ESTRELLA PALMARES v COURT OF APPEALS

G.R. No. 126490, March 31, 1998

FACTS: Pursuant to a promissory note private respondent M.B. Lending Corporation extended a
loan to the spouses Azarraga and petitioner Estrella Palmares (2nd paragraph: as a co-maker +
binding herself as solidarily liable; 3rd paragraph: liable upon default of Azarraga), in the
amount of P30,000.00, with compounded interest. Petitioner and the Azarraga spouses were able
to pay a total of P16,300.00, but no further payments were made.

Thus on the basis of petitioner's solidary liability under the promissory note, respondent
corporation filed a complaint 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: Whether Palmares is a guarantor or surety?

HELD: Palmares is liable as Surety. A creditor's right to proceed against the surety exists
independently of his right to proceed against the principal. Under Article 1216 of the Civil Code,
the creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has
the right to proceed even against the surety alone. Since, generally, it is not necessary for the
creditor to proceed against a principal in order to hold the surety liable, where, by the terms of
the contract, the obligation of the surety is the same that of the principal, then soon as the
principal is in default, the surety is likewise in default, and may be sued immediately and before
any proceedings are had against the principal.

A surety is not even entitled, as a matter of right, to be given notice of the principal's default.
Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the
surety, his mere failure to voluntarily give information to the surety of the default of the principal
cannot have the effect of discharging the surety. The surety is bound to take notice of the
principal's default and to perform the obligation. He cannot complain that the creditor has not
notified him in the absence of a special agreement to that effect in the contract of suretyship.

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.
A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the
debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the principal
will not pay, while a guarantor agrees that the creditor, after proceeding against the principal,
may proceed against the guarantor if the principal is unable to pay. A surety binds himself to
perform if the principal does not, without regard to his ability to do so. A guarantor, on the other
hand, does not contract that the principal will pay, but simply that he is able to do so.

E.ZOBEL, INC. v CA
G.R. No. 113931, May 6, 1998

FACTS: Respondent Spouses Claveria, doing business under the name “ Agro Brokers”, applied
for a loan with respondent Consolidated Bank & Trust Corp. (now SOLID BANK) amounting to
P2.875M. The loan was granted subject to the condition that respondent spouses execute a
chattel mortgage over the 3 vessels to be acquired and that a continuing guarantee be executed by
Ayala International Phils., Inc., now herein petitioner E.Zobel, Inc. in SOLID BANK’s favor.
The Claverias defaulted in the payment of the entire obligation upon maturity. Petitioner moved
to dismiss the complaint asserting that its liability as guarantor of the loan was extinguished
pursuant to A.2080, NCC. It argued that it has lost its right to be subrogated to the first chattel
mortgage in view of SOLIDBANK’s failure to register the chattel mortgage with the appropriate
government agency. SOLIDBANK meantime claimed that A.2080 is not applicable because
petitioner is not a guarantor but a surety.

ISSUE: Whether petitioner obligated as a guarantor or a surety?

HELD: In the contract executed by petitioner in SOLIDBANK’s favor, albeit denominated as a

“Continuing Guaranty”, is in fact a contract of surety. The contract’s terms obligates petitioner
as “surety” to induce SOLIDBANK to extend credit to the Claverias. The contract clearly
disclose that petitioner assumed liability to SOLIDBANK, as a regular party the undertaking and
obligated itself as an original promissory. It bound itself jointly and severally to the obligation
with the Claverias. In fact, SOLIDBANK need not resort to all other legal remedies or exhaust
the Claverias’ properties before it can hold petitioner liable for the obligation. Since the
petitioner is a surety, Article 2080, of the Civil Code, is inapplicable. Said article applies where
the liability is as a guaranty not as a surety.

Paramount Insurance Corp. v CA

GR No. 110086, July 19, 1999

FACTS: McAdore Finance and Investment, Inc. (McADORE) and Dagupan Electric
Corporation (DECORP) entered into a contract whereby DECORP shall provide electric power
to McADORE's Hotel. During the term of the contract, DECORP noticed discrepancies between
the actual monthly billings and the estimated monthly billings of McADORE. DECORP issued a
corrected bill but McADORE refused to pay thus, DECORP disconnected power supply to the
hotel. McADORE commenced a suit against DECORP for damages with prayer for a writ of
preliminary injunction. McADORE posted injunction bonds from several sureties, one of which
was Paramount Insurance Corp.. Accordingly, a writ of preliminary injunction was issued
wherein DECORP was ordered to continue supplying electric power to the hotel and restrained
from further disconnecting it. The RTC rendered judgment in favor of DECORP and held that
the bonding companies are jointly and severally liable with McADORE. The CA affirmed the
decision of the RTC but Paramount contends that it is liable to pay actual damages only.

ISSUE: Whether or not Paramount’s liability under the injunction bond is limited only to actual
damages.

HELD: No. The Court held that Paramount is not only liable to pay actual damages but is
answerable to all damages. By the contract of suretyship, it is not for the obligee to see to it that
the principal pays the debt or fulfills the contract, but for the surety to see to it that the principal
pay or perform. The purpose of the injunction bond is to protect the defendant against loss or
damage by reason of the injunction in case the court finally decides that the plaintiff was not
entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated
to account to the defendant in the injunction suit for all damages, or costs and reasonable
counsel's fees, incurred or sustained by the latter in case it is determined that the injunction was
wrongfully issued. When Paramount issued the bond in favor of its principal, it undertook to
assume all the damages that may be suffered after finding that the principal is not entitled to the
relief being sought.

Security Bank and Trust Company, Inc. v Cuenca

G.R. No. 138544, October 3, 2000

FACTS: Security Bank and Trust Company, Inc. (SBTC) granted Sta. Ines Melale Corporation
(SIMC) a credit line for the additional capitalization requirements of its logging activities. As a
security for payments of amounts drawn from the credit line, Cuenca, then President and
Chairman of the Board, executed an Indemnity Agreement in favor of SBTC whereby he
solidarily bound himself with SIMC. However, SIMC encountered difficulty in making the
amortization payments and without notice or prior consent from Cuenca, SBTC agreed to
completely restructure the former’s indebtedness. To formalize the restructuring, they executed a
Loan Agreement with stipulation that the new loan shall be applied to liquidate the outstanding
principal, past due interest and penalty portion of the indebtedness.

Thereafter, SIMC defaulted in the payment of the restructured obligation and despite demands
from the bank, both SIMC and Cuenca individually and collectively refused to pay. Cuenca
contended that his obligation under the Indemnity Agreement was extinguished when the bank
and SIMC modified the nature and scope of the original accommodation without his consent.

ISSUE: Whether the execution of the Loan Agreement releases Cuenca from his liability under
the Indemnity Agreement.

HELD: Yes. The Court held that Cuenca’s liability was extinguished. An extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The
Loan Agreement expressly stipulated that its purpose was to liquidate, not to renew or extend,
the outstanding indebtedness. Moreover, Cuenca did not sign or consent to the Loan Agreement,
which had allegedly extended the original credit facility. Hence, his obligation as a surety should
be deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states
that an extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. The theory behind Article 2079 is that an extension of time given to
the principal debtor by the creditor without the surety’s consent would deprive the surety of his
right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the
principal debtor upon the maturity date. The surety is said to be entitled to protect himself
against the contingency of the principal debtor or the indemnitors becoming insolvent during the
extended period.

As the Court held in National Bank v. Veraguth, it is fundamental in the law of suretyship that
any agreement between the creditor and the principal debtor which essentially varies the terms of
the principal contract, without the consent of the surety, will release the surety from liability. An
essential alteration in the terms of a Loan Agreement without the consent of the surety chased
extinguishes the latter’s obligation. At the outset, we should emphasize that an essential
alteration in the terms of the Loan Agreement without the consent of the surety extinguishes the
latter’s obligation.

Babst v CA
G.R. No. 99398 & 104625, January 26, 2001

FACTS: ELISCON obtained a loan from Commercial Bank and Trust Company (CBTC) with
an interest of 14% per annum, as evidenced by a promissory note. When ELISCON defaulted in
payments, it opened letters of credit from CBTC using the credit facilities of MULTI with the
said bank. Subsequently, Antonio Roxas Chua and Babst executed a Continuing Suretyship,
binding themselves solidarily liable to pay any existing indebtedness of MULTI to CBTC to the
extend of P8M each. Later on, BPI and CBTC entered into a merger, wherein BPI, as the
surviving corporation, acquired all the assets and assumed all liabilities of CBTC. Subsequently,
by virtue of cession, Development Bank of the Philippines (DBP) took over the assets of
ELISCON to answer for the latter’s indebtedness to the former. DBP submitted formulas to settle
the liabilities of ELISCON to its creditors which included BPI that rejected the same. BPI, as
successor-in-interest of CBTC, sued ELISCON, MULTI, and Babst for collection of sum of
money. The trial court ruled in favor of BPI, and the same was affirmed by the Court of Appeals.
Hence the instant petition.

ISSUE: Whether BPI can rightfully collect the amounts due of CBTC from its debtors?

HELD: Yes. There was no question that there was a valid merger between BPI and CBTC. It is
settled that in the merger of two existing corporations, one of the corporations survives and
continues the business, while the latter is dissolved and all its rights, properties, and liabilities are
acquired by the surviving corporation. Hence, BPI had the right to institute the collection case.
Nonetheless, Babst could not be made liable for as a surety, he was an insurer of the debt, and
promised only to pay the principal’s debt if the principal will not pay. In the present case, there
was no indication that DBP, which took over ELISCON, would fail or default in payment of the
debt incurred.

Tanedo v Allied Banking Corp.

G.R. No. 136603, January 18, 2002

FACTS: The foregoing summary judgment has its roots in a complaint with preliminary
attachment filed by plaintiff bank to recover sums of money from defendant corporation on its
seven past due promissory notes with principal amounts totaling P10,000,000.00, from
defendants Alfredo Ching and Emilio Tañedo under a Continuing Guaranty providing for joint
and several liability relative to the said promissory notes. The preliminary attachment sought was
granted upon the required bond and was thereafter maintained despite defendant corporation’s
efforts to have it discharged.

ISSUE: Whether the "continuing guarantee" executed by the petitioner is a contract of surety
adhesion?
HELD: We find the petition without merit. Even if the "continuing guarantee" were considered
as one of adhesion, we find the contract of "surety" valid because petitioner was "free to reject it
entirely." 12 Petitioner was a stockholder and officer of Cheng Ban Yek and Co., Inc. and it was
common business and banking practice to require "sureties" to guarantee corporate obligations.

Diamond Builders Conglomeration v Country Bankers Insurance Corp.

G.R. No. 171820, December 13, 2007

FACTS: Marceliano Borja filed against Rogelio Acidre for the latter’s breach of his obligation
to construct a residential and commercial building. Rogelio is the sole proprietor of petitioner
DBC. To end the litigation, the parties entered into a Compromise Agreement to which the RTC
of Caloocan approved and rendered a decision in accordance with the terms and conditions
contained therein. The agreement provides that Rogelio admits full payment of plaintiff to him
the amount of 1.5M leaving the balance of 570,000 of the contractual price of 2.1M for the
construction of the building. In the event that Rogelio shall fail to fully complete the construction
of the within 75 days he shall not be entitled to any further payments and the performance of a
surety bond shall be fully implemented by way of penalizing Rogelio or as award for damages in
favor of plaintiff. DBC obtained a surety bond from Country Bankers in favor of the spouses
Borja. Rogelio together with DBC employees signed an indemnity agreement consenting their
joint and several liability to Country Bankers should the surety bond be executed upon. Country
Bankers received a Motion for Execution of the surety bond filed by Borja with the RTC
Caloocan for Rogelio’s alleged violation of the Compromise Agreement. Rogelio filed an
Omnibus Motion to suspend the Writ of Execution but was not immediately acted upon and so
DBP was constrained to pay the amount of the surety bond. After the Country Bankers was
compelled to pay the amount of the surety bond, it demanded reimbursement from the petitioners
under the indemnity agreement but petitioners refused to reimburse Country Bankers. Petitioners
wrote Country Bankers and informed the latter that the voluntary payment of the bond
effectively prevented them from contesting the validity of the issuance of the Writ of Execution.

ISSUE: Whether the petitioners should indemnify Country Bankers for the payment of the
surety bond.

HELD: Yes. The Compromise Agreement between Borja and Rogelio explicitly provided that
the latters’ failure to complete construction of the building within the stipulated period shall
cause the full implementation of the surety bond as a penalty for the default, and as an award of
damages to Borja. Furthermore, the Compromise

The agreement contained a default executory clause in case of a violation or avoidance of the
terms and conditions thereof. Therefore, the payment made by Country Bankers to Borja was
proper, as failure to pay would have amounted to contumacious disobedience of a valid court
order. Article 2047 of the Civil Code specifically calls for the application of the provisions on
solidary obligations to suretyship contracts. In particular, Article 1217 of the Civil Code
recognizes the right of reimbursement from a co-debtor (the principal codebtor, in case of
suretyship) in favor of the one who paid (i.e., the surety). In contrast, Article 1218 of the Civil
Code is definitive on when reimbursement is unavailing, such that only those payments made
after the obligation has prescribed or became illegal shall not entitle a solidary debtor to
reimbursement. Nowhere in the invoked CA Decision does it declare that a surety who pays, by
virtue of a writ of execution, is not entitled to reimbursement from the principal co-debtor.

Erma Industries Inc. v Security Bank Corp

G.R No. 191274, August 9, 2017

FACTS: Erma Industries obtained from Respondent Security Bank a credit facility, as agreed
upon in a Credit Extension agreement. Sergio Ortiz-Luis executed a Continuing Suretyship
Agreement in favor of Security Bank, as surety for Erma Industries. Erma obtained several loans
from Security Bank, but defaulted in its payment. In total, about P17,995,214.47 and
US$289,730.10 were u paid. Erma offered a restructuring of the unpaid debts into a 5- year loan
plan, but Security Bank was willing to restructure the debt only up to 5 million pesos.

Security Bank filed a claim over the entire debt, and the lower courts adjudged both Erma and
Ortiz-Luis jointly and severally liable. For his part, respondent Sergio Ortiz-Luis, Jr. insists that
he is not liable to Security Bank because he merely signed the Suretyship Agreement as an
accommodation party being the Administrative Vice President of Erma at that time and there was
novation of the Credit Agreement.

ISSUE: Whether Ortiz is solidarily liable?

HELD: Yes. Ortiz's claim that he is a mere accommodation party is immaterial and does not
discharge him as a surety. He remains to be liable according to the character of his undertaking
and the terms and conditions of the Continuing Suretyship, which he signed in his personal
capacity and not in representation of Erma. Under its express terms, respondent Ortiz, as surety,
is "bound by all the terms and conditions of the credit instruments." His liability is solidary with
the debtor and co-sureties; and the surety contract remains in full force and effect until full
payment of Erma's obligations to the Bank.

FGU INSURANCE CORPORATION v Sps. Roxas

G.R. No. 189526, August 09, 2017

FACTS: The liability of a surety is determined strictly in accordance with the actual terms of the
performance bond it issued. It may, however, set up compensation against the amount owed by
the creditor to the principal. The Spouses Roxas entered into a Contract of Building
Constructiondated May 22, 1979 with Rosendo P. Dominguez, Jr. (Dominguez) and Philtrust
Bank to complete the construction of their housing project known as "Vista Del Mar
Executive Houses." The project was located at Cabcaben, Mariveles, Bataan and was
estimated to cost P1,200,000.00

From the terms of the Contract, Philtrust Bank would finance the cost of materials and supplies
to the extent of P900,000.00, while Dominguez would undertake the construction works for
P300,000.00. It was provided that in case of Dominguez's non-compliance of the terms and
conditions of the Contract, he would pay Philtrust Bank and/or the Spouses Roxas
liquidated damages of P1,000.00 per day until he has complied with his obligation.
ISSUE: May the liabilities of the Spouses Roxas to Dominguez be set off against any liability of
FGU Insurance Corporation pursuant to Articles 1280[52] and 1283[53] of the Civil Code?

HELD: Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may
set up compensation as regards what the creditor may owe the principal debtor.

While Article 1280 specifically pertains to a guarantor, the provision nonetheless applies to a
surety. Contracts of guaranty and surety are closely related in the sense that In both, "there is a
promise to answer for the debt or default of another." The difference lies in that "a guarantor is
the insurer of the solvency of the debtor and thus binds himself to pay if the principal is
unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if
the principal does not pay."

Hence, FGU could offset its liability under the Surety Bond against Dominguez's
collectibles from the Spouses Roxas. His collectibles include the unpaid contractor's fee of P
90,000.00 plus 14% interest per annum from October 31, 1979 until fully paid.
Additionally, his collectibles cover the Spouses Roxas' advances from the construction
funds in the amount of P73,136.75 plus 6% legal interest from November 16, 1979 until fully
paid.In the event of compensation, the Spouses Roxas shall be liable to PhiltrustBank for the
latter's share in the obligation.

DEVELOPMENT BANK OF THE PHILIPPINES v HON. CARPIO

G.R. No. 195450, February 1, 2017

FACTS: In their, Complaint, Abad, et al. prayed, among others, for the issuance of a writ of
seizure, pending hearing of the case, for delivery of their certificates of title they claimed to be
unlawfully detained by DBP and GFSME. They alleged that their certificates of title were
submitted to DBP for safekeeping pursuant to the loan agreement they entered into with DBP.
The same certificates of title were turned over by DBP to GFSME because of its call on
GFSME's guarantee on their loan, which became due and demandable, and pursuant to the
guarantee agreement between DBP and GFSME.

On September 5, 2001, DBP filed its Omnibus Motion to Dismiss Complaint and to Quash Writ
of Seizure on the ground of improper venue, among others. Abad, et al. filed their Opposition
and later, their Supplemental Opposition, to which they attached the Delivery Receipt showing
that the court sheriff took possession of 228 certificates of title from GFSME. On December 20,
2001, DBP and GFSME filed their Joint Motion to Order Plaintiffs to Return Titles to
Defendants DBP and GFSME. After Abad, et al. filed their opposition, the RTC issued the
Order, dated January 27, 2003, directing Abad, et al. to return the 228 certificates of title.

ISSUE: Whether the RTC has residual jurisdiction on DBP's claim for damages.

HELD: DBP could enforce its guarantee agreement with GFSME. A contract of guaranty gives
rise to a subsidiary obligation on the part of the guarantor. A guarantor agrees that the creditor,
after proceeding against the principal, may proceed against the guarantor if the principal is
unable to pay. Moreover, he contracts to pay if, by the use of due diligence, the debt cannot be
made out of the principal debtor. It may file an action for damages based on Article 19 of the
New Civil Code against respondents for unlawfully taking the certificates of title, which served
as security for their loan. In Globe Mackay Cable and Radio Corporation v. Court of Appeals,
the Court held:

Finally, nothing precludes DBP from instituting an action for collection of sum of money against
respondents. Besides, if the parcels of land covered by the certificates of title, which DBP sought
to recover from respondents, were mortgaged to the former, then DBP, as mortgage-creditor, has
the option of either filing a personal action for collection of sum of money or instituting a real
action to foreclose on the mortgage security. The two remedies are alternative and each remedy
is complete by itself. If the mortgagee opts to foreclose the real estate mortgage, he waives the
action for the collection of the debt, and vice versa.

Castellvi de Higgins & Horace vs Sellner

G.R. No. L-158025, November 5, 1920

FACTS: Sellner 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 + interest if not fully
paid at maturity, upon the surrender 3k shares of Keystone Mining Company. Plaintiffs contend
that he is a surety; defendant contends that he is a guarantor. Plaintiffs also admit that if
defendant is a guarantor, articles 1830, 1831, and 1834 of the Civil Code govern.
ISSUE: Whether Sellner is a guarantor or surety?

HELD: Sellner is a Guarantor. The letter of Mr. Sellner recites that if the promissory note is not
paid at maturity, then, within fifteen days after notice of such default and upon surrender to him
of the three thousand shares of Keystone Mining Company stock, he will assume responsibility.
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.

In the original Spanish of the Civil Code now in force in the Philippine Islands, Title XIV of
Book IV is entitled "De la Fianza." The Spanish word "fianza" is translated in the Washington
and Walton editions of the Civil Code as "security." "Fianza" appears in the Fisher translation as
"suretyship." The Spanish world "fiador" is found in all of the English translations of the Civil
Code as "surety." The law of guaranty is not related of by that name in the Civil Code, although
indirect reference to the same is made in the Code of Commerce. In terminology at least, no
distinction is made in the Civil Code between the obligation of a surety and that of a guarantor.

A surety and a guarantor are alike in that each promises to answer for the debt or default of
another. A surety and a guarantor are unlike in that the surety assumes liability as a regular party
to the undertaking, while the liability as a regular party to upon an independent agreement to pay
the obligation if the primary pay or fails to do so. A surety is charged as an original promissory;
the engagement of the guarantor is a collateral undertaking. The obligation of the surety is
primary; the obligation of the guarantor is secondary. The civil law suretyship is, accordingly,
nearly synonymous with the common law guaranty; and the civil law relationship existing
between codebtors liable in solidum is similar to the common law suretyship.