Lim v.
Security Bank A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an
Visayan Surety v CA
JN Dev’t Corp v. Phil Export
South City Homes v BA Finance
obligation or undertaking in favor of another party, called the obligee.  Although the contract of a surety is secondary only to a valid principal obligation, the surety
becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.
The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of
the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal.
Thus, suretyship arises upon the solidary binding of a person deemed the surety  with the principal debtor for the purpose of fulfilling an obligation. A surety is
considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable.
Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company
which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series
of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety  contract or bond for each financing or
credit accommodation extended to the principal debtor.
It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person. 15 Contracts take effect between
the parties, their assigns, and heirs, except in cases where the rights and obliga tions arising from the contract are not transmissible by their nature, or by stipulation or
by provision of law. 16cräläwvirtualibräry
A contract of surety is an agreement where a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or
undertaking in favor of a third person called the obligee. 17 Specifically, suretyship is a contractual relation resulting from an agreement whereby one person, the
surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. 18cräläwvirtualibräry
The obligation of a surety cannot be extended by implication beyond its specified limits. 19 When a surety executes a bond, it does not guarantee that the plaintiffs
cause of action is meritorious, and that it will be responsible for all the costs that may be adjudicated against its principal in case the action fails. The extent of a
suretys liability is determined only by the clause of the contract of suretyship. 20 A contract of surety is not presumed; it cannot extend to more than what is
stipulated. 21cräläwvirtualibräry
Since the obligation of the surety cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor when the relationship and
obligation of the surety is limited to the defendants specified in the contract of surety.
Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of action was premised on its payment of JN’s obligation after the latter’s
default. PhilGuarantee was well within its rights to demand reimbursement for such payment made, regardless of whether the creditor, TRB, was subsequently able to
obtain payment from JN. If double payment was indeed made, then it is JN which should go after TRB, and not PhilGuarantee. Petitioners have no one to blame but
themselves, having allowed the foreclosure of the property for the full value of the loan despite knowledge of PhilGuarantee’s payment to TRB. Having been aware of
such payment, they should have opposed the foreclosure, or at the very least, filed a supplemental pleading with the trial court informing the same of the foreclosure
sale.
Article 2053 of the Civil Code provides that:
"Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known. 
"x x x 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 than
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 commonplace in present day financial and commercial practice. A bank or financing company which
anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety
agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its
creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to

Palmares v CA
Willex Plastic Industry v CA
PNB v CA
Finman General Assurance v Salik
the principal debtor."
Promissory Note Co-Maker
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title Iof this Book shall be observed. In such case the contract is
called a suretyship. a surety is bound equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the beginning. This is
because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. In essence, the contract of a surety starts with
the agreement, which is precisely the situation obtaining in this case before the Court.It is a cardinal rule in the interpretation of contracts that if the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. In the case at bar, petitioner expressly
bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that
petitioner'sliability is that of a surety.
On the issue of Willex‘s limited liability to sums obtained by Inter-Resin from Interbank only---- the ―Continuing Guaranty‖ was clearly executed to secure payment
to Interbank of amounts paid by IUCP. Besides, there was no another transaction involved than that. On the argument that since Willex is not a party to the Continuing
Surety Agreement or to the loan agreement, any obligation it may have from the Continuing Guaranty is legally inexistent---- the consideration to support a surety
obligation need not pass directly to the surety, a consideration moving to the principal alone is sufficient. A guarantor or a surety is bound by the
Security Transactions (Atty. Lerma): Case Digests Beron, Calinisan, Fernandez, del Socorro, Delgado, Legaspi, Lopez, Mendiola, Rivas, Sarenas 2C 2005 same
consideration that makes the contract effective between the principal parties. It is never necessary that a guarantor or surety should receive any part or benefit, if such
there be, accruing to his principal. On the argument that the guaranty cannot be applied retroactively so as to cover the surety agreements----the intention of the parties
prove that any sum obtained by Inter-Resin from Interbank is necessarily covered.
It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligations of the surety cannot be extended
by implication beyond its specified limits.
Article 1827 of the Civil Code so discloses (Uy Aloc vs. Cho Jan Ling, 27 Phil. Rep., 427); and with this doctrine the common law is accordant. As was said by Justice
Story in Miller vs. Stewart (9 Wheat. 680; 6 L. ed., 189):
Nothing can be clearer, both upon principles and authority, than the doctrine that the liability of a surety is not to be extended, by implication, beyond the terms of his
contract. To the extent and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther.
Besides, even if there had been any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety. As concretely put in
Article 2055 of the Civil Code, "A guaranty is not presumed, it must be expressed and cannot extend to more than what is stipulated therein."
In the recent case of Umali, et al. vs. Court of Appeals, et al.,21 We reiterated the unrippled rule that the liability of the surety is measured by the terms of the contract,
and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms.
Petitioner alleges that the POEA has no authority under its own Rules and Regulations to implead the surety of any recruitment or placement agency in actions and/or
complaints for suspension, cancellation or revocation of license or authority of the latter: that, on the contrary, the authority of the POEA is limited to a determination
of whether there is sufficient cause for an action upon the agency’s license; that POEA’s jurisdiction to hear and decide money claims is confined to employer-
employee relations arising out of, or by virtue of, any law or contract, and not money claims arising from pre-employment or during recruitment conducted by the
respondent agency; and finally, that if ever the surety bond may be held liable for infractions or violations of the Labor Code and POEA rules and regulations, it shall
be answerable only for the sanctions, penalties or fines imposed upon the agency but definitely not for money claims of applicants not arising from employment
contracts.
The petition for certiorari is without merit. The POEA Administrator did not exceed his jurisdiction nor act with grave abuse of discretion in impleading FINMAN as
a co-respondent in (L) RRB Case No. 88-03-474 and directing it to pay jointly and severally with Pan Pacific the claims of the private respondents, Galiza and
Bumanglag, on the basis of the surety bond it issued for Pan Pacific. Said surety bond guarantees the faithful compliance by Pan Pacific of all laws relating to the use

Towers Assurance v Ororama
Supermart
CCC Insurance Corp v Kawasaki
of its license and its recruitment activities. The bond is conditioned upon the true and faithful performance and observance by Pan Pacific of its duties and obligations
as a licensed placement agency (Art. 31, Title I, Book One, Labor Code of the Phils.). Accordingly, the nature of FINMAN’s obligation under the suretyship
agreement makes it privy to the proceedings against its principal, Pan Pacific. FINMAN is bound by a judgment against its principal even though it was not a party to
the proceedings, for a surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and
their liabilities are interwoven as to be inseparable (PNB v. Hon. Pineda, 197 SCRA 1, citing Lirag Textile Mills, Inc. v. SSS, 153 SCRA 338 and Gov’t. of the Phil. v.
Tizon, 20 SCRA 1187; Finman General Assurance Corporation v. Salik, 188
Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1) that execution be first issued against the
principal debtor and that such execution was returned unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the satisfaction of the
judgment, and (3) that the surety be given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond.
The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a solidary liability for the satisfaction of the
judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor (Art. 2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May 15,
1969, 28 SCRA 58, 63).
But certainly, the surety is entitled to be heard before an execution can be issued against him since he is not a party in the case involving his principal. Notice and
hearing constitute the essence of procedural due process. (Martinez vs. Villacete 116 Phil. 326; Insurance & Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192, 1200,
Luzon Surety Co., Inc. vs. Beson, L-26865-66, January 30. 1970. 31 SCRA 313).
There is no basis for the interpretation by CCCIC of the word "counter-guarantee" in Article 10 of the Consortium Agreement. The first paragraph of Article 10 of the
Consortium Agreement provides that Kawasaki, as the Consortium Leader, shall arrange, at its own cost but on behalf of the Kawasaki-FFMCCI Consortium, for all
necessary bonds and guarantees under the Construction Contract with the Republic. The same paragraph requires, in turn, that FFMCCI, at its own cost, to furnish
Kawasaki with suitable counter-guarantees for the repayment by FFMCCI for the advance payment from Kawasaki and performance by FFMCCI of its portion of
work in the Project. Clearly, the "guarantees" and "counter-guarantees" were securities for the fulfillment of the obligations of the Kawasaki-FFMCCI Consortium to
the Republic under the Construction Contract and of FFMCCI to the Consortium Leader Kawasaki under the Consortium Agreement, respectively. The CCCIC Surety
and Performance Bonds were not counter-guarantees to the PCIB Letter of Credit. In fact, in the event that the Republic did make a claim on the PCIB Letter of Credit,
the second paragraph of Article 10 of the Consortium Agreement stipulates
that Kawasaki and FFMCCI would still have to determine their respective
responsibilities, reimbursements, and/or compensations according to the provisions of the Consortium Agreement, instead of simply allowing Kawasaki to recover on
the "counter-guarantees" of FFMCCI.
As provided in Article 204 7, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract
as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes
liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. Let it be stressed
that notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.