Sharon Cerro-Fontanar Credit Transactions

CREDIT TRANSACTIONS shace 2019

No. CASE FACTS ISSUE RULING

1 bpi v ca Roa obtained a loan from Ayala (predecessor of WON the YES. Contract of loan involves reciprocal obligation
BPI) with real estate mortgage. He sold the contract of wherein the obligation or promise of each party is the
mortgaged property to ALS Management and loan was consideration for that of the other. BPI could only
Litonjua who assumed and paid the debt. Later, perfected at demand for the payment of the monthly amortization.
BPI released to them an amount purporting to be the time BPI
what's left of the loan after full payment. Years release the
later, BPI foreclosed the property. amount

2 catholic Hrs of Octaviano filed cases for recovery of
vicar possession of certain lot allegedly owned by
apostolic v Octaviano which was in the possession of VICAR.
CA VICAR contended that the lots were not titled and
that they possessed the same continously and
peacefully and even contructed permanent
structures thereat.
WON VICAR YES. It was proven that VICAR borrowed the house after
was a bailee the church and convent was destroyed. They allowed its
borrower in free use, they became bailors in commodatum and
commodatum VICAR the bailee. The bailee held in trust the subject of
matter of commodatum. Bailee's failure to return to the
bailor did not mean adverse possession on the part of
the borrower.

3 carmen Liwanag and Thelma received cash advances WON there
liwanag v ca from Rosales on the agreement that they would was contract
act as latter's agents in the business of buying of simple loan
and selling cigarettes with commission. Believing
that the amount was misappropriated, Rosales
filed a case of estafa.
NO. In a contract of loan, once the money is received by
the debtor, ownership over the same is transferred to the
borrower. Liwanag could not dispose of the money as
she pleased because she does not owned it as it was
intended only for the purpose of cigarettes.

4 pnb v Eduarosa Realty Devt thru Rosario obtained WON the YES. Loan is a reciprocal obligation where one party is
tajonera loans from PNB with real estate mortgage. When contract the creditor, the other the debtor. It requires the delivery
they failed to pay, the property was foreclosed. entered into is of the money/consummable object to another who
a contract of acquires ownership on the condition that the other shall
loan pay. PNB not having released the balance of the last loan
proceeds, it had no right to demand compliance.

5 people v go PDIC started collecting loans receivable from
companies which denied having applied such
loan from Orient Commercial Banking. Per
investigation conducted, it was revealed that
loans were released and deposited to Go's
account. Estafa was filed. Go was acquited after
the RTC found merit to Demurrer to Evidence.
WON the NO. The judge failed to weigh the evidence. A bank take
granting of its depositor's money as a loan under an obligation to
demurrer to return the same thus the term "demand deposit" which
evidence was is govered by simple loan. The money in the possession
correct of the petitioner was money held in trust for the bank in
his fiduciary capacity as President of said bank.

6 patrimonio The 2 entered into a business venture (Slam
v gutierrez Dunk Corp). Patrimonio pre-signed several check
(no payee’s name, date or amount) with the
instruction that he cannot fill them out without
his approval. Guttierez borrowed money from
Marasigan and delivered one of said checks.
When dishonored, he sought after Gutierrez and
then to Patrimonio. He then filed a case under
BP22.
WON A written authority is required when the loan is
Patrimonio is contracted through an agent. While there may be a
liable to meeting of the minds between Gutierrez and Marasigan,
Marasigan such agreement cannot bind the Patrimonio whose
consent was not obtained and who was not privy to the
loan agreement. There simply was no contract to speak
of.

7 pldt v henry Estranero's position (Auto-Mechanic/Electrician WON PLDT No. Set-off or legal compensation cannot take place
estranero Helper) was declared redundant and was can validly between PLDT and the respondent because they are not
removed. He then signed a deed denominated as deduct the mutually creditor and debtor of each other. Thus, there
a Receipt, Release and Quitclaim. Since he had outstanding can be no valid set-off because the respondent's creditor
outstanding loans, PLDT deducted said amount loans (from is not PLDT. The respondent's entitlement to his
from the pay it ought to release. With nothing to other redundancy pay is mandated by law which the
receive, he retracted his decision but the agencies) petitioners cannot unjustly deny.
company no longer allowed him to report for from
work. He then filed a complaint for illegal Estranero’s
dismissal with reinstatement redundancy
pay

8 de la paz v l Rolando lent L&J with 6% monthly interest rate. WON the
and j devt When they failed to pay, he filed a complaint for interest is
co collection. L&J reasoned that non-payment was overdue
due to financial difficulties and that the 6% rate
is unconscionable.
NO. To be due and payable it must be expressly
stipulated and in writing. Moreover, the rate is void
being unconcionable (total 72% per annum). The courts
have the power to equitably reduce the unreasonable
interest rates and only when the loans are open-ended
and for an indefinite period.

9 sps abella v Petitioners alleged that the respondents loaned WON the YES. Simple loan may be gratuitous or with a stipulation
abella from them with interest. The latter alleged that it party entered to pay interest. In commodatum, the bailor retains the
was not a loan but a part of the capital per joint a simple loan ownership of the thing loaned, while in simple loan,
venture involving lending of money and that the ownership passes to the borrower.
1 year term was not a deadline of payment but
the time within which they would return the
money should their venture not lucrative.
Sharon Cerro-Fontanar
CREDIT TRANSACTIONS
No. CASE FACTS
10 federal FBI subcon Foundation Specialists, Inc. (FSI) to WON the
builders inc construct parts of Trafalgar Plaza. Their
GR 194507 agreement states that FBI was to pay a
downpayment equivalent to 20% of the contract annum is
price and the balance, through a progress billing inapplicable.
every 15 days, payable not later than 1 week from
presentation of the billing. In a complaint for sum
of money for unpaid billing no. 3 and 4 despite
97% completion. The interest rate at 12% per
annum.
11 sps silos v Sps obtained a credit line with PNB with real
pnb estate mortgage, with 8 promissory notes, with
the stipulation that the right to increase/reduce
rates rests with the PNB. They renewed. 1
Promissory note was with 24% interest. When
they failed to pay, PNB foreclosed the property.
12 pnb v sps Sps applied for a loan with PNB with real estate WON CA was
manalo mortgage. It was renewed several times with
increase. Demands letters were sent. When not fixing the rate
paid, the property was foreclosed. When the case
reached CA, it modified RTC's ruling and fixed the
12% interest rate.
13 sps patron v Sps Patron renewed their loans with Int'l Corp
union bank Bank (Interbank) covered by PNs (16.5% per
annum) guaranteed by Quedancor. Interbank
merged with Union Bank which disapproved
their application. Union then demanded
Quedancor and the sps for but failed to pay. The
Sps then filed a complaint for cancellation of
loans, among others while Union filed a case for
collection of money. Both cases were
consolidated. CA found that the said bank applied
an interest rate of 24% per annum
14 chua v The Chuas granted The Timans loans with
timan interest 7% and 5% per month. The Timans
offered to pay with managers check. When not
accepted, they deposited it in court and filed a
case for consignation and damages.
15 sps alinas v Spouses Alinas (separated) left behind 2 lots the
sps alinas husband's brother with the agreement that any
income from rentals of the properties should be
remitted to the SSS and to the bank (house and
bodea were mortgaged as security). Later, they
found that it was already titled to said brother
and his spouse.
16 nacar v Nacar filed a labor case against Gallery Frames
frames and its owner Felipe Bordey, Jr. on the ground
that he was illegally dismissed without cause. LA
ruled in his favor. SC affirmed and became final.
Nacar filed a motion before LA to have his
backwages computed from his illegal dismissal
until SC's decision with interest.
Credit Transactions
shace 2019
ISSUE RULING
Yes. This case does not involve a loan or forbearance of
interest rate money. The guidelines in what percentage to use was
at 12% per modified in Nacar v. Gallery Frames. That the new rate
could only be applied prospectively. Consequently, the
12% per annum legal interest shall apply only until June
30, 2013. Come July 1, 2013, the new rate of 6% per
annum shall be the prevailing rate of interest when
applicable.
WON the YES. Unilateral increases imposed by the PNB vilates the
interest rate principle of mutuality which provides that contracts
set without must bind both contracting parties (validity/compliance
prior notice is cannot be left to the will of either of them).
void
YES. Unilateral increases imposed by the PNB violates
correct in the principle of mutuality of contracts which provides
that contracts must bind both contracting parties
(validity/compliance cannot be left to the will of either
of them).
WON Sps Obligation under Promissory Note to Union stands. The
Patron are spouses´ application for renewal of loan was
absolved of disapproved means they are not absolved from their
their obligation which matured and Union bank is duty bound
obligation to collect them. But the Court finds such interest rate
which and the monthly penalty charge of 2% of the amount
matured due and demandable unconscionable and reduces t it to
subject of the 12% per annum from the time of extrajudicial demand
PN on September 30, 1994 until it is fully paid.
WON the YES. In a plethora of caes, 3% per month interest and
stipulated higher are excessive. Such stipulations are void (morals
interests are and the law). Lenders could not be possible be
unconscionabl authorized (CB) to raise interest to levels that would
e enslave their borrowers or lead to a hemorraghing of
their assets.
WON No. (Possessors in bad faith, conjugal property). Interest
redemption on obligations not constituting a loan or forbearance of
price and money is 6% annually from the data of filing of the
interest be complaint. After judgment becomes final and executory
offset or until the obligation is satisfied, interest shall be 12% per
compensated year, the interim period being equivalent to a
against the forbearance of credit. No compensation/set-off as there
rentals for the were no definite amounts and only when debts are
house and already liquidated and demandable.
bodega.
WON the No. For backwages, it will be computed from the date of
computation illegal dismissal until the date of the decision of the
should be Labor Arbiter. But if the employer appeals, then the end
until the date shall be extended until the day when the appellate
decision of court’s decision shall become final. The award of interest
the LA which in the form of actual/ compensatory damages,the
Nacar did not modified rate shall be used from 12% to 6% (BSP Board
appeal Reso. 796). He is then entitled to 12% per annum of the
total monetary awards (May 27, 2002 to June 30, 2013)
and 6% (July 1, 2013 until their full satisfaction).
 No. CASE FACTS ISSUE
1 Castellvi de Higgins vs. Sellner (defendant) wrote a letter to Mcleod (Castellvi’s agent) saying that he WON Sellner is a guarantor
Sellner would bind himself to pay the promissory note of Mining, Clarke and Maye or surety
amounting 10K + % if not fully paid at maturity, after notice of default, upon
the surrender of Keystone Mining’s 3,000 shares of stock which is held by
Castellvi.

2 Internfil Finance Corp vs. Philippine Polyamide Industrial Corporation (PPIC) made aloan agreement Whether ITM is a surety
Imperial Textile Mills, Inc. with International Finance Corporation (IFC) in the amount of $7M payable in
16 semi-annual installments. Imperial Textile Mills (ITM) and Grandtex agreed
to guarantee PPIC’s obligations under the loan agreement thru Guarantee
Agreement. When PPIC defaulted, IFC notified PPIC of such but still PPIC failed
to pay. Forclosure ensued but there are still remaining balance. IFC
demanded ITM and Grandtex as guarantor but no payment was made. Hence,
this case.

3 Paul Reiss, et. al. vs. Jose Memije entered into a contract with Kabalsa (building contractor) for repair of WON Memije is liable as
M. Memijie a house. Since the contractor has no credit line, Memije accompanied him guarantor or as original
and told Reiss that he would guarantee payment for lumber under a verbal promisor
agreement. Reiss brought an action for the purchase price of the lumber.

4 Severino and Vergara vs.
Severino, et. al.
Melecio Severino upon his death, left considerable properties. To end WON there is a
litigation among heirs a compromise was effected where defendant (son of consideration for the
MS) took over the property of deceased and agreedto pay installment of 100K guaranty
to plaintiff (wife of MS) payable first in 40K cash upon execution of document
in 3 equal installments. Enrique Echauz became guarantor. Upon failure to pay
the balance,plaintiff filed and action against the defendant and Echauz.
Enchauz contends that he received nothing from affixing his signature in the
document and the contract lacked the consideration as to him.

5 Atok Finance Corp vs. CA, Sanyu Chemical Corporation (principal) and Sanyu Trading Corporation along Whether the individual
et. al. with other stockholders of Sanyu Chemical as sureties, executed a Continuing private respondents may
Suretyship Agreement in favor of Atok Finance (creditor). Sanyu Chemical be held solidarily liable
assigned its trade receivables outstanding to Atok Finance. with Sanyu Chemical

6 Mira Hermanos, Inc. vs.
Manila Tobacconists
To secure the obligation of Manila Tobaconists, Mira Hermanos who agreed to WON Provident Insurance
deliver to Manila Tobacconists’ merchandise for sale on consignment under Co. is entitled to the
certain specified terms, required Manila for a bond. Provident Insurance Co. benefit of division.
executed a bond of 3,000. When the value of merchandise exceeded 3,000,
Manila Compania de Seguros executed a bond of 2,000. When there was
unpaid balance which were due, Mira sued Manila and the 2 surety
companies jointly and severally.

7 J.V. House vs. Sixto de la
Costa et. al.
A civil case was filed against Bush & Upton, for the recovery of a sum of WON Far Eastern Surety is
money. JV House obtained preliminary attachment of certain properties of released from its obligation
Bush who later secured the attachment by filing a bond posted by Far Eastern as surety
Surety. The condition of the bond--should JV House obtain a judgment
against Bush, thelatter would return to the properties to the Sheriff, and
should he fail to do so, Far Eastern would pay the value thereof. JV House and
Bush & Upton entered into an agreement, without the knowledge of the
Surety whereby Bush delivered to JV House the properties in question to be
sold at public auction. JV House-highest bidder. JV House obtained judgment
against Bush. JV House asked for execution of judgment against Far Eastern
Surety.

8 Kuenzle & Streiff vs. Jose
Tan Sunco, et. al.
Tan Sunco was a surety for Chung Chu Sing for the payment by the latter of WON the guarantor who
the purchase price of certain merchandise purchased. The debt remained sues his principal before
unpaid which was composed of 4 invoices. An action had been commenced paying
against Chung for the recovery of the indebtedness due it. Shortly before the debt himself entitled to
judgment was secured in that action, the surety began 4 separate actions recover judgment for the
against the said debtor upon the said invoices. debt
9 Aniceto Saludo, Jr. vs.
Security Bank Corp
On May 30, 1996, Booklight was extended an omnibus line credit facility by WON petitioner should be
Security Bank Corp (SBC) for P10M. Said loan was covered by a Credit held soldarily liable for the
Agreement and Continuing Suretyship with Saludo as surety. For years, second credit facility
Booklight faithfully complied with the terms of the loan. SBC then approved extended toBooklight
the renewal of the credit facility of Booklight for P10M under the prevailing
security lending rate. Later, the obligation of Booklight stood at more than
P10M inclusive of interest past due and penalty. SBC filed against Booklight
and Saludo an action for collection of sum of money with the RTC. Later,
Booklight was declared in default.

10 Lim vs. Security Bank Mariano Lim executed a Continuing Suretyship in favor of Security Bank Corp WON Lim may validly be
Corp. (SBC) to secure “any and all types of credit held liable for Arroyo’s
accommodation that may be granted by the bank hereinto and hereinafter” (principal debtor) loan
in favor of Raul Arroyo for the amount of P2M which is covered by a Credit
Agreement/Promissory Note. The Continuing Suretyship stipulated the
Liability of the Surety (solidary, not contingent upon remedies against debtor,
no required notice to pay). When Arroyo defaulted on his loan obligation, Lim
received a Notice of Final Demand informing him that he was liable to pay the
loan. SBC filed a complaint for sum of money against Lim and Arroyo for
failure of Lim to comply with the demand

11 Urrutia and Co. vs.

Moreno and Reyes

12 Gilat Satellite Network, Ltd One Virtual placed with Gilat a purchase order for various WON the CA erred in
vs. UCPB Gen Insurance telecommunications equipment, accessories, spares, services and software. To dismissing the case and
Co., Inc. ensure the prompt payment of a portion of the total amount, it obtained ordering Gilat and One
UCPB General Insurance Co., Inc. surety bond. When it failed to pay certain Virtual to arbitrate
amounts, One Virtual sent a demand letters to the UCPB. Gilat then filed a
complaint against UCPB to recover the amounts supposedly covered by the
surety bond, plus interests and expenses.

13 Trade & Investment Devt Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) WON the bonding
Corp of the Phil vs. Asia entered into a sub-contracting agreement with the Electrical Projects companies’ liabilities to
Paces Corp. Company of Libya (ELPCO), as main contractor. TIDCORP under the Surety
Bonds have been
extinguished by the
payment extensions
granted by Banque
Indosuez and PCI Capital to
TIDCORP under the
Restructuring Agreement.

14 Madrigal vs. DOJ

15 People’s Trans-east Asia
Ins Corp vs. Doctors of
New Millennium Holdings,
Inc.

16 Ombudsman vs. Mallari

17 Centennial Guarantee
Assurance Corp. vs.
Universal Motors Corp.

18 CCC Ins. Corp. vs. Kawasaki

Steel Corp

19 Yulim International Co.,
Ltd vs. International
Exchange Bank
iBank granted Yulim, a domestic partnership, a credit facility in the form of an WON capitalist partners in
Omnibus Loan Line for P5M, as evidenced by a Credit Agreement which was Yulim are jointly and
secured by a Chattel Mortgage over Yulim’s inventories in its merchandise severally liable with Yulim
warehouse. Yulim defaulted in its payments. Demand letters were sent but to for its loan obligations with
no avail. Hence, the filing of the complaint. iBank
20 Stronghold Ins. Co., Inc.
vs. Sps Stroem

21 Allied Banking Corp. vs. General Bank & Trust Company (Genbank) extended a credit line to YLTC on Whether Jesus was a surety
Yujuico the condition that the principals of YLTC would personally bind themselves in or a guarantor
a Continuing Guarantee to secure payment of obligations drawn on said credit
extended by Genbank. In order to secure punctual payment at maturity of
YLTC’s obligations, defendants-appellees and Jesus Yujuico as sureties
executed a Continuing Guarantee binding themselves in their personal
capacities as required by Genbank. The continuing guarantee contained
principal provisions to the effect that: (a) he (Jesus) had guaranteed the
“punctual payment at maturity” of the loans secured by the continuing
guarantyG (b) Genbank, as the creditor bank of YLTC, could “make or cause”
payments under the terms and conditions of their loan agreementG (c) under
paragraph II, Jesus had offered as security for the loans of YLTC his own
properties in the possession of Genbank or for which Genbank had attached a
lien, which, upon default by YLTC in paying the loan, Genbank, “without
demand or notice” upon respondent, would have the full power and authority
to sellG (d) should YLTC incur in default in the payment of the loans, Genbank
could “proceed directly” against Jesus “without exhausting the property” of
YLTCG and (e) paragraph XII expressly stated that the liability of the signatory
or signatories to the continuing guaranty would be “joint and several.”
22 Games and Garments whether or not Allied Bank
Developers, Inc. vs. Allied is bound by the letter of
Banking Corp guaranty executed by
MMercado
 RULING
Sellner is a GUARANTOR (fiador in the Civil Code). Sellner was not bound with Castellvi by the
same instrument executed at the time and the same consideration, but his responsibility was
secondary, one founded on an independent collateral agreement. Neither was he jointly and
severally liable with Castellvi. (Guarantee and Surety were differentiated here)

Yes. The Agreement specifically stated that the corporation was jointly and severally liable.
The Contract further stated that ITM was a primary obligor, not a mere surety. Those
stipulations meant that it was a surety. Although a surety contract is secondary to the
principal obligation, the liability of the surety is direct, primary and absolute; or equivalent to
that of a regular party to the undertaking. A surety becomes liable to the debt and duty of the
principal obligor even without possessing a direct or personal interest in the obligations
constituted by the latter.

Memije is primarily liable. The credit for the lumber delivered by the plaintiff to the
contractor was extended solely and exclusively to the defendant. If goods are sold upon the
sole credit and responsibility of the party who makes the promise then, even though they are
delivered to a 3rd person, there is no liability to the 3rd person. Promise to pay need not
require a writing or memorandum to be enforceable by action.

The guarantor or surety is bound by the same consideration that makes the contract effective
between the principal parties thereto. It is neither necessary that guarantor or surety should
receive any part of the benefit, if such there be accruing to his principal. But the true
consideration of this contract was the detriment suffered by the plaintiffs in the former action
in dismissing that proceeding, and it is immaterial that no benefit may have accrued either to
the principal or his guarantor.

Comprehensive or continuing surety agreements are common in financial and commercial

practice. By executing such an agreement, the principal places itself in a position to enter into
the projected series of transactions with its creditor. Surety agreement to guarantee future
debts is allowed in the Civil Code. However, assignor Sanyu Chemical became, under the
terms of the Deed of Assignment, solidary obligor under each of the assigned receivables, the
other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili),
became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of
the Continuing Suretyship Agreement.

No, The benefit of division is applicable only where there are several guarantors or sureties of
only one debtor for the same debt. the two sureties, do not guarantee the same debt because
the Provident Insurance Co. guarantees only the first P3,000 and the Manila Compañia de
Seguros, only the excess over and above said amount up to P5,000. Article 1837 does not
apply to this factual situation.

Yes. The agreement between JV House and Bush & Upton subsequently altered their juridical
relations as to the properties discharged from attachment and for the delivery of which Far
Eastern was surety, which alteration necessarily released Far Eastern from its obligation as
surety. Material alteration of the principal contract effected by the creditor and the principal
debtor without the knowledge and consent of the surety discharges the guaranty of the
surety.

No. It being evident that the purpose of Art 2071 is to give to the guarantor a remedy in
anticipation of the payment of the debt, which debt being due, he could be called upon to
pay at any time, the only procedure to enforce that
right is by action. 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. (comparison of Art 2066 and 2071)
Yes. The first credit line was covered by a Continuing Suretyship with Saludo acting as the
surety. It is concluded that the liability of the surety did not expire upon the termination of
the first credit facility. It cannot be gainsaid that the second credit facility was renewed for
another one-year term by SBC. This very renewal is explicitly covered by the guaranteed
obligation of the Continuing Surety. It is the first credit facility that expired and not the Credit
Agreement. There was a second loan pursuant to the same credit agreement. The terms and
conditions under the Credit Agreement continue to apply and the Continuing Suretyship
continues to guarantee the Credit Agreement.

YES. A contract of suretyship is an agreement whereby a party, called the surety, guarantees
the performance by another party, called the principal or obligor, of an obligation or
undertaking in favor of another party, called the obligee. Although the contract of a surety is
secondary only to a valid principal obligation, the surety becomes liable for the debt or duty
of another although it possesses no direct or personal interest over the obligations nor does it
receive any benefit therefrom. The terms of the Continuing Suretyship executed by petitioner,
quoted earlier, are very clear. The petitioner is liable for the principal of the loan, together
with the interest and penalties due thereon, even if said loan was obtained by the principal
debtor even after the date of execution of the Continuing Suretyship.

Yes. In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that
of the principal debtor. Failure of One Virtual, as the principal debtor, to fulfill its monetary
obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.
Sureties do not insure the solvency of the debtor, but rather the debt itself. This places a
surety on the same level as that of the principal debtor. If the surety is dissatisfied with the
degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt
himself and become subrogated to all the rights and remedies of the creditor. Not arbitration.

Yes. A contract of suretyship effectively binds the surety as a solidary debtor. Thus, since the
surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before
the surety could be made liable; it is enough that a demand for payment is made by the
creditor for the surety’s liability to attach.
Yes. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. But if a person binds
himself solidarily with the principal debtor, such case the contract is called a suretyship. The
petitioners further warrant that their liability as sureties “shall be direct, immediate and not
contingent upon the pursuit [by] the BANK of whatever remedies it may have against the
PRINCIPAL of other securities.” There can thus be no doubt that the individual petitioners
have bound themselves to be solidarily liable with Yulim for the payment of its loan with
iBank.
SURETY. In guaranty, the guarantor “binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.” The liability of the guarantor is
secondary to that of the principal debtor because he “cannot be compelled to pay the
creditor unless the latter has exhausted all the property of the debtor, and has resorted to all
the legal remedies against the debtor.” In contrast, the surety is solidarily bound to the
obligation of the principal debtor.

Although the first part of the continuing guaranties showed that Jesus as the signatory had
agreed to be bound “either as guarantor or otherwise,” the usage of term guaranty or
guarantee in the caption of the documents, or of the word guarantor in the contents of the
documents did not conclusively characterize the nature of the obligations assumed therein.
What properly characterized and defined the undertakings were the contents of the
documents and the intention of the parties. In holding that the continuing guaranty executed
in E. Zobel, Inc. v. Court of Appeals was a surety instead of a guaranty, the Court accented the
distinctions between them, viz.:

A contract of surety is an accessory promise by which a person binds himself for another
already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A
contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another
in case the latter does not pay the debt.

Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the
solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a
surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.

With the stipulations in the continuing guaranties indicating that he was the surety of the
credit line extended to YLTC, Jesus was solidarity liable to Genbank for the indebtedness of
YLTC. In other words, he thereby rendered himself “directly and primarily responsible” with
YLTC, “without reference to the solvency of the principal.”
Yes. The letters executed by Mercado are not contracts of guaranty covered by the prohibition
in the General Banking Act, as amended. It is undisputed that Mercado wrote two letters of
guaranty. Although Mercadofis letters used the words guarantee and guaranty, the same do
not constitute contracts of guaranty covered by the prohibition under Section 8 of the General
Banking Act, as amended. Section 8 of the General Banking Act, as amended, proscribes banks
from entering into any contract of guaranty or suretyshipU without providing definitions of
such contracts. Consequently, werely on the general definitions of contracts of guaranty and
suretyship under the Civil Code. By guaranty a person, called the guarantor, binds himself to
the creditor to fulfill the obligation of the principal debtor in case the latter shouldfail to do
so. If a person binds himself solidarily with the principal debtor, the provisions of this Book
shall be observed. In such case the contract is called a suretyship.There was no express
undertaking in Mercadofis letters. In said letters, Mercado merely acknowledged that
Bienvenida and or her company had an approved real estate loan with Allied Bank and
guaranteed that subse&uent releases from the loanwould be made directly to GG provided
that thecertificate of title over the subject property would be transferred to Bienvenida is
name and the real estate mortgage constituted on the subject property in favorof Allied Bank
would be annotated on the saidcertificate. Mercado, by the plain language of hisletters,
merely committed to the manner by which theproceeds of BienvenidaOs approved loan from
AlliedBank would be released, but did not obligate Allied Bank to be answerable with its own
money to GG should Bienvenida default on the payment of thepurchase price for the subject
property. For this reason, Mercado's letters may not be deemed as contracts of guaranty,
although they may be binding as innominate contracts. The rule is settled that a contract
constitutes the law between the parties who are boundby its stipulations which, when
couched in clear and plain language, should reapplied according to their literal tenor. We
cannot supply material stipulations, read into thecontract words it does not contain or, for
that matter,read into it any other intention that would contradictits plain import. 1either can
we rewrite contracts because they operate harshly or inequitably as to one of the parties, or
alter them for the tenet of one party and to the detriment of the other, or by construction,
relieve one of the parties from the terms which he voluntarily consented to, or impose on
himthose which he did not
CREDIT TRANSACTIONS

No. CASE TITLE SUBJECT FACTS ISSUE

1 UCPB Insurance Masagana's properties under 5 fire insurance WON the
General Contract policies were razed by fire. A month after it paid insurance
Insurance Co checks as renewal of premium payments. contract has
Inc v Masagana made its formal demand for been extended
Masagana indemnification but was denied and the checks or renewed
Telemart Inc paid were returned on the ground that the contract
already expired. For a number of years, they had
been granted a 60 to 90-day credit term for the
renewal of the policies.

2 Great Pacific Insurance Dr. Leuterio (DBP housing loan mortgagor) died WON the
Life Assurance Contract due to massive cerebral hemorrhage. DBP insurer is liable
Co v CA (insured mortgagors with Grepalife) submitted a
death claim to Grepalife which denied the claim
alleging that he was not physically healthy
(hypertension) when he applied for an insurance
coverage.

3 First Lepanto- Contract of Chevron (formerly Caltex Phils) sued First Lepanto WON the
Taisho Suretyship (now FLT Prime Insurance Corp) for the payment surety is liable
Insurance Co of unpaid oil and petroleum purchases made by its
v Chevron distributor Fumitechniks Corp (Fumitechniks) in
Phils Inc accordance with the terms and conditions of the
agreement (oral credit line, a rider).

4 Asset Builders Contract of Asset entered into an agreement with Lucky Star WON
Corp v Suretyship Drilling & Const Corp (Lucky Star) as part of the Stronghold is
Stronghold completion of its construction project. To liable
Insurance Co guarantee faithful compliance with said
Inc agreement, Lucky Star engaged Stronghold which
issued 2 bonds in favor of Asset. As Lucky Star
managed only 10% of work few days before its
completion date, Asset sent a demand letter to
them.

5 Keppel Cebu Contract of Keppel and WG&A entered into a Shiprepair WON Keppel is
Shipyard v Adhesion Agreement involving Superferry 3 which was liable for the
Pioneer already insured with Pioneer. In the course of its total loss
Insurance repair, M/V Superferry 3 was gutted by fire. WG&A
declared the vessels damage as a total
constructive loss and, hence, filed an insurance
claim with Pioneer which paid the same. With the
subrogation receipt, Pioneer tried to collect from
Keppel, but the latter refused.

6 Malayan Contract of Malayan Insurance issued a car insurance in favor WON there is
Insurance Co Adhesion of First Malayan Leasing and Finance Corporation valid
v Phils First (the assured). The car had an accident. subrogation
Insurance Co Maintaining that it has been subrogated to the
Inc rights and interests of the assured by operation of
law upon its payment to the First Malayan,
Malayan Insurance sent several demand letters to
owners of other cars involved in the vehicular
accident.
No. CASE TITLE SUBJECT FACTS ISSUE
7 Florendo v Contract of Philam Plans issued Florendo a comprehensive WON the
Philam Plans Adhesion pension plan agreement and later paid premiums. insurer is liable
INc 11 months after he died due to blood poisoning.
His wife filed a claim but was declined as he was
known to have health problems which was not
indicated (blank) in his application form.

8 United Contract of UMCs GM insured UMCs stocks in trade of WON UMC is

Merchants Indemnity Christmas lights against fire with Country Bankers entitled to full
Corp v Ins. Months after the increase of the sum insured, insurance claim
Country a fire gutted the warehouse. There were 2
Bankers conflicting findings of investigation, 1 was there
Insurance was arson. Fraud was also alleged as UMC's
Corp purchases have discrepancies.

9 Mayer Steel Contract of Hongkong Government Supplies Dept contracted WON the
Pipe Corp v Indemnity Mayer Steel Pipe Corp to manufacture and supply insurers are
CA various steel pipes and fittings. Mayer insured it liable
against with South Sea Surety and Ins. Co., Inc.
and Charter Insurance Co. When the goods were
delivered, it was discovered that a substantial
portion was damaged. Hongkong filed a claim for
indemnity under the insurance contract.

10 RCJ Bus Subrogatio Mangoba (bus driver) hit another vehicle owned by WON RCJ Bus
Lines Inc v n Valentino which was insured for loss and damage is liable
Standard with Standard. By virtue of the insurance contract,
Insurance Co Standard paid Valentino for the repair of his car.
Inc Standards despite demand, still remain
unreimbursed.

11 Federal Subrogatio SMITHKLINE Beecham delivered to Burlington Air WON Federal

Express Corp n Express, an agent of Federal Express, a shipment express is
v American of 109 cartons of veterinary biologicals (vaccines) liable
Home for delivery to consignee SMITHKLINE and French
Assurance Co Overseas Company in Manila. Burlington insured
the cargoes with American. The shipment were
stamped "refrigerate when in transit" and
"perishable". It was discovered that cargoes were
stored in the cool room only.

12 Delsan Subrogatio Caltex Phils entered into a contract of WON there is

Transport n affreightment with the Delsan for 1 year to valid
Lines INc v transport Caltex's industrial fuel oil from its refinery subrogation
CA to different parts of the country. The shipment was
insured with the American Home Assurance Corp.
Unfortunately, the vessel sank. American paid
Caltex and exercised its right to subrogation
against Delsan.
No. CASE TITLE SUBJECT FACTS ISSUE
13 Tiu v Subrogatio D Rough Riders passenger bus collided with the WON PPSII is
Arriesgado n parked truck which caused death and injuries of its liable
passengers. Arriesgado filed a Third-Party
Complaint against Philippine Phoenix Surety and
Insurance, Inc (PPSII). it cannot accede to the
demand of said claimant considering that the claim
was way beyond the scheduled indemnity as per
contract entered into
 shace

RULING
YES. Nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good
customs, public order or public policy. It merely precludes the
parties from stipulating that the policy is valid even if premiums are
not paid.

YES. Where the mortgagor pays the insurance premium under the
group insurance policy, making the loss payable to the mortgagee,
the insurance is on the mortgagors interest, and the mortgagor
continues to be a party to the contract. Misrepresentation is a
defense of the insurer to avoid liability and the duty to establish
such defense by satisfactory and convincing evidence rests upon
the insurer. Grepalife failed to clearly and satisfactorily establish its
defense.

NO. A surety contract is merely a collateral one, its basis is the

principal contract or undertaking which it secures.Necessarily, the
stipulations in such principal agreement must at least be
communicated or made known to the surety. Having accepted the
bond, respondent as creditor must be held bound by the recital in
the surety bond. Being an onerous undertaking, it is strictly
construed against the creditor, and every doubt is resolved in favor
of the solidary debtor.

YES. Art. 2047, the surety undertakes to be bound solidarily with

the principal obligor. That undertaking makes a surety agreement
an ancillary contract as it presupposes the existence of a principal
contract. Although the contract of a surety is in essence secondary
only to a valid principal obligation, the surety becomes liable for the
debt or duty of another although it possesses no direct or personal
interest over the obligations nor does it receive any benefit
therefrom.

NO. Clauses 20 ( (limit its liability of Keppel) and 22(a) of the

Shiprepair Agreement (make each other a co-assured) amount to a
contract of adhesion imposed on WG&A on a take-it-or-leave-it
basis. A contract of adhesion is so-called because its terms are
prepared by only one party, while the other party merely affixes his
signature signifying his adhesion thereto. Although not invalid, per
se, a contract of adhesion is void when the weaker party is
imposed upon in dealing with the dominant bargaining party, and
its option is reduced to the alternative of taking it or leaving it,
completely depriving such party of the opportunity to bargain on
equal footing.

YES. Payment by the insurer to the insured operates as an

equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract. It
accrues simply upon payment by the insurance company of the
insurance claim.
 RULING
NO. When Manuel signed the application, he adopted as his own
the written representations and declarations embodied in it. It is
clear from these representations that he concealed his chronic
heart ailment and diabetes which entitles Philam Plans to rescind
its contract of insurance with him.

NO. CBICs failure to prove arson does not mean that it also failed
to prove fraud. Arson and fraud are two separate grounds based
on two different sets of evidence, either of which can void the
insurance claim. The absence of one does not necessarily result in
the absence of the other. There was fraud. Condition No. 15 of the
Insurance Policy provides that all the benefits under the policy
shall be forfeited, if the claim be in any respect fraudulent, or if any
false declaration be made or used in support thereof. As proof of
its loss, UMC submitted invoices for raw materials, knowing that
the insurance covers only stocks in trade. False invoices were also
submitted.

YES. Per Carriage of Goods by Sea Act, only the carrier's liability
is extinguished if no suit is brought within one year. But the liability
of the insurer is not extinguished because the insurer's liability is
based not on the contract of carriage but on the contract of
insurance.when private respondents issued the "all risks" policies
to petitioner Mayer, they bound themselves to indemnify the latter
in case of loss or damage to the goods insured.

YES. Standards right of subrogation accrues simply upon its

payment of the insurance claim. Subrogation is the substitution of
one person by another with reference to a lawful claim or right, so
that he who substitutes another succeeds to the rights of the other
in relation to a debt or claim, including its remedies or securities.
The principle covers a situation wherein an insurer who has paid a
loss under an insurance policy is entitled to all the rights and
remedies belonging to the insured against a third party with
respect to any loss covered by the policy.

NO. Upon payment to the consignee of an indemnity for the loss of

or damage to the insured goods, the insurers entitlement to
subrogation equips it with a cause of action in case of a
contractual breach/ negligence. In the exercise of its subrogatory
right, an insurer may proceed against an erring carrier. The filing of
such claim with the carrier within the time limitation constitutes a
condition precedent to the accrual of a right of action against a
carrier which is not true in this case.

YES. The fact of payment grants the American subrogatory right

which enables it to exercise legal remedies that would otherwise
be available to Caltex as owner of the lost cargo against Delsan.
 RULING
YES. An insurer in an indemnity contract for third party liability is
directly liable to the injured party up to the extent specified in the
agreement but it cannot be held solidarily liable beyond that
amount, in accordance with the Compulsory Motor Vehicle Liability
Insurance law. For the liability of the insurer is based on contract;
that of the insured carrier or vehicle owner is based on tort.
javellana v Defendants executed a document in favor of plaintiff (stated: received, as a deposit, without
lim interest, money and agreed upon a date when they will return the money). Upon the s±pulated
due date, defendants asked for an extension to pay and binding themselves to pay 15% interest
per annum on the amount of their indebtedness, to which the plaintiff acceded. The defendants
were not able to pay.

gavieres v Don Manuel Garcia Gavieres, plaintiff and successor in interest of the deceased Donñ a Ignacia de
tavera Gorricho filed an action against Don Trinidad H. Pardo de Tavera, heir of Don Felix de Tavera for
the collection of the balance. The written agreement: Received of Senñ orita Ignacia e Gorricho the
sum of 3,000 pesos, gold, as a deposit payable on 2 months’ notice in advance, with interest at
6% per annum with a hypothecation of the goods now owned by me or which may be owned
thereafter, as a security of payment". The plaintiff alleged in the complaint that the contract
executed was a contract of deposit. The other party alleged that it was a contract of loan.

ca agro The Corp purchased 2 parcels of land from Sps Ramon and Paula Pugao. As agreed, the titles to
industrial the lots shall be transferred upon full payment of the purchase price and that the owner's copies
devt corp v of the COTs hereto, and that title shall be deposited shall be deposited in a safety deposit box of
ca any bank. Petitioner and the Pugaos then rented Safety Deposit Box of private respondent
Security Bank and Trust Company. Both signed a contract of lease with the condition that the
bank is not a depository bank and has no interest in its contents and assumes no liability. When
someone offerred to buy said lots, they then proceeded to the respondent Bank to open the
safety deposit box and get the certificates of title. However, the box yielded no such certificates.
The buyer withdrew.

gullas v pnb Gullas maintains a current account with PNB. He together with one Pedro Lopez signed as
endorsers of a Warrant issued by the US Veterans Bureau payable to the order of one Francisco
Bacos. PNB cashed the check but was subsequently dishonored by the Insular Treasurer. PNB
then sent notices to Gullas which could not be delivered to him at the time because he was in
Manila. PNB in the letter informed the Gullas the outstanding balance on his account was applied
to the part payment of the dishonored check. Upon petitioner’s return, he received the notice of
dishonor and immediately paid the unpaid balance of the warrant. As a consequence of these,
petitioner was inconvenienced when his insurance was not paid due to lack of funds and was
publicized widely at his area to his mortification.

citibank v Sps Cabamongan had a foreign currency tie deposit with Citibank. While the sps were in the US,
cabamonga one person claimed to be Carmelita sough the termination of the account. She presented ID
n cards, filled up forms, interviewed and eventually the money was released to her even if the
submitted executed release and waiver document was not notarized and no Cert of Deposit was
presented. The bank refused to pay the sps.
WON the No. It is a loan. Where money, consisting of coins of legal tender, is deposited with a
agreement person and the later is authorized by the depositor to use and dispose of the same, the
entered agreement is not a contract of deposit, but a loan. A subsequent agreement between
into by the the parties as to interest on the amount said to have been deposited, because the same
parties is could not be returned at the time fixed therefor, does not constitute a renewal of an
one of agreement of deposit, but it is the best evidence that the original contract entered into
deposit between therein was for a loan under the guise of a deposit.

WON the No. It is a loan. There is a stipulation of interest at 6% per annum and the amount
agreement could be collected after notice of 2 months in advance, evident that the intention of
entered the parties that the depositary should have the right to make use of the amount
into by the deposited.
parties is
one of
deposit

WON the Yes. The contract in the case at bar is a special kind of deposit. It cannot be
such is a characterized as an ordinary contract of lease under Article 1643 because the full and
contract of absolute possession and control of the safety deposit box was not given to the joint
lease renters. In the absence of any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. Any stipulation exempting the
depositary from any liability arising from the loss of the thing deposited on account of
fraud, negligence or delay would be void for being contrary to law and public policy.

WON PNB No. Compensation shall take place when two persons are reciprocally creditor and
has the debtor of each other. As a general rule, a bank has a right of set off of the deposits in
right to its hands for the payment of any indebtedness to it on the part of a depositor. In
apply Gulla Louisiana, however, a civil law jurisdiction, the rule is denied, and it is held that a bank
´s deposit has no right, without an order from or special assent of the depositor to retain out of
to his debt his deposit an amount sufficient to meet his indebtedness. The basis of the Louisiana
to the bank. doctrine is the theory of confidential contracts arising from irregular deposits, e. g.,
the deposit of money with a banker.

WON Yes. The Court has repeatedly emphasized that, since the banking business is
Citibank impressed with public interest, of paramount importance thereto is the trust and
was confidence of the public in general. Consequently, the highest degree of diligence is
negligent in expected, and high standards of integrity and performance are even required, of it. By
its duties the nature of its functions, a bank is “under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.”