Case Digest in Guaranty and Suretyship

Guaranty and Suretyship (Articles 2047-2084) Chapter 1. Nature and Extent of Guaranty (Arts. 2047-2084) Piczon vs. Piczon Facts: Sosing-Lobos & Co. obtained loan from Piczon Co. Esteban Piczon (president of borrowing firm) bound himself as guarantor and agreed to the use of the loan as surety cash deposit for the registration with the SEC. Consuelo Piczon (lending firm) brought action to recover the amount loaned. Court ruled in favor of Consuelo Piczon and ordered Esteban Piczon and Sosing-Lobos to pay him as guarantor the amount of the loan + interest.

Issue: WON Esteban Piczon is a surety or a guarantor? Held: Under the terms of the contract Esteban Piczon expressly bound himself only as guarantor. A guaranty must express, and it would be violative violative of the law to consider a party to be bound as surety when the very word used in the agreement is guarantor. Palmares vs. CA (288 SCRA 422) Facts: Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, Azarraga, together with petitioner Estrella Palmares, Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. 1 On four occasions after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26, 1991. 2 Consequently, on the basis of petitioner's solidary liability under the promissory promissory note, respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter.

Issue: WON Palmares is liable Held: 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 is called a suretyship. 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. 13 In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety. Castellvi de Higgins & Higgins vs. Sellner Facts: Sellner (defendant) wrote a letter to Mcleod (Castellvi’s agent) saying that he would bound himself to pay the promissory note of Mining, Clarke and Maye amounting 10K + % if not fully paid at maturity, upon the surrender 8k worth of MCM’s stock which is held by Castellvi.

Issue: WON Sellner is a guarantor or surety? Held: Sellner is a GUARANTOR. Sellner was not bound with Castellvi by the same instrument executed at the time and the same consideration, but his responsibility was secondary, one founded on an independent collateral agreement. Neither was he jointly and severally liable with Castellvi. Reiss vs. Memije Facts: Memije entered into a contract with D (building contractor) for repair of a house. D has no credit line so Reiss refused to sell D lumber without an advance. Memije accompanied D and told Reiss that he would guarantee payment for lumber. The lumber extended by Reiss solely and exclusively to Memije was under a verbal agreement. Reiss brought an action for the purchase price of the lumber.

Issue: WON Memije is liable as guarantor or as original promisor? Held: Memije is primarily liable. It is evident that Memije used the words “gurantor” not in a technical sense but rather that after satisfying, Reiss as to his own financial responsibility. responsibility. If goods are sold upon the sole credit and responsibility of the party who makes the promise then, even though they are delivered to a 3 rd person, there is no liability to the 3rd person. Promise to pay need not require a writing or memorandum to be enforceable by action. Machetti vs. Hospicio de San Jose Facts: By a written agreement, Machetti undertook to construct a building for Hospicio de San Jose. One of the conditions was that Machetti obtain the guarantee of Fidelity & Surety Co. to the amount of 12K. It was subsequently found out that the work had not been carried out in accordance with the specifications. specifications. Hospicio refused to pay therefore Machetti brought an action to recover the amount.

Issue: WON the undertaking assumed by FSC that of guarantor or surety? Held: Circumstances Circumstances may be shown which convert the contract into one of suretyship but that does not exist. It appears that the contract is the guarantor’s separate undertaking in which the principal does not join, that it rests on a separate consideration moving from the principal, and that although it is

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written in continuation of the contract for the construction construction of the building, it is collateral undertaking separate and distinct from the latter. All these are features of a contract of guaranty.

Severino vs. Severino Facts: Melecio Severino upon his death, left considerable properties. To end litigation among heirs a compromise was effected effected where defendant (son of MS) took over the property of deceased and agreed to pay installment of 100K to plaintiff (wife of MS) payable first in 40K cash upon execution of document in 3 equal installments. Enrique Echauz became guarantor. Upon failure to pay the balance, plaintiff filed and action against the defendant and Echauz. Enchauz contends that he received nothing from affixing his signature in the document and the contract lacked the consideration as to him.

Issue: WON there is a consideration for the guaranty? Held: 1. The guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. 2. It is neither necessary that guarantor or surety should receive any part of the benefit, if such there be accruing to his principal. Municipaity of Gasan vs. Marasigan Facts: Municipality of Gasan granted Marasigan fishing privileges within the jurisdictional waters. To secure payment of license fees, Marasigan filed a bond subscribed by G and H who bound themselves to pay if Marasigan failed to comply with the terms of the contract. Contract was declared illegal by the Executive Bureau therefore the Municipality awarded the privilege to another person who failed to pay the deposit and yielded the privilege to Marasigan. The municipality told Marasigan that the contract was to be effective so the municipality sought to recover from Marasigan Marasigan and G and H, the amount representing the license.

Issue: WON the contract and bond are valid and enforceable? Held: No. Contract was not consummated and was cancelled. It ceased to be valid when it was cancelled so Marasigsan and G&H were not bound to comply with the terms of the contract. A guaranty cannot exist without a valid obligation. Plaridel Surety Insurance vs. Artex Development Co. Facts: Artex withdrew from the Bureau of Customs shipments of imported goods which were subject to customs duties and other taxes after posting surety bonds pursuant to RA 4086 because its applications for tax exemptions were not approved by the Board of Industries. In consideration of the obligation assumed by Plaridel, Artex agreed to pay the premiums and cost of documentary stamps in advance due on bonds for each period of 12 months until bonds and its renewals, extensions or substitutions be cancelled in full by the person or entity guaranteed or by court of competent jurisdiction. jurisdiction. Artex stopped paying premiums premiums and costs of documentary documentary stamps after it was granted granted tax exemption. Plaridel maintains that it renewed the surety bonds more or less 8 months before the tax exemption. Plaridel seeks recovery of renewal renewal of premiums on bonds which were already null and void upon grant of tax exemption to principal

Issue: WON Artex is liable for accrued premiums and costs of doc stamps on renewals of the surety bonds after grant of tax exemption to Plaridel? Held: No. Suretyship cannot exsist without valid obligation. The renewals were without consideration. Plaridel incurred no risk from Artex’ tax exemption application was approved. Any renewals were void from the beginning because the cause or object of said renewals did not exist at the time of the transtaction. Express stipulation by parties, surety bonds became null and void upon grant of tax exemption. Pacific Banking Corp. vs. IAC Facts: Cecilia Regala obtained from plaintiff the issuance and use of Pacific card credit card. Robert Regala Jr., spouse of Cecilia, executed a “Guarantor’s Undertaking” in favor of Pacific wherein the Regala Jr., agreed jointly and severally with Cecilia Regala, to pay Pacific upon demand and all indebtedness, obligations, charges or liabilities due and incurred by her. Cecilia was declared in default for failure to pay 92K within the reglementary period. Regala Jr. admitting the execution of the “Guarantor’s “Guarantor’s Understanding” but with the understanding that his liability would would be limited to 2K/month.

Issue: WON the Guarantor’s Understanding is a guaranty or suretyship? Held: It is in substance a contract of suretyship. A contract of guaranty is where a guarantor binds himself to pay only in case the latter should fail to do so; while a contract of suretyship, the surety binds himself solidarily with the principal debtor. Since Regala Jr. bound himself jointly and severally, severally, he is bound to pay the amount of indebtedness of his wife.



Issue: Held:

PNB vs. CA, Luzon Surety Co. Facts: Estanislao Depusoy, and the Republic of the Philippines, represented by the Director of Public Works, entered into a building contract, for the construction of the GSTS building at Arroceros Street, Manil Manila, a, Depus Depusoy oy to furni furnish sh all ma mater terial ials, s, labor, labor, plans, plans, and and suppli supplies es needed needed in the const construc ructio tion. n. Depusoy Depusoy applied for credit credit accommodatio accommodation n with with the plaintiff. plaintiff. This was approved approved by the Board Board of Directors in various resolutions subject to the conditions that he would assign all payments to be received from the Bureau of Public Works of the GSIS to the bank, furnish a surety bond, and the surety surety to deposit deposit P10,000 P10,000.00 .00 to the plaintif plaintiff. f. The total accommo accommodation dation granted to Depusoy Depusoy was P100,000.00. This was later extended by another P10,000.00 and P25,000.00, but in no case should the loan exceed exceed P100,00 P100,000.00 0.00.. In complian compliance ce with these conditions, conditions, Depusoy Depusoy executed a Deed of Assig Assignme nment nt of all mo money ney to be receiv received ed by him from from the GSIS to PNB. PNB. Depus Depusoy oy defau defaulted lted in his building contract with the Bureau of Public Works, and sometime in September, 1957, the Bureau of Public Works rescinded its contract with Dernisoy. No furher amounts were thereafter paid by the GSIS to lie plaintiff plaintiff bank. The amo amount unt of the loa loan n of Depusoy which remains remains unpaid, unpaid, includin including g interest interest,, is over P100,000.00. Demands for payment were made upon Depusoy and Luzon, and as no payment was made, therefore herein petitioner filed with the trial court a complaint against Estanislao Depusoy and private respondent Luzon Surety Co. Inc. (LSCI).

Issue: WON Luzon Surety is liable Held: the bonds executed by private respondent LSCI were to guarantee the faithful performance of Depusoy of his obligation under the Deed of Assignment and not to guarantee payment of the loans or the debt of Depusoy to petitioner to the extent of P100,000.00. 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 2056 of the Civil Code, "A guaranty is not presumed, it must be ex-pressed and cannot extend to more than what is stipulated therein." LSCI is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms." El Vencedor vs. Canlas Facts: An accounting between X company and D, its agent for the sale of merchandise, showed that D had failed to pay X for the merchandise of the value of 5K. X therefore refused to continue to furnish D merchandise for sale unless he gave a bond. Canlas bound himself as surety and guarantor to D to becom become e liable liable in case case of his inabil inability ity to pay damages damages.. It did not appear appear that at the time of the execution of the bond Canlas had knowledge of the fact that D was indebted to X in any sum. Canlas had no knowledge.

Issue: Should the bond respond for the debt contracted by D prior to execution? Held: No. Canlas was liable only for the value of goods furnished to D subsequent to the execution of the bond. A contract of suretyship or guaranty is ordinarily not retrospective and no liability attached for defaults occurring before it is entered into unless intent to be so liable is indicated either by express words or by necessary implication. implication. BPI vs. Forester Facts: The Board of directors of corporation X authorized its treasures to obtain for them a credit n current account for 100K from BPI. Credit was granted and X began to draw against it even before the formal document of the agreement for the said credit was issued. The accountant G gave a bond in his name as surety and agreed to be bound jointly and severally in the sum of 100K. The overdraft and interest amounted to 84,900. BPI was able to collect 43,100 as a result of an action brought against X. BPI receives 25,500 subsequently.

Issue: WON the bond covered the amounts from BPI prior to its date? Held: Yes. It is very true that bonds or other contracts of suretyship are ordinarily not to be construed retrospectively, but that rule must yield to the intention of the contracting parties as revealed by the evidence. evidence. In the present case, the circums circumstances tances clearly clearly indicated indicated that the bond given by G was intended to cover all of the indebtedness. Standard Oil Co. of NY vs. Cho Siong Facts: To guarantee the fulfillment of the obligation of D, as agent of X in the sale of the latter’s petrol petroleum eum produc products, ts, Cho Siong Siong subsc subscrib ribed ed to a perso personal nal bond bond in the sum sum of 3K. 3K. Cho Siong Siong also also subscribed the 3K bond and signed an instrument in favor of X in which he assumed responsibility for



Held: No. Under the terms of the bond, Cho Siong did not answer for D, save for the latter’s acts by virtue of the contract of agreement between D and X. A contract of suretyship or guaranty is to strictly interpreted and is not to be extended beyond its terms. Municipality of Lemery vs. Mendoza and Blas Facts: Municipality Municipality of Lemery granted fishing privileges to D for a period of 2 years for the sum of 23K for each year. Mendoza and Blas as bondsmen, executed a document which declared, among other thing, the lease by D of the privilege of fishing referred to for the term of 2 years. In said document, Mendoza and Blass obligated themselves jointly and severally to pay the sum of 46K in case D shall fail to comply with the conditions of the bond of which we are informed. D failed to pay.

Issue: WON Mendoza and Blas are bound to pay 46K or 23K Held: 23K. The obligating clause of the contract of guaranty is quite clear to the effect that the rent to be paid for the privilege of fishery was 23K 23K for the full term of 2 years. It is true that Mendoza and Blas declared 46K, but it was only because the bond was required to be made in double the amount of the principal liability as an assurance of the performance of the principal obligation. Wise and Co. vs. Kelly Facts: D purchased merchandise from C on credit and agreed that D would apply the proceeds of its sale to the discharge of his indebtedness in the amount of 13K the purchase price. Kelly as surety for D, undertook that D would pay over to C the entire proceeds from the sale of the merchandise.

Issue: Issue: WON WON Kelly Kelly is liable liable for the differe difference nce betwe between en the amount amount realiz realized ed from from the sale sale of the merchandise and the purchase price of the same? Held: No. Kelly did not undertake absolutely to pay the sum of 13K. His agreement was limited to respond for the performance by D of his undertaking to deliver to C the total proceeds of the sale of the merchandise for the invoice value of which a promissory promissory note was given by D. Pacific Tobacco Corp. vs. Lorenzana Facts Facts:: The Pacif Pacific ic Tobac Tobacco co Corp. Corp. is engage engaged d in the busine business ss of ma manuf nufact acturi uring ng and distri distribut buting ing cigarettes cigars and other tobacco products. Lorenzana and PTC entered into an agreement whereby Lorenzana will act as Distributor Distributor of PTC. Lorenzana Lorenzana put up a bond in the amount of 3K with Visayan Surety & Insurance Corporation, as surety, to guarantee the faithful fulfillment of Lorenzana’s part in the contract to sell and distribute PTC’s cigarettes.

Issue: WON the delivery of merchandise to Lorenzana at a place other than that appearing in the contract constitutes a material alteration of the same that would release Lorenzana from liability? Held: No. The mention of Manila and Rizal in said agreement was designed more as a declaration or identification of the places wherein Lorenzana was expressly authorized and assigned to sell PTC’s products which is no obstacle to his acceptance of additional territories in order to fulfill his obligation. A departure from the terms of contract will not have the effect of discharging a compensated surety unless it appears that such departure has resulted in injury, loss or prejudice to the surety.

Case Digest in Guaranty and Suretyship

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