SECONDDIVISION

[G.R.No.113931.May6,1998]

E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS,

CONSOLIDATEDBANKANDTRUSTCORPORATION,andSPOUSES
RAULandELEAR.CLAVERIA,respondents.
DECISION
MARTINEZ,J.:

Thispetitionforreviewoncertiorariseeksthereversalofthedecision[1] oftheCourtof
AppealsdatedJuly13,1993whichaffirmedtheOrderoftheRegionalTrialCourtofManila,
Branch51,denyingpetitioner'sMotiontoDismissthecomplaint,aswellastheResolution[2]
datedFebruary15,1994denyingthemotionforreconsiderationthereto.
Thefactsareasfollows:
Respondent spouses Raul and Elea Claveria, doing business under the name "Agro
Brokers,"appliedforaloanwithrespondentConsolidatedBankandTrustCorporation(now
SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos
(P2, 875,000.00) to finance the purchase of two (2) maritime barges and one tugboat[3]
which would be used in their molasses business. The loan was granted subject to the
conditionthatrespondentspousesexecuteachattelmortgageoverthethree(3)vesselsto
beacquiredandthatacontinuingguaranteebeexecutedbyAyalaInternationalPhilippines,
Inc.,nowhereinpetitionerE.Zobel,Inc.infavorofSOLIDBANK.Therespondentspouses
agreedtothearrangement.Consequently,achattelmortgageandaContinuingGuaranty[4]
wereexecuted.
Respondent spouses defaulted in the payment of the entire obligation upon maturity.
Hence,onJanuary31,1991,SOLIDBANKfiledacomplaintforsumofmoneywithaprayer
forawritofpreliminaryattachment,againstrespondentsspousesandpetitioner.Thecase
wasdocketedasCivilCaseNo.9155909intheRegionalTrialCourtofManila.
Petitionermovedtodismissthecomplaintonthegroundthatitsliabilityasguarantorof
the loan was extinguished pursuant toArticle 2080 of the Civil Code of the Philippines. 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.
SOLIDBANKopposedthemotioncontendingthatArticle2080isnotapplicablebecause
petitionerisnotaguarantorbutasurety.
OnFebruary18,1993,thetrialcourtissuedanOrder,portionsofwhichreads:
"Afteracarefulconsiderationofthematteronhand,theCourtfindsthegroundofthemotion
todismisswithoutmerit.Thedocumentreferredtoas'ContinuingGuaranty'datedAugust
21,1985(Exh.7)statesasfollows:
'ForandinconsiderationofanyexistingindebtednesstoyouofAgroBrokers,asingle
proprietorshipownedbyMr.RaulClaveriaforthepaymentofwhichtheundersignedisnow

obligatedtoyouassuretyandinordertoinduceyou,inyourdiscretion,atanyother
manner,to,orattherequestorfortheaccountoftheborrower,xxx'
"Theprovisionsofthedocumentareclear,plainandexplicit.
"Clearlytherefore,defendantE.Zobel,Inc.signedassurety.Eventhoughthetitleofthe
documentis'ContinuingGuaranty',theCourt'sinterpretationisnotlimitedtothetitlealone
buttothecontentsandintentionofthepartiesmorespecificallyifthelanguageisclearand
positive.TheobligationofthedefendantZobelbeingthatofasurety,Art.2080NewCivil
Codewillnotapplyasitisonlyforthoseactingasguarantor.Infact,intheletterofJanuary
31,1986ofthedefendants(spousesandZobel)totheplaintiffitisrequestingthatthe
chattelmortgageonthevesselsandtugboatbewaivedand/orrescindedbythebank
inasmuchasthesaidloaniscoveredbytheContinuingGuarantybyZobelinfavorofthe
plaintiffthusthwartingtheclaimofthedefendantnowthatthechattelmortgageisan
essentialconditionoftheguaranty.Initsletter,itsaidthatbecauseoftheContinuing
Guarantyinfavoroftheplaintiffthechattelmortgageisrenderedunnecessaryand
redundant.
"Withregardtotheclaimthatthefailureoftheplaintifftoregisterthechattelmortgagewith
thepropergovernmentagency,i.e.withtheOfficeoftheCollectorofCustomsorwiththe
RegisterofDeedsmakestheobligationaguaranty,thesamemeritsascantconsideration
andcouldnotbetakenbythisCourtasthebasisoftheextinguishmentoftheobligationof
thedefendantcorporationtotheplaintiffassurety.Thechattelmortgageisanadditional
securityandshouldnotbeconsideredaspaymentofthedebtincaseoffailureofpayment.
Thesameistruewiththefailuretoregister,extinctionoftheliabilitywouldnotlie.
"WHEREFORE,theMotiontoDismissisherebydeniedanddefendantE.Zobel,Inc.,is
orderedtofileitsanswertothecomplaintwithinten(10)daysfromreceiptofacopyofthis
Order."[5]
PetitionermovedforreconsiderationbutwasdeniedonApril26,1993.[6]
Thereafter, petitioner questioned said Orders before the respondent Court ofAppeals,
through a petition for certiorari, alleging that the trial court committed grave abuse of
discretionindenyingthemotiontodismiss.
On July 13,1993, the Court ofAppeals rendered the assailed decision the dispositive
portionofwhichreads:
"WHEREFORE,findingthatrespondentJudgehasnotcommittedanygraveabuseof
discretioninissuingthehereinassailedorders,WeherebyDISMISSthepetition."
AmotionforreconsiderationfiledbypetitionerwasdeniedforlackofmeritonFebruary
15,1994.
PetitionernowcomestousviathispetitionarguingthattherespondentCourtofAppeals
erred in its finding: (1) that Article 2080 of the New Civil Code which provides: "The
guarantors, even though they be solidary, are released from their obligation whenever by
some act of the creditor they cannot be subrogated to the rights, mortgages, and
preferences of the latter," is not applicable to petitioner (2) that petitioner's obligation to
respondentSOLIDBANKunderthecontinuingguarantyisthatofasuretyand(3)thatthe
failure of respondent SOLIDBANK to register the chattel mortgage did not extinguish
petitioner'sliabilitytorespondentSOLIDBANK.
We shall first resolve the issue of whether or not petitioner under the "Continuing
Guaranty"obligateditselftoSOLIDBANKasaguarantororasurety.

Acontractofsuretyisanaccessorypromisebywhichapersonbindshimselfforanother
alreadybound,andagreeswiththecreditortosatisfytheobligationifthedebtordoesnot.[7]
A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of
anotherincasethelatterdoesnotpaythedebt.[8]
Strictlyspeaking,guarantyandsuretyarenearlyrelated,andmanyoftheprinciplesare
commontoboth.However,underourcivillaw,theymay be distinguished thus:A surety is
usuallyboundwithhisprincipalbythesameinstrument,executedatthesametime,andon
the same consideration. He is an original promissor and debtor from the beginning, and is
held, ordinarily, to know every default of his principal. Usually, he will not be discharged,
either by the mere indulgence of the creditor to the principal, or by want of notice of the
defaultoftheprincipal,nomatterhowmuchhemaybeinjuredthereby.Ontheotherhand,
thecontractofguarantyistheguarantor'sownseparateundertaking,inwhichtheprincipal
does not join. It is usually entered into before or after that of the principal, and is often
supportedonaseparateconsiderationfromthatsupportingthecontractoftheprincipal.The
originalcontractofhisprincipalisnothiscontract,andheisnotboundtotakenoticeofits
nonperformance. He is often discharged by the mere indulgence of the creditor to the
principal,andisusuallynotliableunlessnotifiedofthedefaultoftheprincipal.[9]
Simplyput,asuretyisdistinguishedfromaguarantyinthataguarantoristheinsurerof
the solvency of the debtor and thus binds himself to pay if the principal is unable to pay
whileasuretyistheinsurerofthedebt,andheobligateshimselftopayiftheprincipaldoes
notpay.[10]
Based on the aforementioned definitions, it appears that the contract executed by
petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a
contractofsurety.Thetermsofthecontractcategoricallyobligatespetitioneras"surety"to
induce SOLIDBANK to extend credit to respondent spouses. This can be seen in the
followingstipulations.
"ForandinconsiderationofanyexistingindebtednesstoyouofAGROBROKERS,asingle
proprietorshipownedbyMR.RAULP.CLAVERIA,oflegalage,marriedandwithbusiness
addressxxx(hereinaftercalledtheBorrower),forthepaymentofwhichtheundersignedis
nowobligatedtoyouassuretyandinordertoinduceyou,inyourdiscretion,atany
timeorfromtimetotimehereafter,tomakeloansoradvancesortoextendcreditinany
othermannerto,orattherequestorfortheaccountoftheBorrower,eitherwithorwithout
purchaseordiscount,ortomakeanyloansoradvancesevidencedorsecuredbyanynotes,
billsreceivable,drafts,acceptances,checksorotherinstrumentsorevidencesof
indebtednessxxuponwhichtheBorrowerisormaybecomeliableasmaker,endorser,
acceptor,orotherwise,theundersignedagreestoguarantee,anddoeshereby
guarantee,thepunctualpayment,atmaturityorupondemand,toyouofanyandall
suchinstruments,loans,advances,creditsand/orotherobligationshereinbefore
referredto,andalsoanyandallotherindebtednessofeverykindwhichisnowor
mayhereafterbecomedueorowingtoyoubytheBorrower,togetherwithanyandall
expenseswhichmaybeincurredbyyouincollectingalloranysuchinstrumentsorother
indebtednessorobligationshereinbeforereferredto,andorinenforcinganyrights
hereunder,andalsotomakeorcauseanyandallsuchpaymentstobemadestrictlyin
accordancewiththetermsandprovisionsofanyagreement(g),expressorimplied,which
has(have)beenormayhereafterbemadeorenteredintobytheBorrowerinreference
thereto,regardlessofanylaw,regulationordecree,noworhereafterineffectwhichmightin
anymanneraffectanyofthetermsorprovisionsofanysuchagreements(s)oryourright
withrespecttheretoasagainsttheBorrower,orcauseorpermittobeinvokedanyalteration
inthetime,amountormannerofpaymentbytheBorrowerofanysuchinstruments,
obligationsorindebtednessxxx"(ItalicsOurs)

Oneneednotlooktoodeeplyatthecontracttodeterminethenatureoftheundertaking
andtheintentionoftheparties.Thecontractclearlydisclosethatpetitionerassumedliability
to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original
promissor.Itbounditselfjointlyandseverallytotheobligationwiththerespondentspouses.
In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent
spouses'propertiesbeforeitcanholdpetitionerliablefortheobligation.Thiscanbegleaned
fromareadingofthestipulationsinthecontract,towit:
'xxxIfdefaultbemadeinthepaymentofanyoftheinstruments,indebtednessor
otherobligationherebyguaranteedbytheundersigned,oriftheBorrower,orthe
undersignedshoulddie,dissolve,failinbusiness,orbecomeinsolvent,xxx,orif
anyfundsorotherpropertyoftheBorrower,oroftheundersignedwhichmaybeor
comeintoyourpossessionorcontrolorthatofanythirdpartyactinginyourbehalf
asaforesaidshouldbeattachedofdistrained,orshouldbeorbecomesubjecttoany
mandatoryorderofcourtorotherlegalprocess,then,oranytimeafterthehappening
ofanysucheventanyoralloftheinstrumentsofindebtednessorotherobligations
herebyguaranteedshall,atyouroptionbecome(forthepurposeofthisguaranty)due
andpayablebytheundersignedforthwithwithoutdemandofnotice,andfullpowerand
authorityareherebygivenyou,inyourdiscretion,tosell,assignanddeliveralloranypartof
thepropertyuponwhichyoumaythenhavealienhereunderatanybroker'sboard,orat
publicorprivatesaleatyouroption,eitherforcashorforcreditorforfuturedeliverywithout
assumptionbyyouofcreditrisk,andwithouteitherthedemand,advertisementornoticeof
anykind,allofwhichareherebyexpresslywaived.Atanysalehereunder,youmay,atyour
option,purchasethewholeoranypartofthepropertysosold,freefromanyrightof
redemptiononthepartoftheundersigned,allsuchrightsbeingalsoherebywaivedand
released.Incaseofanysaleandotherdispositionofanyofthepropertyaforesaid,
afterdeductingallcostsandexpensesofeverykindforcare,safekeeping,collection,
sale,deliveryorotherwise,youmayapplytheresidueoftheproceedsofthesaleand
otherdispositionthereof,tothepaymentorreduction,eitherinwholeorinpart,of
anyoneormoreoftheobligationsorliabilitieshereunderoftheundersignedwhether
ornotexceptfordisagreementsuchliabilitiesorobligationswouldthenbedue,
makingproperallowanceorinterestontheobligationsandliabilitiesnototherwise
thendue,andreturningtheoverplus,ifany,totheundersignedallwithoutprejudice
toyourrightsasagainsttheundersignedwithrespecttoanyandallamountswhich
maybeorremainunpaidonanyoftheobligationsorliabilitiesaforesaidatanytime
(s)"
xxxxxxxxx
'ShouldtheBorroweratthisoratanyfuturetimefurnish,orshouldbeheretofore
havefurnished,anothersuretyorsuretiestoguaranteethepaymentofhisobligations
toyou,theundersignedherebyexpresslywaivesallbenefitstowhichthe
undersignedmightbeentitledundertheprovisionsofArticle1837oftheCivilCode
(beneficiodivision),theliabilityoftheundersignedunderanyandallcircumstances
beingjointandseveral"(ItalicsOurs)
The use of the term "guarantee" does not ipsofacto mean that the contract is one of
guaranty. Authorities recognize that the word "guarantee" is frequently employed in
businesstransactionstodescribenotthesecurityofthedebtbutanintentiontobeboundby
aprimaryorindependentobligation.[11]Asaptlyobservedbythetrialcourt,theinterpretation
ofacontractisnotlimitedtothetitlealonebuttothecontentsandintentionoftheparties.
Havingthusestablishedthatpetitionerisasurety,Article2080oftheCivilCode,relied
upon by petitioner, finds no application to the case at bar. In Bicol Savings and Loan
Associationvs.Guinhawa,[12]wehaveruledthatArticle2080oftheNewCivilCodedoesnot

applywheretheliabilityisasasurety,notasaguarantor.
ButevenassumingthatArticle2080isapplicable,SOLIDBANK'sfailure to register the
chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty
executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the
existence of any collateral. It even released SOLIDBANK from any fault or negligence that
mayimpairthecontract.Thepertinentportionsofthecontractsoprovides:
"xxxtheundersigned(petitioner)whoherebyagreestobeandremainbounduponthis
guaranty,irrespectiveoftheexistence,valueorconditionofanycollateral,and
notwithstandinganysuchchange,exchange,settlement,compromise,surrender,release,
sale,application,renewalorextension,andnotwithstandingalsothatallobligationsofthe
Borrowertoyououtstandingandunpaidatanytime(s)mayexceedtheaggregateprincipal
sumhereinaboveprescribed.
'ThisisaContinuingGuarantyandshallremaininfullforceandeffectuntilwrittennotice
shallhavebeenreceivedbyyouthatithasbeenrevokedbytheundersigned,butanysuch
noticeshallnotbereleasedtheundersignedfromanyliabilityastoanyinstruments,loans,
advancesorotherobligationsherebyguaranteed,whichmaybeheldbyyou,orinwhichyou
mayhaveanyinterest,atthetimeofthereceiptofsuchnotice.Noactoromissionofany
kindonyourpartinthepremisesshallinanyeventaffectorimpairthisguaranty,nor
shallsamebeaffectedbyanychangewhichmayarisebyreasonofthedeathofthe
undersigned,ofanypartner(s)oftheundersigned,oroftheBorrower,oroftheaccessionto
anysuchpartnershipofanyoneormorenewpartners."(Italicssupplied)
Infine,wefindthepetitiontobewithoutmeritasnoreversibleerrorwascommittedby
respondentCourtofAppealsinrenderingtheassaileddecision.
WHEREFORE,thedecisionoftherespondentCourtofAppealsisherebyAFFIRMED.
Costsagainstthepetitioner.
SOORDERED.
Regalado,Melo,andPuno,JJ.,concur.
Mendoza,J.,nopart,havingconcurredinthedecisionoftheCourtofAppealswhenhe
wasamemberoftheCourt.
[1] Annex"I,"p.80,RolloThedecisionwaspennedbyJusticeMa.AliciaAustriaMartinezandconcurredinby

JusticeVicenteV.MendozaandJusticeAlfredoL.Benipayo.
[2] Annex"J,"p.91,Ibid.
[3] Annex"A,"p.39,Rollo.
[4] Annex"B,"pp.4142.
[5]

Annex"G,"pp.7075,Rollo.

[6] AnnexH,p.77,Ibid.
[7] Bouvier'sLawDictionary,Vol.I,EighthEdition,p.1386Hopevs.Board,43La.Ann.738,9South.754
[8] Ibid.Shaw,C.J.Dolevs.Young,24Pick.(Mass.),252.
[9] Brandt,SuretyandGuarantycitedinBouvier'sLawDictionary,supra.,p.1386.
[10] Machettivs.Hospicio,43Phil.297.
[11] 24Am.Jur.876citedinDeLeon,CreditTransactions,1984Ed..p.187.
[12] 188SCRA647.