Wise & Co. vs.

Tanglao
1936
Facts:
David was an agent of Wise and Co. Manila.
Atty. Tanglao (Cornelio Davids atty) by power of attorney mortgaged two real properties
belonging to him to secure the payment of a judgment credit of P640 obtained by Cornelio David
from Wise and Co.
The parties agreed to register the compromise in the Register of Deeds.
David paid the sum of 434 pesos leaving an unpaid balance.
As David paid only a part of the indebtedness, Wise & Co. filed an action against Atty. Tanglao to
recover the unpaid balance.
Davids defense:
o He used said power of attorney only to mortgage the property and did not enter into the
contract of suretyship
o That nothing is stated in the compromise to the effect thtat Tanglao became Davids
surety for the payment of the sum in question.
o Even if this inference might be made, it would still be insufficient to create an obligation of
suretyship which, under the law, must be express and must not be presumed.
The only obligation which the compromise and the clause in the executed power of attorney has
created on the part of Tanglao, is resulting from the mortgage of the property belonging to him to
secure the payment of the P640.
A foreclosure suit suit is not instituted in this case against Tanglao, but a purely personal action
for the recovery of the amount still owed by David.
Issue: WON Atty. Dionisio Tanglao is a surety and is liable for the balance?
Held:

No, Nothing is stated in the compromise agreement to the effect that Atty. Tanglao become
Davids surety for the payment of the judgment debt.
Tanglao did not contract any personal responsibility for the payment of the sum of P640.
The only obligation which he contracted was that resulting from the mortgage.
However, a foreclosure suit was not instituted against Atty. Tanglao but a purely personal action
for the recovery of the amount still owned by Atty. Tanglao.
Even granting that Atty. Tanglao may be considered a surety (or guarantor), the action does not
lie against him on the ground that all the legal remedies against him have not previously
been asked for and David has property sufficient to pay the balance of the debt 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.
The Principle of Excussion is described in Art 2058 which says that - 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.

Syquia v. Jacinto
1934
Facts:
BPI executed in favor of Perfecto and Felipe Jacinto and Palma a sum of P24,000 with a 9%
interest PA.
The defendants executed a promissory note in favor of BPI.
After 4 years, BPI, in consideration of one peso and other valuable considerations, assigned and
transferred said judgment to Gregorio Syquia.
After another 4 years, the widow of Gregorio Syquia, as administratrix of his estate, filed a suit
against the defendants reciting the aforementioned judgement and assignment and alleging that
since the date of said judgment, none of the defendants paid anything thereon and there remains
due the sum of 24,000 php with interest.
The defendants, on its answer, admitted the judgment and assailed the following defenses:
o That the said judgment had lapsed and it was necessary to revive the same
o They denied the assignment to Syquia
o They denied the allegation that nothing had been paid on said judgment and that the full
amount thereof was still due.
o They set-up a special defense that the judgment which the plaintiff was attempting to
revive has been fully paid
o That at the time of making the assignment to Gregorio Syquia, the bank had no right or
interest under the said judgment, the same having been fully paid
o The petition does not state the facts sufficient to constitute a cause of action.
Bank countered and said that an execution to be issued under said judgment and the sheriff on
the request of the bank sold at said public sale 3 properties belonging to the defendants which
had been previously attached.
BPI was the highest bidder crediting the amount of its bid to the said judgment.
Bank took control and possession of the said parcels of land and has been collecting revenues
thereof and that Gregorio Syquia has been receiving the same since that time withought any
right.
Revenues amounting to 10k php was never applied as credit on said judgment.
Defendants pray that the be absolved from the demand and condemn the estate of G. Syquia to
pat the sum of 10k.
On the trial of this case, it was shown at the execution sale, the bank bought 2 of the properties of
the defendants Jacinto and 1 more property from Reyes which was not credited on the judgement
debt pentind the detedrmination of Reyes claim of priority.
Palma paid 100php leaving a net balance due of 13k php
TC: Plama did not file any separate answer nor special defenses available to him as guarantor
but merely joined in the answer of his codefendants pleading that the bank jad been fully paid.
It should be noted too that the execution which was issued under the judgment of Dec 1924 and
under which said parcels of land sold on April 1925, was directly solely against the principal
debtors, Jacintos and Palma not being mentioned therein.
Appellant argues that when the bank acquired said properties at the sheriffs sale for the sum of
15k php, it paid much less than they were worth, in view of the fact that they yielded an annual
revenue of 10k php.
The bank on August 1928 sold and conveyed said parcels to Gregorio Syquia for the sum of
45kphp.
Syquia acquired nothing from by the assignment of the judgment to him by the bank (because it
appears that at the sale by the bank to Syquia, said account was marked as balanced and closed
and that the principal debtors and the guarantor was discharhed from further liability on the
judgement)

Appellant invokes the equitable principle that no person should enrich himself unjustly at the
expense of another.

ISSUE: WoN the property was sold fo greatly below its value? WoN the defendants did not exercise any
right of redemption?
HELD:
Court held that there should be credited upon the judgement for the benefit of the guarantor alone
the sum of P10K, being the revenues collected and retained during the year of redemption by G.
Syquia.
Palma, as guarantor is entitled to benefits of Articles 1830, 1832 and 1852 of the Old CC.
Up to the present, the creditor has made no demand from Palma.
The demand can only be made only after judgment on the debt, for the exhaustion of the
principals property the benefit of which the guarantor claims cannot even begingto take place
before the judgment has been obtained.
After judgement, only then can the liability of the creditor begin under article 1833.
It will be absurd and futile to point out saleable property of the debtor at the inception of the suit,
when it cannot be seized or sold and require the creditor to make a levy upon it,
There is no competent ecidence that the Jacintos are insolvent.
Even if they were now, there can be no certainty that they may not be in funds when an execution
on the revived judgement is issued
The judgment creditor has not exhausted his remedies against the principal debtors and he is still
looking to them for payment.
IT IS NOT FOR THE GUARANTOR to anticipate a demand on him and to offer defences thereto
which have not matured
The benefits are only available to the guarantor only after demand for payment
Defenses he presented, without the demand, is purely HYPOTHETICAL, which the courts does
not undertake to decide.
Palma contingently liable only in the sum of 3kphp.

Arroyo v. Jungsay
1916
Summary: the sureties of the absconding former guardian, who is being sued for the bond he executed
upon appointment, are invoking the principle of excussion to escape liability. Court held that they must
first point out available properties first to be able to enjoy said principle
Facts

HILARIO JUNGSAY was appointed as guardian of the imbecile TITO JOCSING.

He executed a bond, secured by as surety executed by the bondsmen of JUNGSAY.
JUNGSAY absconded with the funds of the ward.
So the new guardian of TITO, JOSE M. A. ARROYO, sued JUNGSAY and his bondsmen for the
P6k absconded, plus interests and costs
TC: BOTH JUNGSAY and BONDSMEN liable
Bondsmen appealed: they should be afforded the benefit of excussion, thus, should be credited
P4,400 (value of certain property of the absconding guardian, which is however in the exclusive
possession of 3P under claim of ownership

Issue:
WON bondsmen should be credited w/ P4400 and thus benefit from the principle of excusion? NO.
Held:

Surety has benefit of levy (excusion), even when the judgment is rendered against both the
surety and the principal. [A1834, NCC]
BUT [A1832, NCC]: the surety must point out property of the principal creditor which can be sold
and which is sufficient to cover the amount of the debt.
MANRESA EXPLANATION: property should be
o Realizable
o Situated w/n territory of the court/state - the attachment of property situated a great
distance away would be a lengthy and extremely difficult proceeding and one that, if
actually not opposed to, yet does not very well accord w/ the purpose of the bond (to
insure the fulfillment of the obligation + furnish the creditor with the means of obtaining its
fulfillment w/o hindrance or delays)
HILL & CO v. BOURCIER and POND: plea of excusion does not stay the proceedigns but
judgment will be modified so as to require the creditor to proceed by execution against the
property of the principal and to exhaust it before resorting to the property of the surety.
HERE: The property pointed out by the sureties is not sufficient to pay the indebtedness; it is not
salable; it is so encumbered that third parties have, as we have indicated, full possession under
claim of ownership without leaving to the absconding guardian a fractional or reversionary interest
without determining first whether the claim of one or more of the occupants is well founded.
The sureties of a guardian against whom judgment has been entered, may demand the benefit of
a levy (exclusion) of the principals property, even when judgment is rendered against both surety
and principal. But to do so, they must point out property subject to seizure in an amount sufficient
to satisfy the debt. (Right of Surety. R94.3)

LUZON STEEL CORPORATION v. SIA

1969
FACTS:

Luzon Steel Corporation has sued Metal Manufacturing of the Philippines and Jose O. Sia (manager), for
breach of contract and damages.

It obtained a writ of preliminary attachment of the properties of the defendants, but the attachment was lifted
upon a P25,000.00 counterbond executed by the defendant Sia, as principal, and the Times Surety &
Insurance Co., Inc. (surety), as solidary guarantor

Plaintiff and defendant (without intervention of the surety) entered into a compromise whereby defendant
Sia agreed to settle the plaintiff's claim in the following manner:
1. That the defendant shall settle with the Plaintiff the amount of TWENTY FIVE THOUSAND
(P25,000.00) PESOS, in the following manner: FIVE HUNDRED (P500.00) PESOS, monthly for the first six
(6) months to be paid at the end of every month and to commence in January, 1965, and within one month
after paying the last installment of P500.00, the balance of P22,000.00 shall be paid in lump sum, without
interest. It is understood that failure of the Defendant to pay one or any installment will make the whole
obligation immediately due and demandable and that a writ of execution will be issued immediately against
Defendants bond.lawphi1.et

The compromise was submitted to the court and the latter approved it, rendered judgment in conformity
therewith, and directed the parties to comply with the same (Record on Appeal, page 22)

Sia having failed to comply, plaintiff moved for and obtained a writ of execution against defendant and the
joint and several counterbond. The surety, however, moved to quash the writ of execution against it,
averring that it was not a party to the compromise, and that the writ was issued without giving the surety
notice and hearing. The court, overruling the plaintiff's opposition, set aside the writ of execution, and later
cancelled the counterbond, and denied the motion for reconsideration. Hence this appeal.

ISSUES/HELD:
(1) WON compromise discharged surety. NO
(2) WON excussion necessary to make surety liable NO

RATIO:

Both questions can be solved by bearing in mind that we are dealing with a counterbond filed
to discharge a levy on attachment. Rule 57, section 12, specifies that an attachment may be discharged
upon the making of a cash deposit or filing a counterbond "in an amount equal to the value of the property
attached as determined by the judge"; that upon the filing of the counterbond "the property attached ... shall
be delivered to the party making the deposit or giving the counterbond, or the person appearing on his
behalf, the deposit or counterbond aforesaid standing in place of the property so released"

The italicized expressions constitute the key to the entire problem. Whether the judgment be rendered after
trial on the merits or upon compromise, such judgment undoubtedly may be made effective upon the
property released; and since the counterbond merely stands in the place of such property, there is no reason
why the judgment should not be made effective against the counterbond regardless of the manner how the
judgment was obtained

The lower court and the appellee herein appear to have relied on doctrines of this Court concerning the
liability of sureties in bonds filed by a plaintiff for the issuance of writs of attachment, without
discriminating between such bonds and those filed by a defendant for the lifting of writs of
attachment already issued and levied. This confusion is hardly excusable considering that this Court has
already called attention to the difference between these kinds of bonds. Thus, in Cajefe vs. Judge
Fernandez, et al., L-15709, 19 October 1960, this Court pointed out that
The diverse rule in section 17 of Rule 59 for counterbonds posted to obtain the lifting of a writ of
attachment is due to these bonds being security for the payment of any judgment that the attaching party
may obtain; they are thus mere replacements of the property formerly attached, and just as the latter may be
levied upon after final judgment in the case in order to realize the amount adjudged, so is the liability of the
countersureties ascertainable after the judgment has become final. This situation does not obtain in the case
of injunction counterbonds, since the sureties in the latter case merely undertake "to pay all damages that
the plaintiff may suffer by reason of the continuance ... of the acts complained of" (Rule 60, section 6) and
not to secure payment of the judgment recovered.1

It was, therefore, error on the part of the court below to have ordered the surety bond cancelled, on the
theory that the parties' compromise discharged the obligation of the surety.

But the surety in the present case insists (and the court below so ruled) that the execution issued against it
was invalid because the writ issued against its principal, Jose O. Sia, et al., defendants below, had not been
returned unsatisfied; and the surety invoked in its favor Section 17 of Rule 57 of the Revised Rules of
Court (old Rule 59),

1)

SOLIDARY

The surety's contention is untenable. The counterbond contemplated in the rule is evidently an ordinary
guaranty where the sureties assume a subsidiary liability. This is not the case here, because the surety in the present
case bound itself "jointly and severally" (in solidum) with the defendant; and it is prescribed in Article 2059,
paragraph 2, of the Civil Code of the Philippines that excusion (previous exhaustion of the property of the
debtor) shall not take place "if he (the guarantor) has bound himself solidarily with the debtor". The rule heretofore
quoted cannot be construed as requiring that an execution against the debtor be first returned unsatisfied even if the
bond were a solidary one; for a procedural rule may not amend the substantive law expressed in the Civil Code, and
further would nullify the express stipulation of the parties that the surety's obligation should be solidary with that of the
defendant.

2)

SURETY cannot demand excussion unless he can point out sufficient property

A second reason against the stand of the surety and of the court below is that even if the surety's undertaking
were not solidary with that of the principal debtor, still he may not demand exhaustion of the property of the latter,
unless he can point out sufficient leviable property of the debtor within Philippine territory. There is no record that the
appellee surety has done so. Says Article 2060 of the Civil Code of the Philippines:
ART. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up
against the creditor upon the latter's demand for payment from him, and point out to the creditor available
property of the debtor within Philippine territory, sufficient to cover the amount of the debt.

3)

Payment not made to depend to the delivery/availability of property previously attached.

A third reason against the thesis of appellee is that, under the rule and its own terms, the counter-bond is only
conditioned upon the rendition of the judgment. Payment under the bond is not made to depend upon the delivery or
availability of the property previously attached, as it was under Section 440 of the old Code of Civil Procedure. Where
under the rule and the bond the undertaking is to pay the judgment, the liability of the surety or sureties attaches
upon the rendition of the judgment, and the issue of an execution and its return nulla bona is not, and should not be,
a condition to the right to resort to the bond.

Towers Assurance Corporation v. Ororama Supermart

1977
Facts:

Hong sued Spouses Ong for the collection of P58,400.

Hong asked for a preliminary attachment which the lower court issued.
Ong spouses filed a counterbond in the amount of P58,400 with Tower Assurance Corp. as surety.
Ong spouses and Tower assurance boun themselves olidarily to Hong.
Ong spuses did not appear at the Pre-trial so they were declared in default.
Lower court rendered a decision ordering Ong Spouses and Tower Assurance solidarily liable.
Tower Assurance filed a petition for certiorari assailing that the lower court acted with grave abuse of
discretion in issuing the writ of execution against the surety without first giving it an opportunity to be heard
as required in Rule 57.
o Sec. 17 of the Rules When execution returned unsatisfied, recovery had upon bond If the
execution be returned unsatisfied in whole or in part, the surety or sureties on any counterbond
given pursuant to the provisions of this rule to secure the payment of the judgement shall become
charged on such counterbond, and bound to ay to the judgment creditor upon demand, the amount
due under the judgment , which amount may be recovered from such surety or sureties after notice
and summary hearing in the same action.
Under Sec 17, in order that the judgment creditor might recover from the surety on 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 judgement; (3) that the surety be fiven notice and a summary hearing in the same action
as to his liability for the judgment under his counterbond.

ISSUE: WoN Tower Assurance is entitled to the benefit of excussion?

HELD:

NO

The 1st requisite is not applicable to this case because Tower Assurance assumed solidary liability for the
satisfaction of judgment.

A surety is not entitled to the exhaustion of properties of the principal debtor according to Art. 2959.

The surety, however, is entitled to be heard before an execution can be issued against him since he is not a
pary in the case involving his principal.

Notice and hearing constitute the essence of due process.

Writ of execution is set aside.

Cochingyan, Jr. v. R&B surety and Insurance Co.

1987
Facts:

Pacific Agricultural Suppliers Inc. (PAGRICO) applied for and was granted an increase in its line of credit from 400k
to 800k php with PNB.
To secure PNBs approval, PAGRICO had to give a sufficient bond in the amount of 400k, representing the
increase in its line of credit, to secure its faithful compliance with the terms and conditions under which its line of
credit was increased.
PAGRICO submitted a surety bond where PAGRICO and R & B Surety and Insurance Co. issued the specified
amount.
PNB had the right, under the surety bond, to proceed directly and against R & B without the necessity of first
exhausting the principal assets of PAGRICO.
The surety bond also provides that R & Bs liability was not limited to the 400k but also to the accrued interest an
other expenses.
2 identical identity agreements were entered into by R & B.
o
Agreement executed by Catholic Church Mart (CCM) executed by the petitioner Cochingyan were he
signed not only as president of CCM but also in his personal capacity.
o
Executed by PAGRICO, Villanueva and Beh where Villanueva signed both as manager of PAGRICO and
in his personal capacity. Mr. Liu signed both as president of PACOCO and in his individual capacity.
The indemnitors, under the agreement, bound themselves jointly and severally to R & B Surety to pay an annual
income of P5k for faithful compliance of the terms and condition.
The indemnity agreement further provided conditions.
PAGRICO failed to comply with its Principal Obligations to PNB so the latter demanded the payment from R & B for
the full amount.
R&B made a series of payments to PNB with the total of 70k php evidenced by receipts.
R&B sent formal demand letters to Cochingyan and Villanueva for the reimbursement of the payments made by it
to the PNB and for a discharge of its liability to the PNB under the surety bond.
TC: ordered the defendants to pay solidarily the plaintiffs 20k representing the unpaid premiums and the principal
amount.
Cochingyan in his defense said that the Indemnity Agreement he executed in favor of R&B
o
A.) did not express the true intent of the parties because he thought that the Indemnity Agreement was
merely in order to make it appear that R&B Surety had complied with the requirements of the bank.
o
B.) that it was executed so that R&B could show that it was complying with the regulations of the
Insurance Commission concerning bonding companies
o
C.) that R&B Surety had assured him that the execution of the agreement was a mere formality and that
he was to be considered a stranger ti the transaction bet. PNB and R&B
Villanuevas defenses were:
o
He executed the indemnity agreement only for accommodation purposes and that it did not express
their true intention
o
That the principal obligation of PAGRICO to PNB secured by a security bond had already been assumed
by CCM
o
Obligation was extinguished by novation arising from the change of debtor
o
That the filing of the complaint was premature.
Cochingyan did not present any evidence at all to support the asserted defenses.
Lower court decided on the basis of the Trust agreement and favored PNB ordering Cochingyan and Villanueva to
pay solidarily.

ISSUES:
1.) WoN the Trust Agreement had extinguished, by novation, the obligation of R&B Surety to the PNB under the surety
bond, in turn, had extinguished the obligations of the petitioners under the Indemnity Agreement.
2.) Whether the trust agreement extended the term of the surety bond so as to release petitioners from their obligation
as indemnitors thereof as they dod not give consent to the execution of the Trust Agreement.
HELD:
1.)

NO novation through a change of debtor. If subjective novation is to occur, it is not enough that the juridical relation
between the parties to the original contract is extended to a 3rd person

Trust Agreement expressly provides for the continuing subsistence of that obligation by stipulating that it (trust
agreement) shall not in any manner release R&B from its obligation under the Surety bond.

Neither petitioners can use implied novation.

Absent an unequivocal declaration of extinguishment of a pre-existing obligation, no novation.

In this case, the party to the new obligation expressly recognize the continuing existence and validity of the old
one, where, in other words, the parties expressly negated the lapsing of the old obligation, there can be no
novation.

The trust agreement did was, at most, merely bring in another person or persons, the Trustor(s) to assume the
same obligation that R&B was bound to perform under the surety bond.

The mere fact that the creditor receives a guaranty or accepts payments from a 3 rd person who has agreed to
assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does
not constitute a novation, and that the creditor can still enforce the obligation against the original debtor.
Trustor became directly liable to PNB. (3 obligors: PAGRICO, R&B, and Trustor)
PNB never intended to release and never did release R&B surety.

2.)

Indemnity Agreement speaks of the several indemnitors applying solidarily to the R&B to become surety in the
amount of 400k.
It suggests that the indemnitors (including petitioners) would become co-sureties on the security bond on favor of
PNB.
Petitioners simply remained as indemnitors bound to R&B but not to PNB. So PNB could not have directly
demanded payment of the Principal Obligation from the petitioners.
We do not see how Art. 2079 which provides that an extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty, could apply in the case.
The Principal Obligation had in fact already matured, along with that of R&B Surety , by the time the Trust
Agreement was entered into.
The mere failiure on the part of the creditor to demand payment after the debt has become due does not itseld
constitute extension of time.
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.
PETITION DENIED

Mercantile Insurance Co vs. Ysmael

10

2012
Facts:

Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his
personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. anindemnity agreement.
The defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound jointly and severally to indemnify the
plaintiff, from and against any and all payments, damages, costs, losses, penalties, charges and expenses which
said company as surety (MERICO Bond No. 0007) shall incur or become liable to pay.
Paragraph 3 of the indemnity agreement expressly provides: 3) ACCRUAL OF ACTION: Notwithstanding the
provisions of the next preceding paragraph, where the obligation involves a liquidated amount for the payment of
which the company has become legally liable under the terms of the obligation and its suretyship undertaking or by
the demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or extension for
payment of the latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability
irrespective of whether or not payment has actually been made by the COMPANY, the COMPANY for the
protection of its interest may forthwith proceed against the undersigned or either of them by court action or
otherwise to enforce payment even prior to making payment to the obligee which may hereafter be done by the
COMPANY. Tordesillas and Torres in their official capacities and the defendantsexecuted another indemnity
agreement with the plaintiff in consideration of the surety bond (MERICO Bond No. G (16) 0030.
In the indemnity agreement the same provisions of paragraph 3 is found. Later on, the amount of the Bond was
reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of the
aforesaid reduction is P100,000.00, P60,000.00 on Surety Bond No. 0007 plus P40,000.00 on Surety Bond No.
0030.
The defendants failed to pay the overdraft and credit line with the Philippine National Bank demanded from
Mercantil, settlement of itsobligation under surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March
6, 1970 and No. G (-16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) Attached to the
demand letter is a statement of account.
By letter of December 17, 1970, plaintiff company wrote a letter of demand to the defendants regarding the the
letter of demand of the Philippine National Bank sent to the plaintiff and demanding from the defendants the
settlement of said account.
The defendants failed to settle their obligation with the Philippine National Bank, on February 10, 1971, plaintiff
brought the present action. Lower court dismissed case for lack of cause of action, the plaintiffhas paid nothing in
the surety bonds, therefore, they have not suffered any actual damage and held that paragraph 3 of contract is
void. Defendants argued that to allow surety to receive indemnity or compensation for something it has not paid in
its capacity as surety would constitute unjust enrichment at the expense of another.

Issue: Whether or not surety can be allowed indemnification from the defendants-appellants, upon the latter's default
even before the former has paid to the creditor.
Held:

The overdraft line of Php1M and the credit line of Php1M applied for by the defendant was granted by the
Philippine National Bank on the strength of the two surety bonds denominated as Bond No. G(16) 0007 and
Bond No. G(16) 0030.
As security and in consideration of the execution of the surety bonds,the defendants executed with the plaintiff
identical indemnityagreements which provide that payment of indemnity or compensation may be claimed
whether or not plaintiff company has actually paid the same as provided in paragraph 3 of contract.
The cause of action was derived from the terms of the Indemnity Agreement, paragraph 3 thereof.
By virtue of the provisions of theIndemnity Agreement, defendants-appellants have undertaken to hold
plaintiff-appellee free and harmless from any suit, damage or liability which may be incurred by reason of nonperformance by the defendantsappellants of their obligation with the Philippine National Bank.
The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of
defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that the
obligee PNB may proceed against either of them for the satisfaction of the obligation.
There is no dispute as to meaning of the terms of the Indemnity Agreement. Having voluntarily entered into
such contract, the appellants cannot now be heard to complain.
Their indemnity agreement have the force and effect of law.
The principal debtors, defendants-appellants herein, are the same persons who executed the Indemnity
Agreement.
Thus, the positionoccupied by them is that of a principal debtor and indemnitor at the same time, and their
liability being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed against
either for fulfillment of the obligation as covered by the surety bonds.
There is no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does
not apply.

11

There is no more need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it
may proceed against defendants-appellants.

PNB vs. CA, Luzon Surety Co.

1987
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, Manila, Depusoy to furnish all materials, labor, plans, and supplies needed in the
construction.
Depusoy applied for credit accommodation with the plaintiff.
This was approved by the 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 to deposit P10,000.00 to the plaintiff. The total
accommodation granted to 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 P100,000.00. In compliance with these conditions, Depusoy executed a Deed of
Assignment of all money to be received by him from the GSIS to PNB.
Depusoy defaulted 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 bank.
The amount of the loan of Depusoy which remains unpaid, including 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 expressed 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."

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Peoples Bank and Trust Co. v. Tambunting

1971
Facts:
The bank and and spouses Tambunting executed a contract denominated overdraft agreement
and pledge wherein the bank granted the spouses an overdraft from time to time on their current
account with the plaintiff bank not to exceed 200K php with interest at 9% PA.
Proceeds were to be used by Tambuntings logging operations.
Santana, as GUARANTOR, and the spouses Tambunting conveyed to the bank shares of capital
stock of the International Sports Development Sports Corporation as collateral security for
payment.
On the same day, Santana executed a document denominated as absolute guarantee, in which in
consideration of the overdraft agreement and pledge he bound himself to the bank jointly and
severally with Tambunting spouses for the full and prompt payment of all indebtedness incurred
or to be incurred on account of the overdraft line.
Tambunting had several requests from the bank for renewals and extensions of the overdraft
agreement which led to their default upon failure to pay.
Spouses did not dispute their indebtedness.
Santana, however, contends that he was released from his obligation on the overdraft line
because the plaintedd had extended the time of payment and released to the Tambuntings
without his consent, 135 shares of stocks. (CC 2079)
He invokes CC 2080 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.
TC: the contract of absolute guaranty, Santana waived his rights to the benefit conferred by such
a provision.
Defense: what was agreed upon was bereft of binding force.
Issue: WoN the contract of absolute guaranty waived Santanas rights to be released? YES
Held:

Santana consented in advance to release the guaranty which the bank might make, Santana
cannot now complain that the releas of the pledge was without his consent and that it deprived
him to be subrogated.
The waiver is not contrary to law nor from public policy.
The law does not prohibit the debtor-guarantor from agreeing in advance and without notice to
the release of any security which had been given to assure payment of the obligation.
The contract of absolute guarantee expressly authorized the bank to extend the time of payment
and to release or surrender any security or part thereof held by it without notice or consent of
Santana.
If there were no such contract of absolute guarantee to which Santana was a party under the
aforesaid Article 2080, he could have freed from the obligation as a result of the plaintiff releasing
to the Tambuntings without his consent the shares to secure the overdraft line.
CC 2080 is a provision that is intended for the benefit of the surety which is a right that he could
avail of and he is also not precluded from waiving it which Santana did.
A right may be waived unless it would be contrary to law.
The lower court was right in yielding full assent to the waiver in question,

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PNB vs. Manila Surety & Fidelity Co.

1965
Facts:
PNB had opened a letter of credit and advanced thereon $120k to Edgington Oild Refinery for 8k
tons of hot asphalt
Of this amount, 2k tons worth $280k were released and delivered to ATACO (Adams and Taguba
Corporation)
This is under a trust receipt guaranteed by Manila Surety & Fidelity Co. up to the amount of 75K
php.
To pay for the asphalt, ATACO constituted the bank as its assignee and attorney-in-fact to receive
and collect from the Bureau of Public Works
ATACO delivered to the BPW the asphalt to the total value of $400K dollars.
The bank regularly collected for 7 months and thereafter, for unexplained reasons, PNB ceased
to collect
Investigators found that more moneys were were payable from ATACO from the Public Works
Office, because the latter had allowed another creditor to collect funds due to ATACO under the
same purchase order to a total of 300K php.
PNB was negligent in its duty under the power of attorney to collect sums due to debtor from the
latters debtor, thereby allowing such funds to be exhausted by other creditors.
TC favored PNB, ordering ATACO and Manila Surety liable.
CA reversed TC decision and found the bank necligent in stopping its collection from PBW
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 ATACO was
considered as a mere additional security, still, by allowing the assigned funds to be exhausted
without notifying Manila Surety, PNB deprived the former of the possibility of taking recourse
against the security.
PNB thereby exonerated Manila Surety, pursuant to Art. 2080.
Because of the banks inactivity, the other creditors were abled to collect
Art. 2080 the guarantors, even though they be solidarily, 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.

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Prudencio v. CA
1986
Facts:

Oct 7 1954: Spouses Eulalio and Elisa Prudencios, registered owners of a parcel of land mortgaged to Philippine
National Bank (PNB) to guarantee a loan of P1,000.00 extended to Domingo Prudencio
1955: Concepcion & Tamayo Construction Company (Concepcion) had a pending contract with the Bureau of
Public Works (Bureau) for the construction of the municipal building in Puerto Princess, Palawan amounting to
P36,800.00
In need of funds, Jose Toribio, Concepcions' relative, and attorney-in-fact of the Company, approached PNB to
mortgage their property to secure the loan of P10,000.00 w/ PNB.
The terms and conditions of the original mortgage for P1,000.00 were made integral part of the new mortgage for
P10,000.00 and both documents were registered with the Register of Deeds
Dec 23 1955:promissory note covering the loan of P10,000.00 dated Dec 29 1955, maturing on Apr 27 1956, was
signed by Jose Toribio, as attorney-in-fact of the Company, and by the Prudencios'
Deed of Assignment assigning all payments to be made by the Bureau to the Co. on account of the contract for the
construction in favor of the PNB.
PNB approved the Bureau's release of 3 payments directly to Concepcion for material and labor instead of paying
the same to the Bank on account of the contract price totalling P11,234.40 without the knowledge of the
Prudencios'
PNB did not apply the initial and subsequent payments to the Prudencios' debt as provided for in the deed of
assignment
Jun 30 1956: Concepcion abandoned their work so Bureau rescinded the construction contract and assumed the
work of completing
Jun 27 1959: Concepcion filed to cancelled their mortgage
Complaint was amended to exclude the Company as defendant, it having been shown that its life as a partnership
had already expired and, in lieu thereof, Ramon Concepcion and Manuel M. Tamayo, partners of the defunct
Company, were impleaded in their private capacity as defendants.
RTC: Denied
CA affirmed
No stipulation in the deed making it obligatory on the part of the PNB to notify the petitioners everytime it
authorizes payment to the Company
Prudencios' contend that as accommodation makers, the nature of their liability is only that of mere sureties
instead of solidary co-debtors such that "a material alteration in the principal contract, effected by the creditor
without the knowledge and consent of the sureties, completely discharges the sureties from all liability on the
contract of suretyship.

ISSUE: WoN Spouses Pudencios are liable as mere sureties? Or as solidary co-debtors?
HELD:

There is no question that as accommodation makers, petitioners would be primarily and unconditionally liable on
the promissory note to a holder for value, regardless of whether they stand as sureties or solidary co-debtors since
such distinction would be entirely immaterial and inconsequential as far as a holder for value is concerned.
Consequently, the petitioners cannot claim to have been released from their obligation simply because at the
time of payment of such obligation was temporarily deferred by the PNB without their knowledge and
consent.
There has to be another basis for their claim of having been freed from their obligation.
It has to be determined if PNB was a holder for value.
A holder for value is one who meets the requirement of being a holder in due course except the notice for want of
consideration.
In the case at bar, PNB may not be considered as a holder for value.
Not only was PNB an immediate party or privy to the promissory note, knowing fully well that petitioners
only signed as accommodation parties, but more importantly it was the Deed of Assignment which moved the
petitioners to sign the promissory note.
Petitioners also relied on the belief that there will be no alterations to the terms of the agreement.

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The deed provided that there will no further conditions which could possibly alter the agreement without the
consent of the petitioner such as the grant of greater priority to obligations other than the payment of the
loan.
This notwithstanding, the bank approved the release of payments to the Company instead of the same to
the bank.
This was in violation of the deed of assignment and prejudiced the rights of petitioners.
The bank was not in good faitha requisite for a holder to be one in due course.

SECURITY BANK V. CUENCA

2000
Facts:
Being an onerous undertaking, a surety agreement is strictly construed against the creditor, and
every doubt is resolved in favor of the solidary debtor.
The fundamental rules of fair play require the creditor to obtain the consent of the surety to any
material alteration in the principal loan agreement, or at least to notify it thereof.
Hence, petitioner bank cannot hold herein respondent liable for loans obtained in excess of the
amount or beyond the period stipulated in the original agreement, absent any clear stipulation
showing that the latter waived his right to be notified thereof, or to give consent thereto.
This is especially true where, as in this case, respondent was no longer the principal officer or
major stockholder of the corporate debtor at the time the later obligations were incurred.
He was thus no longer in a position to compel the debtor to pay the creditor and had no more
reason to bind himself anew to the subsequent obligations.
Continuing Surety
Issue: Contending that the Indemnity Agreement was in the nature of a continuing surety, petitioner
maintains that there was no need for respondent to execute another surety contract to secure the 1989
Loan Agreement. Correct? NO.
Held: That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the
scope of the principal obligation inordinately.
In Dino v. CA, the Court held that a continuing guaranty is one which covers all transactions, including
those arising in the future, which are within the description or contemplation of the contract of guaranty,
until the expiration or termination thereof.
To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit
accommodation:
1.
2.

that the obligation should not exceed P8 million, and

that the accommodation should expire not later than November 30, 1981. Hence, it was a continuing
surety only in regard to loans obtained on or before the aforementioned expiry date and not exceeding the
total of P8 million.
In Dino, the surety Agreement specifically provided that each suretyship is a continuing one which shall
remain in full force and effect until this bank is notified of its revocation. Since the bank had not been
notified of such revocation, the surety was held liable even for the subsequent obligations of the principal
borrower.

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