Facts Ruling

Machetti vs. Hospicio De Machetti agreed to contruct a building for Hospicio for Is Fidelity answerable to Hospicio as Guaranty of
San Jose 64,000. One of the conditions was to obtain a Machetti?
“guarantee” with the Fidelity and Surety Company of
the Philippine Island. Fidelity having bound itself to pay only the event its
principal, cannot pay it follows that it cannot be
The contract read as: “For value received we hereby compelled to pay until it is shown that Machetti is
guarantee compliance with the terms and conditions as unable to pay. In this case, it appears that the contract
outlined in the above contract” is the guarantor's separate undertaking in which the
principal does not join, that its rest on a separate
Construction was complied but it was later found out consideration moving from the principal and that
that the work was not carried in accordance with the although it is written in continuation of the contract for
specifications. the construction of the building, it is a collateral
undertaking separate and distinct from the latter.
Hospicio filed for damages for the noncompliance of
Machetti. Machetti declared insolvency.
Phil Export vs. Eusebio Respondent entered into a contract with SOB for Guaranty – a guarantor binds himself to the creditor to
construction of Thereapy building. The project was fulfill the obligation of the principal debtor in case the
delayed. latter should fail to do so.

Suretyship – a person binds himself solidarily with the

Manila Railroad vs. CFI sentenced Manila Railroad Co. and Manila Ports
Alvenidia to pay Bataan Refining Corporation. The MPS filed
notice of appeal accompanied by an appeal bond.
The appeal bond was executed by MPS signed by the
manager and Standard Insurance as surety signed by
the vice-president, noticing this, the Trial Court
rejected the record on appeal.
principal debtor.
Should the appeal be accepted?
No. There is no principal debtor in the appeal bond in
this case, hence, the it is void and enforceable.
There was no showing that the MRC authorized the
MPS to file the appeal.

It is contended by MRC that the MPS, being a mere

subsidiary or department of MRC, without legal
personaility, the bond filed should be a bond for MRC
 and the appeal should have been given due course.
IFC vs Imperial Textile IFC extended to PPIC a loan of 7,000,000.00 dollars
payable in sixteen semi-annual installments. A
“Guarantee Agreement” was executed with Imperial
Textile Mills (ITM). ITM agreed to guarantee PPIC's
obligation under the loan agreement. PPIC, despite
rescheduling of the installment payments, defaulted.
IFC demanded ITM, as guarantors, to pay the
oustanding balance.
Severino vs. Severino A litigation ensued between the heirs of the deceased
Severino. This was caused by a compromise effected
by which a son of the deceased took over the property
pertaining to the estate of the deaceased at the same
time agreeing to pay 100,00 to the widow of the
deceased.
The son failed to pay the balance, hence the widow
instuted an action against the son and another person.
The latter contended that he received nothing for
affixing his signature as guarantor
Lee vs. CA
Deguzman vs. Santos Toole, Abad and Anastasio formed a general mercantile Whether or not the Defendant is bound to pay
partnership – the Philippine American Constrution
Company- - with a capital of 14,000.
The 10,000 was a loan taken from Candelaria which
the partnership and co-partners undertook and bound
themselves to pay jointly and severally. Candelaria
Is ITM a surety? Is he solidarily liable with PPIC
for the payment of the loan?
ITM is a surety. 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 primary obligor,
not a mere surety. Those stipulations meant only on
thing: that at bottom, and all legal intents and
purposes, it was a surety.
Is there consideration for the guaranty?
It is neither necessary that the guarantor or surety
should receive any part of the benefit, if such there be
accruing to his principal.
Whether or not the individual petitioners, as
sureties, may be held liable under the two (2)
Surety Agreements.
Plaintiff what he had advance to Paulino.
Yes. Any person who makes a payment for the account
of another may recover from the debtor the amount of
the payment, unless it was made against the express
will of the latter. In the latter case, he can only recover
 filed an action for recovery because of the loan. from the debtor in so far as the payment has been
beneficial to the latter.
Judgment was rendered against the partnership to
which a writ of attachment against the partners was
issued. Due to this, the partneship offered to post a
bond of 10,000.

Because there was no properties due to the judgment

debtors, Candelaria moved for the issuance against the
guarantors of the Defendant. Carlos, the guarantor, the
paid Candelaria and were able to recover from Abad
the sum of 3,800.

It appears that the payment made by the plaintiff was

reduced to the sum of 3665.00. The Plaintiff now
demands from Anastacio Santos the return of the
aforesaid sum but Anastacio refused.

Municipality of Gasan vs, Whether or not the respondents are liable?

Marasingan
Smithe Bell vs. PNB Harden applied to Smith to buy 8 Anderson Expellers
end drive, latest model, for the price of 80,000 to be
paid on delivery. It was understood that these expellers
would be manufactured in the US and delivery would
be in the month of February or March ensuing year.
In order to assure the prompt payment of the price
upon delivery, an arrangement was made between
Harden and PNB whereby the latter bound itself to
Smith, Bell & Co. for the payment of the contract
price, but provided the expellers would be delivered to
The contract was not consummated but canceled.
Hence, it ceased to be valid when it was canceled. A
suretyship cannot exist without a valid obligation.
Is PNB subsidirily liable?
No. The liability of the PNB is primary in nature. The
contract by which the Bank obligated itself is both in
form and effect an independent undertaking on the part
of the Bank directly to the Plaintiff; and inasmuch as
the Plaintiff had compiled, or offered to comply, with
the terms of said contract, the Bank is bound by its
promise to pay the purchase price.
 them and must be new and in first class working order.

Shortly after the contract, Harden requested the change

from end-drive to side-drive. When the exprellers
arrived, Harden advised the Bank that the expellers
were not as ordered. The bank then refused payments.
Wise and Co. vs. Kelly Kelly bought goods on credit with Wise and Co, Lim, Is Lim Liable?
acted as the surety for Kelly. The arrangement is that
Kelly will apply the proceeds of its sale to discharge of No. Lim, as surety, did not undertake to pay the
his indebtedness. principal amount due. His agreement was limited to
respond for the performance by Kelly of one of the
It has been alleged by Wise and Co. that Kelly failed to accessory pacts, namely the undertaking to deliver to
pay any money in relation to the credit. Lim was also Wise the total proceeds of the sales of the merchandise
filed in the collection suit. for the invoice value of which the promissory note was
given.
RCBC vs. ARRO Chuan and Go executed comprehensive surety Are the guarantor's liable to pay the obligation
agreements to guaranty, among others any existing evidenced by the promissory note?
debt of Davao Agricultural Industries Corporation,
provided that the liability shall not exceed at any one Yes, the agreement was executed obviously to induce
time the aggregate of 100,000. \ petitioner to grant any application for a loan DAICOR
may desire to obtain from the petitioner bank.
A promissory was issued in favor of RCBC, signed by
Go in behalf of Davao Agricultural Industries The surety agreement which was earlier signed by
Corporation. This was not fully paid. Hence, an action Enrique Go, Sr. and private respondent, is an accessory
for collection was filed. obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Daicor as
Respondent court stated that corollaly to the agreement evidenced by a promissory note.
must be another instrument evidencing the obligation
in a form of a promissory note or any other evidence of
indebtedness without which the said agreement serves
no purpose; that since the promissory notes, which
primarily the baisi of the cause of action of petitioner,
is not signed by private respondent, the latter can not
be liable thereon.
Willex Plastic vs. CA Inter Resin opened a Letter of Credit with Manila
Banking Corporation with security of “Continuing
Surety Agreement” signed by Inter Resin and
Investment and Underwriting Corporation wherein
they bound themselves solidarily.
Willex can be held liable?
Yes. Although a contract of suretyship is ordinarily not
contrued retrospective, in the end the intention of the
parties as revealed by the evidence is controlling.

Later, another continuing guaranty in favor of IUCP

was signed by Inter Resin with Wilex. IUCP then
demanded payment of the amount of the payment.

Wilex Plastic contends that they are not to be liable

because they are mere guarantors.
Traders Insurance vs. Dy Dy acted as the provincial sales agent of Destilleria The CFI's decision is correct.
Lim Tuaco & Co. Inc. Dy has a total running account In essence therefore debts covered by a guaranty are
in the sum of 12,898.61. In relation to this a surety deemed more onerous to the debtor than the simple
bond was executed with Dy as the principal and obligations because, in their case, the debtor may be
Traders Insurance as the solidary guarantor; whereby subjected to action not only by the creditor, but also by
they bound themselves, jointly and severally. the guarantor, and this even before the guaranteed debt
is paid by the guarantor; hence, the payment of the
Dy, as principal, with Dee and Dy-Liacco as guaranteed debt liberates the debtor from liability to
counterboundsmen subscribed an indemnity agreement the creditor as well as to the guarantor, while payment
in favor of appellant Surety Company, in consideration of the unsecured obligation only discharges him from
of its surety bond. Thereafter, Dy contracted possible action by only one party, the unsecured
obligations in favor of the Destilleria in the amount of creditor.
41,449.93. Dy remitted the same amount. Thus, payment voluntarily made by appellant was
improper since it was not liable under its bond;
Distilleria then, however, applied the said remittances consequently, it can not demand reimbursement from
to the previous debts of Dy. Then demanded payments the counterbondsmen but only from Dy.
of the remainder from DY and latter the Surety
Company, who paid 10,000 without questioning the
demand.

CFI absolved the counter-guarantors (Dee and Dy-

Liacco) stating that he theory that in so far as they are
concerned, the payments made by Dy from August 4,
 1951 to August 3, 1952, should have been applied to
his obligations during that period, which were the ones
covered by the surety bond and the counter-guaranty;
and since these obligations only amounted to
P41,449.93, the payments exceeding the obligations,
the CFI concluded that the Surety Company incurred
no liability and the counterbondsmen in turn had
nothing to answer for.
Socony vs. Cho siong. Cho Siong entered into contract of agency for Under the terms of the bond signed by the surety, he
distribution of petroleum products, assumed liability of did not answer for the principal obligor save for the
former agent Tong Kuan. His agency bond was secured Latter’s acts by virtue of the contract of agency. He
by Ong Guan Can. Defaulted in the amount of P64.00 cannot be held liable for the debt of a former agent,
which the principal obligor assumed by virtue of
another contract, of which said surety was not even
aware. A contract of suretyship is to be strictly
interpreted and is not to be extended beyond its terms.
Garon vs Project Movers Project Movers obtained a loan from Garon, covered Whether or not Stronghold is liable?
by a Promissory Note with stipulated interest of 36%
per annum. To Secure payment of the loan, PMRDC Yes, the surety is liable in general.
undertook to assign to Garon its leasehold rights over a Suretyship arises upon the solidary binding of a person
space in Monumento. with the principal debtor, for the purpose of fulfilling
an obligation. A surety is considered in law as being
The parties stipulated that failure to pay the note or any the same party as the debtor in relation to whatever is
portion thereof, or any interest thereon, shall constitute adjudged as touching the obligation of the latter and
as default and the entire obligation shall become due their liabilities are interwoven as to be inseparable.
and demandable without need of demand. Although a surety contract is secondary to the
principal obligation, the liability of the surety is direct,
Another loan was obtained with Garon by the PMRDC primary and absolute or equivalent to that of a regular
to which they issued another promissory and assigned party to the undertaking.
leasehold rights to another space in Monumento.

A surety bond with Stronghold Insurance was procured

by PMRDC to secure the obligations with Garon.
Garon, upon delay of PMRDC, then filed a collection
 suit against PMRDC and the surety. Stronghold
contends that the action was premature.
Republic vs. PAL-Fox Pal-Fox Lumber Co., Inc. was indebted to the Bureau Should Far Eastern pay interest?
Lumbers of Internal Revenue for forest charges and surcharges
amounting to P11,851.56, and that the Far Eastern Yes. Article 2055, paragraph 2, of the Civil Code of
Surety & Insurance Co., Inc. was jointly and severally the Philippines is clearly applicable.
liable with the lumber company for the payment of If it (the guaranty) be simple or indefinite, it shall
said forest charges up to P5,000.00. Republic moved comprise not only the principal obligation but also all
for reconsideration, pointing out that the surety its accessories, including judicial costs.
company's correct liability under the appealed decision
was P5,000.00 plus legal interest from the filing of the
complaint. In other words, the Republic would want
the surety company to pay the legal interest adjudged
by the trial court before the case may finally be
considered dismissed. Far Eastern's denial of liability
for such interest is based on the stipulation in the bond
that it was bound to the plaintiff "in the sum of
P5,000.00."
Commonwealth vs. CA This case is about SIGS and ELBA borrowing money Should Commonwealth be liable to pay principal
from RCBC worth P4m. Commonwealth being the and interest?
surety. SIGS and ELBA defaulted so RCBC went after
Commonwealth. Commonwealth insists on not paying. Obviously, Commonwealth is obliged to pay the
Lower Court ruled in favor of RCBC and ordered principal being the surety. Regarding the interest,
Commonwealth to pay the principal debt plus interest. generally no. However because Commonwealth
Commonwealth refused. Commonwealth appealed to refused to pay the principal when the lower court
CA and questions the ruling of the lower court ordered it to do so, it is now bound to pay the interest.
awarding interest. (focus on interest)
NAMARCO vs. Marquez Marquez secured from the PRATRA, later Whether a Surety's liable can exceed the sum of
NAMARCO, one tractor and one rice thresher with a 12,000.
total value of 20,000 for which the said defendant paid
thereon the sum of 8,000 down payment and the Yes.
balance to be paid in installment.
The contract of guaranty executed by the appellant
To guarantee full compliance, Marquez executed a Company nowhere excludes this interest, and Article
Guaranty Bond with Plaridel Surety & Insurance 2055, paragraph 2, of the Civil Code of the Philippines
Company as surety. In this guaranty bond, the surety is clearly applicable.
expressly waives its right to demand payment and If it (the guaranty) be simple or indefinite, it
notice of non-payment and agrees that the liabilities of shall comprise not only the principal obligation but
this guaranty shall be direct and immediate and not also all its accessories, including judicial costs,
contingent upon the exhaustion by the PRATRA of provided with respect to the latter, that the
whatever remedies it may have against the principal, guarantor shall only be liable for those costs
and that the same shall be valid and continuous until incurred after he has been judicially required to
the obligation so guaranteed is paid in full. pay.
Compensated sureties are not entitled to have their
Marquez defaulted payments. To which the petitioner contracts interrupted strictissimi juris in their favor
filed a collection suit against Marquez and Plaridel.
Vizconde vs. IAC Vizconde was called by a certain Perlas to sell, in her Is Vizconde and agent of Perlas or a mere
behalf, a diamond ring for commission of 85,000. guarantor of Pagulayan?
Vizconde returned the ring but called Perlas afterwards
because there was a sure buyer for the ring, a certain Mere gurantor.
Pilar Pagulayan. To this a post-dated check was given Nothing in the language of the receipt, Exh A, or in the
by Pagulayan. proven circumstances attending its execution can
logically be considered as evidencing the creation of
The check was, however, dishonoured. Upon of the an agency between Perlas, as principal, and Vizconde
dishonorment, Pagulayan paid Perlas 5,000 and gave 3 as agent, for the sale of the former’s ring.
Certificate of Title to guarantee delivery of the balance If any agency was established, it was one between
of such value. Perlas filed a complaint for estafa Perlas and Pagulayan only, this being the logical
against Pagulayan and Vizonde. conclusion from the use of the singular “I” in said
clause, in conjunction with the fact that the part of the
receipt in which the clause appears bears only the
signature of Pagulayan.
Estate of Hemady vs. The Luzon Surety Co. had filed a claim against the
Luzon Surety Estate based on twenty different agreements.
The Luzon Surety Co., prayed for allowance, as a
contingent claim, of the value of the twenty bonds it
had executed in consideration of the counterbonds, and
further asked for judgment for the unpaid premiums
and documentary stamps affixed to the bonds, with 12
per cent interest thereon.
Wise & Co. vs. Tanglao Wise filed a collection suit against David, a former
agent of Wise & Co., for the amount of a liquitation of
accounts showing that he was indebted in said amount.
In the case, Wise obtained a preliminary attachment of
David's property.
To avoid execution of the said attachment, David
succeeded in having Tanglao sign a power of attorney
in his favor with a clause - “To sign as guarantor for
himself in his indebtedness to Wise & Co. of Manila
and to mortgage the Attorney's Lot”.
After this, David made a compromise using the lot as a
guaranty for the balance.
Does the obligation of the guarantor terminate
upon the death of the principal?
No.
Under the present Civil Code (Article 1311), as well as
under the Civil Code of 1889 (Article 1257), the rule is
that —
“Contracts take effect only as between the parties, their
assigns and heirs, except in the case where the rights
and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law.”
Under our law, therefore, the general rule is that a
party’s contractual rights and obligations are
transmissible to the successors.
Exceptions:
1. Stipulation
2. Operation of Law
3. Nature
Is Atty. Tanglao liable?
No. The only obligation which the Compromise
Agreement, in connection with POA, has created on
the part of Tanglao, is that resulting from the mortgage
of a property belonging to him to secure the payment
of said P640. However, a foreclosure suit is not
instituted in this case against Tanglao, but a purely
personal action for the recovery of the amount still
owed by David.
Southern Motors vs. Defendant Barbosa executed a real estate mortgage for Although an ordinary personal guarantor – not a
Barbosa the only purpose of guaranteeing – as surety and/or mortgagor or pledgor – may demand exhaustion of the
guarantor – the payment of the debt of one Alfredo properties of the principal debtor, the creditor may,
Brillantes in favor of Southern Motors, Inc. due to the prior thereto, secure judgment against said guarantor,
failure of Brillantes to settle his obligation; plaintiff who shall be entitled, however, to a deferment of the
filed an action against defendant to foreclose the real execution of said judgment against him until after the
estate mortgage. Defendant filed an answer alleging properties of the principal debtor shall have been
that the plaintiff has no right of action against him exhausted to satisfy the obligation involved in the case.
because the plaintiff did not intent to exhaust all
recourses to collect from the true debtor (Brillantes),
notwithstanding the fact that the latter is solvent and
has many properties within the Province of Iloilo.
Saavedra vs. Price
Arroyo vs. Jungsay Arroyo is the appointed guardian of an imbecile, while Whether or not the bondsmen are liable?
Jungsay are the previous guardian and bondsmen who
absonded with funds of his ward. Yes. For the surety to be not liable, he must be able to
point out property of the principal debtor which are
The Lower Court ordered the Defendant to pay the realizable and is situated within the Philippines – to
petitioner, which the bondsmen appealed. Defendants insure the fulfillment of the obligation and furnish the
also pointed out properties of the previous guardian creditor with the means of obtaining its fulfillment
which are now being adversely claimed by the 3rd without delay
parties.
Bitanga vs Pyramid
Ong vs. PCIB Cho Siong entered into contract of agency for Under the terms of the bond signed by the surety, he
distribution of petroleum products, assumed liability of did not answer for the principal obligor save for the
former agent Tong Kuan. His agency bond was secured Latter’s acts by virtue of the contract of agency. He
by Ong Guan Can. Defaulted in the amount of P64.00 cannot be held liable for the debt of a former agent,
which the principal obligor assumed by virtue of
another contract, of which said surety was not even
aware. A contract of suretyship is to be strictly
interpreted and is not to be extended beyond its terms.
Mira Hermanos vs. Manila Mira Hermanos agreed to deliver to Manila Should MCS pay for the balance?
Tobacconists Tobacconists merchandise for consignment. Mira No. the bond of 3,000 filed by PI responded for the
 Hermanos required that Manila Tobacconist a bond to
which was executed by Provident Insurance.
The delivered merchandise amounted to more than
3,000 in value. Mira Hermanos required Manila
Tobbaconist with the Manila Compania de Seguros.
obligation of MT up to the some of 3,000, inasmuch as
the bond of 2,000 filed by MCS responded for the
obligation of MT only insofar as it might exceed 3,000
and up to 5,000.

After liquidation, a balance was due from Manila

Tobacconist for the amount of 2,200. Provident
Insurance only paid 1,300 alleging that the remainining
should be paid by Manila Compania de Seguros.
Cacho vs. Valles On October 29, 1920, the National Sporting Club, of Should one of the sureties become insolvent, can the
Manila, obligated itself by a promissory note payable others be made to pay the entire debt?
at four months to pay to Jose Ma. Cacho. Below the
signature of said National Sporting Club, as signed by None of the sureties, so far as this record shows, has
the proper officers of the Club, the following personal been declared bankrupt. The benefit of division
guaranty was written: "We guarantee this obligation." therefore has not been lost, and the rule declaring each
(Sgd.) J. A. Valles, J. L. Mateu, G. J. Heffting, Ed. surety liable only for his aliquot part of the guaranteed
Chesley, Baldomero Roxas. This note was not paid at debt, must hold. The obligation of the surety cannot be
maturity. An action was instituted thereon against the extended beyond its specified limits. A co-surety is
National Sporting Club and the guarantors. Baldomero entitled to the benefit of division from the very
Roxas interposed a defence claiming the right of moment that he contracts the obligation, except where
division as among the co-sureties, and asking that in there is stipulation to the contrary.
case he should be found liable that he should be held
responsible only for his aliquot part of the debt.
Tuason vs. Machuca Universal Trading Company was going to withdraw Litigation expenses should not be bourne by the
goods from the Bureau of Customs to be delivered to guaranty.
BPI. To withdraw, they gave a bond executed by
Manila Compania de Seguros. That bond was secured
solidarily by Tuason Co. and Machuca of Universal
Trading. It was to be paid whether or not Manila
Compania already paid CIR. Manila Compania
demanded payment from Tuason. Manila Compania
filed a case against tuason. Tuason later payed but
 incurred litigation expenses. Tuason now demands
payment from Machuca. Tuason filed a case for
collection of money from Machuca. The lower court
ruled that Machuca should pay the debt and the
expenses incurred by Tuason in the case for collection
of money.
Autocorp vs. Intra Strata
Saenz vs. Yap Chuan