TITLE XVI CHAPTER 2

PLEDGE, MORTGAGE AND ANTICHRESIS Pledge

Article 2093. In addition to the requisites prescribed in article 2085, it is
necessary, in order to constitute the contract of pledge, that the thing
pledged be placed in the possession of the creditor, or of a third person
CHAPTER 1
by common agreement. (1863)
Provisions Common to Pledge and Mortgage
Article 2094. All movables which are within commerce may be pledged,
Article 2085. The following requisites are essential to the contracts of
provided they are susceptible of possession. (1864)
pledge and mortgage:
Article 2095. Incorporeal rights, evidenced by negotiable instruments,
(1) That they be constituted to secure the fulfillment of a
bills of lading, shares of stock, bonds, warehouse receipts and similar
principal obligation;
documents may also be pledged. The instrument proving the right
(2) That the pledgor or mortgagor be the absolute owner of the pledged shall be delivered to the creditor, and if negotiable, must be
thing pledged or mortgaged; indorsed. (n)
(3) That the persons constituting the pledge or mortgage have Article 2096. A pledge shall not take effect against third persons if a
the free disposal of their property, and in the absence thereof, description of the thing pledged and the date of the pledge do not appear
that they be legally authorized for the purpose. in a public instrument. (1865a)
Third persons who are not parties to the principal obligation may secure Article 2097. With the consent of the pledgee, the thing pledged may be
the latter by pledging or mortgaging their own property. (1857) alienated by the pledgor or owner, subject to the pledge. The ownership
of the thing pledged is transmitted to the vendee or transferee as soon as
Article 2086. The provisions of article 2052 are applicable to a pledge or the pledgee consents to the alienation, but the latter shall continue in
mortgage. (n) possession. (n)
Article 2087. It is also of the essence of these contracts that when the
Article 2098. The contract of pledge gives a right to the creditor to retain
principal obligation becomes due, the things in which the pledge or the thing in his possession or in that of a third person to whom it has
mortgage consists may be alienated for the payment to the creditor. been delivered, until the debt is paid. (1866a)
(1858)
Article 2099. The creditor shall take care of the thing pledged with the
Article 2088. The creditor cannot appropriate the things given by way of diligence of a good father of a family; he has a right to the reimbursement
pledge or mortgage, or dispose of them. Any stipulation to the contrary is
of the expenses made for its preservation, and is liable for its loss or
null and void. (1859a) deterioration, in conformity with the provisions of this Code. (1867)
Article 2089. A pledge or mortgage is indivisible, even though the debt Article 2100. The pledgee cannot deposit the thing pledged with a third
may be divided among the successors in interest of the debtor or of the
person, unless there is a stipulation authorizing him to do so.
creditor.
The pledgee is responsible for the acts of his agents or employees with
Therefore, the debtor's heir who has paid a part of the debt cannot ask respect to the thing pledged. (n)
for the proportionate extinguishment of the pledge or mortgage as long
as the debt is not completely satisfied. Article 2101. The pledgor has the same responsibility as a bailor in
commodatum in the case under article 1951. (n)
Neither can the creditor's heir who received his share of the debt return
the pledge or cancel the mortgage, to the prejudice of the other heirs who Article 2102. If the pledge earns or produces fruits, income, dividends, or
have not been paid. interests, the creditor shall compensate what he receives with those
which are owing him; but if none are owing him, or insofar as the amount
From these provisions is excepted the case in which, there being several
may exceed that which is due, he shall apply it to the principal. Unless
things given in mortgage or pledge, each one of them guarantees only a there is a stipulation to the contrary, the pledge shall extend to the
determinate portion of the credit. interest and earnings of the right pledged.
The debtor, in this case, shall have a right to the extinguishment of the In case of a pledge of animals, their offspring shall pertain to the pledgor
pledge or mortgage as the portion of the debt for which each thing is or owner of animals pledged, but shall be subject to the pledge, if there is
specially answerable is satisfied. (1860)
no stipulation to the contrary. (1868a)
Article 2090. The indivisibility of a pledge or mortgage is not affected by Article 2103. Unless the thing pledged is expropriated, the debtor
the fact that the debtors are not solidarily liable. (n) continues to be the owner thereof.
Article 2091. The contract of pledge or mortgage may secure all kinds of Nevertheless, the creditor may bring the actions which pertain to the
obligations, be they pure or subject to a suspensive or resolutory owner of the thing pledged in order to recover it from, or defend it against
condition. (1861)
a third person. (1869)
Article 2092. A promise to constitute a pledge or mortgage gives rise Article 2104. The creditor cannot use the thing pledged, without the
only to a personal action between the contracting parties, without authority of the owner, and if he should do so, or should misuse the thing
prejudice to the criminal responsibility incurred by him who defrauds
in any other way, the owner may ask that it be judicially or extrajudicially
another, by offering in pledge or mortgage as unencumbered, things deposited. When the preservation of the thing pledged requires its use, it
which he knew were subject to some burden, or by misrepresenting must be used by the creditor but only for that purpose. (1870a)
himself to be the owner of the same. (1862)
Article 2105. The debtor cannot ask for the return of the thing pledged Article 2115. The sale of the thing pledged shall extinguish the principal
against the will of the creditor, unless and until he has paid the debt and obligation, whether or not the proceeds of the sale are equal to the
its interest, with expenses in a proper case. (1871) amount of the principal obligation, interest and expenses in a proper
case. If the price of the sale is more than said amount, the debtor shall
Article 2106. If through the negligence or wilful act of the pledgee, the
not be entitled to the excess, unless it is otherwise agreed. If the price of
thing pledged is in danger of being lost or impaired, the pledgor may
the sale is less, neither shall the creditor be entitled to recover the
require that it be deposited with a third person. (n)
deficiency, notwithstanding any stipulation to the contrary. (n)
Article 2107. If there are reasonable grounds to fear the destruction or
Article 2116. After the public auction, the pledgee shall promptly advise
impairment of the thing pledged, without the fault of the pledgee, the
the pledgor or owner of the result thereof. (n)
pledgor may demand the return of the thing, upon offering another thing
in pledge, provided the latter is of the same kind as the former and not of Article 2117. Any third person who has any right in or to the thing
inferior quality, and without prejudice to the right of the pledgee under the pledged may satisfy the principal obligation as soon as the latter
provisions of the following article. becomes due and demandable. (n)
The pledgee is bound to advise the pledgor, without delay, of any danger Article 2118. If a credit which has been pledged becomes due before it
to the thing pledged. (n) is redeemed, the pledgee may collect and receive the amount due. He
shall apply the same to the payment of his claim, and deliver the surplus,
Article 2108. If, without the fault of the pledgee, there is danger of
should there be any, to the pledgor. (n)
destruction, impairment, or diminution in value of the thing pledged, he
may cause the same to be sold at a public sale. The proceeds of the Article 2119. If two or more things are pledged, the pledgee may choose
auction shall be a security for the principal obligation in the same manner which he will cause to be sold, unless there is a stipulation to the
as the thing originally pledged. (n) contrary. He may demand the sale of only as many of the things as are
necessary for the payment of the debt. (n) ARTICLE 2120. If a third party
Article 2109. If the creditor is deceived on the substance or quality of the
secures an obligation by pledging his own movable property under the
thing pledged, he may either claim another thing in its stead, or demand
provisions of article 2085 he shall have the same rights as a guarantor
immediate payment of the principal obligation. (n)
under articles 2066 to 2070, and articles 2077 to 2081. He is not
Article 2110. If the thing pledged is returned by the pledgee to the prejudiced by any waiver of defense by the principal obligor. (n)
pledgor or owner, the pledge is extinguished. Any stipulation to the
Article 2121. Pledges created by operation of law, such as those
contrary shall be void.
referred to in articles 546, 1731, and 1994, are governed by the foregoing
If subsequent to the perfection of the pledge, the thing is in the articles on the possession, care and sale of the thing as well as on the
possession of the pledgor or owner, there is a prima facie presumption termination of the pledge. However, after payment of the debt and
that the same has been returned by the pledgee. This same presumption expenses, the remainder of the price of the sale shall be delivered to the
exists if the thing pledged is in the possession of a third person who has obligor. (n)
received it from the pledgor or owner after the constitution of the pledge.
Article 2122. A thing under a pledge by operation of law may be sold
(n)
only after demand of the amount for which the thing is retained. The
Article 2111. A statement in writing by the pledgee that he renounces or public auction shall take place within one month after such demand. If,
abandons the pledge is sufficient to extinguish the pledge. For this without just grounds, the creditor does not cause the public sale to be
purpose, neither the acceptance by the pledgor or owner, nor the return held within such period, the debtor may require the return of the thing. (n)
of the thing pledged is necessary, the pledgee becoming a depositary.
Article 2123. With regard to pawnshops and other establishments, which
(n)
are engaged in making loans secured by pledges, the special laws and
Article 2112. The creditor to whom the credit has not been satisfied in regulations concerning them shall be observed, and subsidiarily, the
due time, may proceed before a Notary Public to the sale of the thing provisions of this Title. (1873a)
pledged. This sale shall be made at a public auction, and with notification
to the debtor and the owner of the thing pledged in a proper case, stating
the amount for which the public sale is to be held. If at the first auction
the thing is not sold, a second one with the same formalities shall be CHAPTER 3
held; and if at the second auction there is no sale either, the creditor may Mortgage
appropriate the thing pledged. In this case he shall be obliged to give an
Article 2124. Only the following property may be the object of a contract
acquittance for his entire claim. (1872a)
of mortgage:
Article 2113. At the public auction, the pledgor or owner may bid. He
(1) Immovables;
shall, moreover, have a better right if he should offer the same terms as
the highest bidder. (2) Alienable real rights in accordance with the laws, imposed
upon immovables.
The pledgee may also bid, but his offer shall not be valid if he is the only
bidder. (n) Nevertheless, movables may be the object of a chattel mortgage.
(1874a)
Article 2114. All bids at the public auction shall offer to pay the purchase
price at once. If any other bid is accepted, the pledgee is deemed to have Article 2125. In addition to the requisites stated in article 2085, it is
been received the purchase price, as far as the pledgor or owner is indispensable, in order that a mortgage may be validly constituted, that
concerned. (n) the document in which it appears be recorded in the Registry of Property.
If the instrument is not recorded, the mortgage is nevertheless binding But the latter, in order to exempt himself from the obligations imposed
between the parties. upon him by the preceding article, may always compel the debtor to enter
again upon the enjoyment of the property, except when there is a
The persons in whose favor the law establishes a mortgage have no
stipulation to the contrary. (1883)
other right than to demand the execution and the recording of the
document in which the mortgage is formalized. (1875a) Article 2137. The creditor does not acquire the ownership of the real
estate for non-payment of the debt within the period agreed upon.
Article 2126. The mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may be, to the Every stipulation to the contrary shall be void. But the creditor may
fulfillment of the obligation for whose security it was constituted. (1876) petition the court for the payment of the debt or the sale of the real
property. In this case, the Rules of Court on the foreclosure of mortgages
Article 2127. The mortgage extends to the natural accessions, to the
shall apply. (1884a)
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity Article 2138. The contracting parties may stipulate that the interest upon
granted or owing to the proprietor from the insurers of the property the debt be compensated with the fruits of the property which is the
mortgaged, or in virtue of expropriation for public use, with the object of the antichresis, provided that if the value of the fruits should
declarations, amplifications and limitations established by law, whether exceed the amount of interest allowed by the laws against usury, the
the estate remains in the possession of the mortgagor, or it passes into excess shall be applied to the principal. (1885a)
the hands of a third person. (1877)
Article 2139. The last paragraph of article 2085, and articles 2089 to
Article 2128. The mortgage credit may be alienated or assigned to a 2091 are applicable to this contract. (1886a)
third person, in whole or in part, with the formalities required by law.
(1878)
Article 2129. The creditor may claim from a third person in possession of
CHAPTER 5
the mortgaged property, the payment of the part of the credit secured by
Chattel Mortgage
the property which said third person possesses, in the terms and with the
formalities which the law establishes. (1879) Article 2140. By a chattel mortgage, personal property is recorded in the
Chattel Mortgage Register as a security for the performance of an
Article 2130. A stipulation forbidding the owner from alienating the
obligation. If the movable, instead of being recorded, is delivered to the
immovable mortgaged shall be void. (n)
creditor or a third person, the contract is a pledge and not a chattel
Article 2131. The form, extent and consequences of a mortgage, both as mortgage. (n)
to its constitution, modification and extinguishment, and as to other
Article 2141. The provisions of this Code on pledge, insofar as they are
matters not included in this Chapter, shall be governed by the provisions
not in conflict with the Chattel Mortgage Law shall be applicable to chattel
of the Mortgage Law and of the Land Registration Law. (1880a)
mortgages. (n)

CHAPTER 4
Antichresis
Article 2132. By the contract of antichresis the creditor acquires the right
to receive the fruits of an immovable of his debtor, with the obligation to
apply them to the payment of the interest, if owing, and thereafter to the
principal of his credit. (1881)
Article 2133. The actual market value of the fruits at the time of the
application thereof to the interest and principal shall be the measure of
such application. (n)
Article 2134. The amount of the principal and of the interest shall be
specified in writing; otherwise, the contract of antichresis shall be void.
(n)
Article 2135. The creditor, unless there is a stipulation to the contrary, is
obliged to pay the taxes and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and
repair.
The sums spent for the purposes stated in this article shall be deducted
from the fruits. (1882)
Article 2136. The debtor cannot reacquire the enjoyment of the
immovable without first having totally paid what he owes the creditor.
G.R. No. L-28030 January 18, 1982 November 10, 1966, rendered judgment against the counter-
bonds.
THE IMPERIAL INSURANCE, INC., petitioner,
vs. On November 15, 1966, private respondents filed an ex parte
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First motion for writ of execution' without serving copy thereof on
Instance of Rizal, Quezon City Branch IV, ROSA V. REYES, PEDRO petitioner.
V. REYES and CONSOLACION V. REYES, respondents.
In the meantime, on or about November 23 1966, petitioner filed
a 'motion for reconsideration' of the order, dated November 10,
1966. This motion was, however, denied by the respondent
FERNANDEZ, J.:
Judge on January 9, 1967.
This is a petition for certiorari to review the decision of the Court of
On or about January 11, 1967, petitioner filed its 'notice of
Appeals in CA-G.R. No. 38824-R promulgated on July 19, 1967 entitled
intention to appeal' from the final orders of the respondent
"The Imperial Insurance, Inc., petitioner vs. Hon. Walfrido de los Angeles,
Judge, dated November 10, 1966 and January 9. 1967.
Judge of the Court of First Instance of Rizal, Branch IV, Quezon City, et
al, respondents," the dispositive part of which reads: On January 19, 1967, the respondent Judge issued an order
granting the issuance of the writ of execution against the bonds
WHEREFORE, the instant petition is dismissed and the writ of
riled by the petitioner (Exhibit J, petition). 2
preliminary injunction issued by the Court on January 31, 1967,
is hereby dissolved, with costs against petitioner. On January 25, 1967, the petitioner filed a petition for certiorari with
prayer for for preliminary injunction with the Court of Appeals to restrain
SO ORDERED. 1
the enforcement of the writ of execution. 3
As found by the Court of Appeals, the uncontroverted facts are:
The petition was given due course and on January 30, 1967 a writ of
It appears that herein private respondent Rosa V. Reyes is the preliminary injunction was issued. 4 After the parties had submitted their
plaintiff in Civil Case N. Q-8213 of the Court of First Instance of respective pleadings and memoranda in lieu of oral argument, the Court
Rizal, Branch IV, Quezon City, entitled, 'Rosa V. Reyes vs, of Appeals rendered the decision now under review.
Felicisimo V. Reyes, etc.,' where she obtained a writ of
The defendant, Felicisimo V. Reyes, in the abovementioned cases died
preliminary attachment and, accordingly, levied upon all the
during the pendency of the trial. He was duly substituted by his surviving
properties of the defendant, Felicisimo V. Reyes, in said case.
spouse, Emilia T. David, an administratrix of his intestate estate. 5
The other two herein private respondents, namely, Pedro V.
Reyes and Consolacion V. Reyes, are the plaintiffs in Civil Case The petitioner assigns as errors allegedly committed by the Court of
No. Q-5214 of the same court entitled, 'Pedro V. Reyes, etc.,' Appeals the following:
and likewise, obtained a writ of preliminary attachment and,
I
accordingly, levied upon all the properties of the defendant,
Felicisimo V. Reyes, in said case. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT THE RESPONDENT JUDGE COULD LEGALLY ISSUE
For the dissolution of the attachments referred to above, the
THE WRIT OF EXECUTION AGAINST THE PETITIONER AS
herein petitioner, The Imperial Insurance, Inc., as surety, and
SURETY IN A COUNTERBOND (BOND TO DISSOLVE
Felicisimo V. Reyes, as principal, posted a 'defendant's bond for
ATTACHMENT) ON THE BASIS OF AN EX-PARTE MOTION
dissolution of attachment' in the amount of P60,000.00 in Civil
FOR EXECUTION WHICH WAS NEITHER SERVED UPON THE
Case No. Q-5213 and another bond of the same nature in the
SURETY NOR SET FOR HEARING.
amount of P40,000.00 in Civil Case No. Q-5214.
II
Civil Cases Nos. Q-5213 and 5214 were jointly tried and the
decision therein rendered was in favor of the plaintiffs. This THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
decision was affirmed by this Court on appeal in cases CA-G.R. THAT THE PLAINTIFF WHO OBTAINED A JUDGMENT
NOS. 33783-R and 33784-R. The decision of this Court, having AGAINST THE DEFENDANT MAY LEGALLY CHOOSE 'TO GO
become final, the records of the cases were remanded to the DIRECTLY' AFTER THE SURETY IN A COUNTERBOND
Court of First Instance of Rizal, Quezon City Branch, for WITHOUT PRIOR EXHAUSTION OF THE DEFENDANTS
execution of judgment. PROPERTIES.
Accordingly, on June 24, 1966, the Court below, presided by the III
herein respondent Judge, Hon. Walfrido de los Angeles, issued
THE COURT OF APPEALS GRAVELY ERRED IN NOT
the writs of execution of judgment in said cases. However, on
August 20, 1966, the Provincial Sheriff of Bulacan returned the HOLDING THAT THE 'JUDGMENT' RENDERED AGAINST THE
MENTIONED COUNTERBONDS IS A 'FINAL ORDER' IN THE
writs of execution' unsatisfied in whole or in part'.
CONTEMPLATION OF SECTION 2, RULE 41 OF THE REVISED
On September 9, 1966, private respondents filed a 'motion for RULES OF COURT AND, THEREFORE, APPEALABLE.
recovery on the surety bonds'. Thereafter, said private
IV
respondents, thru counsel, sent a letter of demand upon
petitioner asking the latter to pay them the accounts on the THE COURT OF APPEALS GRAVELY ERRED IN NOT
counter-bonds. On September 24, 1966, petitioner filed its HOLDING THAT IN THE ABSENCE OF AN EXPRESS
'opposition' to the private respondents "Motion for recovery on PROVISION OF THE REVISED RULES OF COURT, THE
the surety bonds'. Respondent Judge, in his order, dated PROCEDURE FOLLOWED BY THE SHERIFF IN THE
 EXECUTION OF THE JUDGMENT ON THE 'SURVIVING prior exhaustion of the defendant's properties. This contention is likewise
CLAIMS', WHEN THE DEFENDANT DIED DURING THE not meritorious.
PENDENCY OF THE TRIAL OF HIS CASE AND BEFORE
Although the counterbond contemplated in the aforequoted Sec. 17, Rule
JUDGMENT WAS DULY SUBSTITUTED BY THE COURT
57, of the Rules of Court is an ordinary guaranty where the sureties
APPOINTED ADMINISTRATRIX OF HIS ESTATE, SHOULD
assume a subsidiary liability, the rule cannot apply to a counterbond
HAVE BEEN THE SAME AS THE PROCEDURE SET OUT IN
where the surety bound itself "jointly and severally" (in solidum) with the
SECTION (f), RULE 57 RESPECTING THE EXECUTION OF A
defendant as in the present case. The counterbond executed by the
WRIT OF PRELIMINARY ATTACHMENT OF PROPERTIES IN
deceased defendant Felicisimo V. Reyes, as principal, and the petitioner,
CUSTODIALEGIS. 6
The Imperial Insurance, Inc., as solidary quarantor to lift the attachment
Anent the first error, the petitioner contends that the Court of Appeals in Civil Case No. Q-5213 is in the following terms:
erred in holding that the respondent judge could legally issue the writ of
WHEREFORE, WE, FELICISIMO V. REYES, of legal age,
execution against the petitioner as surety in a counterbond (bond to
Filipino, and with postal address at San Jose, San Miguel,
dissolve attachment) on the basis of an ex parte motion for execution
Bulacan and/or 1480 Batangas Street, Sta. Cruz, Manila, as
which was allegedly never served upon the surety nor set for hearing.
PRINCIPAL and THE IMPERIAL INSURANCE, INC., a
This contention is devoid of merit.
corporation duly organized and existing under the laws of the
The counterbonds filed to lift the writs of attachment executed by the Philippines, as SURETY, in consideration of the dissolution of
herein petitioner, The Imperial Insurance, Inc., for and in behalf of the said attachment, hereby JOINTLY AND SEVERALLY, bind
deceased defendant Felicisimo V. Reyes in favor of the plaintiffs, private ourselves in the sum of SIXTY THOUSAND PESOS ONLY
respondents herein Rosa V. Reyes and Consolacion V. Reyes in Civil (P60,000.00), Philippine Currency, under the condition that in
Case No. Q-5214 docketed with the Court of First Instance of Rizal, case the plaintiff recovers judgment in the action, the defendant
Branch IV, Quezon City, are clearly the bonds contemplated under Sec. shall pay the sum of SIXTY THOUSAND PESOS (P60,000.00),
17, Rule 57 of the Rules of Court which provides: Philippine Currency, being the amount release for attachment, to
be applied to the payment of the judgment, or in default thereof,
Sec. 17. When execution returned unsatisfied, recovery had
the Surety will, on demand, pay to the plaintiff said amount of
upon bond. If the execution be returned unsatisfied in whole or
SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine
in part, the surety or sureties on any counterbond given pursuant
Currency. (Capitalizations supplied).
to the provisions of this rule to secure the payment of the
judgment shall become charged on such counter-bond, and Manila, Philippines, June 30,1960. 13
bound to pay to the judgment creditor upon demand, the amount
The counterbond executed by the same parties in Civil Case No. Q-5214,
due under the judgment, which amount may be recovered from
likewise states.
such surety or sureties after notice and summary hearing in the
same action. WHEREFORE, we, FELICISIMO V. REYES, of legal age, Filipino,
and with postal address at San Jose, San Miguel, Bulacan, and/or
This section allows the counterbond filed to lift an attachment to be
1480 Batangas Street, Sta. Cruz, Manila, as PRINCIPAL and THE
charged only after notice and summary hearing in the same action.
IMPERIAL INSURANCE, INC., a corporation duly organized and
The records show that the notice and hearing requirement was existing under the laws of the Philippines, as SURETY, in
substantially complied with in the instant case. consideration of the dissolution of said attachment, hereby
JOINTLY and SEVERALLY, bind ourselves in the sum of FORTY
Prior to the filing of the ex parte motion for a writ of execution, the
THOUSAND PESOS ONLY (P40,000.00), Philippine Currency,
respondents filed a motion for recovery on the surety bonds where the
under the condition that in case the plaintiff recover judgment in
petitioner was duly notified and the said motion was heard on September
the action the defendant shall pay the sum of FORTY THOUSAND
24, 1966. 7Moreover, on November 23, 1966 the petitioner filed a motion
PESOS ONLY (P40,000.00), Philippine Currency, being the
for reconsideration of the order dated November 10, 1966 rendering
amount released for attachment, to be applied to the payment of
judgment against the petitioner on its counter-bonds in the amount of
the judgment, or in default thereof, the Surety will, on demand, pay
P60,000.00 in Civil Case No. Q-5213 and P40,000.00 in Civil Case No.
to the plaintiffs said amount of FORTY THOUSAND PESOS ONLY
Q-5214. 8 The respondent judge set the hearing of the ex parte motion
(P40,000.00), Philippine Currency. (Emphasis supplied).
for writ of execution together with the motion for reconsideration of the
order dated November 10, 1966 on December 17, 1966 at 8:30 o'clock in Manila, Philippines, June 30th, 1960. 14
the morning. 9 The petitioner received the notice of the said hearing on
Clearly, the petitioner, the Imperial Insurance, Inc., had bound itself
December 9, 1966 as evidenced by Registry Return Receipt No.
solidarily with the principal, the deceased defendant Felicisimo V. Reyes.
40122. On January 9, 1967, the respondent Judge issued an order
10
In accordance with Article 2059, par. 2 of the Civil Code of the
denying the motion for reconsideration dated November 23, 1966 for lack
Philippines, 15excussion (previous exhaustion of the property of the
of merit. in an order dated January 19, 1967, the motion for writ of
11
debtor) shall not take place "if he (the guarantor) has bound himself
execution was granted by the respondent judge. 12
solidarily with the debtor." Section 17, Rule 57 of the Rules of Court
It is thus clear from indubitable documents on record that the cannot be construed that an "execution against the debtor be first
requirements of notice and hearing had been satisfactorily complied with returned unsatisfied even if the bond were a solidary one, for a
by the respondents. The first error assigned is overruled. 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 petitioner asserts that the Court of Appeals gravely erred in holding
the surety's obligation should be solidary with that of the defendant." 16
that the plaintiff who obtained judgment against the defendant may
legally choose "to go directly" after the surety in a counterbond without
Hence the petitioner cannot escape liability on its counter-bonds based In fact, respondent Judge could have even issued a writ of
on the second error assigned. execution against petitioner on its bond immediately after its failure
to satisfy the judgment against the defendant upon demand, since
As regards the third error, the petitioner submits that the Court of
liability on the bond automatically attaches after the writ of
Appeals erred in not holding that the order dated November 10, 1966
execution against the defendant was returned unsatisfied as held
rendering judgment against the counter-bonds, as well as the order dated
in the case of Tijan vs. Sibonghanoy, CA-G.R. No. 23669-R,
January 9, 1967, denying the motion for reconsideration thereof, and the
December 11, 1927. 22
order of the writ of execution dated January 19, 1967 are final and
appealable in accordance with Sec. 2, Rule 41 of the Rec. Rules of Moreover, the finality and non-appealability of the order dated November
Court. This submission is also without merit. 10, 1966 is made certain and absolute with the issuance of the order of
execution dated January 19, 1967 23 upon the filing of the ex
To recover against the petitioner surety on its counter-bonds it is not
parte motion for writ of execution 24 of which the petitioner was duly
necessary to file a separate action. Recovery and execution may be had
notified by the respondent Judge and which was duly heard. 25 The
in the same Civil Cases Nos. Q-5213 and Q-5214, as sanctioned by Sec.
general rule is that an order of execution is not appealable, otherwise a
17, Rule 57, of the Revised Rules of Court.
case would never end. The two exceptions 26 to this rule are: (1) where
The decision in Civil Cases Nos. Q-5213 and Q-5214, having become the order of execution varies the tenor of the judgment; and (2) when the
final, the respondent judo issued the writs of execution in said cases. On terms of the judgment are not very clear, and there is room for
August 20, 1966, the Provincial Sheriff of Bulacan returned the writs of interpretation. The case at bar does not fall under either exception. There
execution "unsatisfied in whole or in part." 17 is no showing that the order of execution varies the tenor of the judgment
in Civil Cases Nos. Q-5213 and Q-5214, nor of the order dated
Sec. 12, Rule 57 of the Revised Rules of Court 18 specifies that an November 10, 1966, but is in fact, in consonance therewith and the terms
attachment may be discharged upon the making of a cash deposit or of the judgment are clear and definite, therefore, the general rule of non-
filing a counterbond "in an amount equal to the value of the property
appealability applies.
attached as determined by the judge"; and that upon filing the
counterbond "the property attached shall be delivered to the party It is no longer necessary to discuss the fourth error assigned because of
making the deposit or giving the counterbond or the person appearing in this Court's finding that the liability expressly assumed by the petitioner
his behalf, the deposit or counterbond standing in place of the property on the counter-bonds is solidary with the principal debtor, the deceased
so released." defendant, Felicisimo V. Reyes. As a solidary guarantor, the petitioner,
the Imperial Insurance, Inc., is liable to pay the amount due on such
The counter-bonds merely stand in place of the properties so released. counter-bonds should the creditors, private respondents herein, choose
They are mere replacements of the properties formerly attached, and just to go directly after it. 27
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 counter sureties Under the law and under their own terms, the counter-bonds are only
ascertainable after the judgment has become final. 19 conditioned upon the rendition of the judgment. As held by this Court in
the aforecited case of Luzon Steel Corporation vs. Sia 28 "where under
The judgment having been rendered against the defendant, Felicisimo V. the rule and the bond the undertaking is to pay the judgment, the liability
Reyes, the counter-bonds given by him and the surety, The Imperial of the surety or sureties attaches upon the rendition of the judgment, and
Insurance, Inc., under Sec. 12, Rule 57 are made liable after execution
the issue of an execution and its return nulla bona is not, and should not
was returned unsatisfied. Under the said rule, a demand shall be made be a condition to the right to resort to the bond." Thus, it matters not
upon the surety to pay the plaintiff the amount due on the judgment, and whether the Provincial Sheriff of Bulacan, in making the return of the writ
if no payment is so made, the amount may be recovered from such
of execution served or did not serve a copy thereof with notice of
surety after notice and hearing in the same action. A separate action attachment on the administratrix of the intestate estate of Felicisimo V.
against the sureties is not necessary. 20 Reyes and filed a copy of said writ with the office of the clerk of court with
In the present case, the demand upon the petitioner surety was made notice in accordance with See. 7 (f), Rule 57 of the Revised Rules of
with due notice and hearing thereon when the private respondents filed Court. The petitioner surety as solidary obligor is liable just the same.
the motion for recovery on the surety bonds dated September 9, 1966
WHEREFORE, the decision of the Court of Appeals promulgated on July
and to which the petitioner filed their opposition dated September 24, 19,1967 in CA-G.R. NO. 38824-R is affirmed and the order of the
1966. 21 respondent judge dated January 19, 1967 and all writs or orders issued
Therefore, all the requisites under Sec. 17, Rule 57, being present, in consequence or in pursuance thereof are also affirmed. The court of
namely: (1) the writ of execution must be returned unsatisfied, in whole or origin is hereby ordered to proceed with the execution against the
in part; (2) the plaintiff must demand the amount due under the judgment petitioner surety, the Imperial Insurance Inc., with costs against said
from the surety or sureties, and (3) notice and hearing of such demand petitioner.
although in a summary manner, complied with, the liability of the SO ORDERED.
petitioner automatically attaches.
In effect, the order dated November 10, 1966 rendering judgment against
the counter-bonds was a superfluity. The respondent judge could have
issued immediately a writ of execution against the petitioner surety upon
demand.
As correctly held by the Court of Appeals:
G.R. No. L-16666 April 10, 1922 language and the terms employed must of course be given the
signification which ordinarily attaches to them in that language. In English
ROMULO MACHETTI, plaintiff-appelle,
the term "guarantor" implies an undertaking of guaranty, as distinguished
vs.
from suretyship. It is very true that notwithstanding the use of the words
HOSPICIO DE SAN JOSE, defendant-appellee, and
"guarantee" or "guaranty" circumstances may be shown which convert
FIDELITY & SURETY COMPANY OF THE PHILIPPINE
the contract into one of suretyship but such circumstances do not exist in
ISLANDS, defendant-appellant
the present case; on the contrary it appear affirmatively that the contract
OSTRAND, J.: is the guarantor's separate undertaking in which the principal does not
join, that its rests on a separate consideration moving from the principal
It appears from the evidence that on July 17, 1916, one Romulo and that although it is written in continuation of the contract for the
Machetti, by a written agreement undertook to construct a building on construction of the building, it is a collateral undertaking separate and
Calle Rosario in the city of Manila for the Hospicio de San Jose, the distinct from the latter. All of these circumstances are distinguishing
contract price being P64,000. One of the conditions of the agreement features of contracts of guaranty.
was that the contractor should obtain the "guarantee" of the Fidelity and
Surety Company of the Philippine Islands to the amount of P128,800 and Now, while a surety undertakes to pay if the principal does not pay, the
the following endorsement in the English language appears upon the guarantor only binds himself to pay if the principal cannot pay. The one is
contract: the insurer of the debt, the other an insurer of the solvency of the debtor.
(Saint vs.Wheeler & Wilson Mfg. Co., 95 Ala., 362;
MANILA, July 15, 1916. Campbell, vs. Sherman, 151 Pa. St., 70; Castellvi de Higgins and
For value received we hereby guarantee compliance with the Higgins vs. Sellner, 41 Phil., 142; ;U.S. vs. Varadero de la Quinta, 40
terms and conditions as outlined in the above contract. Phil., 48.) This latter liability is what the Fidelity and Surety Company
assumed in the present case. The undertaking is perhaps not exactly that
FIDELITY AND SURETY COMPANY OF THE PHILIPPINE of a fianza under the Civil Code, but is a perfectly valid contract and must
ISLANDS. be given the legal effect if ordinarily carries. The Fidelity and Surety
(Sgd) OTTO VORSTER, Company having bound itself to pay only the event its principal, Machetti,
Vice-President. cannot pay it follows that it cannot be compelled to pay until it is shown
that Machetti is unable to pay. Such ability may be proven by the return
Machetti constructed the building under the supervision of architects of a writ of execution unsatisfied or by other means, but is not sufficiently
representing the Hospicio de San Jose and, as the work progressed, established by the mere fact that he has been declared insolvent in
payments were made to him from time to time upon the recommendation insolvency proceedings under our statutes, in which the extent of the
of the architects, until the entire contract price, with the exception of the insolvent's inability to pay is not determined until the final liquidation of
sum of the P4,978.08, was paid. Subsequently it was found that the work his estate.
had not been carried out in accordance with the specifications which
formed part of the contract and that the workmanship was not of the The judgment appealed from is therefore reversed without costs and
standard required, and the Hospicio de San Jose therefore answered the without prejudice to such right of action as the cross-complainant, the
complaint and presented a counterclaim for damages for the partial Hospicio de San Jose, may have after exhausting its remedy against the
noncompliance with the terms of the agreement abovementioned, in the plaintiff Machetti. So ordered.
total sum of P71,350. After issue was thus joined, Machetti, on petition of Araullo, C.J., Malcolm, Villamor, Johns and Romualdez, JJ., concur.
his creditors, was, on February 27, 1918, declared insolvent and on
March 4, 1918, an order was entered suspending the proceeding in the
present case in accordance with section 60 of the Insolvency Law, Act
No. 1956.
The Hospicio de San Jose on January 29, 1919, filed a motion asking
that the Fidelity and Surety Company be made cross-defendant to the
exclusion of Machetti and that the proceedings be continued as to said
company, but still remain suspended as to Machetti. This motion was
granted and on February 7, 1920, the Hospicio filed a complaint against
the Fidelity and Surety Company asking for a judgement for P12,800
against the company upon its guaranty. After trial, the Court of First
Instance rendered judgment against the Fidelity and Surety Company for
P12,800 in accordance with the complaint. The case is now before this
court upon appeal by the Fidelity and Surety Company form said
judgment.
As will be seen, the original action which Machetti was the plaintiff and
the Hospicio de San Jose defendant, has been converted into an action
in which the Hospicio de San Jose is plaintiff and the Fidelity and Surety
Company, the original plaintiff's guarantor, is the defendant, Machetti
having been practically eliminated from the case.
But in this instance the guarantor's case is even stronger than that of an
ordinary surety. The contract of guaranty is written in the English
G.R. No. L-158025 November 5, 1920
CARMEN CASTELLVI DE HIGGINS and HORACE L.
HIGGINS, plaintiffs-appellants,
vs.
GEORGE C. SELLNER, defendant-appellee.
MALCOLM, J.:
This is an action brought by plaintiffs to recover from defendant the sum
of P10,000. The brief decision of the trial court held that the suit was
premature, and absolved the defendant from the complaint, with the
costs against the plaintiffs.
The basis of plaintiff's action is a letter written by defendant George C.
Sellner to John T. Macleod, agent for Mrs. Horace L. Higgins, on May 31,
1915, of the following tenor:lawph!l.net
DEAR SIR: I hereby obligate and bind myself, my
heirs, successors and assigns that if the promissory
note executed the 29th day of May, 1915 by the
Keystone Mining Co., W.H. Clarke, and John Maye,
jointly and severally, in your favor and due six
months after date for Pesos 10,000 is not fully paid at
maturity with interest, I will, within fifteen days after
notice of such default, pay you in cash the sum of
P10,000 and interest upon your surrendering to me
the three thousand shares of stock of the Keystone
Mining Co. held by you as security for the payment of
said note.
Respectfully,
(Sgd.) GEO. C. SELLNER.
Counsel for both parties agree that the only point at issue is the
determination of defendant's status in the transaction referred to.
Plaintiffs contend that he is a surety; defendant contends that he is a
guarantor. Plaintiffs also admit that if defendant is a guarantor, articles
1830, 1831, and 1834 of the Civil Code govern.
In the original Spanish of the Civil Code now in force in the Philippine
Islands, Title XIV of Book IV is entitled "De la Fianza." The Spanish
word "fianza" is translated in the Washington and Walton editions of the
Civil Code as "security." "Fianza" appears in the Fisher translation as
"suretyship." The Spanish world "fiador" is found in all of the English
translations of the Civil Code as "surety." The law of guaranty is not
related of by that name in the Civil Code, although indirect reference to
the same is made in the Code of Commerce. In terminology at least, no
distinction is made in the Civil Code between the obligation of a surety
and that of a guarantor.
As has been done in the State of Louisiana, where, like in the
Philippines, the substantive law has a civil law origin, we feel free to
supplement the statutory law by a reference to the precepts of the law For quite different reasons, which, nevertheless, arrive at the same
merchant.
The points of difference between a surety and a guarantor are familiar to appellants. So ordered.
American authorities. A surety and a guarantor are alike in that each
promises to answer for the debt or default of another. A surety and a
guarantor are unlike in that the surety assumes liability as a regular party
to the undertaking, while the liability as a regular party to upon an
independent agreement to pay the obligation if the primary pay or fails to
do so. A surety is charged as an original promissory; the engagement of
the guarantor is a collateral undertaking. The obligation of the surety is
primary; the obligation of the guarantor is secondary. (See
U.S. vs. Varadero de la Quinta [1919], 40 Phil., 48; Lachman vs. Block
[1894], 46 La. Ann., 649; Bedford vs. Kelley [1913], 173 Mich., 492;
Brandt, on Suretyship and Guaranty, sec. 1, cited approvingly by many
authorities.)
Turning back again to our Civil Code, we first note that according to
article 1822 "By fianza (security or suretyship) one person binds himself
to pay or perform for a third person in case the latter should fail to do so."
But "If the surety binds himself in solidum with the principal debtor, the
provisions of Section fourth, Chapter third, Title first, shall be applicable."
What the first portion of the cited article provides is, consequently, seen
to be somewhat akin to the contract of guaranty, while what is last
provided is practically equivalent to the contract of suretyship. When in
subsequent articles found in section 1 of Chapter II of the title
concerning fianza, the Code speaks of the effects of suretyship between
surety and creditor, it has, in comparison with the common law, the effect
of guaranty between guarantor and creditor. The civil law suretyship is,
accordingly, nearly synonymous with the common law guaranty; and the
civil law relationship existing between codebtors liable in solidum is
similar to the common law suretyship.
It is perfectly clear that the obligation assumed by defendant was simply
that of a guarantor, or, to be more precise, of the fiador whose
responsibility is fixed in the Civil Code. The letter of Mr. Sellner recites
that if the promissory note is not paid at maturity, then, within fifteen days
after notice of such default and upon surrender to him of the three
thousand shares of Keystone Mining Company stock, he will assume
responsibility. Sellner is not bound with the principals by the same
instrument executed at the same time and on the same consideration,
but his responsibility is a secondary one found in an independent
collateral agreement, Neither is Sellner jointly and severally liable with
the principal debtors.
With particular reference, therefore, to appellants assignments of error,
we hold that defendant Sellner is a guarantor within the meaning of the
provisions of the Civil Code.
There is also an equitable aspect to the case which reenforces this
conclusion. The note executed by the Keystone Mining Company
matured on November 29, 1915. Interest on the note was not accepted
by the makers until September 30, 1916. When the note became due, it
is admitted that the shares of stock used as collateral security were
selling at par; that is, they were worth pesos 30,000. Notice that the note
had not been paid was not given to and when the Keyston Mining
Company stock was worthless. Defendant, consequently, through the
laches of plaintiff, has lost possible chance to recoup, through the sale of
the stock, any amount which he might be compelled to pay as a surety or
guarantor. The "indulgence," as this word is used in the law of guaranty,
of the creditors of the principal, as evidenced by the acceptance of
interest, and by failure promptly to notify the guarantor, may thus have
served to discharge the guarantor.
result, judgment is affirmed, with costs of this instance against the
G.R. No. 34642 September 24, 1931 The point is not well taken. A guarantor or surety is bound by the same
consideration that makes the contract effective between the principal
FABIOLA SEVERINO, accompanied by her husband RICARDO
parties thereto. (Pyle vs. Johnson, 9 Phil., 249.) The compromise and
VERGARA, plaintiffs-appellees,
dismissal of a lawsuit is recognized in law as a valuable consideration;
vs.
and the dismissal of the action which Felicitas Villanueva and Fabiola
GUILLERMO SEVERINO, ET AL., defendants.
Severino had instituted against Guillermo Severino was an adequate
ENRIQUE ECHAUS, appellant.
consideration to support the promise on the part of Guillermo Severino to
STREET, J.: pay the sum of money stipulated in the contract which is the subject of
this action. The promise of the appellant Echaus as guarantor therefore
This action was instituted in the Court of First Instance of the Province of binding. It is never necessary that the guarantor or surety should receive
Iloilo by Fabiola Severino, with whom is joined her husband Ricardo any part of the benefit, if such there be, accruing to his principal. But the
Vergara, for the purpose of recovering the sum of P20,000 from true consideration of this contract was the detriment suffered by the
Guillermo Severino and Enrique Echaus, the latter in the character of plaintiffs in the former action in dismissing that proceeding, and it is
guarantor for the former. Upon hearing he cause the trial court gave
immaterial that no benefit may have accrued either to the principal or his
judgment in favor of the plaintiffs to recover the sum of P20,000 with guarantor.
lawful from November 15, 1929, the date of the filing of the complaint,
with costs. But it was declared that execution of this judgment should The judgment appealed from is in all respects correct, and the same will
issue first against the property of Guillermo Severino, and if no property be affirmed, with costs against the appellant. So ordered.
should be found belonging to said defendant sufficient to satisfy the
Avanceña, C.J., Johnson, Malcolm, Villamor, Ostrand, Romualdez, Villa-
judgment in whole or in part, execution for the remainder should be
Real and Imperial, JJ., concur.
issued against the property of Enrique Echaus as guarantor. From this
judgment the defendant Echaus appealed, but his principal, Guillermo
Severino, did not.
The plaintiff Fabiola Severino is the recognized natural daughter of
Melecio Severino, deceased, former resident of Occidental Negros. Upon
the death of Melecio Severino a number of years ago, he left
considerable property and litigation ensued between his widow, Felicitas
Villanueva, and Fabiola Severino, on the one part, and other heirs of the
deceased on the other part. In order to make an end of this litigation a
compromise was effected by which Guillermo Severino, a son of Melecio
Severino, took over the property pertaining to the estate of his father at
the same time agreeing to pay P100,000 to Felicitas Villanueva and
Fabiola Severino. This sum of money was made payable, first, P40,000
in cash upon the execution of the document of compromise, and the
balance in three several payments of P20,000 at the end of one year; two
years, and three years respectively. To this contract the appellant
Enrique Echaus affixed his name as guarantor. The first payment of
P40,000 was made on July 11, 1924, the date when the contract of
compromise was executed; and of this amount the plaintiff Fabiola
Severino received the sum of P10,000. Of the remaining P60,000, all as
yet unpaid, Fabiola Severino is entitled to the sum of P20,000.
It appears that at the time of the compromise agreement above-
mentioned was executed Fabiola Severino had not yet been judicially
recognized as the natural daughter of Melecio Severino, and it was
stipulated that the last P20,000 corresponding to Fabiola and the last
P5,000 corresponding to Felicitas Villanueva should retained on deposit
until the definite status of Fabiola Severino as natural daughter of
Melecio Severino should be established. The judicial decree to this effect
was entered in the Court of First Instance of Occidental Negros on June
16, 1925, and as the money which was contemplated to be held in
suspense has never in fact been paid to the parties entitled thereto, it
results that the point respecting the deposit referred to has ceased to be
of moment.
The proof shows that the money claimed in this action has never been
paid and is still owing to the plaintiff; and the only defense worth noting in
this decision is the assertion on the part of Enrique Echaus that he
received nothing for affixing his signature as guarantor to the contract
which is the subject of suit and that in effect the contract was lacking in
consideration as to him.
G.R. No. L-42518 August 29, 1936 The said parcel of land is bounded as
follows: NE. lot No. 517 "Part" de Narciso
WISE & CO., INC., plaintiff-appellee,
Garcia; SE. Calle Rizal; SW. lot No. 517
vs.
"Part" de Bernardino Tiongco; NW. lot No.
DIONISIO P. TANGLAO, defendant-appellant.
508 de Clemente Dayrit; containing 431 sq.
AVANCEÑA, C. J.: m. and described in tax declaration No.
11977 of the municipality of Angeles,
In the Court of First Instance of Manila, Wise & Co. instituted civil case Pampanga, assessed at P423.
No. 41129 against Cornelio C. David for the recovery of a certain sum of
money David was an agent of Wise & Co. and the amount claimed from That this guaranty is attached to the properties above
him was the result of a liquidation of accounts showing that he was mentioned as first lien and for this reason the parties agree to
indebted in said amount. In said case Wise & Co. asked and obtained a register this compromise with the Register of Deeds of
preliminary attachment of David's property. To avoid the execution of Pampanga, said lien to be cancelled only on the payment of
said attachment, David succeeded in having his Attorney Tanglao the full amount of the judgment in this case.
execute on January 16, 1932, a power of attorney (Exhibit A) in his favor,
Wherefore, the parties pray that the above compromise be
with the following clause:
admitted and that an order issue requiring the register of Deeds
To sign for me as guarantor for himself in his indebtedness to of Pampanga to register this compromise previous to the filing
Wise & Company of Manila, which indebtedness appears in of the legal fees.
civil case No. 41129, of the Court of First Instance of Manila,
David paid the sum of P343.47 to Wise & Co., on account of the P640
and to mortgage my lot (No. 517-F of the subdivision plan Psd-
which he bound himself to pay under Exhibit B, leaving an unpaid
20, being a portion of lot No. 517 of the cadastral survey of
balance of P296.53.
Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said
obligations to the Wise & Company, Inc., of Manila. Wise & Co. now institutes this case against Tanglao for the recovery of
said balance of P296.53.
On the 18th of said month David subscribed and on the 23d thereof, filed
in court, the following document (Exhibit B): There is no doubt that under Exhibit, A, Tanglao empowered David, in his
name, to enter into a contract of suretyship and a contract of mortgage of
COMPROMISE
the property described in the document, with Wise & Co. However, David
Come now the parties, plaintiff by the undersigned attorneys used said power of attorney only to mortgage the property and did not
and defendants in his own behalf and respectfully state: enter into contract of suretyship. Nothing is stated in Exhibit B to the
effect that Tanglao became David's surety for the payment of the sum in
I. That the defendant confesses judgment for the sum question. Neither is this inferable from any of the clauses thereof, and
of six hundred forty pesos (P640), payable at the rate
even if this inference might be made, it would be insufficient to create an
of eighty pesos (P80) per month, the first payment to obligation of suretyship which, under the law, must be express and
be made on February 15, 1932 and successively cannot be presumed.
thereafter until the full amount is paid; the plaintiff
accepts this stipulation. It appears from the foregoing that defendant, Tanglao could not have
contracted any personal responsibility for the payment of the sum of
II. That as security for the payment of said sum of P640. The only obligation which Exhibit B, in connection with Exhibit A,
P640, defendant binds in favor of, and pledges to the has created on the part of Tanglao, is that resulting from the mortgage of
plaintiff, the following real properties: a property belonging to him to secure the payment of said P640.
1. House of light materials described under However, a foreclosure suit is not instituted in this case against Tanglao,
tax declaration No. 9650 of the municipality but a purely personal action for the recovery of the amount still owed by
of Angeles, Province of Pampanga, David.
assessed at P320. At any rate, even granting that defendant Tanglao may be considered as
2. Accesoria apartments with a ground floor a surety under Exhibit B, the action does not yet lie against him on the
of 180 sq. m. with the first story of cement ground that all the legal remedies against the debtor have not previously
and galvanized of iron roofing located on been exhausted (art. 1830 of the Civil Code, and decision of the
the lot belonging to Mariano Tablante Supreme Court of Spain of March 2, 1891). The plaintiff has in its favor a
Geronimo, said accesoria is described judgment against debtor David for the payment of debt. It does not
under tax declaration No. 11164 of the appear that the execution of this judgment has been asked for and
municipality of Angeles, Province of Exhibit B, on the other hand, shows that David has two pieces of property
Pampanga, assessed at P800. the value of which is in excess of the balance of the debt the payment of
which is sought of Tanglao in his alleged capacity as surety.
3. Parcel of land described under Transfer
Certificate of Title No. 2307 of the Province For the foregoing considerations, the appealed judgment is reversed and
of Pampanga recorded in the name of the defendant is absolved from the complaint, with the costs to the
Dionisio Tanglao of which defendant herein plaintiff. So ordered.
holds a special power of attorney to pledge
the same in favor of Wise & Co., Inc., as a
guarantee for the payment of the claim
against him in the above entitled cause.
G.R. No. L-27249 July 31, 1970 1965, he was declared insolvent, with listed credits amounting to
P111,873.002 and properties valued at P39,0,00.00. In the meeting of the
MANILA SURETY & FIDELITY CO., INC., plaintiff-appellant,
named creditors of the insolvent held on 14 May 1965 for the purpose of
vs.
electing the assignee of his properties, the NAMARCO was represented
NOEMI ALMEDA, doing business under the name and style of
and its contingent claim duly registered.3
ALMEDA TRADING, GENEROSO ESQUILLO and NATIONAL
MARKETING CORPORATION, defendants-appellees. On 10 September 1965, the Manila Surety & Fidelity Co., Inc.,
commenced in the Court of First Instance of Manila Civil Case No. 62518
REYES, J.B.L., J.:
against the spouses Noemi Almeda and Generoso Esquillo, and the
This is an appeal from the ruling of the Court of First Instance of Manila, NAMARCO, to secure its release from liability under the bonds executed
rendered in Civil Case No. 62518, that the insolvency of a debtor- in favor of NAMARCO. The action was based on the allegation that the
principal does not release the surety from its obligation to the creditor defendant spouses had become insolvent and that defendant NAMARCO
under the bond. had rescinded its agreement with them and had already demanded
payment of the outstanding accounts of the couple.
The lower court found that on 4 December 1961, Noemi Almeda, married
to Generoso Esquillo, and doing business under the name and style of Defendant NAMARCO filed its answer denying the averments of the
Almeda Trading, entered into a contract with the National Marketing complaint and setting up, as affirmative defenses, lack of cause of action
Corporation (NAMARCO) for the purchase of goods on credit, payable in and the court's want of jurisdiction. On 16 December 1966, the court
30 days from the dates of deliveries thereof. As required by' the rendered judgment sustaining NAMARCO's contention that the
NAMARCO, a bond for P5,000.00, undertaken by the Manila Surety & insolvency of the debtor-principal did not discharge the surety's liability
Fidelity Co., Inc. (Exhibit "A"), was posted by the purchaser to secure the under the bond. Thus, the complaint was dismissed and plaintiff surety
latter's faithful compliance with the terms of the contract. The agreement company was ordered to pay off the indebtedness of the defendant
was later supplemented on 17 October 1962 and a new bond for the spouses to the NAMARCO to the extent of its (the Surety's) undertaking,
same amount of P5,000.00, also undertaken by the Manila Surety & plus attorneys' fees and costs. From this decision, plaintiff surety
Fidelity Co., Inc. (Exhibit "C"),1 was given in favor of the NAMARCO The interposed the present appeal.
bonds uniformly contained the following provisions:
Plaintiff-appellant's action to secure its discharge from the suretyship was
2. Should the Principal's account on any purchase be based on Article 2071 of the Civil Code,4Which provides the surety with
not paid on time, then the Surety, shall, upon certain protective remedies that may be resorted to before he has paid,
demand, pay said account immediately to the but after he has become liable to do so.5
NAMARCO;
Upon the other hand, the lower court's ruling, now on appeal, is anchored
3. Should the account of the Principal exceed the on an equally explicit provision of the Insolvency law ( Act 1956, as
amount of FIVE THOUSAND (P5,000.00) PESOS, amended), to writ:.
Philippine Currency, such excess up to twenty (20%)
SEC. 68. ...
per cent of said amount shall also be deemed
secured by this Bond; No discharge (of the insolvent from his obligations)
shall release, discharge or affect any person liable for
4. The Surety expressly waives its right to demand
the same debt, for or with the debtor, either as
payment and notice of non-payment and agreed that
partner, joint contractor, indorser, surety, or
the liability of the Surety shall be direct and
otherwise.
immediate and not contingent upon the exhaustion
by the NAMARCO of whatever remedies it may have The issue posed by this appeal, therefore, is whether a surety can avail
against the Principal and same shall be valid and itself of the relief, specifically afforded in Article 2071 of the Civil Code
continuous until the obligation so guaranteed is paid and be released from its liability under the bonds, notwithstanding a prior
in full; and declaration of the insolvency of the debtor-principal in an insolvency
proceeding.
5. The Surety also waives its right to be notified of
any extension of the terms of payment which the We see no reversible error in the decision appealed.
NAMARCO may give to the Principal, it being
There is no question that under the bonds posted in favor of the
understood that were extension is given to satisfy the
NAMARCO in this case, the surety company assumed to make
account, that such extension shall not extinguish the
immediate payment to said firm of any due and unsettled accounts of the
guaranty unless the same is made against the
debtor-principal, even without demand and notice of the debtor's non-
express wish of the Surety.
payment, the surety, in fact, agreeing that its liability to the creditor shall
The records show that on 8 June 1965, the marketing firm demanded be direct, without benefit of exhaustion of the debtor's properties, and to
from the purchaser Almeda Trading the settlement of its back accounts remain valid and continuous until the guaranteed obligation is fully
which, as of 15 May 1965, allegedly amounted to P16,335.09. Furnished satisfied. In short, appellant secured to the creditor not just the payment
with copy of the NAMARCO's demand- letter, the surety company by the debtor-principal of his accounts, but the payment itself of such
thereafter also wrote to the said purchaser urging it to liquidate its accounts. Clearly, a contract of suretyship was thus created, the
unsettled accounts with the NAMARCO (Exhibit "E-1"). It appears, appellant becoming the insurer, not merely of the debtor's solvency or
however, that previous to this, or on 26 March 1965, Generoso Esquillo ability to pay, but of the debt itself.6 Under the Civil Code, with the
instituted voluntary insolvency proceeding in the Court of First Instance of debtor's insolvency having been judicially recognized, herein appellant's
Laguna (Sp. Proc. No. SP-181), and by order of said court of 6 April resort to the courts to be released from the undertaking thus assumed
would have been appropriate.7 Nevertheless, the guarantor's action for for whatever amount may remain not covered or unsatisfied by the
release can only be exercised against the principal debtor and not disposition of the insolvent's properties, 1 0 with the right to go against
against the creditor, as is apparent from the precise terms of the legal debtor-principal after it has made the necessary payment to the creditor.
provision. "The guarantor" (says Article 2071 of the Civil Code of the For another, the fact that the debtor- principal may be discharged from all
Philippines) "even before having paid, may proceed against the principal his outstanding obligations in the insolvency case would not benefit the
debtor ------------------ to obtain a release from the guaranty ---------------." surety, as to relieve it of its liability under the surety agreement. That is
The juridical rule grants no cause of action against the creditor for a so provided in Section 68 of the Insolvency Act which shall be controlling
release of the guaranty, before payment of the credit, for a plain reason: in the case.
the creditor is not compellable to release the guaranty (which is a
Finally, even supposing that the present action is not blocked by the
property right) against his will. For, the release of the guarantor imports
insolvency proceedings because it does not aim at reducing the
an extinction of his obligation to the creditor; it connotes, therefore, either
insolvent's assets, but only at having the suretyship substituted by other
a remission or a novation by subrogation, and either operation requires
equivalent security, still it is difficult to see how the principal debtor, with
the creditor's assent for its validity (See Article 1270 and Article 1301).
his business, property and assets impounded by the insolvency court,
Especially should this be the case where the principal debtor has
can obtain other securities with which to replace the guaranty given by
become insolvent, for the purpose of a guaranty is exactly to protect the
the plaintiff-appellant. The action at bar would seem, under the
creditor against such a contingency.
circumstances, destined to end in futility.
In what manner, then, can the article operate? Where the debtor can not
WHEREFORE, with the modification that appellant's liability shall be
make full payment, the release of the guarantor can only be obtained
limited to the payment of whatever amount may remain due to the
with the assent of the creditor, by persuading the latter to accept an
appellee NAMARCO and is unsatisfied in the insolvency proceeding, but
equally safe security, either another suitable guaranty or else a pledge or
not to exceed the amount of the surety's undertaking under the bonds,
mortgage. Absent the creditor's consent, the principal debtor may only
the decision appealed from is affirmed in all other respects. Costs against
proceed to protect the demanding guarantor by a counterbond or counter
appellant surety company.
guaranty, as is authorized by the codal precept (Article 2071 in fine). To
this effect is the opinion of the Spanish commentator, Scaevola, in his Concepcion, C.J., Dizon Makalintal, Zaldivar, Castro, Fernando,
explanations to Article 1843 of the Spanish Civil Code (from which Article Teehankee, Barredo and Villamor, JJ., concur.
2071 of our Code is derived). Says Scaevola:
Como se prestaran tales garantias al fiador? Lo
contesta el aludido parrafo final del Articulo 1843. Se
hara por uno de estos dos modos: ora consiguiendo
el deudor que el acreedor abandone libremente
aquella fianza, lo cual ocurrira dandole el deudor otra
garantia analoga, ya por razon de la persona fiadora,
ya ofreciendole el deudor al mismo fiador, pero
continuando este como tal, una garantia que lo
ponga a cubierto de los procedimientos del acreedor
y del peligro de insolvencia del deudor. (Scaevola
Codigo Civil, 2d Ed., Vol. 28, pp. 651652).
The appellant's troubles are compounded by the fact that when the
complaint for release from suretyship was filed in the Manila court on 10
September 1965, the insolvency case in the Laguna court was already
pending and the debtor-principal Generoso Esquillo had been judicially
declared an insolvent. By the time the appellant sued, therefore, the
insolvency court had already acquired jurisdiction over all the debtor's
properties and of all claims by and against him, to the exclusion of any
other court.8 In the circumstances, the lawful recourse of the guarantor of
an obligation of the insolvent would be to file a contingent claim in the
insolvency proceeding, if his rights as such guarantor or surety are not to
be barred by the subsequent discharge of the insolvent debtor from all
his liabilities.9
In the case at bar, it is true that the guaranteed claim of NAMARCO was
registered or filed in the insolvency proceeding. But appellant can not
utilize this fact in support of its petition for release from the assumed
undertaking. For one thing, it is almost a certainty that creditor
NAMARCO can not secure full satisfaction of its credit out of the debtor's
properties brought into the insolvency proceeding. Considering that
under the contract of suretyship, which remains valid and subsisting, the
entire obligation may even be demanded directly against the surety itself,
the creditor's act in resorting first to the properties of the insolvent debtor
is to the surety's advantage At least, the latter would be answerable only