Between guarantor and debtor

1.Saenz vs. Yap Chuan

Facts: By order of the court, Engracio Palanca, as judicial administrator of an estate,
gave a bond to guarantee his administration. The judicial bond was executed by
Palanca, Vizmanos, and others jointly and severally in favor of the Government for
the sum of 60K. In turn, Palanca and 5 others executed in favor of Vizmanos another
bond.
As guarantor in solidum of Palanca who was replaced by Yap Chengtua as the
new administrator, Vizmanos was ordered by the court to pay to the estate the sum
of 48K. Vizmanos paid 8K and still owed 40K. Palanca could not pay Vizmanos.

Issue: WON the other creditors should reimburse Vizmanos each or a total of 20K
notwithstanding that Vizmanos had paid only 8K of his bond?

Held: NO
Guarantor’s rights of reimbursement limited to amount paid
An action of subrogation is an action of indemnity
Art. 2067 the guarantor who pays is subrogated by virtue thereof of all the rights
which the creditor had against the debtor. If the guarantor has compromised with
the creditor, he cannot demand of the debtor more than what he has really paid.

2.) Tuason, Tuason, Inc. vs. Machuca

Facts: Manila Compania de Seguros signed a note for 10,000 in favor of Tuason,
Tuason Inc. to guarantee a liability of Universal Trading Co, In turn, Universal Trading
Co. and its president, Antonio Machuca, in his personal capacity, executed a
document wherein they bound themselves solidarily to reimburse Manila Compania
de Seguros all of such sum it may pay or become bound to pay, upon its obligation
to Tuason, Tuason Inc. whether or not it shall have actually paid such sums or any
part thereof. Universal Trading Co. was declared insolvent.

Tuason, Tuason, Inc. brought action against Manila Compania De Seguros to recover
the value of the note and obtained final judgment. Later, Manila Compania De
Seguros filed a complaint against Machuca to recover the amount which Manila
Compania De Seguros was sentenced to pay Tuason, Tuason, Inc, plus attorney’s
fees, judicial costs and sheriff’s fees, and interest, although Manila Compania De
Seguros had not, in fact, paid the amount of the judgment.

Issue:
WON Tuason, Tuason Inc. Is entitled to the relief sought in view of the above facts?
WON Tuason, Tuason Inc. has the right to recover from Machuca more than the
value of the note executed by Tuason, Tuason, Inc. in favor of Manila Compania de
Seguros?
Held:
Yes. It is indispensable that Universal Trading Co. became bound by virtue of final
judgment to pay the value of the note executed by it in favor of Manila Compania de
Seguros, and according to the document executed solidarily by Universal Trading
Co. and Machuca, Machuca bound himself to pay Tuason, Tuason, Inc. as soon as the
latter may have become bound and liable, whether or not it shall have actually paid.
Machuca must not be responsible for the expenses incurred by Manila Compania De
Seguros in the litigation between it and Tuason, Tuason, Inc. and it cannot charge
Machuca with expenses it was compelled to make by reason of its fault. It is entitled
only to expenses incurred by it in the action against Machuca.
Art. 2071 the guarantor, even before having paid, may proceed against the principal
debtor:
When he is being sued for the payment
In the case of insolvency of the principal debtor
When the debtor has bound himself to relieve him from the guaranty within
specified period, and this period has expired
When the debt has become demandable, by reason of the expiration of the period
of the payment
After the lapse of ten years, when the principal obligation has no fixed period for its
maturity, unless it be such nature that it cannot be extinguished except within a
period longer than ten years
If there are reasonable grounds to fear that the principal debtor intends to abscond
If the principal debtor is in imminent danger of becoming insolvent
In all these, cases, the action of the guarantor is to obtain release from the
guaranty, or to demand a security that shall protect him from any proceedings by
the creditor and from the danger of the insolvency of the debtor.

3.) Kuenzle & Streiff vs. Tan Sunco

Facts: Kuenzle & Streiff instituted an action against Chung Chu Sing for the recovery
of indebtedness. Before Kuenzle & Streiff could secure judgment, Tan Sunco brought
an action against Chung Chu Sing for the payment of another obligation for which
Tan Sunco acted as guarantor. Chung Chu Sing confessed judgment in favor of Tan
Sunco. Immediately after obtaining judgment, Tan Sunco caused to be levied upon
under execution all the properties of Chung Chu Sing. Kuenzle & Streiff commenced
an action to set aside the judgment, claiming it was obtained by the fraud and
collusion, and that Tan Sunco had not paid the debt for which as guarantor he
obtained the judgment.

Issue: WON a guarantor who sues his principal debtor before paying the debt
himself entitled to recover judgment for the debt?

Held: No, while the surety has the right to obtain judgment against his principal
debtor, he will not be permitted to realize on said judgment to the point of actual
collection until he has satisfied, or caused to be satisfied, the obligation the
payment of the obligation of which he assures.
A guarantor who obtains judgment against his principal cannot execute said
judgment against the latter’s property until he has paid the debt for which he
stands as guarantor.

4.)Cochigyan vs. R&B surety and insurance co

5. Mercantile Insurance Co vs. Ysmael

Post under case digests, Commercial Law at Saturday, March 31, 2012 Posted
by Schizophrenic Mind
Facts: Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe
Ysmael, Jr. as president and in his personal capacity executed with the plaintiff
Mercantile Insurance Co., Inc. an indemnity agreement. The defendants Felipe
Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound jointly and severally to indemnify
the plaintiff, from and against any and all payments, damages, costs, losses,
penalties, charges and expenses which said company as surety (MERICO Bond No.
0007) shall incur or become liable to pay.

Paragraph 3 of the indemnity agreement expressly provides:

3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding

paragraph, where the obligation involves a liquidated amount for the payment of
which the company has become legally liable under the terms of the obligation and
its suretyship undertaking or by the demand of the obligee or otherwise and the
latter has merely allowed the COMPANY a term or extension for payment of the
latter's demand the full amount necessary to discharge the COMPANY's aforesaid
liability irrespective of whether or not payment has actually been made by the
COMPANY, the COMPANY for the protection of its interest may
forthwith proceedagainst the undersigned or either of them by court action or
otherwise to enforce payment even prior to making payment to the obligee which
may hereafter be done by the COMPANY.

Tordesillas and Torres in their official capacities and the defendants executed
another indemnity agreement with the plaintiff inconsideration of the surety bond
(MERICO Bond No. G (16) 0030. In the indemnity agreement the same provisions of
paragraph 3 is found.

Later on, the amount of the Bond was reduced by P40,000.00 so that the total
liability of the plaintiff to the Philippine National Bank in view of the aforesaid
reduction is P100,000.00, P60,000.00 on Surety Bond No. 0007 plus P40,000.00 on
Surety Bond No. 0030.

The defendants failed to pay the overdraft and credit line with the Philippine
National Bank demanded from Mercantil, settlement of its obligation under surety
bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-
16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) Attached
to the demand letter is a statement of account.

By letter of December 17, 1970, plaintiff company wrote a letter of demand to the
defendants regarding the the letter of demand of the Philippine National Bank sent
to the plaintiff and demanding from the defendants the settlement of said account.
The defendants failed to settle their obligation with the Philippine National Bank, on
February 10, 1971, plaintiff brought the present action.

Lower court dismissed case for lack of cause of action, the plaintiff has paid nothing
in the surety bonds, therefore, they have not suffered any actual damage and held
that paragraph 3 of contract is void.

Defendants argued that to allow surety to receive indemnity or compensation for

something it has not paid in its capacity as surety would constitute unjust
enrichment at the expense of another.

Issue: Whether or not surety can be allowed indemnification from the defendants-
appellants, upon the latter's default even before the former has paid to the creditor.
Held: The overdraft line of Php1M and the credit line of Php1M applied for by the
defendant was granted by the Philippine National Bank on the strength of the two
surety bonds denominated as Bond No. G(16) 0007 and Bond No. G(16) 0030.

As security and in consideration of the execution of the surety bonds, the

defendants executed with the plaintiff identical indemnity agreements which
provide that payment of indemnity or compensation may be claimed whether or not
plaintiff company has actually paid the same as provided in paragraph 3 of
contract.

The cause of action was derived from the terms of the Indemnity Agreement,
paragraph 3 thereof. By virtue of the provisions of the Indemnity Agreement,
defendants-appellants have undertaken to hold plaintiff-appellee free and harmless
from any suit, damage or liability which may be incurred by reason of non-
performance by the defendants-appellants of their obligation with the Philippine
National Bank. The Indemnity Agreement is principally entered into as security of
plaintiff-appellee in case of default of defendants-appellants; and the liability of the
parties under the surety bonds is joint and several, so that the obligee PNB
may proceed against either of them for the satisfaction of the obligation.

There is no dispute as to meaning of the terms of the Indemnity Agreement. Having

voluntarily entered into such contract, the appellants cannot now be heard to
complain. Their indemnity agreement have the force and effect of law.

The principal debtors, defendants-appellants herein, are the same persons who
executed the Indemnity Agreement. Thus, the positionoccupied by them is that of a
principal debtor and indemnitor at the same time, and their liability being joint and
several with the plaintiff-appellee's, the Philippine National Bank
may proceed against either for fulfillment of the obligation as covered by the surety
bonds. There is no principle of guaranty involved and, therefore, the provision of
Article 2071 of the Civil Code does not apply. There is no more need for the plaintiff-
appellee to exhaust all the properties of the principal debtor before it
may proceed against defendants-appellants.

6.) Escaño v. Ortigas, Jr.

526 SCRA 26 (June 29, 2007)

Facts:
On April 28, 1980, Private Development Corporation of the Philippines (PDCP)
entered into a loan agreement with Falcon Minerals, Inc. (Falcon) amounting to
$320,000.00 subject to terms and conditions. [“Nagpautang ang PDCP sa Falcon ng
$320K]

On the same day, 3 stockholders-officers of Falcon: Ortigas Jr., George A. Scholey,

and George T. Scholey executed an Assumption of Solidary Liability “to assume in
[their] individual capacity, solidary liability with [Falcon] for due and punctual
payment” of the loan contracted by Falcon with PDCP.
Two (2) separate guaranties were executed to guarantee payment of the same loan
by other stockholders and officers of Falcon, acting in their personal and individual
capacities. One guaranty was executed by Escaño, Silos, Silverio, Inductivo and
Rodriguez.

Two years later, an agreement developed to cede control of Falcon to Escaño, Silos
and Matti. Contracts were executed whereby Ortigas, George A. Scholey, Inductivo
and the heirs of then already deceased George T. Scholey assigned their shares of
stock in Falcon to Escaño, Silos and Matti. An Undertaking dated June 11, 1982 was
executed by the concerned parties, namely: with Escaño, Silos and Matti as
“SURETIES” and Ortigas, Inductivo and Scholeys as “OBLIGORS”

Falcon eventually availed of the sum of $178,655.59 from the credit line extended
by PDCP. It would also execute a Deed of Chattel Mortgage over its personal
properties to further secure the loan. However, Falcon subsequently defaulted in its
payments. After PDCP foreclosed on the chattel mortgage, there remained a
subsisting deficiency of Php 5,031,004.07 which falcon did not satisfy despite
demand.

Issue: Whether the obligation to repay is solidary, as contended by respondent and

the lower courts, or merely joint as argued by petitioners.

Held/Ruling:
In case, there is a concurrence of two or more creditors or of two or more debtors in
one and the same obligation, Article 1207 of the Civil Code states that among them,
“[t]here is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity.” Article 1210 supplies
further caution against the broad interpretation of solidarity by providing: “The
indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.” These Civil Code provisions establish that in
case of concurrence of two or more creditors or of two or more debtors in one and
the same obligation, and in the absence of express and indubitable terms
characterizing the obligation as solidary, the presumption is that the obligation is
only joint. It thus becomes incumbent upon the party alleging that the obligation is
indeed solidary in character to prove such fact with a preponderance of evidence.

Note that Article 2047 itself specifically calls for the application of the provisions on
joint and solidary obligations to suretyship contracts. Article 1217 of the Civil Code
thus comes into play, recognizing the right of reimbursement from a co-debtor (the
principal debtor, in case of suretyship) in favor of the one who paid (i.e., the surety).
[However, a significant distinction still lies between a joint and several debtor, on
one hand, and a surety on the other. Solidarity signifies that the creditor can compel
any one of the joint and several debtors or the surety alone to answer for the
entirety of the principal debt. The difference lies in the respective faculties of the
joint and several debtor and the surety to seek reimbursement for the sums they
paid out to the creditor. In the case of joint and several debtors, Article 1217 makes
plain that the solidary debtor who effected the payment to the creditor “may claim
from his co-debtors only the share which corresponds to each, with the interest for
the payment already made.” Such solidary debtor will not be able to recover from
the co-debtors the full amount already paid to the creditor, because the right to
recovery extends only to the proportional share of the other co-debtors, and not as
to the particular proportional share of the solidary debtor who already paid. In
contrast, even as the surety is solidarily bound with the principal debtor to the
creditor, the surety who does pay the creditor has the right to recover the full
amount paid, and not just any proportional share, from the principal debtor or
debtors. Such right to full reimbursement falls within the other rights, actions and
benefits which pertain to the surety by reason of the subsidiary obligation assumed
by the surety.

*Petitioners and Matti are jointly liable to Ortigas, Jr. in the amt. of P1.3M; Legal
interest of 12% per annum on P 1.3M computed from March 14, 1994. Assailed
rulings are affirmed. Costs against petitioners

EXTINGUISHMENT

1.)Asiatic petroleum co v.hizon

2.)Radio Corp v. Roa

3.)PB&TC vs. Tambunting
4.) PNB vs. Manila Surety & Fidelity Co.
Facts: PNB was negligent in its duty under the power of attorney to collect sums due
to debtor from the latter’s debtor, thereby allowing such funds to be exhausted by
other creditors.

Issue: WON Manila Surety is exonerated from liability to PNB?

Held: Yes. Even if the assignment with the power of attorney from the principal
debtor was considered as a mere additional security, still, by allowing the assigned
funds to be exhausted without notifying Manila Surety, PNB deprived the former of
the possibility of taking recourse against the security. PNB thereby exonerated
Manila Surety, pursuant to Art. 2080.
Art. 2080 the guarantors, even though they be solidarily, are released from their
obligation whenever by some act of the creditor they cannot be subrogated to the
rights, mortgages, and preferences of the latter.

AUTOCORP and Rodriguez vs. ISAC and BOC

G.R. No. 166662
June 27, 2008
FACTS: Autocorp Group, represented by its President, Rodriguez, secured an
ordinary re-export bond from private respondent Intra Strata Assurance Corporation
(ISAC) in favor of public Bureau of Customs (BOC), to guarantee the re-export of 2
units of car (at 2 different dates) and/or to pay the taxes and duties thereon.
Petitioners executed and signed two Indemnity Agreements with identical
stipulations in favor of ISAC, agreeing to act as surety of the subject bonds
In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with
their undertaking with the BOC to re-export the imported vehicles within the given
period and pay the taxes and/or duties due thereon. In turn, petitioners agreed, as
surety, to indemnify ISAC for the liability the latter may incur on the said bonds
Autocorp failed to re-export the items guaranteed by the bonds and/or liquidate the
entries or cancel the bonds, and pay the taxes and duties pertaining to the said
items, despite repeated demands made by the BOC, as well as by ISAC. By reason
thereof, the BOC considered the two bonds forfeited.
Failing to secure from petitioners the payment of the face value of the two bonds,
ISAC filed with the RTC an action against petitioners to recover a sum of money plus
AF. ISAC impleaded the BOC “as a necessary party plaintiff in order that the reward
of money or judgment shall be adjudged unto the said necessary plaintiff.”
Petitioners filed a MTD, which was denied. RTC ordered Autocorp to pay ISAC and/or
BOC the face value of the subject bonds plus AF. Autocorp’s MR was denied. CA
affirmed the trial court’s decision. MR was denied. Hence this Petition for Review on
Certiorari
ISSUE: WON these bonds are now due and demandable, as there is yet no actual
forfeiture of the bonds, but merely a recommendation of forfeiture, for no writ of
execution has been issued against such bonds, therefore the case was prematurely
filed by ISAC
HELD: PETITION IS WITHOUT MERIT
YES
The Indemnity Agreements give ISAC the right to recover from petitioners the face
value of the subject bonds plus attorney’s fees at the time ISAC becomes liable on
the said bonds to the BOC, (specifically to re-export the imported vehicles within the
period of six months from their date of entry) regardless of whether the BOC had
actually forfeited the bonds, demanded payment thereof and/or received such
payment. It must be pointed out that the Indemnity Agreements explicitly provide
that petitioners shall be liable to indemnify ISAC “whether or not payment has
actually been made by the [ISAC]” and ISAC may proceed against petitioners by
court action or otherwise “even prior to making payment to the [BOC] which may
hereafter be done by [ISAC].”
Article 2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within a
specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the
period for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed period for
its maturity, unless it be of such nature that it cannot be extinguished except within
a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to
abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the guaranty,
or to demand a security that shall protect him from any proceedings by the creditor
and from the danger of insolvency of the debtor.

NOTES:
A demand is only necessary in order to put an obligor in a due and demandable
obligation in delay, which in turn is for the purpose of making the obligor liable for
interests or damages for the period of delay. Thus, unless stipulated otherwise, an
extrajudicial demand is not required before a judicial demand, i.e., filing a civil case
for collection, can be resorted to

SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID BANK
CORPORATION, FIRST BUSINESS PAPER CORPORATION (FBPC)
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an "omnibus
line" credit facility worth P10 million in favor of (FBPC). The terms and conditions
of the agreement as well as the checklist of documents necessary to open the credit
line were stipulated in a "letter-advise" of the Bank. The documents essential for the
credit facility and submitted for this purpose were the
xxx(c) Continuing Guaranty for any and all amounts signed by petitioner-spouses
Luis Toh and Vicky Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li
xxx
The spouses Toh were then Chairman of the Board and Vice-President, of FBPC,
while respondent-spouses Ng Li were President and General Manager of the same
corporation.5
The Continuing Guaranty set forth no maximum limit on the indebtedness that
respondent FBPC may incur and contained a de facto acceleration clause. So as to
strengthen this security, the Continuing Guaranty waived rights of the sureties
against delay or absence of notice or demand on the part of respondent Bank, and
gave future consent to the Bank's action to "extend or change the time payment,
and/or the manner, place or terms of payment," including renewal, of the credit
facility or any part thereof in such manner and upon such terms as the Bank may
deem proper without notice to or further assent from the sureties.
On 16 June 1993 respondent FBPC started to avail of the credit facility and secured
letters of credit.7 FBPC opened thirteen (13) letters of credit and executed a series
of trust receipts over the goods allegedly purchased from the proceeds of the
loans.9
On 13 January 1994 respondent Bank received information that respondent-spouses
Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently departed from their conjugal
home.10 On 14 January 1994 the Bank served a demand letter upon FBPC and
petitioner Luis Toh invoking the acceleration clause11 in the trust receipts of FBPC
and claimed payment for P10,539,758.68 as unpaid overdue accounts on the letters
of credit plus interests and penalties within twenty-four (24) hours from receipt
thereof.12 The Bank also invoked the Continuing Guaranty executed by petitioner-
spouses Luis Toh and Vicky Tan Toh.
On 17 January 1994 respondent Bank filed a complaint for sum of money.
Petitioners also contended that through FBPC Board Resolution, petitioner Luis Toh
was removed as an authorized signatory for FBPC and replaced by respondent-
spouses Ng Li and Padilla for all the transactions of FBPC with respondent Bank.24
They even resigned from their respective positions in FBPC. Finally, petitioners
averred that sometime in June 1993 they obtained from respondent Kenneth Ng Li
their exclusion from the several surety agreements they had entered into .
ISSUE: WON spouses TOH are discharged as sureties under the Continuing
Guaranty.
HELD This Court holds that the Continuing Guaranty is a valid and binding contract
of petitioner-spouses as it is a public document that enjoys the presumption of
authenticity and due execution. Similarly, there is no basis for petitioners to limit
their responsibility so long as they were corporate officers and stockholders of FBPC.
Nothing in the Continuing Guaranty restricts their contractual undertaking to such
condition or eventuality.
But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety agreement they
signed so must we also hold respondent Bank to its representations in the "letter-
advise" of 16 May 1993. Particularly, as to the extension of the due dates of the
letters of credit, we cannot exclude from the Continuing Guaranty the preconditions
of the Bank that were plainly stipulated in the "letter-advise."
Insofar as petitioners stipulate in the Continuing Guaranty that respondent Bank
"may at any time, or from time to time, in [its] discretion x x x extend or change the
time payment," this provision even if understood as a waiver is confined per se to
the grant of an extension and does not surrender the prerequisites therefor as
mandated in the "letter-advise." In other words, the authority of the Bank to defer
collection contemplates only authorized extensions, that is, those that meet the
terms of the "letter-advise."
Certainly, while the Bank may extend the due date at its discretion pursuant to the
Continuing Guaranty, it should nonetheless comply with the requirements that
domestic letters of credit be supported by fifteen percent (15%) marginal deposit
extendible three (3) times for a period of thirty (30) days for each extension, subject
to twenty-five percent (25%) partial payment per extension.
Furthermore, the assurance of the sureties in the Continuing Guaranty that "[n]o act
or omission of any kind on [the Bank's] part in the premises shall in any event affect
or impair this guaranty"51 must also be read "strictissimi juris" for the reason that
petitioners are only accommodation sureties, i.e., they received nothing out of the
security contract they signed.5 An extension of the period for enforcing the
indebtedness does not by itself bring about the discharge of the sureties unless the
extra time is not permitted within the terms of the waiver, i.e., where there is no
payment or there is deficient settlement of the marginal deposit and the twenty-five
percent (25%) consideration, in which case the illicit extension releases the sureties.
Under Art. 2055 of the Civil Code, the liability of a surety is measured by the terms
of his contract, and while he is liable to the full extent thereof, his accountability is
strictly limited to that assumed by its terms.
It is admitted by respondent Bank before the trial court that several letters of credit
were irrevocably extended for ninety (90) days with alarmingly flawed and
inadequate consideration - the indispensable marginal deposit of fifteen percent
(15%) and the twenty-five percent (25%) prerequisite for each extension of thirty
(30) days.
The foregoing extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the
waiver stipulated in the Continuing Guaranty. Evidently, they constitute illicit
extensions prohibited under Art. 2079 of the Civil Code, "[a]n extension granted to
the debtor by the creditor without the consent of the guarantor extinguishes the
guaranty."
As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky Tan Toh
are relieved of their obligations as sureties of respondent FBPC under Art. 2079 of
the Civil Code.
By the same token, there is no explanation on record for the utter worthlessness of
the trust receipts in favor of the Bank when these documents ought to have added
more security to the indebtedness of FBPC. To be sure, the goods subject of the
trust receipts were not entirely lost since the security officer of respondent Bank
who conducted surveillance of FBPC even had the chance to intercept the
surreptitious transfer of the items under trust. In addition, the attached properties of
FBPC were perfunctorily abandoned by respondent Bank although the bonds
therefor were considerably reduced by the trial court.

The consequence of these omissions is to discharge the surety, petitioners herein,

or at the very least, mitigate the liability of the surety up to the value of the
property or lien released – If the creditor has acquired a lien upon the property of a
principal, the creditor at once becomes charged with the duty of retaining such
security, or maintaining such lien in the interest of the surety, and any release or
impairment of this security as a primary resource for the payment of a debt, will
discharge the surety to the extent of the value of the property or lien released x x x
x [for] there immediately arises a trust relation between the parties, and the
creditor as trustee is bound to account to the surety for the value of the security in
his hands.

For the same reason, the grace period granted by respondent Bank represents
unceremonious abandonment and forfeiture of the fifteen percent (15%) marginal
deposit and the twenty-five percent (25%) partial payment as fixed in the "letter-
advise." These payments are unmistakably additional securities intended to protect
both respondent Bank and the sureties in the event that the principal debtor FBPC
becomes insolvent during the extension period. Compliance with these requisites
was not waived by petitioners in the Continuing Guaranty. For this unwarranted
exercise of discretion, respondent Bank bears the loss; due to its unauthorized
extensions to pay granted to FBPC, petitioner-spouses Luis Toh and Vicky Tan Toh
are discharged as sureties under the Continuing Guaranty.

Stronghold Insurance v Republic Asahi

Facts: Republic Asahi Glass contracts with JDS for the construction of roadways and
drainage systems in RAG's compound. JDS does so and files the required compliance
bond with Stronghold Insurance acting as surety. The contract is 5.3M the bond is
795k. JDS falls woefully behind schedule, prompting RAG to rescind the contract and
demand the compliance bond. The owner of JDS dies and JDS disappears. SHI
refuses to pay the bond claiming that the death of JDS owner extinguishes the
obligation.
Is SHI right?
Held: As a general rule, the death of either the creditor or the debtor does not
extinguish the obligation.[8]Obligations are transmissible to the heirs, except when
the transmission is prevented by the law, the stipulations of the parties, or the
nature of the obligation.[9]Only obligations that are personal[10] or are identified
with the persons themselves are extinguished by death.[11] Furthermore, The
liability of petitioner is contractual in nature, because it executed a performance
bond, As a surety, petitioner is solidarily liable with Santos in accordance with the
Civil Code.