Sect Sectio ion n 1. Effe Effect cts s of Gua Guarant ranty y Betw Betwee een n the the Guar Guaran anto tor r and and the the Creditor Wise & Co. vs. Tanglao Facts: Facts: Atty. Atty. Dionis Dionisio io Tanglao Tanglao (Corne (Cornelio lio David’s David’s atty) atty) by power power of attorne attorney y mortgaged two real properties belonging to him to secure the payment of a judgment judgment credit credit of P640 P640 obtained obtained by Wise & Co. against against Cornelio Cornelio David David (agent (agent of W&C). As Cornelio David paid only a part of the indebtedness, Wise & Co. filed an action against Atty. Tanglao to recover the unpaid balance. Issue: WON atty. Dionisio Tanglao is liable for the balance? Held: No, Nothing is stated in the compromise agreement to the effect that Atty. Tanglao become David’s surety for the payment of the judgment debt. (1) Tanglao did not contract any personal personal responsibility responsibility for the payment of the sum of P6 P640 40.. The only obliga obligatio tion n which which he contra contracte cted d was that resu result ltin ing g from from the the mort mortgag gage. e. Howe Howeve ver, r, a fore forecl clos osur ure e su suit it was was not not institu instituted ted against against Atty. Atty. Tanglao Tanglao but a purely purely personal personal action action for the recovery of the amount still owned by Atty. Tanglao. (2) Even Even gran granti ting ng that that Atty Atty.. Tang Tanglao lao may may be consi conside dere red d a su sure rety ty (or (or guarantor), the action does not lie against him on the ground that all the legal legal remedi remedies es against against him have not previo previousl usly y been been asked asked for and Davi David d has has prop proper erty ty su suff ffic icie ient nt to pay pay the the bala balanc nce e of the the debt debt the the payment of which is sought of Tanglao in his alleged capacity as surety. A guaranty or surety must be expressed and cannot be presumed. Art 2058 the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all legal remedies against the debtor.
Mira Hermanos, Inc. vs. Manila Tobaconists, Inc. Facts: To secure the obligation of Manila Tobaconists up to the sum of 3,000 unde underr cont contra ract ct with with Mira Mira Herm Herman anos os who who agre agreed ed to deli delive verr to Mani Manila la Tobacconist Tobacconists’ s’ merchand merchandise ise for sale on consignme consignment nt under under certain certain specified specified terms, Provident Insurance Co. executed a bond of 3,000 3,000.. Since the value of merchandise exceeded 3,000 Manila Compania de Seguros executed a bond of 2,000 with the same terms and conditions that the bonds would respond for the obligation of Manila Tobacconists. Mira Hermanos sued the 2 insurance companies for the amount of 2,500 Issue: WON Provident Insurance Co. is entitled to the benefit of division. Held: No, The benefit of division is applicable only where there are several guarantors or sureties of only one debtor for the same debt. debt . In the instant case, although the 2 bonds on their face appear to guarantee the same debt co-extensively up to 2K – that Provident Insurance Co. alone extending beyond the sum up to 3K – in reality said bonds do not guarantee the same debt. Art. 2065 should there be several guarantors of only one debtor and for the same debt, the obligation to answer for the same is divided among all. The credito cre ditorr can cannot not cla claim im fro from m the gua guaran rantor tors s ex exce cept pt shar shares es wh which ich the they y are respectively bound to pay, unless solidarily has been expressly stipulated. The benefit of division against the co-guarantors ceased in the same cases and for the same reasons as the benefit of excussion against the principal debtor.
Section 2. Effects of Guaranty Between the Debtor and the Guarantor (Arts. 2066-2072 NCC) Tuason, Tuason, Inc. vs. Machuca Facts: Facts: Manila Manila Compani Compania a de Seguro Seguros s sig signed ned a note note for 10,000 10,000 in favor favor of Tuason, Tuason, Tuason Inc. to guarantee guarantee a liability liability of Universal Universal Trading Trading Co, In turn,
Univer Universal sal Trading Trading Co. Co. and its preside president, nt, Antoni Antonio o Machuc Machuca, a, in his person personal al capacity, executed a document wherein they bound themselves solidarily to reimburse Manila Compania de Seguros all of such sum it may pay or become bound to pay, upon its obligation to Tuason, Tuason Inc. whether or not it shall have actually paid such sums or any part thereof. Universal Trading Co. was declared insolvent. Tuason, Tuason, Tuason, Tuason, Inc. brought brought action action against Manila Compania Compania De Seguros Seguros to recove recoverr the value value of the note note and obtain obtained ed final final judgm judgment ent.. Later, Later, Manila Manila Comp Compani ania a De Segu Seguro ros s filed filed a comp complai laint nt again against st Mach Machuc uca a to reco recove verr the amount which Manila Compania De Seguros was sentenced to pay Tuason, Tuason, Tuason, Inc, plus attorney’s attorney’s fees, fees, judicial costs costs and sheriff’s sheriff’s fees, and interest, interest, although Manila Compania De Seguros had not, in fact, paid the amount of the judgment. judgment. Issue: Tuason, Tuason Tuason Inc. Is entitled entitled to the relief relief sought in view of of the a) WON Tuason, above facts? b) WON Tuason, Tuason Inc. has the right to recover from Machuca more than the value of the note executed by Tuason, Tuason, Inc. in favor of Manila Compania de Seguros? Held: indispensable le that Universal Universal Trading Trading Co. became became bound by a. Yes. It is indispensab virtue of final judgment to pay the value of the note executed by it in favor of Manila Compania de Seguros, and according to the document execut executed ed solidar solidarily ily by Univer Universal sal Trading Trading Co. Co. and Machuc Machuca, a, Machuc Machuca a bound himself to pay Tuason, Tuason, Inc. as soon as the latter may have become bound and liable, whether or not it shall have actually paid. b. Machuca must not be responsible for the expenses incurred by Manila Compania De Seguros in the litigation between it and Tuason, Tuason, Inc. and it cannot charge Machuca with expenses it was compelled to make by reason of its fault. It is entitled only to expenses expenses incurred incurred by it in the action against Machuca. Art. 2071 the guarantor, even before having paid, may proceed against the principal debtor: 1. When he is being sued for the the payme payment nt 2. In the case of of insolvency insolvency of the princi principal pal debtor debtor 3. Whe When n the debtor debtor has bound bound himself himself to relieve relieve him from from the guaranty guaranty within specified period, and this period has expired 4. When the the debt has become become demandabl demandable, e, by reason reason of the expiration expiration of the period of the payment 5. Aft After er the lapse of ten years, years, wh when en the principa principall obl obligat igation ion has no fix fixed ed peri pe riod od for it its s matu aturi rity ty,, un unle less ss it be suc such h na natu ture re th that at it ca cann nnot ot be extinguished except within a period longer than ten years 6. If there are reasonabl reasonable e grounds grounds to fear that the principal principal debtor debtor intends to abscond 7. If the principal principal debtor debtor is in imminent imminent danger danger of becoming becoming insolvent insolvent In all these, cases, the action of the guarantor is to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor and from the danger of the insolvency of the debtor.
Saenz vs. Yap Chuan Facts: By order of the court, Engracio Palanca, as judicial administrator of an estate, gave a bond to guarantee his administration. The judicial bond was executed by Palanca, Vizmanos, and others jointly and severally in favor of the Government for the sum of 60K. In turn, Palanca and 5 others executed in favor of Vizmanos another bond. As guarantor in solidum of Palanca who was replaced by Yap Chengtua as the new administrator, Vizmanos was ordered by the court to pay to the
estate the sum of 48K. Vizmanos paid 8K and still owed 40K. Palanca could not pay Vizmanos. Issue: WON the other creditors should reimburse Vizmanos each or a total of 20K notwithstanding that Vizmanos had paid only 8K of his bond? Held: NO 1. Guarantor’s Guarantor’s rights rights of reimbur reimburseme sement nt limited limited to amount amount paid 2. An action action of subroga subrogation tion is an action action of indemnity indemnity Art. 2067 the guarantor who pays is subrogated by virtue thereof of all the righ ri ghts ts whi hich ch th the e cr cred edit itor or ha had d ag agai ains nstt th the e de debt btor or.. If th the e gu guar aran anto torr ha has s compromised with the creditor, he cannot demand of the debtor more than what he has really paid.
Gidwani vs. Domestic Insurance Co. of the Phils. Fact Facts: s: 2 secu securi riti ties es were ere give given n to Dom Domesti estic c Insu Insura ranc nce e for for the the fait faithf hful ul compliance of the obligation of Plastic Era to pay the promissory note that it executed in favor of Manufacturer’s Bank & Trust Co. (MBTC) the counterguaranty agreement jointly executed by Plastic Era and spouses Gidwani, and the the seco second nd secu securi rity ty was was the the pled pledge ge of sh shar ares es of stock stock made made by Sati Sati B. Gidwa Gidwani. ni. Domest Domestic ic Insuran Insurance ce paid paid Manufa Manufactu ctures res’’ bank & Trust Trust Company Company,, thereby subrogating itself to the rights of the latter against Plastic Era, the maker of the note. Dome Domest stic ic Insur Insuran ance ce su sued ed Plast Plastic ic Era Era and Spou Spouse ses s Gidw Gidwani ani unde underr indem indemnity nity agree agreeme ment, nt, obtain obtaining ing a judgm judgment ent with with partia partiall satisfa satisfact ction ion,, by reason of which Domestic Insurance caused the sale at public auction of the pled pledge ged d sh shar ares es,, with with Dome Domest stic ic Insu Insura ranc nce e acqui acquiri ring ng them them as the the highe highest st bidder. Issue: WON Domestic Insurance abandoned and waived its right or cause of acti action on unde underr the the agre agreem emen entt when when it inst institu itute ted d the the civi civill acti action on based based on guaranty-agreement guaranty-agreement and obtained a favorable fa vorable judgment? Held: No, The indemnity agreement and pledge agreement are 2 different securities, and the creditor did not avail of the remedy to obtain a personal judgment judgment against the debtor. debtor. It is not barred to enforce enforce its claim against against both secu securit ritie ies. s. From From the the natur nature e of the the situat situatio ion, n, Dome Domesti stic c Insur Insuran ance ce canno cannott prosecute its claim against the 2 securities in one and the same action.
Kuenzle & Streiff vs. Tan Sunco Facts: Kuenzle & Streiff instituted an action against Chung Chu Sing for the recovery of indebtedness. Before Kuenzle & Streiff could secure judgment, Tan Sunco brought an action against Chung Chu Sing for the payment of another obligation for which Tan Sunco acted as guarantor. Chung Chu Sing confessed judgment judgment in favor of Tan Sunco. Sunco. Immediate Immediately ly after obtaining obtaining judgment, judgment, Tan Sunco caused to be levied upon under execution all the properties of Chung Chu Sing. Kuenzle & Streiff commenced an action to set aside the judgment, claiming it was obtained by the fraud and collusion, and that Tan Sunco had not paid the debt for which as guarantor he obtained the judgment. Issue: WON a guarantor who sues his principal debtor before paying the debt himself entitled to recover judgment for the debt? Held Held:: No, No, while while the the su sure rety ty has has the the righ rightt to obta obtain in judg judgme ment nt again against st his his principal debtor, he will not be permitted to realize on said judgment to the point of actual collection until he has satisfied, or caused to be satisfied, the obligation the payment of the obligation of which he assures. A guarantor who obtains judgment against his principal cannot execute said judgment against the latter’s property until he has paid the debt for which he stands as guarantor.
General Indemnity Co., Inc vs. Alvarez Facts: General Indemnity Co. filed a complaint against Estanislao Alvarez for the recovery of 2,000 representing the amount of a loan allegedly taken by Alvarez from PNB, the payment of which General Indemnity Co. guaranteed with an indemnity bond. There exists exists a controv controversy ersy in the the complaint complaint and answer answer as to to whether whether or not General Indemnity Co. had actually paid Alvarez’ obligation to the PNB. Issue Issue:: WON WON the acti action on by the the guara guarant ntor or again against st the the princ princip ipal al debto debtorr for for payment before the guarantor has paid the creditor premature? Held: Yes, An action by the guarantor against principal debtor for payment before the guarantor has paid the creditor is, premature. Under Art. 2071, a guarantor who has not paid the creditor can proceed against the principal debtor only for the purpose of obtaining release from the guaranty or security against an eventual insolvency of the debtor. Art. 2071 the guarantor, even before having paid, may proceed against the principal debtor: 1. When he is being sued for the the payme payment nt 2. In the case of of insolvency insolvency of the princi principal pal debtor debtor 3. Whe When n the debtor debtor has bound bound himself himself to relieve relieve him from from the guaranty guaranty within specified period, and this period has expired 4. When the the debt has become become demandabl demandable, e, by reason reason of the expiration expiration of the period of the payment 5. Aft After er the lapse of ten years, years, wh when en the principa principall obl obligat igation ion has no fix fixed ed peri pe riod od for it its s matu aturi rity ty,, un unle less ss it be suc such h na natu ture re th that at it ca cann nnot ot be extinguished except within a period longer than ten years 6. If there are reasonabl reasonable e grounds grounds to fear that the principal principal debtor debtor intends to abscond 7. If the principal principal debtor debtor is in imminent imminent danger danger of becoming becoming insolvent insolvent In all these, cases, the action of the guarantor is to obtain release from the guaranty, or to demand a security that shall protect him from any proceedings by the creditor and from the danger of the insolvency of the debtor.
Section 3. Effects of Guaranty as Between Co-Guarantors (Arts. 2073-2075 NCC) Chapter 3. Extinguishment of Guarantee (Arts. 2076-2081) 2076-2081)
J.V. Hous House e vs. Dela Costa Facts: In a civil case against Bush & Upton, for the recovery of a sum of money, JV House obtained preliminary attachment of certain properties of the Bush & Upton. Upton. Later, Bush Bush & Upton secured secured the discharge discharge of the attachment attachment by filing a bond posted by Far Eastern Surety for 2,000, the condition of the bond being that, should JV House obtain a judgment against Bush & Upton, the latt latter er would would retu return rn to the prope propert rtie ies s disc discha harge rged d from from attac attachm hmen entt to the the Sheriff, and should he fail to do so, Far Eastern would pay the value thereof. JV House and Bush & Upton entered entered into an agreemen agreement, t, without without the knowledge of Far Eastern Surety whereby Bush & Upton delivered to JV House the the prop proper erti ties es in questi question on to be sold sold at publ public ic auct auctio ion. n. JV House House-hi -highe ghest st bidder; properties adjudicated to him. JV House obtained judgment against Bush & Upton for 2,000. JV House asked of execution of judgment against Far Eastern Surety. Issue: WON Far Eastern Surety is released from its obligation as surety? Held: Yes. The agreement between JV House and Bush & Upton subsequently alte altere red d thei theirr juri juridi dica call rela relati tion ons s as to the the prop proper erti tie es disc discha harg rged ed from from
atta attach chme ment nt and and for for the the deli delive very ry of whic which h Far Far East Easter ern n was was su sure rety ty,, whic which h alteration necessarily released Far Eastern from its obligation as surety. Material alteration of the principal contract effected by the creditor and the principal debtor without the knowledge and consent of the surety discharges the guaranty of the surety
PNB vs. Manila Surety & Fidelity Co. Facts: PNB was negligent in its duty under the power of attorney to collect sums due to debtor from the latter’s debtor, thereby allowing such funds to be exhausted by other creditors. Issue: WON Manila Surety is exonerated from liability to PNB? Held: Yes. Even if the assignment with the power of attorney from the principal debtor was considered as a mere additional security, still, by allowing the assigned funds to be exhausted without notifying Manila Surety, PNB deprived the former former of the possibilit possibility y of taking taking recour recourse se against against the security security.. PNB thereby exonerated Manila Surety, pursuant to Art. 2080. Art. 2080 the guarantors, even though they be solidarily, are released from thei th eirr ob obli liga gati tion on wh when ene eve verr by so som me ac actt of th the e cr cred edit itor or th they ey ca cann nnot ot be subrogated to the rights, mortgages, and preferences of the latter.
E Zobel, Inc. vs. CA Facts: Respondentr spouses applied for a loan with respondent SOLIDBANK. The loan was granted granted subject subject to the condition condition that spouses execute execute a chattel chattel mortgage over the 3 vessels to be acquired by them and that a continuing guarantee be executed by petitioner EZ, Inc. in favor of Solid Bank. The spouses spouses defaulted defaulted in payment payment of the entire entire obligation obligation upon maturity. SolidBank filed a complaint for the sum of money against EZ Zobel. Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080. Issue: 1. WON Art. 2080 2080 is applicable applicable to petition petitioner; er; 2. WON WON peti petiti tion oner er’s ’s obli obliga gati tion on to SOLI SOLIDB DBAN ANK K unde underr the the cont contin inui uing ng guaranty is that of a surety; 3. WON the the fail failur ure e of SOLID OLIDBA BANK NK to regist giste er the chatte attell mortga rtgage ge extinguish petitioner’s liability to SOLIDBANK Held: 1. Art. 2080 2080 is not not applicable applicable where where liabilit liability y is a surety surety 2. Peti Petiti tion oner er obli obliga gate ted d itse itself lf as a su sure rety ty – the the cont contra ract ct exec execut uted ed is a contact of surety 3. Petitioner bound itself irrespective of existence of collateral – failure to register the chattel mortgage did not release petitioner from obligation. Art 2080 The guaran guarantors, tors, even thoug though h they be solida solidarily, rily, are rele released ased from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter.
