PNB vs. Se, Jr.

A prior judgment holding that a party is a warehouseman obligated to deliver sugar stocks covered by the
warehouse receipts does not necessarily carry with it a denial of its lien over the same sugar stocks. Thus
where the judgment creditor (in this case PNB) makes an unconditional presentment of warehouse receipts for
delivery of sugar stocks against the warehouseman (Noah’s Ark), it thereby admits the existence and validity of
the terms, conditions and stipulations written on the face of the warehouse receipts, including the unqualified
recognition of the payment of warehouseman’s lien for storage fees and preservation expenses. Thus, PNB
may not retrieve the sugar stocks without paying the warehouseman’s lien.
The warehouseman need not file a separate action to enforce payment of storage fees. He may enforce his
lien before delivering the sugar stocks covered by the warehouse receipts.

PHILIPPINE NATIONAL BANK, petitioner, vs. HON. PRES. JUDGE BENITO C. SE, JR., RTC, BR. 45,
MANILA; NOAH’S ARK SUGAR REFINERY; ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T. GO,
respondents. G.R. No. 119231. April 18, 1996

FACTS:
• In accordance with Act No. 2137, the Warehouse Receipts Law, Noah’s Ark Sugar Refinery issued on
several dates, 5 Warehouse Receipts (Quedans).
• They were endorsed and negotiated to Ramos and Zoleta. They failed to pay their loans upon maturity. So,
PNB wrote to Noah’s Ark Sugar Refinery demanding delivery of the sugar stocks covered by the quedans
endorsed to it by Zoleta and Ramos.
• Noah’s Ark Sugar Refinery refused. So, PNB filed a complaint for “Specific Performance with Damages and
Application for Writ of Attachment”.
• Respondent Judge Benito C. Se, Jr., in whose sala the case was raffled, denied the Application for
Preliminary Attachment.

HELD: Under the subject Warehouse Receipts provision, storage fees are chargeable. PNB is legally bound to
stand by the express terms and conditions on the face of the Warehouse Receipts as to the payment of
storage fees. Even in the absence of such a provision, law and equity dictate the payment of the
warehouseman’s lien pursuant to Sections 27 and 31 of the Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehouseman’s lien. – Subject to the provisions of section
thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in his hands, for all
lawful charges for storage and preservation of the goods; also for all lawful claims for money advanced,
interest, insurance, transportation, labor, weighing coopering and other charges and expenses in relation to
such goods; also for all reasonable charges and expenses for notice, and advertisement of sale, and for sale of
the goods where default has been made in satisfying the warehouseman’s lien.
SECTION 31. Warehouseman need not deliver until lien is satisfied. – A warehouseman having a lien valid
against the person demanding the goods may refuse to deliver the goods to him until the lien is satisfied.
After being declared as the warehouseman, PRs cannot legally be deprived of their right to enforce their claim
for warehouseman’s lien, for reasonable storage fees and preservation expenses. Pursuant to Section 31
which we quote earlier, the goods under storage may not be delivered until said lien is satisfied.
• Considering that PNB does not deny the existence, validity and genuineness of the Warehouse Receipts on
which it anchors its claim for payment against PRs, it cannot disclaim liability for the payment of the storage
fees stipulated therein.
PNB is in estoppel in disclaiming liability for the payment of storage fees due the PRs as warehouseman while
claiming to be entitled to the sugar stocks covered by the subject Warehouse Receipts on the basis of which it
anchors its claim for payment or delivery of the sugar stocks. The unconditional presentment of the receipts by
PNB for payment against PRs on the strength of the provisions of the Warehouse Receipts Law (R.A. 2137)
carried with it the admission of the existence and validity of the terms, conditions and stipulations written on the
face of the Warehouse Receipts, including the unqualified recognition of the payment of warehouseman’s lien
for storage fees and preservation expenses. PNB may not now retrieve the sugar stocks without paying the
lien due PRs as warehouseman.
RULE: While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in
accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods by
surrendering possession thereof. In other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien, because a warehouseman’s lien is possessory
in nature.
WHEREFORE, the petition should be, as it is, hereby dismissed for lack of merit.
PNB vs. HON. MARCELINO L. SAYO, JR, NOAH'S ARK G.R. No. G.R. No. 129918
SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T.
GO and WILSON T. GO
Date July 9, 1998 Ponente DAVIDE, JR.
TOPIC IN SYLLABUS: Warehouse Receipts Law
SUMMARY: Noah's Ark Sugar Refinery issued Warehouse Receipts (Quedans) covering sugar deposited by Sy,
RNS Merchandising, and St. Therese Merchandising. These Warehouse Receipts were negotiated and
endorsed to Ramos and to Zoleta. Ramos and Zoleta then used the quedans as security for loan from the
PNB. The quedans were endorsed by them to PNB. Ramos and Zoleta failed to pay their loans upon maturity.
Hence, PNB wrote to Noah's Ark demanding delivery of the sugar stocks covered by the quedans endorsed to
it by Zoleta and Ramos. Noah's Ark Sugar Refinery refused to comply with the demand alleging ownership
thereof. SC held that private respondents may enforce their warehouseman’s lien and that PNB is liable for
storage fees.

PROCEDURAL ANTECEDENTS:
In this special civil action for certiorari, actually the third dispute between the same private parties to have
reached this Court, petitioner asks us to annul the orders issued by the Regional Trial Court, Manila, Branch
45.

FACTS:
In accordance with the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued on several dates
Warehouse Receipts (Quedans) covering sugar deposited by Rosa Sy, RNS Merchandising, and St. Therese
Merchandising. The receipts are substantially in the form, and contains the terms, prescribed for negotiable
warehouse receipts by Section 2 of the law.

Subsequently, Warehouse Receipts were negotiated and endorsed to Luis T. Ramos and to Cresencia K.
Zoleta. Ramos and Zoleta then used the quedans as security for two loan agreements — one for P15.6 million
and the other for P23.5 million — obtained by them from the PNB. The aforementioned quedans were
endorsed by them to PNB.

Ramos and Zoleta failed to pay their loans upon maturity. Hence, PNB wrote to Noah's Ark Sugar Refinery
demanding delivery of the sugar stocks covered by the quedans endorsed to it by Zoleta and Ramos. Noah's
Ark Sugar Refinery refused to comply with the demand alleging ownership thereof. It alleged that the owner of
Noah’s Ark, Looyuko, entered into an agreement with RNS and St. Therese Merchandising to sell the sugar
indicated in the warehouse receipts stored in Noah for an amount of P63,000,000. Checks were issued but
they were dishonored for being drawn against insufficient funds. PNB filed with the RTC of Manila a verified
complaint for "Specific Performance with Damages and Application for Writ of Attachment" against Noah's Ark
Sugar Refinery, Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go, the last three being identified as the sole
proprietor, managing partner, and Executive Vice President of Noah's Ark, respectively. RTC dismissed said
complaint. MR denied.

On appeal to the SC via petition for review on certiorari, the Supreme Court ordered Noah’s Ark and its owner,
Looyuko, to deliver to PNB the sugar stocks covered by the warehouse receipts in controversy. However,
Noah’s Ark filed an Omnibus Motion seeking deferment of the judgment until it was heard on its
warehouseman’s lien. RTC granted the order and evidence was received in support thereof. RTC adjudged
that there existed a valid lien in favor of Noah’s Ark, and accordingly, execution of the judgment against Noah’s
Ark should be stayed until the full amount of Noah’s lien shall have been satisfied. PNB then filed certiorari
proceedings before the Supreme Court. The SC held that while PNB was entitled to the sugar stocks as
endorsee of the receipts, delivery to it shall only be effected upon payment of the storage fees. The Supreme
Court further ruled that imperative is the right of the warehouseman to demand payment of his lien because he
loses his lien upon goods by surrendering possession thereof.RTC Judge Sayo, Jr. allowed a writ of execution
in favor of Noah to collect on its warehouseman’s lien against PNB. Hence, this certiorari proceeding before
the Supreme Court.

ISSUES:
1. WON private respondents may enforce their warehouseman’s lien. YES.
2. WON PNB is liable for storage fees. YES.

RULING:
1. Under the Special Circumstances in This Case, Private Respondents May Enforce Their
Warehouseman's Lien.
The remedies available to a warehouseman, such as private respondents, to enforce his warehouseman's lien
are:
(1) To refuse to deliver the goods until his lien is satisfied, pursuant to Section 31 of the Warehouse Receipt
Law;
(2) To sell the goods and apply the proceeds thereof to the value of the lien pursuant to Sections 33 and 34 of
the Warehouse Receipts Law; and
(3) By other means allowed by law to a creditor against his debtor, for the collection from the depositor of all
charges and advances which the depositor expressly or impliedly contracted with the warehouseman to pay
under Section 32 of the Warehouse Receipt Law; or such other remedies allowed by law for the enforcement
of a lien against personal property under Section 35 of said law. The third remedy is sought judicially by suing
for the unpaid charges.
CAB: Initially, private respondents availed of the first remedy. While the most appropriate remedy for private
respondents was an action for collection, SC already recognized their right to have such charges and fees
determined. The import of SC’s holding was that private respondents were likewise entitled to a judgment on
their warehouse charges and fees, and the eventual satisfaction thereof, thereby avoiding having to file
another action to recover these charges and fees, which would only have further delayed the resolution of the
respective claims of the parties, and as a corollary thereto, the indefinite deferment of the execution of the
judgment. Thus we note that petitioner, in fact, already acquiesced to the scheduled dates previously set for
the hearing on private respondents' warehouseman's charges. But, it would be premature to execute the order
fixing the warehouseman's charges and fees.

2. Petitioner is Liable for Storage Fees.

Petitioner insisted that it was a mere pledgee as the quedans were used to secure two loans it granted.
The SC agreed with this and held that the indorsement and delivery of the receipts by Ramos and Zoleta to
PNB was not to convey title to or ownership of the goods but to secure the loans by way of pledge. The
indorsement of the receipts to perfect the pledge merely constituted a symbolical or constructive delivery of the
possession of the thing thus encumbered. The creditor, in a contract of real security, like pledge, cannot
appropriate without foreclosure the things given by way of pledge. Any stipulation to the contrary is null and
void for being pactum commissorio. The law requires foreclosure in order to allow a transfer of title of the
goods given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee,
is theowner of the goods. However, the SC held that the warehouseman nevertheless is entitled to his lien that
attaches to the goods invokable against anyone who claims a right of possession thereon.

The SC held that where a valid demand by the lawful holder of the receipts for the delivery of the goods is
refused by the warehouseman, despite the absence of a lawful excuse provided by the law itself, the
warehouseman’s lien is thereafter concomitantly lost. As to what the law deems a valid demand, Section 8 of
the Warehouse Receipts Law enumerates what must accompany a demand; while as regards the reasons
which a warehouseman may invoke to legally refuse to effect delivery of the goods covered by the quedans,
these are:
(1) That the holder of the receipt does not satisfy the conditions prescribed in Section 8 of the Act. (See Sec. 8,
Act No. 2137)
(2) That the warehouseman has legal title in himself on the goods, such title or right being derived directly or
indirectly from a transfer made by the depositor at the time of or subsequent to the deposit for storage, or from
the warehouseman's lien. (Sec. 16, Act No. 2137)
(3) That the warehouseman has legally set up the title or right of third persons as lawful defense for non-
delivery of the goods
(4) That the warehouseman having a lien valid against the person demanding the goods refuses to deliver the
goods to him until the lien is satisfied. (Sec. 31 Act No. 2137)
(5) That the failure was not due to any fault on the part of the warehouseman, as by showing that, prior to
demand for delivery and refusal, the goods were stolen or destroyed by fire, flood, etc., without any negligence
on his part, unless he has contracted so as to be liable in such case, or that the goods have been taken by the
mistake of a third person without the knowledge or implied assent of the warehouseman, or some other
justifiable ground for non-delivery.

The SC explained that regrettably, the factual settings do not sufficiently indicate whether the demand to obtain
possession of the goods complied with Sec. 8. The presumption, nevertheless, would be that the law was
complied with. On the other hand, it would appear that the refusal of Noah’s Ark to deliver the goods was not
anchored on a valid excuse, i.e., non-satisfaction of the lien over the goods, but on an adverse claim of
ownership. Under the circumstances, this hardly qualified as a valid, legal excuse. The loss of the lien,
however, does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and
charges which continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in this
case. But even as to the owners-pledgors, the warehouseman fees and charges have ceased to accrue from
the date of the rejection by Noah to heed the lawful demand by PNB for the release of the goods. Hence, the
time from which the fees and charges should be made payable is from the time Noah’s Ark refused to heed
PNB’s demand for delivery of the sugar stocks and in no event beyond the value of the credit in favor of the
pledgee since it is basic that, in foreclosures, the buyer does not assume the obligations of the pledgor to his
other creditors even while such buyer acquires title over the goods less any existing preferred lien thereover.
 Atok Finance vs Court of Appeals

Facts:

On July 27, 1979, private respondents Sanyu Chemical Corporation as principal and Sanyu Trading
Corporation along with private individual private stock holders of Sanyu Chemical as sureties, executed a
Continuing Suretyship Agreement in favor of Atok Finance as creditor.

In 1981, Sanyu Chemical assigned its trade receivables outstanding to Atok Finance in consideration of receipt
from Atok Finance of the amount of 105,000. The assigned receivables carried a standard term for thirty days;
it appeared; however that the standard commercial practice was to grant an extension of up to 120 days
without penalties.
In 1984, the petitioner commence an action against private respondents before the RTC of Manila to collect a
sum of money plus penalty charges starting from September 1, 1983. The Finance Corporation alleged that he
failed to collect and remit the amounts due under the trade receivables.

Private respondents sought the dismissal of the claim on the ground that such claim had prescribed under Art.
1629 and lack of cause of action. They contended that the Continuing Suretyship Agreement , being an
accessory contract ,was null and void since, at the time of its execution, Sanyu Chemical had no pre existing
obligation due to Atok Finance.
The trial court ruled in favor of the petitioners. On appeal reversed and set aside the decision of the trial and
court and dismiss the complaint of Atok Finance.

Issues:
Whether the individual private respondents may be held solidarity liable with Sanyu Chemical under the
provisions of the Continuing Suretyship Agreement, or whether that Agreement must be held null and void as
having been executed without consideration and without a pre-existing principal obligation to sustain it.

Whether private respondents are liable under the Deed of Assignment which they, along with principal debtor
Sanyu Chemical, executed in favor of the petitioner , on the receivables thereby assigned.

Ruling :
I. No. the Continuing Suretyship Agreement must not be held null and void. (di ko sure unsaon pag interpret)
Article 2053. — A guarantee may also be given as security for future debts, the amount of which is not yet
known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may
also be secured.
the "future debts" referred to in that Article relate to "debts already existing at the time of the constitution of the
agreement but the amount [of which] is unknown," and not to debts not yet incurred and existing at that time.
Of course, a surety is not bound under any particular principal obligation until that principal obligation is born.
But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid
and binding even before the principal obligation intended to be secured thereby is born, any more that there
would be in saying that obligations which are subject to a condition precedent are valid and binding before the
occurrence of the condition precedent.
Ps. Pwede ra di ninyo kopyahon ang red just for the sake of comprehension lang.TY
Comprehensive or continuing surety agreements are in fact quite common place in present day financial and
commercial practice. A bank or a financing company which anticipates entering into a series of credit
transactions with a particular company, commonly requires the projected principal debtor to execute a
continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself
in a position to enter into the projected series of transactions with its creditor; with such surety agreement,
there would be no need to execute a separate surety contract or bond for each financing or credit
accommodation extended to the principal debtor. As we understand it, this is precisely what happened in the
case at bar.
II.
Yes respondents are liable under receivables assigned to atok finance under the terms of such
receivable.
Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of Appeals is not, in
the case at bar, material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the
warranty of solvency; the liability of Sanyu Chemical was not ex lege (ex Article 1629) but rather ex contractu.
Under the Deed of Assignment, the effect of non-payment by the original trade debtors was breach of warranty
of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the
receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms
of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu
Chemical became, under the terms of the Deed of Assignment, solidary obligor under each of the assigned
receivables, the other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili),
became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing
Suretyship Agreement. Put a little differently, the obligations of individual private respondent officers and
stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting
obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the
operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting
period set out in Article 1629 of the Civil Code.
 EMMANUEL C. ONGSIAKO v. WORLD WIDE INSURANCE +

DECISION
104 Phil. 61

BAUTISTA ANGELO, J.:

On November 10, 1951, Catalina de Leon executed in favor of Augusto V. Ongsiako a promissory note in the
amount of P1,200.00, payable ninety (90) days after date, with interest at 1 per cent per month. On the same
date, a surety bond was executed by Catalina de Leon, as principal, and the World Wide Insurance & Surety
Co., Inc., as surety, whereby they bound to pay said amount jointly and severally to Augusto V. Ongsiako. As
the obligation was not paid on its date of maturity either by Catalina de Leon or by the surety notwithstanding
the demands made upon them, Ongsiako brought this action on March 6, 1953 in the Municipal Court of
Manila to recover the same from both the principal and the surety. Judgment having been rendered for the
plaintiff, both defendants appealed to the court of first instance. In the latter court, Catalina de Leon failed to
answer and so she was declared in default. In due time the surety company filed its answer setting up a
counterclaim against plaintiff and a cross-claim against its co-defendant.

After hearing, the court rendered judgment ordering Catalina de Leon to pay plaintiff the sum of P1,200.00,
with interest at the rate of 1 per cent per month from February 10, 1952, and the sum of P300.00 as attorneys'
fees, and costs. Defendant surety company was likewise ordered to pay to plaintiff the same judgment but with
the proviso that "execution should not issue against defendant The World-Wide Insurance & Surety Co., Inc.,
until a return is made by the Sheriff upon execution against defendant Catalina de Leon showing that the
judgment against her remained unsatisfied in whole or in part; and provided, further, that defendant Catalina de
Leon shall reimburse to defendant Company whatever amount the latter might pay under this judgment
together with such expenses as may be necessary to effectuate said reimbursement." From this judgment, the
surety company appealed and the case is now before us because, as certified by the Court of Appeals, it only
involves questions of law. Augusto V. Ongsiako, having died in the meantime, was substituted by his special
administrators Emmanuel Ongsiako and Severino Santiangco.

The surety bond in question was executed in November 10, 1951 and among the important provisions it
contains is the following: that the principal and the surety "are held and firmly bound unto Dr. Augusto V.
Ongsiako in the sum of One Thousand Two Hundred Pesos (P1,200.00), Philippine Currency, for the payment
of which well and truly to be made, we bind ourselves * * * jointly and severally, firmly by these presents" (and
referring to the Promissory Note) "whose terms and conditions are made parts hereof." In said bond there also
appears a special condition which recites: "The Liability of the World-Wide Insurance & Surety Go., Inc. under
this bond will expire on February 10, 1952." The note therein referred to, on the other hand, provides that the
obligation is payable ninety days from date of issue, November 10, 1951, which means that its date of maturity
is February 10, 1952. The evidence shows that neither the principal nor the surety paid the obligation on said
date of maturity and immediately thereafter demands for payment were made upon them. Thus, it appears that
as early as February 12, 1952, or two days thereafter, the creditor wrote to the surety company a letter
notifying it of the failure of its principal to pay the obligation and requesting that it make good its guaranty under
the bond (Exhibit B), which demand was reiterated in subsequent letters (Exhibits C, D and E). To these
demands, the company merely set up the defense that it only acted as a guarantor and as such its liability
cannot be exacted until after the property of the principal shall have been exhausted (Exhibit G).

It therefore appears that appellant has no justification whatever to resist the claim of the plaintiff for in the
judgment appealed from it is precisely provided that execution of judgment should not issue against it until after
it is shown that the execution of the judgment against the principal has been returned by the sheriff unsatisfied,
which was the only excuse given by said appellant in not fulfilling its commitment under the bond. And yet it
appealed from said judgment just to put up the additional defense that its liability under the bond has already
expired because of the condition that its liability shall expire on February 10, 1952. Even if this were true, we
consider however this stipulation as unfair and unreasonable for it practically nullifies the nature of the
undertaking assumed by appellant. It should be noted that the principal obligation is payable ninety days from
date of issue, which falls on February 10, 1952. Only on this date can demand for payment be made on the
principal debtor. If the debtor should fail to pay and resort is made to the surety for payment on the next day, it
would be unfair for the latter to allege that its liability has already expired. And yet such is the stand taken by
appellant. As the terms of the bond should be given a reasonable interpretation, it is logical to hold that the
liability of the surety attaches as soons as the principal debtor defaults, and notice thereof is given the surety
within reasonable time to enable it to take steps to protect its interest. This is what was done by appellee in the
present case. After all, the surety has a remedy under the law which is to foreclose the counterbond put up by
the principal debtor. This is in effect what was done by the lower court.

This Court has taken note of the reprehensible attitude adopted by the surety company in this case by
resorting to improper means in an effort to evade its clear responsibility under the law. An instance of such
attitude is the insertion in the bond of a provision which in essence tends to nullify its commitment. This is a
subtle way of making money thru trickery and deception. Such practice should be stopped if only to protect
honest dealers or people in financial stress. Because of such improper conduct, this Court finds no justification
for the present appeal and considers it frivolous and unnecessary. For this appellant should be made to pay
treble costs.

Wherefore, the decision appealed from is affirmed, with treble costs against appellant
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-48958 June 28, 1988

CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner,

vs.
COURT OF APPEALS and PASCUAL M. PEREZ, respondents.

F. Sumulong & Associates Law Offices for petitioner.

GUTIERREZ, JR., J.:

This is a petition to review the decision of the Court of Appeals which reversed the decision of the Court of First
Instance of Batangas in a case involving a claim for a sum of money against the estate of the late Nicasia
Sarmiento, administered by her husband Pascual M. Perez.

On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631 and 2632 to guarantee
compliance by the principal Pascual M. Perez Enterprises of its obligation under a "Contract of Sale of Goods"
entered into with the Singer Sewing Machine Co. In consideration of the issuance of the aforesaid bonds,
Pascual M. Perez, in his personal capacity and as attorney-in-fact of his wife, Nicasia Sarmiento and in behalf
of the Pascual M. Perez Enterprises executed on the same date two (2) indemnity agreements wherein he
obligated himself and the Enterprises to indemnify the petitioner jointly and severally, whatever payments
advances and damage it may suffer or pay as a result of the issuance of the surety bonds.

In addition to the two indemnity agreements, Pascual M. Perez Enterprises was also required to put up a
collateral security to further insure reimbursement to the petitioner of whatever losses or liabilities it may be
made to pay under the surety bonds. Pascual M. Perez therefore executed a deed of assignment on the same
day, December 4,1959, of his stock of lumber with a total value of P400,000.00. On April 12, 1960, a second
real estate mortgage was further executed in favor of the petitioner to guarantee the fulfillment of said
obligation.

Pascual M. Perez Enterprises failed to comply with its obligation under the contract of sale of goods with
Singer Sewing Machine Co., Ltd. Consequently, the petitioner was compelled to pay, as it did pay, the fair
value of the two surety bonds in the total amount of P144,000.00. Except for partial payments in the total sum
of P55,600.00 and notwithstanding several demands, Pascual M. Perez Enterprises failed to reimburse the
petitioner for the losses it sustained under the said surety bonds.

The petitioner filed a claim for sum of money against the estate of the late Nicasia Sarmiento which was being
administered by Pascual M. Perez.

In opposing the money claim, Pascual M. Perez asserts that the surety bonds and the indemnity agreements
had been extinguished by the execution of the deed of assignment. After the trial on the merits, the Court of
First Instance of Batangas rendered judgment on April 15, 1968, the dispositive portion of which reads:

WHEREFORE, considering that the estate of the late, Nicasia Sarmiento is jointly and severally
liable to the Citizens' Surety and Insurance Co., Inc., for the amount the latter had paid the
Singer Sewing Machine Company, Ltd., the court hereby orders the administrator Pascual M.
Perez to pay the claimant the sum of P144,000.00, with interest at the rate of ten (10%) per cent
per annum from the date this claim was filed, until fully paid, minus the payments already made
in the amount of P55,600.00." (pp. 97-98, Record on Appeal)

Both parties appealed to the Court of Appeals, On August 31, 1978, the Court of Appeals rendered its decision
with the following dispositive portion:

WHEREFORE, the decision rendered by the Court of First Instance of Batangas on April 15,
1986 is hereby reversed and set aside and another one entered dismissing the claim of the
Citizens' Surety and Insurance Co., Inc., against the estate of the late Nicasia Sarmiento. No
pronouncement as to costs. (p. 37, Rollo)

The petitioner raises the following alleged errors of the respondent court as the issues in this petition for
review:

RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE OBLIGATION OF PRIVATE

RESPONDENT PASCUAL M. PEREZ HAD BEEN EXTINGUISHED BY VIRTUE OF THE EXECUTION OF
THE DEED OF ASSIGNMENT (EXHIBIT "1") AND/OR THE RELEASE OF THE SECOND REAL ESTATE
MORTGAGE (EXHIBIT "2").

II

RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE WAS DATION IN PAYMENT
BY VIRTUE OF THE EXECUTION OF THE DEED OF ASSIGNMENT (EXHIBIT "1").

III

RESPONDENT COURT OF APPEALS ERRED WHEN IT TOTALLY REVERSED AND SET ASIDE THE
DECISION OF THE COURT OF FIRST INSTANCE OF BATANGAS THUS DEPRIVING PETITIONER OF
THE PRINCIPAL SUM DUE PLUS INTEREST AND ATTORNEY'S FEES. (p. 4, Petitioner's Brief)

The main issue in this petition is whether or not the administrator's obligation under the surety bonds and
indemnity agreements had been extinguished by reason of the execution of the deed of assignment.

It is the general rule that when the words of a contract are plain and readily understandable, there is no room
for construction thereof (San Mauricio Milling Co. v. Ancheta, 105 SCRA 371). However, this is only a general
rule and it admits exceptions.

Pascual M. Perez executed an instrument denominated as "Deed of Assignment." Pertinent portions of the
deed read as follows:

I, Pascual M. Perez, Filipino, of legal age, married, with residence and postal address at 115 D.
Silang, Batangas, as the owner and operator of a business styled "PASCUAL M. PEREZ
ENTERPRISES," with office at R-31 Madrigal Building, Escolta, Manila, hereinafter referred to
as ASSIGNOR, for and in consideration of the issuance in my behalf and in favor of the
SINGER SEWING MACHINE COMPANY, LTD., of two Surety Bonds (CSIC) Bond Nos. 2631
and 2632 each in the amount of SEVENTY TWO THOUSAND PESOS (P72,000.00), or with a
total sum of ONE RED FORTY-FOUR THOUSAND PESOS (Pl44,000.00), Philippine Currency,
by the CITIZENS' SURETY AND INSURANCE CO., INC., a corporation duly organized and
existing under and by virtue of the laws of the Republic of the Philippines, with principal office at
R-306 Samanillo Building, Escolta, Manila, Philippines, and duly represented in the act by its
Vice-President and General Manager, ARISTEO L. LAT, hereinafter referred to as ASSIGNEE,
assign by these presents, unto said ASSIGNEE, its heirs, successors, administrators or assigns
the herein ASSIGNOR'S stock (Insured) of low grade lumber, class "No. 2 COMMON" kept and
deposited at Tableria Tan Tao at Batangas, Batangas, with a total measurement of Two Million
(2,000,000.00) board feet and valued of P0.20 per board feet or with a total value of
P400,000.00 which lumber is intended by the ASSIGNOR for exportation under a Commodity
Trade Permit, the condition being that in the event that the herein assignor exports said lumber
and as soon as he gets the necessary export shipping and related and pertinent documents
therefor, the ASSIGNOR will turn said papers over to the herein ASSIGNEE, conserving all of
the latter's dominion, rights and interests in said exportation.

The ASSIGNEE hereby agrees and accepts this assignment under the conditions above-
mentioned. (pp. 77-79, Record on Appeal)

On its face, the document speaks of an assignment where there seems to be a complete conveyance of the
stocks of lumber to the petitioner, as assignee. However, in the light of the circumstances obtaining at the time
of the execution of said deed of assignment, we can not regard the transaction as an absolute conveyance. As
held in the case of Sy v. Court of Appeals, (131 SCRA 116,124):

It is a basic and fundamental rule in the interpretation of contract that if the terms thereof are
clear and leave no doubt as to the intention of the contracting parties, then the literal meaning of
the stipulations shall control but when the words appear contrary to the evident intention of the
parties, the latter shall prevail over the former. (Labasan v. Lacuesta, 86 SCRA 16) In order to
judge the intention of the parties, their contemporaneous and subsequent acts shall be
principally considered. (Emphasis supplied)

The petitioner issued the two (2) surety bonds on December 4, 1959 in behalf of the Pascual M. Perez
Enterprises to guaranty fullfillment of its obligation under the "Contract of Sale of Goods" entered into with the
Singer Sewing Machine Co. In consideration of the two surety bonds, two indemnity agreements were
executed by Pascual M. Perez followed by a Deed of Assignment which was also executed on the same date.

In the case of Lopez v. Court of appeals (114 SCRA 673), we stated that:

The indemnity agreement and the stock assignment must be considered together as related
transactions because in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Article 1371, New Civil
Code). Thus, considering that the indemnity agreement connotes a continuing obligation of
Lopez towards Philamgen, while the stock assignment indicates a complete discharge of the
 same obligation, the existence of the indemnity agreement whereby Lopez had to pay a
premium of P1,000.00 for a period of one year and agreed at all times to indemnify Philamgen
of any and all kinds of losses which the latter might sustain by reason of it becoming a surety, is
inconsistent with the theory of an absolute sale for and in consideration of the same undertaking
of Philamgen. There would have been no necessity for the execution of the indemnity
agreement if the stock assignment was really intended as an absolute conveyance. Hence,
there are strong and cogent reasons to conclude that the parties intended said stock
assignment to complement the indemnity agreement and thereby sufficiently guarantee the
indemnification of Philamgen should it be required to pay Lopez" loan to Prudential Bank. (at pp.
682-683)

The respondent court stated that "by virtue of the execution of the deed of assignment ownership of
administrator-appellant's lumber materials had been transferred to the claimant-appellant and this amounted to
dation in payment whereby the former is considered to have alienated his property in favor of the latter in
satisfaction of a monetary debt (Artide 1245). As a consequence thereof, administrator-appellant's obligation
under the surety bonds is thereby extinguished upon the execution of the deed of assignment." This statement
is not sustained by the records.

The transaction could not be dation in payment. As pointed out in the concurring and dissenting opinion of
Justice Edgardo L. Paras and the dissenting opinion of Justice Mariano Serrano when the deed of assignment
was executed on December 4, 1959, the obligation of the assignor to refund the assignee had not yet arisen.
In other words, there was no obligation yet on the part of the petitioner, Citizens' Surety and Insurance
Company, to pay Singer Sewing Machine Co. There was nothing to be extinguished on that date, hence, there
could not have been a dation in payment.

In the case of Lopez v. Court of Appeals (supra) we had the occasion to explain:

Considering the above jurisprudence, We find that the debt or obligation at bar has not matured
on June 2, 1959 when Lopez 'alienated' his 4,000 shares of stock to Philamgen. Lopez'
obligation would arise only when he would default in the payment of the principal obligation (the
loan) to the bank and Philamgen had to pay for it. Such fact being adverse to the nature and
concept of dation in payment, the same could not have been constituted when the stock
assignment was executed. Moreover, there is no express provision in the terms of the stock
assignment between Philamgen and Lopez that the principal obligation (which is the loan) is
immediately extinguished by reason of such assignment. (at p. 686)

The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the
surety bonds was automatically extinguished. The subsequent acts of the private respondent bolster the fact
that the deed of assignment was intended merely as a security for the issuance of the two bonds. Partial
payments amounting to P55,600.00 were made after the execution of the deed of assignment to satisfy the
obligation under the two surety bonds. Since later payments were made to pay the indebtedness, it follows that
no debt was extinguished upon the execution of the deed of assignment. Moreover, a second real estate
mortgage was executed on April 12, 1960 and eventually cancelled only on May 15, 1962. If indeed the deed
of assignment extinguished the obligation, there was no reason for a second mortgage to still have to be
executed. We agree with the two dissenting opinions in the Court of Appeals that the only conceivable reason
for the execution of still another mortgage on April 12, 1960 was because the obligation under the indemnity
bonds still existed. It was not yet extinguished when the deed of assignment was executed on December 4,
1959. The deed of assignment was therefore intended merely as another collateral security for the issuance of
the two surety bonds.

Recapitulating the facts of the case, the records show that the petitioner surety company paid P144,000.00 to
Singer on the basis of the two surety bonds it had issued in behalf of Pascual Perez Enterprises. Perez in turn
was able to indemnify the petitioner for its payment to Singer in the amount of P55,600.00 thus leaving a
balance of only P88,400.00.

The petitioner surety company was more than adequately protected. Lumber worth P400,000.00 was assigned
to it as collateral. A second real estate mortgage was also given by Perez although it was later cancelled
obviously because the P400,000.00 worth of lumber was more than enough guaranty for the obligations
assumed by the petitioner. As pointed out by Justice Paras in his separate opinion, the proper procedure was
for Citizens' Insurance and Surety Co., to collect the remaining P88,400.00 from the sales of lumber and to
return whatever remained to Perez. We cannot order the return in this decisions because the Estate of Mrs.
Perez has not asked for any return of excess lumber or its value. There appears to have been other
transactions, surety bonds, and performance bonds between the petitioner and Perez Enterprises but theseare
extraneous matters which, the records show, have absolutely no bearing on the resolution of the issues in this
petition.

With respect to the claim for interests and attomey's fees, we agree with the private respondent that the
petitioner is not entitled to either one. It had the means to recoup its investment and losses many times over,
yet it chose to litigate and delay the final determination of how much was really owing to it. As stated by Justice
Paras in his separate opinion:
 Interest will not be given the Surety because it had all the while (or at least, it may be presumed
that such was the case) the P400,000.00 worth of lumber, from which value the 'refunding' by
assignor could have been deducted if it had so informed the assignor of the plan.

For the same reason as in No. (5), attomey's fees cannot be charged, for despite the express
stipulation on the matter in the contract, there was actually no failure on the part of the assignor
to comply with the obligation of refinding. The means of compliance was right there with the
Surety itself-. surely it could have earlier conferred with the assignor on how to effect the
'refunding. (p. 39, Rollo)

WHEREFORE, the petition is hereby DISMISSED. For the reasons above-stated, the claim of Citizens' Surety
and Insurance Co., Inc., against the estate of Nicasia Sarmiento is DISMISSED. SO ORDERED
 Trade and Investment Development Corp. of the Phil. Vs. Asia Paces Corp.

FACTS: Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered into a sub-
contracting agreement with the Electrical Projects Company of Libya (ELPCO for the construction and erection
of a double circuit bundle phase conductor transmission line in the country of Libya. To finance its working
capital requirements, ASPAC obtained loans from foreign banks Banque Indosuez and PCI Capital (Hong
Kong) Limited (PCI Capital) which were secured by several Letters of Guarantee issued by Trade and
Investment Development Corporation of the Philippines (TIDCORP), then Philippine Export and
Foreign Loan Guarantee Corp. Under the Letters of Guarantee, TIDCORP irrevocably and unconditionally
guaranteed full payment of ASPAC’s loan obligations to Banque Indosuez and PCI Capital in the event of
default by the latter.

As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC, PICO, and
ASPAC’s President, Nicolas C. Balderrama (Balderrama) had to execute several Deeds of Undertaking,
binding themselves to jointly and severally pay TIDCORP for whatever damages or liabilities it may incur under
the aforementioned letters. In the same light, ASPAC, as principal debtor, entered into surety agreements
(Surety Bonds) with Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as sureties, also
holding themselves solidarily liable to TIDCORP, as creditor, for whatever damages or liabilities the latter may
incur under the Letters of Guarantee.

ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital. Demand letters to
the bonding companies were sent but to no avail. Taking into account the moratorium request issued by
the Minister of Finance of the Republic of the Philippines, TIDCORP and its various creditor banks, such as
Banque Indosuez and PCI Capital, forged a Restructuring Agreement extending the maturity dates of the
Letters of Guarantee. The bonding companies were not privy to the Restructuring Agreement and, hence, did
not give their consent to the payment extensions. Nevertheless, following new payment schedules, TIDCORP
fully settled its obligations. Seeking payment for the damages and liabilities it had incurred under the Letters of
Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a collection case against: (a)
ASPAC, PICO, and Balderrama on account of their obligations under the deeds of undertaking; and (b) the
bonding companies on account of their obligations under the Surety Bonds.

The RTC partially granted TIDCORP’s complaint and thereby found ASPAC, PICO, and Balderrama jointly and
severally liable to TIDCORP but absolved the bonding companies from liability on the ground that the
moratorium request and the consequent payment extensions granted by Banque Indosuez and PCI Capital in
TIDCORP’s favor without their consent extinguished their obligations under the Surety Bonds. On appeal, the
CA upheld the ruling of RTC. Hence, this appeal filed by TIDCORP.

ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP under the Surety Bonds have
been extinguished by the payment extensions granted by Banque Indosuez and PCI Capital to
TIDCORP under the Restructuring Agreement.

HELD: NO. The Court finds that the payment extensions granted by Banque Indosuez and PCI Capital
to TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding
companies’ obligations to TIDCORP under the Surety Bonds, notwithstanding the fact that said
extensions were made without their consent. This is because Article 2079 of the Civil Code refers to a
payment extension granted by the creditor to the principal debtor without the consent of the guarantor or
surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal
debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur
under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods and amounts. No
payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079
of the Civil Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP
under the Surety Bonds.

The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt under
the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of
ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In other words, the Letters of
Guarantee secured ASPAC’s loan agreements to the banks. Under this arrangement, TIDCORP therefore
acted as a guarantor, with ASPAC as the principal debtor, and the banks as creditors.

Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions that
should be treated separately and distinctly from one another following the civil law principle of
relativity of contracts "which provides that contracts can only bind the parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge
thereof." Verily, as the Surety Bonds concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt to the
banks, the payments extensions would not deprive the bonding companies of their right to pay their
creditor (TIDCORP) and to be immediately subrogated to the latter’s remedies against the principal
debtor (ASPAC) upon the maturity date. It must be stressed that these payment extensions did not modify
the terms of the Letters of Guarantee but only provided for a new payment scheme covering TIDCORP’s
liability to the banks. In fine, considering the inoperability of Article 2079 of the Civil Code in this case,
the bonding companies’ liabilities to TIDCORP under the Surety Bonds – except those issued by
Paramount and covered by its Compromise Agreement with TIDCORP – have not been extinguished.
 MARIANO LIM, petitioner, vs. SECURITY BANK CORPORATION, respondent.
G.R. No. 188539. March 12, 2014

DOCTRINE
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the
obligee.

A bank or financing company, which anticipates entering into a series of credit transactions with a particular
company, normally requires the projected principal debtor to execute a continuing surety agreement along with
its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected
series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a
separate surety contract or bond for each financing or credit accommodation extended to the principal debtor.

FACTS
 Mariano Lim executed a Continuing Suretyship in favor of Security Bank to secure “any and all types of
credit accommodation that may be granted by the bank hereinto and hereinafter” in favor of Raul Arroyo for
the amount of P2,000,000 which is covered by a Credit Agreement/Promissory Note.

 The Continuing Suretyship has the following stipulations:

3. Liability of the Surety. — The liability of the Surety is solidary and not contingent upon the pursuit of the
Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of
the Guaranteed Obligations is not paid or performed on due date (at stated maturity or by
acceleration), the Surety shall, without need for any notice, demand or any other act or deed,
immediately become liable therefor and the Surety shall pay and perform the same.

xxx

a) "Guaranteed Obligations" — the obligations of the Debtor arising from all credit accommodations
extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings,
amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter
owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or
indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights,
powers and remedies under the Credit Instruments as defined hereinbelow.

 Debtor, Raul Arroyo, defaulted on his loan obligation.

 Lim received a Notice of Final Demand informing him that he was liable to pay the loan obtained by Raul
and Edwin Arroyo.

 Security Bank filed a complaint for sum of money against Lim and Arroyo for failure of Lim to comply with
the demand.

ISSUE
Whether or not Lim may validly be held liable for Arroyo’s (principal debtor) loan obtained six months after the
execution of the Continuing Suretyship

HELD
YES.

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the
obligee. Although the contract of a surety is secondary only to a valid principal obligation, the surety becomes
liable for the debt or duty of another although it possesses no direct or personal interest over the obligations
nor does it receive any benefit therefrom.

The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear. It states that
petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately become
liable and shall pay "all credit accommodations extended by the Bank to the Debtor, including increases,
renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations
of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the
Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its
rights, powers and remedies under the Credit Instruments as defined hereinbelow." Such stipulations are valid
and legal and constitute the law between the parties, as Article 2053 of the Civil Code provides that "[a]
guaranty may also be given as security for future debts, the amount of which is not yet known; . . . ." Thus,
petitioner is unequivocally bound by the terms of the Continuing Suretyship. There can be no cavil then that
petitioner is liable for the principal of the loan, together with the interest and penalties due thereon, even if said
loan was obtained by the principal debtor even after the date of execution of the Continuing Suretyship.
 Bank of Commerce vs Flores
G.R. No. 174006
December 8, 2010

Facts:

Spouse Flores borrowed money from petitioner bank in the amount of Nine Hundred Thousand Pesos
(P900,000.00) on Oct 1993. Respondents executed a Real Estate Mortgage5 over the condominium unit as
collateral, and the same was annotated at the back of CCT No. 2130. Two years later again the spouses
borrowed One Million One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also
secured by a mortgage over the same property annotated at the back of CCT No. 2130.

On Jan 1996 respondents paid One Million Eleven Thousand Five Hundred Fifty-Five Pesos and 54 centavos
(P1,011,555.54), as evidenced by Official Receipt No. 1477417 issued by petitioner bank. On the face of the
receipt, it was written that the payment was "in full payment of the loan and interest." Respondents then asked
petitioner bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by the real
estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded
payment of Four Million Six Hundred Thirty-Three Thousand Nine Hundred Sixteen Pesos and Sixty-Seven
Centavos (P4,633,916.67), then petitioner bank applied for extra-judicial foreclosure of the mortgages over the
condominium unit. The public auction sale was scheduled on September 4, 1998.

Respondents filed suit with the RTC, Quezon City, assailing the validity of the foreclosure and auction sale of
the property.

RTC granted respondents’ prayer for issuance of a writ of preliminary injunction, restraining petitioner bank
from foreclosing on the mortgage and ordered that specific performance with damages and injunction filed by
plaintiffs, Sps. Andres and Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is
hereby DISMISSED. Likewise, the counterclaim filed by defendants, Bank of Commerce and Stephen Z. Taala
against plaintiffs, Sps. Andres and Eliza Flores is DISMISSED for insufficiency of evidence.

Upon appeal, CA rendered a Decision reversing the decision and the resolution of the RTC entering a new
order:

(a) ordering the cancellation of the real estate mortgage annotations on the dorsal side of CCT No. 2130 of the
Registry of Deeds of Quezon City;
(b) ordering appellee Bank to issue a corresponding release of mortgages to plaintiffs-appellants’ CCT No.
2130;
(c) declaring null and void the challenged extra-judicial foreclosure and public auction sale held on March 25,
2004 together with the Certificate of Sale dated April 14, 2004 issued in favor of appellee Bank; and,
(d) appellees’ counterclaims are ordered dismissed, for lack of sufficient basis therefor.

Issue:
WON the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans
of respondent spouses despite the full payment of the principal loans annotated on the title of the subject
property.

Held:
Yes, A continuing guaranty is a recognized exception to the rule that an action to foreclose a mortgage must
be limited to the amount mentioned in the mortgage contract.23 Under Article 2053 of the Civil Code, a
guaranty may be given to secure even future debts, the amount of which may not be known at the time the
guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A
continuing guaranty is not limited to a single transaction, but contemplates a future course of dealing, covering
a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is
generally intended to provide security with respect to future transactions within certain limits, and contemplates
a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other words, a continuing
guaranty is one that 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.

The language of the real estate mortgage unambiguously reveals that the security provided in the real estate
mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at
the back of CCT No. 2130, and as security for all amounts that respondents may owe petitioner bank. It is well
settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the
amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand
as security if from the four corners of the instrument the intent to secure future and other indebtedness can be
gathered.

Respondents’ full payment of the loans annotated on the title of the property shall not effect the release of the
mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the
spouses and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of
all the amounts that they have incurred from petitioner bank, the property is burdened by the mortgage.

Decision of the CA is REVERSED and SET ASIDE. The decision of the Regional Trial Court dated December
4, 2002 is hereby REINSTATED.
CASE DIGEST: FIDELIZA J. AGLIBOT, Petitioner, v. INGERSOL L. SANTIA, Respondent.

FACTS: Engr. Ingersol L. Santia (Santia) loaned the amount of P2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager, petitioner Fideliza J. Aglibot (Aglibot). The loan was evidenced by a
promissory note. Allegedly as a guaranty for the payment of the note, Aglibot issued and delivered to Santia
eleven (11) post-dated personal checks drawn from her own account maintained at Metrobank. Upon
presentment of the checks for payment, they were dishonored by the bank for having been drawn against
insufficient funds or closed account. Santia thus demanded payment from PLCC and Aglibot of the face value
of the checks, but neither of them heeded his demand. Consequently, eleven (11) Informations for violation of
B.P. 22 were filed before the MTCC.

MTCC acquitted Aglibot. On appeal, the RTC rendered a decision absolving Aglibot and dismissing the civil
aspect of the case on the ground of “failure to fulfill a condition precedent of exhausting all means to collect
from the principal debtor.”

On appeal, the Court of Appeals ruled that the RTC erred when it dismissed the civil aspect of the case.
Hence, the CA ruled that Aglibot is personally liable for the loan.

Thus, Aglibot filed this instant petition for certiorari. She argued that she was merely a guarantor of the
obligation and therefore, entitled to the benefit of excussion under Article of the 2058 of the Civil Code. She
further posited that she is not personally liable on the checks since she merely contracted the loan in behalf of
PLCC.

ISSUES:

Is Aglibot entitled to the benefit of excussion?

Is Aglibot personally liable on the checks?
HELD: FIRST ISSUE: Aglibot cannot invoke the benefit of excussion. It is settled that the liability of the
guarantor is only subsidiary, and all the properties of the principal debtor, the PLCC in this case, must first be
exhausted before the guarantor may be held answerable for the debt. Thus, the creditor may hold the
guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to
pay, “for obviously the ‘exhaustion of the principal’s property’ — the benefit of which the guarantor claims —
cannot even begin to take place before judgment has been obtained.” This rule is contained in Article 2062 of
the Civil Code, which provides that the action brought by the creditor must be filed against the principal debtor
alone, except in some instances mentioned in Article 2059 when the action may be brought against both the
guarantor and the principal debtor.

The Court must, however, reject Aglibot’s claim as a mere guarantor of the indebtedness of PLCC to Santia for
want of proof, in view of Article 1403(2) of the Civil Code, embodying the Statute of Frauds. Under the above
provision, concerning a guaranty agreement, which is a promise to answer for the debt or default of another,
the law clearly requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be
unenforceable unless ratified, although under Article 1358 of the Civil Code, a contract of guaranty does not
have to appear in a public document. Contracts are generally obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present, and the Statute of Frauds simply
provides the method by which the contracts enumerated in Article 1403(2) may be proved, but it does not
declare them invalid just because they are not reduced to writing. Thus, the form required under the Statute is
for convenience or evidentiary purposes only.

On the other hand, Article 2055 of the Civil Code also provides that a guaranty is not presumed, but must be
express, and cannot extend to more than what is stipulated therein. This is the obvious rationale why a
contract of guarantee is unenforceable unless made in writing or evidenced by some writing.

***

SECOND ISSUE: Aglibot is an accommodation party and therefore liable to Santia. The appellate court
ruled that by issuing her own post-dated checks, Aglibot thereby bound herself personally and solidarily to pay
Santia, and dismissed her claim that she issued her said checks in her official capacity as PLCC’s manager
merely to guarantee the investment of Santia. The facts present a clear situation where Aglibot, as the
manager of PLCC, agreed to accommodate its loan to Santia by issuing her own post-dated checks in
payment thereof. She is what the Negotiable Instruments Law calls an accommodation party.

The relation between an accommodation party and the party accommodated is, in effect, one of principal and
surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and
absolutely with the principal and is deemed an original promisor and debtor from the beginning. The liability is
immediate and direct. It is not a valid defense that the accommodation party did not receive any valuable
consideration when he executed the instrument; nor is it correct to say that the holder for value is not a holder
in due course merely because at the time he acquired the instrument, he knew that the indorser was only an
accommodation party. Unlike in a contract of suretyship, the liability of the accommodation party remains not
only primary but also unconditional to a holder for value, such that even if the accommodated party receives an
extension of the period for payment without the consent of the accommodation party, the latter is still liable for
the whole obligation and such extension does not release him because as far as a holder for value is
concerned, he is a solidary co-debtor.
GR No. 201417, January 13, 2016
Orix Metro Leasing and Finance Corp (Petitioner) v Cardline Inc. et al (Respondents)
Second Division
Ponente: Brion, J.

Nature of Action: Determination of solidary liability of individual respondents.

FACTS:
Cardline leased four machines from Orix as evidenced by three similarly-worded lease agreements.
Cardline’s principal stockholders and officers (individual respondents) – signed the suretyship agreements in
their personal capacities to guarantee Cardline’s obligations under each lease agreement. Cardline defaulted
in paying the rent and Orix formally demanded payment from Cardline but the latter refused to pay. Orix filed
a complaint for replevin, sum of money, and damages with an application for a writ of seizure against Cardline
and the individual respondents before the RTC. The RTC issued a writ of seizure allowing Orix to recover the
machines from Cardline. The RTC declared the respondents in default for failing to file an answer, and allowed
Orix to present evidence ex parte. The RTC rendered judgment in Orix’s favor and ordered the respondents to
pay Orix. Orix filed a motion for the issuance of a writ of execution which the RTC granted. Respondents
assailed the issuance of the order before the Court of Appeals, arguing that their rental obligations were offset
by the market value of the returned machines and by the guaranty deposit. The CA granted the petition,
annulled the RTC’s order and prohibited the sheriff from executing the judgment. The CA ruled that the
respondents’ debt had been satisfied when Orix recovered the machines and received the security deposit.
Considering that the judgment had been satisfied in full, the RTC’s issuance of a writ of execution was no
longer necessary. In its petition, Orix argues that the individual respondents are solidarily liable to Orix and are
not entitled to the benefit of excussion while respondents contend that they merely acted as guarantors and not
as sureties.

ISSUE:
Whether the individual respondents are entitled to the benefit of excussion.

RULING:
No. Even assuming that a party is liable only as a guarantor, he can be held immediately liable without
the benefit of excussion if the guarantor agreed that his liability is direct and immediate.
The terms of a contract govern the parties’ rights and obligations. When a party undertakes to
be "jointly and severally" liable, it means that the obligation is solidary. Furthermore, even assuming that a
party is liable only as a guarantor, he can be held immediately liable without the benefit of excussion if the
guarantor agreed that his liability is direct and immediate. In effect, the guarantor waived the benefit of
excussion pursuant to Article 2059(1) of the Civil Code.
In the present case, the records show that the individual respondents bound themselves solidarily with
Cardline. Section 31.1 of the lease agreements states that the persons who sign separate instruments to
secure Cardline’s obligations to Orix shall be jointly and severally liable with Cardline. Even
assuming arguendo that the individual respondents signed the continuing surety agreements merely as
guarantors, they still cannot invoke the benefit of excussion. The surety agreements provide that the individual
respondents’ liability is "solidary, direct, and immediate and not contingent upon" Orix’s remedies against
Cardline. The continuing suretyship agreements also provide that the individual respondents "individually and
collectively waive(s) in advance the benefit of excussion xxx under Articles 2058 and 2065 of the Civil Code."
Without any doubt, the individual respondents can no longer avail of the benefit of excussion.