unless an intent to be so liable is indicated." There we found
nothing in the contract to show that the parties intended the surety bonds to answer for the
debts contracted previous to the execution of the bonds. In contrast, in this case, the parties
to the "Continuing Guaranty" clearly provided that the guaranty would cover "sums obtained
and/or to be obtained" by Inter-Resin Industrial from Interbank. On the other hand, in Diño v.
Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted
after the execution of the continuing surety agreement. It was held that by its very nature a
continuing suretyship contemplates a future course of dealing. "It is prospective in its operation
and is generally intended to provide security with respect to future transactions." By no
means, however, was it meant in that case that in all instances a contrast of guaranty or
suretyship should be prospective in application.
 
Indeed, as we also held in Bank of the Philippine Islands v. Foerster, although a contract of
13
suretyship is ordinarily not to be construed as retrospective, in the end the intention of the
parties as revealed by the evidence is controlling. What was said there 14
applies mutatis
mutandis to the case at bar:
In our opinion, the appealed judgment is erroneous. It is very true that bonds or other
contracts of suretyship are ordinarily not to be construed as retrospective, but that
rule must yield to the intention of the contracting parties as revealed by the evidence,
and does not interfere with the use of the ordinary tests and canons of interpretation
which apply in regard to other contracts.
Echevarria was intended to cover all of the indebtedness of the Arrocera upon its
current account with the plaintiff Bank that we cannot possibly adopt the view of the
court below in regard to the effect of the bond.
 
ARGUMENT OF WILLEX: in any event it cannot be proceeded against without first exhausting
all property of Inter-Resin Industrial. Willex Plastic thus claims the benefit of excussion. The
Civil Code provides, however:
Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
 
SC: The pertinent portion of the "Continuing Guaranty" executed by Willex Plastic and Inter-Resin
Industrial in favor of IUCP (now Interbank) reads:
If default be made in the payment of the NOTE/s herein guaranteed you and/or your
principal/s may directly proceed against Me/Us without first proceeding against
and exhausting DEBTOR/s propertiesin the same manner as if all such liabilities
constituted My/Our direct and primary obligations. (emphasis supplied)
 
This stipulation embodies an express renunciation of the right of excussion. In addition, Willex
Plastic bound itself solidarily liable with Inter-Resin Industrial under the same agreement:
For and in consideration of the sums obtained and/or to be obtained by INTER-
RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S,
from you and/or your principal/s as may be evidenced by promissory note/s, checks,
bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as
the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee
unto you and/or your principal/s, successor/s and assigns the prompt and punctual
payment at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your
principal/s, successor/s and assigns favor to the extent of the aggregate principal
sum of FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such
interests, charges and penalties as may hereinafter he specified.
CONTENTION OF WILLEX: Inter-Resin Industrial had already paid its indebtedness to Interbank and that
Willex Plastic should have been allowed by the Court of Appeals to adduce evidence to prove this. Suffice it
to say that Inter-Resin Industrial had been given generous opportunity to present its evidence but it failed to make
use of the same. On the otherhand, Willex Plastic rested its case without presenting evidence.
SC: The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but because of its failure to
appear on that date, the hearing was reset on March 12, 26 and April 2, 1987.
 
On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of Willex Plastic, the hearings on
March 12 and 26, 1987 were cancelled and "reset for the last time" on April 2 and 30, 1987
.
On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial court issued the following order:
Considering that, as shown by the records, the Court had exerted every earnest effort to
cause the service of notice or subpoena on the defendant Inter-Resin Industrial but to no
avail, even with the assistance of the defendant Willex the defendant Inter-Resin Industrial
is hereby deemed to have waived the right to present its evidence.
On the other hand, Willex Plastic announced it was resting its case without presenting any evidence.
 
Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order and set the hearing anew on
July 23, 1987. But Inter-Resin Industrial again moved for the postponement of the hearing be postponed to August
11, 1987. The hearing was, therefore, reset on September 8 and 22, 1987 but the hearings were reset on October
13, 1987, this time upon motion of Interbank. To give Interbank time to comment on a motion filed by Inter-Resin
Industrial, the reception of evidence for Inter-Resin Industrial was again reset on November 17, 26 and December
11, 1987. However, Inter-Resin Industrial again moved for the postponement of the hearing. Accordingly the
hearing was reset on November 26 and December 11, 1987, with warning that the hearings were intransferrable.
 
Again, the reception of evidence for Inter-Resin Industrial was reset on January 22, 1988 and February 5, 1988
upon motion of its counsel. As Inter-Resin Industrial still failed to present its evidence, it was declared to have
waived its evidence.
To give Inter-Resin Industrial a last opportunity to present its evidence, however, the hearing was
postponed to March 4, 1988. Again Inter-Resin Industrial's counsel did not appear. The trial court,
therefore, finally declared Inter-Resin Industrial to have waived the right to present its evidence. On the
other hand, Willex Plastic, as before, manifested that it was not presenting evidence and requested instead
for time to file a memorandum. There is therefore no basis for the plea made by Willex Plastic that it be
given the opportunity of showing that Inter-Resin Industrial has already paid its obligation to Interbank.
 
 
• Diño v. Court of Appeals, G.R. No. 89775, November 26, 1992 - PIA
G.R. No. 89775 November 26, 1992
JACINTO UY DIÑO and NORBERTO UY, petitioners, vs. HON. COURT OF APPEALS and
METROPOLITAN BANK AND TRUST COMPANY, respondents.
SUMMARY: UTEFS obtained credit accommodations from METROBANK in the sum of P700k and
to secure such, Uy and Diño executed separate Continuing Suretyships (Feb 25, 1977) under which
Uy agreed to pay Metrobank any indebtedness of up to P300k while Diño agreed to be bound up to
P815k. Having paid the obligation under the 1977 letter of credit, UTEFS obtained another one
(1978) which was again fully settled before an irrevocable letter of credit was obtained in 1979. This
Irrevocable Letter of Credit in the amount of P800k covered the purchase of 8000 bags of Urea and
4000 bags of Planters 21-0-0 and was obtained without any participation of Uy and Diño. They were
also not informed that the Continuing Suretyship of 1977 was used to guarantee the payment.
UTEFS executed and delivered a Trust Receipt to Metrobank and agreed to deliver to Metrobank the
entrusted goods in the event of non-sale or the proceeds of the sale but UTEFS failed to do so.
Metrobank sent letters demanding payment to Metrobank who made partial payments, but also sent
letters to Uy and Diño as the sureties. Diño denied his liability because a new obligation was
contracted without his participation and that the credit accommodation he guaranteed has already
been fully paid. Metrobank filed a complaint for the collection of a sum of money. 
Uy and Diño maintained that the obligation which they guaranteed in 1977 has been extinguished
since it has already been paid in the same year. The Continuing Suretyships executed in 1977
cannot be availed of to secure the one obtained in 1979 because a guaranty cannot exist without a
valid obligation (Art 2052) and that they can not be held liable for such because they are not privies
thereto as it was contracted without their participation. 
Metrobank, relying on  Article 2053 of the new Civil Code, invoked the terms and conditions
embodied in the comprehensive suretyships separately executed by Uy and Diño, and argued that
they bound themselves as solidary obligors of Uy Tiam to both existing obligations and future ones.
It further argued that the agreement was in full force and effect at the time the letter of credit was
obtained in 1979 as sureties-defendants did not exercise their right to revoke it by giving notice to
the bank.
ISSUE: WON they are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by
virtue of the Continuing Suretyship Agreements they separately signed in 1977; (YES)
The SC held that under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not known at the time the guaranty is executed. This is the basis for contracts
denominated as continuing guaranty or suretyship. 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.
Otherwise stated, 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. A guaranty shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing credit to the principal debtor to be used from
time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is
expressly reserved. Hence, where the contract of guaranty states that the same is to secure
advances to be made "from time to time" the guaranty will be construed to be a continuing one. 
Par I and Par IV of the suretyship agreement executed by Uy and Diño unequivocally reveal that the
suretyship agreement in the case at bar are continuing in nature. This was not denied as well as the
fact that they had not revoked the suretyship agreements. When the Irrevocable Letter of Credit was
obtained from Metrobank for the purpose of obtaining goods (covered by a trust receipt) from
Planters Products, the continuing suretyships were in full force and effect. Hence, even if Uy and
Diño did not sign the "Commercial Letter of Credit and Application, they are still liable as the credit
accommodation (letter of credit/trust receipt) was covered by the said suretyships. What makes them
liable thereunder is the condition which provides that the Borrower "is or may become liable as
maker, endorser, acceptor or otherwise." 
FACTS: It appears that in 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its
representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and
trust receipt accommodations) from the Metropolitan Bank and Trust Company
(METROBANK) in the sum of P700,000. To secure the aforementioned credit accommodations
Norberto Uy and Jacinto Uy Diño executed separate Continuing Suretyships dated 25
February 1977, in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay
METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000 while Jacinto
Uy Diño agreed to be bound up to the aggregate sum of P800,000.
Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam,
obtained another credit accommodation from METROBANK in 1978, which credit
accommodation was fully settled before an irrevocable letter of credit was applied for and
obtained by the abovementioned business entity in 1979.
The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of P815, 600,
covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0." It
was applied for and obtain by UTEFS without the participation of Norberto Uy and Jacinto Uy
Diño as they did not sign the document denominated as "Commercial Letter of Credit and
Application." Also, they were not asked to execute any suretyship to guarantee its payment.
Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been
opened and the Continuing Suretyships separately executed in February, 1977 shall
guarantee its payment.
The 1979 letter of credit was negotiated. METROBANK paid Planters Products the amount of
P815,600 which payment was covered by a Bill of Exchange, dated 4 June 1979.
Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK a
Trust Receipt dated 4 June 1979, whereby UTEFS acknowledged receipt in trust from
METROBANK of the aforementioned goods from Planters Products which amounted to P815,
600. Being the entrusted, the former agreed to deliver to METROBANK the entrusted goods in
the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2,
1979.
However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a
consequence, METROBANK sent letters to the said principal obligor and its sureties,
Norberto Uy and Jacinto Uy Diño, demanding payment of the amount due. Informed of the
amount due, UTEFS made partial payments to the Bank which were accepted by the latter.
Answering one of the demand letters, Diño, thru counsel, denied his liability for the amount
demanded and requested METROBANK to send him copies of documents showing the
source of his liability. In its reply, the bank informed him that the source of his liability is the
Continuing Suretyship which he executed on February 25, 1977.
As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit
accommodation because it is a new obligation contracted without his participation. Besides,
the 1977 credit accommodation which he guaranteed has been fully paid.
Having sent the last demand letter to UTEFS, Diño and Uy and finding resort to extrajudicial
remedies to be futile, METROBANK filed a complaint for collection of a sum of money
(P613,339.32, as of January 31, 1982, inclusive of interest, commission penalty and bank charges)
with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of
UTEFS and impleaded Diño and Uy as parties-defendants.
The court issued an order, granting the attachment writ, which writ was returned unserved and
unsatisfied as defendant Uy Tiam was nowhere to be found at his given address and his commercial
enterprise was already non-operational.
UY AND DINO: filed a motion to dismiss the complaint on the ground of lack of cause of
action. They maintained that the obligation which they guaranteed in 1977 has been
extinguished since it has already been paid in the same year. Accordingly, the Continuing
Suretyships executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit
obtained in 1979 because a guaranty cannot exist without a valid obligation. It was further
argued that they can not be held liable for the obligation contracted in 1979 because they are
not privies thereto as it was contracted without their participation.
METROBANK: filed its opposition to the motion to dismiss. Invoking the terms and
conditions embodied in the comprehensive suretyships separately executed by Uy and Diño,
the bank argued that they bound themselves as solidary obligors of Uy Tiam to both existing
obligations and future ones. It relied on Article 2053 of the new Civil Code which provides: "A
guaranty may also be given as security for future debts, the amount of which is not yet
known; ." It was further asserted that the agreement was in full force and effect at the time the
letter of credit was obtained in 1979 as sureties-defendants did not exercise their right to
revoke it by giving notice to the bank.
Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pending the
introduction of evidence by the parties as per order dated February 21, 1986. Having been granted a
period of fifteen days from receipt of the order dated March 7, 1986 within which to file the answer,
Uy and Diño filed their responsive pleading which merely rehashed the arguments in their motion to
dismiss and maintained that they are entitled to the benefit of excussion.
On February 23, 1987, plaintiff filed a motion to dismiss the complaint against defendant Uy Tiam on
the ground that it has no information as to the heirs or legal representatives of the latter who died
sometime in December, 1986, which motion was granted on the following day).
After trial, the court a quo, on December 2, 198, rendered its judgment, a portion of which reads:
The evidence and the pleadings, thus, pose the querry (sic):
Are the defendants Jacinto Uy Diñoand Norberto Uy liable for the obligation
contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March 30,
1987 by virtue of the Continuing Suretyships they executed on February 25,
1977?
Under the admitted proven facts, the Court finds that they are not.
a) When Uy and Diño executed the continuing suretyships, exhibits E and F, on
February 25, 1977, Uy Tiam was obligated to the plaintiff in the amount of
P700,000.00 — and this was the obligation which both obligation which both
defendants guaranteed to pay. Uy Tiam paid this 1977 obligation –– and such
payment extinguished the obligation they assumed as guarantors/sureties.
b) The 1979 Letter of Credit is different from the 1977 Letter of Credit which
covered the 1977 account of Uy Tiam. Thus, the obligation under either is apart
and distinct from the obligation created in the other — as evidenced by the fact
that Uy Tiam had to apply anew for the 1979 transaction. And Diño and Uy,
being strangers thereto, cannot be answerable thereunder.
c) The plaintiff did not serve notice to the defendants Diño and Uy when it
extended to Credit — at least to inform them that the continuing suretyships they
executed on February 25, 1977 will be considered by the plaintiff to secure the
1979 transaction of Uy Tiam.
d) There is no sufficient and credible showing that Diño and Uy were fully
informed of the import of the Continuing Suretyships when they affixed their
signatures thereon –– that they are thereby securing all future obligations which
Uy Tiam may contract the plaintiff. On the contrary, Diño and Uy categorically
testified that they signed the blank forms in the office of Uy Tiam at 623
Asuncion Street, Binondo, Manila, in obedience to the instruction of Uy Tiam,
their former employer. They denied having gone to the office of the plaintiff to
subscribe to the documents
In its Decision, the trial court decreed as follows:
PREMISES CONSIDERED, judgment is hereby rendered:
a) dismissing the COMPLAINT against JACINTO UY DIÑO and NORBERTO
UY;
b) ordering the plaintiff to pay to Diño and Uy the amount of P6,000.00 as
attorney's fees and expenses of litigation; and
c) denying all other claims of the parties for want of legal and/or factual basis.
SO ORDERED.
From the said Decision, the private respondent appealed to the Court of Appeals. The case was
docketed as CA-G.R. CV No. 17724. In support thereof, it made the following assignment of errors in
its Brief:
I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT
DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE
SOLIDARILY LIABLE TO PLAINTIFF-APPELLANT FOR THE OBLIGATION OF
DEFENDANT UY TIAM UNDER THE LETTER OF CREDIT ISSUED ON MARCH 30,
1979 BY VIRTUE OF THE CONTINUING SURETYSHIPS THEY EXECUTED ON
FEBRUARY 25, 1977.
II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS
ANSWERABLE TO DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO
UY FOR ATTORNEY'S FEES AND EXPENSES OF LITIGATION. 5
On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of
which reads:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED
AND SET, ASIDE. In lieu thereof, another one is rendered:
1) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly
and severally, to appellant METROBANK the amount of P2,397,883.68 which
represents the amount due as of July 17, 1987 inclusive of principal, interest
and charges;
2) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly
and severally, appellant METROBANK the accruing interest, fees and charges
thereon from July 18, 1987 until the whole monetary obligation is paid; and
3) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly
and severally, to plaintiff P20,000.00 as attorney's fees.
With costs against appellees.
SO ORDERED.
In ruling for METROBANK, CA held that the Continuing Suretyship Agreements separately
executed by the petitioners in 1977 were intended to guarantee payment of Uy Tiam's
outstanding as well as future obligations; each suretyship arrangement was intended to
remain in full force and effect until METROBANK would have been notified of its revocation.
Since no such notice was given by Uy and Diño, the suretyships are deemed outstanding and
hence, cover even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam.
Uy and Diño filed a motion to reconsider the foregoing Decision. They questioned the public
respondent's construction of the suretyship agreements and its ruling with respect to the extent of
their liability thereunder. They argued the even if the agreements were in full force and effect when
METROBANK granted Uy Tiam's application for a letter of credit in 1979, the public respondent
nonetheless seriously erred in holding them liable for an amount over and above their respective
face values.
In its Resolution of 21 August 1989, public respondent denied the motion:
. . . considering that the issues raised were substantially the same grounds utilized by the
lower court in rendering judgment for defendants-appellees which We upon appeal found
and resolved to be untenable, thereby reversing and setting aside said judgment and
rendering another in favor of plaintiff, and no new or fresh issues have been posited to
justify reversal of Our decision herein,  extend credit in any other manner to, or at the request, or for the account of the Borrower,
Uy and Diño vehemently deny such liability on the ground that the Continuing Suretyship
Agreements were automatically extinguished upon payment of the principal obligation
secured thereby, i.e., the letter of credit obtained by Uy Tiam in 1977. They further claim that
they were not advised by either METROBANK or Uy Tiam that the Continuing Suretyship
Agreements would stand as security for the 1979 obligation. Moreover, it is posited that to extend
the application of such agreements to the 1979 obligation would amount to a violation of
Article 2052 of the Civil Code which expressly provides that a guaranty cannot exist without a
valid obligation. Petitioners further argue that even granting, for the sake of argument, that the
Continuing Suretyship Agreements still subsisted and thereby also secured the 1979
obligations incurred by Uy Tiam, they cannot be held liable for more than what they
guaranteed to pay because it s axiomatic that the obligations of a surety cannot extend
beyond what is stipulated in the agreement.
ISSUES:
1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by
virtue of the Continuing Suretyship Agreements they separately signed in 1977;
RULING: YES. WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged
decision has to be modified with respect to the extend of petitioners' liability. As modified, petitioners
JACINTO UY DIÑO and NORBERTO UY are hereby declared liable for and are ordered to pay, up
to the maximum limit only of their respective Continuing Suretyship Agreement, the remaining unpaid
balance of the principal obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES
under Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979, together with the interest
due thereon at the legal rate commencing from the date of the filing of the complaint in Civil Case
No. 82-9303 with Branch 45 of the Regional Trial Court of Manila, as well as the adjudged attorney's
fees and costs.
All other dispositions in the dispositive portion of the challenged decision not inconsistent with the
above are affirmed.
RATIO: Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not known at the time the guaranty is executed. This is the basis for
contracts denominated as continuing guaranty or suretyship. 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. Otherwise stated, 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. A guaranty shall be construed as continuing when by the terms thereof it
is evident that the object is to give a standing credit to the principal debtor to be used from
time to time either indefinitely or until a certain period, especially if the right to recall the
guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is
to secure advances to be made "from time to time" the guaranty will be construed to be a
continuing one. 
In other jurisdictions, it has been held that the use of particular words and expressions such as
payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any
transaction" or money to be furnished the principal debtor "at any time," or "on such time" that the
principal debtor may require, have been construed to indicate a continuing guaranty. 
In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by
petitioner Uy provides thus:
I. For and in consideration of any existing indebtedness to the BANK of UY TIAM
(hereinafter called the "Borrower"), for the payment of which the SURETY is now obligated
to the BANK, either as guarantor or otherwise, and/or in order to induce the BANK, in its
discretion, at any time or from time to time hereafter, to make loans or advances or to
either with or without security, and/or to purchase or discount, or to make any loans or
advances evidence or secured by any notes, bills, receivables, drafts, acceptances,
checks, or other instruments or evidences of indebtedness (all hereinafter called
"instruments") upon which the Borrower is or may become liable as maker, endorser,
acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee,
the punctual payment at maturity to the loans, advances credits and/or other obligations
hereinbefore referred to, and also any and all other indebtedness of every kind which is
now or may hereafter become due or owing to the BANK by the Borrower, together with
any and all expenses which may be incurred by the BANK in collecting all or any such
instruments or other indebtedness or obligations herein before referred to, and/or in
enforcing any rights hereunder, and the SURETY also agrees that the BANK may make or
cause any and all such payments to be made strictly in accordance with the terms and
provisions of any agreement(s) express or implied, which has (have) been or may
hereafter be made or entered into by the Borrow in reference thereto, regardless of any
law, regulation or decree, unless the same is mandatory and non-waivable in character,
nor or hereafter in effect, which might in any manner affect any of the terms or provisions
of any such agreement(s) or the Bank's rights with respect thereto as against the
Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of
payment by the Borrower of any such instruments, obligations or indebtedness; provided,
however, that the liability of the SURETY hereunder shall not exceed at any one time the
aggregate principal sum of PESOS: THREE HUNDRED THOUSAND ONLY
(P300,000.00) (irrespective of the currenc(ies) in which the obligations hereby guaranteed
are payable), and such interest as may accrue thereon either before or after any
maturity(ies) thereof and such expenses as may be incurred by the BANK as referred to
above. 
Paragraph I of the Continuing Suretyship Agreement executed by petitioner Diño contains identical
provisions except with respect to the guaranteed aggregate principal amount which is EIGHT
THOUSAND PESOS (P800,000)
Paragraph IV of both agreements stipulate that:
VI. This is a continuing guaranty and shall remain in full force and effect until written notice
shall have been received by the BANK that it has been revoked by the SURETY, but any
such notice shall not release the SURETY, from any liability as to any instruments, loans,
advances or other obligations hereby guaranteed, which may be held by the BANK, or in
which the BANK may have any interest at the time of the receipt (sic) of such notice. No
act or omission of any kind on the BANK'S part in the premises shall in any event affect or
impair this guaranty, nor shall same (sic) be affected by any change which may arise by
reason of the death of the SURETY, or of any partner(s) of the SURETY, or of the
Borrower, or of the accession to any such partnership of any one or more new partners. 
The foregoing stipulations unequivocally reveal that the suretyship agreement in the case at
bar are continuing in nature. Petitioners do not deny this; in fact, they candidly admitted it.
Neither have they denied the fact that they had not revoked the suretyship agreements.
Accordingly, as correctly held by the public respondent:
Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce
appellant to grant any application for credit accommodation (letter of credit/trust receipt)
UTEFS may desire to obtain from appellant bank. By its terms, each suretyship is a continuing
one which shall remain in full force and effect until the bank is notified of its revocation.
When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant bank, for the
purpose of obtaining goods (covered by a trust receipt) from Planters Products, the continuing
suretyships were in full force and effect. Hence, even if Uy and Diño did not sign the
"Commercial Letter of Credit and Application, they are still liable as the credit
accommodation (letter of credit/trust receipt) was covered by the said suretyships. What
makes them liable thereunder is the condition which provides that the Borrower "is or may
become liable as maker, endorser, acceptor or otherwise." And since UTEFS was liable as
principal obligor for having failed to fulfill the obligatory stipulations in the trust receipt, they as
insurers of its obligation, are liable thereunder.  whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus, in Plaridel Surety &
ON THEIR LIABILITIES IF A CONTINUING SURETYSHIP EXISTS
Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be made
applicable to the 1979 obligation because the latter was not yet in existence when the agreements
were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a
valid obligation." We cannot agree.  The objection has to be overruled, because as far back as the year 1922 this Court held in
First of all, the succeeding article provides that "guaranty may also be given as security for future
debts, the amount of which is not yet known." Secondly, Article 2052 speaks about a valid
obligation, as distinguished from a void obligation, and not an existing or current obligation .
This distinction is made clearer in the second paragraph of Article 2052 which reads:
Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable
or an unenforceable contract. It may also guarantee a natural obligation.
As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend
that the public respondent gravely erred in finding them liable for more than the amount specified in
their respective agreements, to wit:  Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently
(a) P800,000 for petitioner Diño
(b) P300,000 for petitioner Uy
The limit of their respective liabilities must be determined from the suretyship agreement
each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a
jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication
beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed
out in his obligation, he is bound, and no farther. 
Indeed, the Continuing Suretyship Agreements signed by petitioner Diño and petitioner Uy fix
the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00,
respectively. The law is clear that a guarantor may bond himself for less, but not for more
than the principal debtor, both as regards the amount and the onerous nature of the
conditions. 18 In the case at bar, both agreements provide for liability for interest and expenses, to
wit:
. . . and such interest as may accrue thereon either before or after any maturity(ies)
thereof and such expenses as may be incurred by the BANK referred to above.
They further provide that:
In the event of judicial proceedings being instituted by the BANK against the SURETY to
enforce any of the terms and conditions of this undertaking, the SURETY further agrees to
pay the BANK a reasonable compensation for and as attorney's fees and costs of
collection, which shall not in any event be less than ten per cent (10%) of the amount due
(the same to be due and payable irrespective of whether the case is settled judicially or
extrajudicially).
Thus, by express mandate of the Continuing Suretyship Agreements which they had signed,
petitioners separately bound themselves to pay interest, expenses, attorney's fees and costs.
The last two items are pegged at not less than ten percent (10%) of the amount due.
Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and
judicial costs. Article 2055 of the Civil Code provides: 
Art. 2055. A guaranty is not presumed; it must be express and cannot extend to more than
what is stipulated therein.
If it be simple or indefinite, it shall comprise not only the principal obligation, but also all its
accessories, including the judicial costs, provided with respect to the latter, that the
guarantor shall only be liable for those costs incurred after he has been judicially required
to pay.
Interest and damages are included in the term accessories. However, such interest should run
only from the date when the complaint was filed in court. Even attorney's fees may be imposed
Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., this Court held:
Petitioner objects to the payment of interest and attorney's fees because: (1) they were not
mentioned in the bond; and (2) the surety would become liable for more than the amount
stated in the contract of suretyship.
Tagawa vs. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover
from the surety as part of their damages, interest at the legal rate even if the surety would
thereby become liable to pay more than the total amount stipulated in the bond. The
theory is that interest is allowed only by way of damages for delay upon the part of the
sureties in making payment after they should have done so. In some states, the interest
has been charged from the date of the interest has been charged from the date of the
judgment of the appellate court. In this jurisdiction, we rather prefer to follow the general
practice, which is to order that interest begin to run from the date when the complaint was
filed in court, . . .
recognized in the Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil
Code ( Art. 2209 of the New Civil Code).
In other words the surety is made to pay interest, not by reason of the contract, but by
reason of its failure to pay when demanded and for having compelled the plaintiff to resort
to the courts to obtain payment. It should be observed that interest does not run from the
time the obligation became due, but from the filing of the complaint.
As to attorney's fees. Before the enactment of the New Civil Code, successful litigants
could not recover attorney's fees as part of the damages they suffered by reason of the
litigation. Even if the party paid thousands of pesos to his lawyers, he could not charge the
amount to his opponent (Tan Ti vs. Alvear).
However the New Civil Code permits recovery of attorney's fees in eleven cases
enumerated in Article 2208, among them, "where the court deems it just and equitable that
attorneys fees and expenses of litigation should be recovered" or "when the defendant
acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just
and demandable claim." This gives the courts discretion in apportioning attorney's fees
The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy
Tiam to MERTOBANK under Irrevocable Letter of Credit No. SN-Loc-309 dated 30 March 1979. In
referring to the last demand letter to Mr. Uy Tiam and the complaint filed in Civil Case No. 82-9303,
the public respondent mentions the amount of "P613,339.32, as of January 31, 1982, inclusive of
interest commission penalty and bank charges." 23 This is the same amount stated by
METROBANK in its Memorandum. 24 However, in summarizing Uy Tiam's outstanding obligation as
of 17 July 1987, public respondent states:
Hence, they are jointly and severally liable to appellant METROBANK of UTEFS' outstanding
obligation in the sum of P2,397,883.68 (as of July 17, 1987) — P651,092.82 representing the
principal amount, P825,133.54, for past due interest (5-31-82 to 7-17-87) and P921,657.32, for
penalty charges at 12% per annum as shown in the Statement of Account.
• Atok Finance Corporation v. Court of Appeals, G.R. No. 80078, May 18, 1993 - EV
G.R. No. 80078 May 18, 1993
ATOK FINANCE CORPORATION, petitioner,  denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that
vs.
COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B.
ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents.
Summary:
On 27 July 1979, private respondent Sanyu Chemical as principal and Sanyu Trading along with
individual private stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E.
Halili and Pablico Bermundo as sureties, executed in the continuing Suretyship Agreement in favor
of Atok Finance as creditor.  Moreover, Article 2053 of the Civil Code states:
Under this Agreement, Sanyu Trading and the individual private respondents who were officers and
stockholders of Sanyu Chemical did:
For valuable and/or other consideration . . ., jointly and severally unconditionally
guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful and
prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . . (hereinafter
called Principal) to the Creditor…
Other provisions of the Continuing Suretyship Agreement provides:
-that the continuing suretyship relating to any indebtedness, including that arising under successive
transactions which shall either continue the indebtedness from time to time or renew it after it has
been satisfied..
-That the obligations are joint and several and independent of the obligations of the Principal.
(Pls see facts for the provisions of the agreement)
On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of 27
November 1981 with a total face value of P125,871.00, to Atok Finance in consideration of receipt
from Atok Finance of the amount of P105,000.00.
Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total
face value of P100,378.45.
On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta
spouses, Pablito Bermundo and Leopoldo Halili before the RTC of Manila to collect the sum of
P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for each
month starting from 1 September 1983.  Pablico Bermundo as sureties, executed in the continuing Suretyship Agreement in favor of
Atok Finance: alleged that Sanyu Chemical had failed to collect and remit the amount due under the
trade receivables.
Sanyu Chemical and the individual private respondents: sought dismissal of Atok's claim upon the
ground of 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.
ISSUE: WON 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? —NO
Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding
principal obligation of Uy Tiam, secured by the petitioners' Continuing Suretyship Agreements, was
less than P613,339.32. Such amount may be fully covered by the Continuing Suretyship Agreement
executed by petitioner Diño which stipulates an aggregate principal sum of not exceeding
P800,000.00, and partly covered by that of petitioner Uy which pegs his maximum liability at
P300,000
Consequently, the judgment of the public respondent shall have to be modified to conform to the
foregoing exposition, to which extent the instant petition is impressed with partial merit.
It is true that a serious 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
"a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most
legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. This
is clear from Article 2052 of the Civil Code itself:
Art. 2052. A guaranty 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 guaranty a natural obligation.”
Art. 2053. 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. 
Of course, a surety is not bound under any particular principal obligation until that principal obligation
is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship
agreement itself is valid and binding even before the principal obligation intended to be secured
thereby is born, any more that there would be in saying that obligations which are subject to a
condition precedent are valid and binding before the occurrence of the condition precedent.
Comprehensive or continuing surety agreements are in fact quite common place 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 surety 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.
FACTS:
On 27 July 1979, private respondents Sanyu Chemical corporation ("Sanyu Chemical") as
principal and Sanyu Trading Corporation ("Sanyu Trading") along with individual private
stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E. Halili and
Atok Finance as creditor. Under this Agreement, Sanyu Trading and the individual private
respondents who were officers and stockholders of Sanyu Chemical did:
(1) For valuable and/or other consideration . . ., jointly and severally unconditionally
guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful
and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . .
(hereinafter called Principal) to the Creditor. The word "indebtedness" is used herein in its most
comprehensive sense and includes any and all advances, debts, obligations and liabilities of
Principal or any one or more of them, here[to]fore, now or hereafter made, incurred or created,
whether voluntary or involuntary and however arising, whether direct or acquired by the Creditor by
assignment or succession, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined and whether the Principal may be may be liable
individually of jointly with others, or whether recovery upon such indebtedness may be or hereafter
become barred by any statute of limitations, or whether such indebtedness may be or otherwise
become unenforceable. (Emphasis supplied)
Other relevant provisions of the Continuing Suretyship Agreement follow:
(2) This is a continuing suretyship relating to any indebtedness, including that arising under
successive transactions which shall either continue the indebtedness from time to time or renew it
after it has been satisfied. This suretyship is binding upon the heirs, successors, executors,
administrators and assigns of the surety, and the benefits hereof shall extend to and include the
successors and assigns of the Creditor.
(3) The obligations hereunder are joint and several and independent of the obligations of the
Principal. A separate action or actions may be prosecuted against the Principal and whether or not
the Principal be joined in any such action or actions.
xxx xxx xxx.
(6) In addition to liens upon, and rights of set-off against the moneys, securities or other property of
the Surety given to the Creditor by law, the Creditor shall have the lien upon and a right of self-off
against all moneys, securities, and other property of the Surety now and hereafter in the possession
of the Creditor; and every such lien or right of self-off may be exercised without need of demands
upon or notice to the Surety. No lien or right of set-off shall be deemed to have been waived by any
act, omission or conduct on the part of the Creditor, or by any neglect to exercise such right of set-off
or to enforce such lien, or by any delay in so doing, and every right of set-off or lien shall continue in
full force and effect until such right of set-off of lien is specifically waived or released by an
instrument in writing executed by the Creditor.
(7) Any indebtedness of the Principal now or hereafter held by the Surety is hereby subordinated to
the indebtedness of the Principal to the Creditor; and if the Creditor so requests, such indebtedness
of the Principal of the Surety shall be collected, enforced and shall be paid over to the Creditor and
shall be paid over to the Creditor and shall be paid over to the Creditor on account of the
indebtedness of the Principal to the Creditor but without reducing or affecting in any manner the
liability of the Surety under the provisions of this suretyship.
xxx xxx xxx
On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of 27
November 1981 with a total face value of P125,871.00, 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 up to one hundred twenty (120) days without penalties. The relevant portions of
this Deed of Assignment read as follows:
1. FOR VALUE RECEIVED, the ASSIGNOR does hereby SELL, TRANSFER and ASSIGN all his/its rights, title
and interest in the contracts, receivables, accounts, notes, leases, deeds of sale with reservation of title, invoices,
mortgages, checks, negotiable instruments and evidences of indebtedness listed in the schedule forming part
hereinafter called "Contract" or "Contracts."
2. To induce the ASSIGNEE to purchase the above Contracts, the ASSIGNOR does hereby certify, warrant and
represent that :
(a). He/It is the sole owner of the assigned Contracts free and clear of claims of any other party except the herein
ASSIGNEE and has the right to transfer absolute title thereto the ASSIGNEE;
(b). Each assigned Contract is bonafide and the amount owing and to become due on each contract is correctly
stated upon the schedule or other evidences of the Contract delivered pursuant thereto;
(c). Each assigned Contract arises out of the sale of merchandise/s which had been delivered and/or services
which have been rendered and none of the Contract is now, nor will at any time become, contingent upon the
fulfillment of any contract or condition whatsoever, or subject to any defense, offset or counterclaim;
(d). No assigned Contract is represented by any note or other evidence of indebtness or other security document
except such as may have been endorsed, assigned and delivered by the ASSIGNOR to the ASSIGNEE
simultaneously with the assignment of such Contract;
(e). No agreement has been made, or will be made, with any debtor for any deduction discount or return of
merchandise, except as may be specifically noted at the time of the assignment of the Contract;
(f). None of the terms or provisions of the assigned Contracts have been amended, modified or waived;
(g). The debtor/s under the assigned Contract/s are solvent and his/its/their failure to pay the assigned Contracts
and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this
warranty; and
(h). Each assigned Contract is a valid obligation of the buyer of the merchandise and/or service rendered under the
Contract And that no Contract is overdue.
The foregoing warranties and representations are in addition to those provided for in the Negotiable Instruments
Law and other applicable laws. Any violation thereof shall render the ASSIGNOR immediately and unconditionally
liable to pay the ASSIGNEE jointly and severally with the debtors under the assigned contracts, the amounts due
thereon.
xxx xxx xxx
4. The ASSIGNOR shall without compensation or cost, collect and receive in trust for the ASSIGNEE all payments
made upon the assigned contracts and shall remit to the ASSIGNEE all collections on the said Contracts as follows
:
P5,450.00 due on January 2, 1982 on every 15th day (semi-monthly) until November 1, 1982.
P110,550.00 balloon payment after 12 months. (Emphasis supplied)
3
xxx xxx xxx
Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a
total face value of P100,378.45.
On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta
spouses, Pablito Bermundo and Leopoldo Halili before the RTC of Manila to collect the sum
of P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for
each month starting from 1 September 1983. 
Atok Finance: alleged that Sanyu Chemical had failed to collect and remit the amount 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.
At the trial, Sanyu Chemical and the individual private respondents failed to present any evidence on
their behalf, although the individual private respondents submitted a memorandum in support of their
argument.
RTC: on 1 April 1985, rendered a decision in favor of Atok Finance. The dispositive portion of this
decision reads as follows:
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff ATOK FINANCE CORPORATION; and
against the defendants SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA,
PABLITO BERMUNDO and LEOPOLDO HALILI, ordering the said defendants, jointly and severally, to pay the
plaintiff:
(1) P120,240.00 plus P0.03 for each peso for each month from September 1, 1983 until the whole amount is fully
paid;
(2) P50,000.00 as attorney's fees; and
(3) To pay the costs.
SO ORDERED.
Private respondents went on appeal before the then Intermediate IAC. The case was raffled to the
Third Civil Cases Division of the IAC. In a resolution dated 21 March 1986, that Division dismissed
the appeal upon the ground of abandonment, since the private respondents had failed to file their
appeal brief notwithstanding receipt of the notice to do so. On 4 June 1986, entry of judgment was
made by the Clerk of Court of the IAC. Accordingly, Atok Finance went before the trial court and
sought a writ of execution to enforce the decision of the trial court of 1 April 1985. The trial court
issued a writ of execution on 23 July 1986. Petitioner alleged that the writ of execution was served
on private respondents.
However, on 27 August 1986, private respondents filed a Petition for Relief from Judgment before
the Court of Appeals. This Petition was raffled off to the 15th Division of the Court of Appeals. In that
Petition, private respondents claimed that their failure to file their appeal brief was due to excusable
negligence, that is, that their previous counsel had entrusted the preparation and filing of the brief to
one of his associates, which associate, however, had unexpectedly resigned from the law firm
without returning the records of cases he had been handling, including the appeal of private
respondents. Atok Finance opposed the Petition for Relief arguing that no valid ground existed for
setting aside the resolution of the Third Division of the then IAC.
The 15th Division of the Court of Appeals nonetheless granted the Petition for Relief from Judgment
"in the paramount interest of justice," set aside the resolution of the Third Civil Cases Division of the
then IAC, and gave private respondents a non-extendible period of fifteen (15) days within which to
file their appeal brief. Private respondents did file their appeal brief.
CA: on 18 August 1987, rendered a Decision on the merits of the appeal, and reversed and set
aside the decision of the trial court and entered a new judgment dismissing the complaint of
Atok Finance, ordering it to pay private respondents P3,000.00 as attorney's fees and to pay the
costs.
Atok Finance moved to set aside the decision but was denied. Hence, this petition.
In the present Petition for Review, Atok Finance assigns the following as errors on the part of the
Court of Appeals in rendering its decision of 18 August 1987:
(1) that it had erred in ruling that a continuing suretyship agreement cannot be effected to secure
future debts;
(2) that it had erred in ruling that the continuing suretyship agreement was null and void for lack of
consideration without any evidence whatsoever [being] adduced by private respondents;
(3) that it had erred in granting the Petition for Relief from Judgment while execution proceedings
[were] on-going on the trial court.
ISSUES:
(1) 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? —-the individual private respondents may be held solidarily liable with Sanyu
Chemical under the provisions of the Continuing Suretyship Agreement;
(2)WON 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?—YES
HELD: Petition granted; CA decision reversed and set aside;
RATIO: (Note: may inalis ako about sa issue ng petition for relief na ginrant ng 15th division ng CA)
1st ISSUE: (Validity of the Continuing Suretyship Agreement—SC: VALID)
The Court of Appeals held on this first issue as follows:
Xxx xxx xxx
It is the contention of private appellants that the suretyship agreement is null and void because it is
not in consonance with the laws on guaranty and security. The said agreement was entered into by
the parties two years before the Deed of Assignment was executed. Thus, allegedly, it ran counter to
the provision that guaranty cannot exist independently because by nature it is merely an accessory
contract. The law on guaranty is applicable to surety to some extent Manila Surety and Fidelity Co.
v. Baxter Construction & Co., 53 O.G. 8836; and, Arran v. Manila Fidelity & Surety Co., 53 O.G.
7247.
We find merit in this contention.
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 enforces if not valid. So, even if, as in this case, the agreement was for a
continuing suretyship to include obligations enumerated in paragraph 2 of 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 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. (Emphasis supplied).
Xxx xxx xxx
SC: We consider that the Court of Appeals here was in serious error. It is true that a serious
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." This legal proposition is not, however, like
most legal principles, to be read in an absolute and literal manner and carried to the limit of
its logic. This is clear from Article 2052 of the Civil Code itself:
Art. 2052. A guaranty 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 guaranty a natural obligation." (Emphasis supplied).
Moreover, Article 2053 of the Civil Code states:
Art. 2053. 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. (Emphasis supplied)
The Court of Appeals apparently overlooked our caselaw interpreting Articles 2052 and 2053 of the
Civil Code. 
National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc. case: 
In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc., the
private respondents assailed the decision of the trial court holding them liable under certain surety
bonds filed by private respondent Fojas and issued by private respondent Alto Surety Co. in favor of
petitioner NARIC, upon the ground that those surety bonds were null and void "there being no
principal obligation to be secured by said bonds." In affirming the decision of the trial court, this
Court, speaking through Mr. Justice J.B.L. Reyes, made short shrift of the private respondents'
doctrinaire argument:
Under his third assignment of error, appellant Fojas questions the validity of the additional
bonds (Exhs. D and D-1) on the theory that when they were executed, the principal obligation
referred to in said bonds had not yet been entered into, as no copy thereof was attached to the
deeds of suretyship. This defense is untenable, because in its complaint the NARIC averred, and the
appellant did not deny that these bonds were posted to secure the additional credit that Fojas has
applied for, and the credit increase over his original contract was sufficient consideration for the
bonds. That the latter were signed and filed before the additional credit was extended by the NARIC
is no ground for complaint. Article 1825 of the Civil Code of 1889, in force in 1948, expressly
recognized that "a guaranty may also be given as security for future debts the amount of which is not
yet known." (Emphasis supplied)
Rizal Commercial Banking Corporation v. Arro case:
In Rizal Commercial Banking Corporation v. Arro, the Court was confronted again with the same
issue, that is, whether private respondent was liable to pay a promissory note dated 29 April 1977
executed by the principal debtor in the light of the provisions of a comprehensive surety agreement
which petitioner bank and the private respondent had earlier entered into on 19 October 1976. Under
the comprehensive surety agreement, the private respondents had bound themselves as solidary
debtors of the Diacor Corporation not only in respect of existing obligations but also in respect of
future ones. In holding private respondent surety (Residoro Chua) liable under the comprehensive
surety agreement, the Court said:
The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one, which, in this case
is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner
bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily
to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be
clearly seen that the surety agreement was executed to guarantee future debts which Daicor may
incur with petitioner, as is legally allowable under the Civil Code. Thus —
Article 2053. — A guarantee 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. (Emphasis supplied)
13
It is clear to us that the Rizal Commercial Banking Corporation and the NARIC cases rejected
the distinction which the Court of Appeals in the case at bar sought to make with respect to
Article 2053, that is, that the "future debts" referred to in that Article relate to "debts already
existing at the time of the constitution of the agreement but the amount [of which] is
unknown," and not to debts not yet incurred and existing at that time. Of course, a surety is
not bound under any particular principal obligation until that principal obligation is born. But
there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement
itself is valid and binding even before the principal obligation intended to be secured thereby
is born, any more that there would be in saying that obligations which are subject to a
condition precedent are valid and binding before the occurrence of the condition precedent.
Comprehensive or continuing surety agreements are in fact quite common place 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 surety 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.
2nd Issue:  of the receivables before the maturity thereof. In other words, Sanyu Chemical received from
Sanyu Chemical: contended 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. In submitting this contention, Sanyu Chemical relied on Article 1629 of the Civil Code which
reads as follows:
Art. 1629. 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 maturity.
Once more, the Court of Appeals upheld the contention of private respondents and held that
Sanyu Chemical was free from liability under the Deed of Assignment. The Court of Appeals
said:
. . . Article 1629 provides for the duration of assignor's warranty of debtor's solvency depending on whether there
was a period agreed upon for the existence of such warranty, analyzing the law thus:
(1) if there is a period (or length of time) agreed upon, then for such period;
(2) if no period (or length of time) was agreed upon, then:
(a) one year from assignment — if debt was due at the time of the assignment
(b) one year from maturity — if debt was not yet due at the time of the assignment..
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 on
November 27, 1981 when the Deed of Assignment was executed. The oldest debt then existing was that
contracted on November 3, 1981 and the latest was contracted on December 4, 1981.
Each of the invoices assigned to the assignee contained a term of 30 days (Exhibits B-3-A to 5 and extended by
the notation which appeared in the "Schedule of Assigned Receivables" which states that the ". . . the terms stated
on our invoices were normally extended up to a period of 120 days
. . ." (Exhibit B-2). Considering the terms in the invoices plus the ordinary practice of the company, thus, the
assigned debts matured between April 3, 1982 to May 4, 1982. The assignor's warranty for debtor's warranty, in
this case, would then be from the maturity period up to April 3, 1983 or May 4, 1983 to cover all of the receivables
in the invoices.
The letter of demand executed by appellee was dated August 29, 1983 (Exhibit D) and the complaint was filed on
January 13, 1984. Both dates were beyond the warranty period.
• Tañedo v. Allied Banking Corp., G.R. No. 136603, January 18, 2002 - MARKO
In effect, therefore, company-appellant was right when it claimed that appellee had no cause of action against it or
had lost its cause of
action. (Emphasis supplied)
15
Xxx xxx xxx
Once again, however, we consider that the Court of Appeals was in reversible error in so concluding.
The relevant provision of the Deed of Assignment may be quoted again in this connection:
2. To induce the ASSIGNEE [Atok Finance] to purchase the above contracts, the ASSIGNOR
[Sanyu Chemical] does hereby certify, warrant and represent that . . .
14 (g) the debtor/s under the assigned contract/s are solvent and his/its/their failure to pay the assigned
contract/s and/or any installment thereon upon maturity thereof shall be conclusively considered as
a violation of this warranty; and . . .
The foregoing warranties and representations are in addition to those provided for in the Negotiable
Instruments Law and other applicable laws. Any violation thereof shall render the ASSIGNOR
immediately and unconditionally liable to pay the ASSIGNEE jointly and severally with the debtors
under the assigned contracts, the amounts due thereon.
xxx xxx xxx(Emphasis supplied)
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
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 invoked by private respondents and accepted by the Court of
Appeals is not, in the case at bar, 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 (ex Article 1629) but rather ex contractu. Under the Deed of Assignment, the effect of
non-payment by the original trade debtors was 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. And because assignor Sanyu Chemical became, under the terms of the Deed of
Assignment, solidary obligor under each of the assigned receivables, the other private
respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became solidarily
liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing
Suretyship Agreement. Put a little differently, 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.
We also agree with the Court of Appeals that the original obligors under the receivables assigned to
Atok Finance remain liable under the terms of such receivables.