GUARANTY AND SURETYSHIP SPOUSES TIRSO VINTOLA AND LORETA DY VS INSULAR B A N K O F A S I A A N D AMERICA, 150 SCRA 578 FACTS: Petitioner

spouses Vintola owns and manages manufact u r i n g o f r a w s e a shells into finished products, under their business name, Dax kin International. They applied for domestic letter of credit by respondent Insular Bank of Asia and America which was granted. Then, executed a Trust Receipt Agreement with Insular bank stipulating that the Vintolas shall hold the goods in trust for IBAA. Having defaulted in its payment, Vintolas offered to return the goods to IBAA, but the latter refused. Due to their continued refusal, IBAA charged them with estafa. The Court acquitted the Vintolass. ISSUE: Whether or not the goods entrusted by Vintolas to IBA A b e c a m e t h e r e a l owners thereof. RULING: No. Insular bank of Asia and America did not become the holde r or realowner of the goods. The Vintolas retained ownership of the goods. The Court held that the trust receipt arrangement did not convert the IBAA into an investor, it remained a lendor and creditor. Under the law, a trust receipt is a document wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster to sell or other

On December 1977 Teresita Domdoma and Eduardo Domdoma filed a case with the RTC for collection of various sums of money based on loans given by them to Olivia Navoa. They cased was dismissed on the ground that there was no cause of action and that the Domdomas do not have no capacity to sue. They appealed to the C.A. and was granted a favourable decision.There were 6 instances in which the Domdomas gave Olivia Navoa a loan. The first instance is when Teresita gave Olivia a diamond ring valued at15,000.00 which was secured by a PCIB check under the condition that if the ring was not returned within15 days from August 15, 1977 the ring is considered sold. Teresita attempted to deposit the check on November 1977 but the check was not honoured for lack of funds. After this instance, there were other loans of various amounts that were extended by Teresita to Olivia, loans which were secured by PCIB checks, which were all dated to 1 month after the loan. All these checks were not honoured under the same reason as the first loan. Issue: Was the decision of the RTC to dismiss the case due to having no cause of action valid? NO A cause of action is the fact or combination of facts which affords a party a right to judicial interference in his behalf.- For the first loan it is a fact, that the ring was considered sold to Olivia Navoa 15 days after August15, 1977, and even then, Olivia Navoa failed to pay the price for the ring when the payment was due(check issued was not honoured. Thus it is confirmed that Teresitas right under the agreement was violated.- As for the other loans extended by Teresita to Olivia, they were all secured by PCIB checks. It can be inferred that since the checks were all dated to 1month after the loan, it follows that the loans are then payable 1 month after they were contracted, and also these checks were dishonoured by the bank for lack of funds.- Olivia and Ernesto Navoa failed to make good the checks that were issued as payment for their obligations. Art 1169 of the Civil Code is explicit: those obliged to deliver or to do something incur in delay from the

Olivia Navoa and Ernesto Navoa vs. C.A., TeresitaDomdoma and Eduardo DomdomaGR No 59255 20December1995 Facts:

time the obligee judicially or extra- judicially demands from them the fulfilment of the obligations, the continuing refusal of Olivia and Ernesto Navoa to comply with the demand of payment shows the existence of a cause of action. Obligations and Contracts terms: SecurityA means of ensuring the enforcement of an obligation or of protecting some interest in property. It may be personal or property security. Cause of Actionis the fact or combination of facts which affords a party a right to judicial interference in his behalf. The requisites for a cause of action are:(a) a right in favour of the plaintiff by whatever means and under whatever law it arises or created,(b) an obligation on the part of the defendant to respect and not to violate such right; and, (c) an act or omission on the part of the defendant constituting a violation of the plaintiffs right or breach of the obligation of the defendant to the plaintiff.

of preliminary attachment against respondent spouses and petitioner. Petitioner moved for dismissal. The trial court denied the motion to dismiss and required petitioner to file an answer. Petitioner assailed the trial courts order. The appellate court dismissed the petition. ISSUE: Whether or not petitioner E. Zobel Inc., under the continuing guaranty obligated itself to SOLIDBANK as a guarantor or a surety. Held: Petitioner under the continuing guaranty obligated itself to SOLIDBANK as a surety. A surety is distinguished from a guaranty in that a guaranto r is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay, it is the guarantor's own separate undertaking, in which the principal does not join while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay and is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. The contract clearly discloses that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. The trial court has observed that the interpretation of a contract is not limited to the title alone but to the contents and intention of the parties

E.ZOBEL INC. vs. COURT OF APPEALS, GR. No. 113931, May 6, 1998 FACT: Private respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) to finance the purchase of two maritime barges and one tugboat which would be used in their molasses business. The loan was granted subject to the condition that respondent spouses will execute a chattel mortgage over the three vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now petitio ner E.Zobel, Inc. in favor of SOLIDBANK. Respondent spouses defaulted in the payment of the entire o b l i g a t i o n u p o n m a t u r i t y . H e n c e , S O L I D B A N K f i l e d a c o m p l a i n t f o r s u m o f m o n e y w i t h a prayer for a writ

Rizal Commercial Banking Corp. vs. Arro Facts: Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive surety agreement to guaranty, above all, any existing or future indebtedness of Davao Agricultural Industries Corporation (Daicor), and/or induce the bank at any t i m e o r from time to time to make loans o r advances or to e x t e n d c r e d i t t o s a i d Daicor, provided that the liability shall not exceed ay any time Php100,000.00. A promissory note for Php100,000.00 (for additional capital to the charcoal buy and sell and the activated carbon importation business) was issued in favor of petitioner RCBC payable a month after execution. This was s i g n e d b y G o i n h i s p e r s o n a l capacity and in behalf of Daicor. Respondent Chua did not sign in said promissory note. As the note was not paid despite demands, RCBC filed a c o m p l a i n t f o r a s u m o f money against Daicor, Go and Chua. The complaint against Chua was dismissed upon his mo t i o n , a l l e g i n g t h a t t h e complaint states no cause of action against him as he was not a signatory to the note and hence he cannot be held liable. This was so despite RCBCs opposition, invoking the comprehensive surety agreement which it holds to cover not just the note in question but also every other indebtedness that Daicor may incur from petitioner bank. RCBC moved for reconsideration of the dismissal but to no avail. Hence, this petition. Issue:

WON respondent Chua may be held liable with Go and Daicor under the promissory note, even if he was not a signatory to it, in light of the provisions of the comprehensive surety agreement wherein he bound himself with Go and Daicor, as solidary debtors, to pay existing and future debts of said corporation. Held: Yes, he may be held liable. Order dismissing the complaint against respondent Chua reversed and set aside. Case remanded to court of origin with instruction to set aside motion to dismiss and to require defendant Chua to answer the complaint. Ratio: The comprehensive surety agreement executed by Chua and Go, as president and general manager, respectively, of Daicor, was to cover existing as well as future obligations which Daicor may incur with RCBC. This was only subject to the proviso that their liability shall not exceed at any one time the aggregate principal amount of Php100,000.00. (Par.1 of said agreement). The agreement was executed to induce petitioner Bank to grant any application for a loan Daicor would request for. According to said agree ment, the guaranty is continuing and shall remain in full force or effect until the bank is notified of its termination. During the time the loan under the promissory note was incurred, the agreement was still in full force and effect and is thus covered by the latter agreement. Thus, even if C h u a d i d n o t s i g n t h e p r o m i s s o r y n o t e , h e i s s t i l l l i a b l e b y v i r t u e o f t h e s u r e t y agreement. The only condition necessary for him to be liable under the agreement was that Daicor is or may become liable as maker, endorser, acceptor or otherwise.

The comprehensive surety agreement signed by Go and Chua was as an accessory obligation dependent upon the principal obligation, i.e., the loan obtained by Daicoras evidenced by the promissory note. The surety agreement unequivocally shows that it was executed to guarantee future debts that may be incurred by Daicor with petitioner, as allowed under NCC Art.2053:

However, UTEFS did not acquiesce to the obligatorystip u l a t i o n s i n t h e t r u s t r e c e i p t . A s a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uya n d J a c i n t o U y D i o , d e m a n d i n g p a y m e n t o f t h e a m o u n t d u e . T h e y d e n i e d l i a b i l i t y o n t h e transaction. In its reply, the bank informed him that the source of his liability is the ContinuingS u r e t y s h i p w h i c h h e e x e c u t e d o n F e b r u a r y 2 5 , 1 9 7 7 . O n d e m a n d , U T E F S p a i d s o m e o f t h e outstanding amount. As a rejoinder, Dio maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. Since it could no longer collect the balance of amount due, METROBANK thus filed a complaint for collection of a sum of money. Norberto Uy and Jacinto Uy Dio (suretiesdefendants) filed a motion to dismiss the complaint on the ground of lack of cause of action. They maintained that the obligation which they guaranteed in 1977 has been extinguished since it has already been paid in the same year. Accordingly, the Continuing Suretyships executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid obligation. It was further argued that they cannot be held liable for the obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation. METROBANK filed its opposition to the motion to dismiss. Invoking the terms and conditions embodied in the comprehensive suretyships separately executed by sureties-defendants, the bank argued that suretiesmovants bound themselves as solidary obligors of defendant Uy Tiam to both existing obligations and future ones. The RTC and the CA ruled in favor of MBTC and held the sureties solidarily liable. Issues 1.Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by virtue of the Continuing Suretyship Agreements they separately signed in 1977; and

A guaranty may also be given as security for future debts, the amount of which isn o t y e t k n o w n ; t h e r e c a n b e n o c l a i m a g a i n s t t h e g u a r a n t o r u n t i l t h e d e b t i s liquidated. A conditional obligation may also be secured. DINO V. CA In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company. To secure the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Dio executed separate Continuing, dated 25 February 1977, in favor of the MBTC. This credit accommodation has been fully paid. Subsequent transactions flowed smoothly until UTEFS executed and delivered to METROBANK a Trust Receipt whereby the former acknowledged receiptin trust from the latter of the received goods from Planters Products which amounted to P815,600.00. Being the entrustee, the UTEFS agreed to deliver to METROBANK the entrusted goods in the event of non -sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979.

2.On the assumption that they are, what is the e x t e n t o f t h e i r l i a b i l i t i e s f o r s a i d 1 9 7 9 obligations. Held 1.Yes, they are still liable. Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It s prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which coversa l l t r a n s a c t i o n s , i n c l u d i n g t h o s e a r i s i n g i n t h e f u t u r e , w h i c h a r e w i t h i n t h e d e s c r i p t i o n o r contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one. Paragraph IV of both agreements stipulate that:" VI. This is a continuing guaranty and shall remain i n f u l l f o r c e a n d e f f e c t u n t i l w r i t t e n n o t i c e shall have been received by the BANK that it has been revoked by the SURETY, but any such notice shall not release the SURETY from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by the BANK, or in which the BANK may have any interest at the time of the receipt of such notice. x x x

The foregoing stipulations unequivocally reveal that the suretyship agreements in the case at bar are continuing in nature.Petitioners do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked the suretyship agreements. Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be madeapplicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the succeeding article provides that "[a]guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing or current obligation. This distinction is made clearer in the second paragraph of Article 2052 which reads: "Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." 2.By express mandate of the Continuing Suretyship Agreements which they ha d s i g n e d , petitioners separately bound themselves to pay interests, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: "ARTICLE 2055.A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein.

The limit of the petitioners' respective liabilities must be determined from t he suretyshipa g r e e m e n t e a c h h a d s i g n e d . I t i s u n d o u b t e d l y t r u e t h a t t h e l a w l o o k s u p o n t h e c o n t r a c t o f suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. Indeed, the Continuing Suretyship Agreements signed by petitioner Dio and petitioner Uy fixthe aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00,respectively. The law is clear that a guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. Willex Plastic Industries Corporation vs. Court of Appeals (256 SCRA 478) Willex Plastic argues that the Continuing Guaranty. Being an accessory contract, cannot legally exist because of the absence of a valid principal obligation. Its contention is based on the fact that it is not a party either to the Continuing Surety Agreement or to the loan agreement between Manila Bank and Inter-Resin Industrial. Put in another way, the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. Willex Plastic contends that the Continuing Guaranty cannot be retroactively applied so as to secure the payments made by Interbank under the two Continuing Surety Agreements and invokes the El

Vencedor and Dio rulings to support its contention that a contract if suretyship or guaranty should be applied prospectively. In El Vencedor vs. Canlas (44 Phil. 699), we held that a contract of suretyship is not retroactive and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated. There we found nothing in the contract to show that the parties intended the surety bonds to answer for the debt contracted previous to the execution of the bonds. In contrast, in this case, the parties to the Continuing Guaranty clearly provided that the guaranty would cover sums obtained and/or to be obtained by Inter-Resin Industrial from Interbank. On the other hand, in Dio vs. Court of Appeals (216 SCRA 9), the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. It is prospective in its operation and is generally intended to provide security with respect to future transactions. By no means, however, was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in application. Indeed, as we also held in Bank of the Philippine Islands vs. Foerster (49 Phil. 843), although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling.

ONG v. PCIB Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products. Petitionersspouses Alfredo and Susana Ong are its President and Treasurer, respectively. E-PCIB filed a case for collection of a sum of money against petitioners-spouse liable as sureties on the three (3) promissory notes they issued to secure some of BMCs loans, totalling five million

pesosP5,000,000.00).The complaint alleged that in 1991, BMC needed additional capital for its business and applied for various loans, amounting to a total of five million pesos, with the respondent bank. Petitionersspouses acted as sureties for these loans and issued three (3) promissory notes for the purpose. It was stipulated that respondent bank may consider debtor BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or upon BMCs insolvency, or if it is declared to be in a state of suspension of payments. Respondent bank granted BMCs loan applications.BMC filed a petition for rehabilitation and suspension after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof from petitioners-spouses as sureties. A Memorandum of Agreement (MOA) was executed by debtor BMC, the petitionersspouses as President and Treasurer of BMC, petitioners-spouses argued that as the SEC declared the principal debtor BMC in a state of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMCs sureties in their contracts of loan with respondent bank. Petitioners-spouses averred that respondent bank is barred from pursuing its collection case filed against them. ISSUE: Are the spouses primarily or secondarily liable? RULING: Article 2063 of the Civil Code which provides that a compromise between the creditor and principal debtor benefits the guarantor and should not prejudice the latter. Lastly, petitioners rely on Article2081 of the Civil Code which provides that: the guarantor may set up against the creditor all the defenses which pertain to the principal debtor and are inherent in the debt; but not those which are purely personal to the debtor.

Petitioners-spouses are not guarantors but sureties of BMCs debts. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself the benefit of exclusion is not available to the surety as he is principally liable for the payment of the debt. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning, it exists independently of its right to proceed directly against the principal debtor. Respondent bank as creditor may proceed against petitioners-spouses as sureties despite the execution of the MOA which provided for the suspension of payment and filing of collection suits against BMC. Clearly, the collection suit filed by respondent bank against petitioners-spouses as sureties can prosper

INTERNATIONAL FINANCE CORP. vs. IMPERIAL TEXTILE MILLS, INC. G.R. No. 160324 | 15 November 2005 FACTS International Finance Corporation (IFC) extended to Philippine Polyamide Industrial Corporation (PPIC) a loan of US$7,000,000.00, payable in sixteen (16) semi-annual installments of US$437,500.00 each. A Guarantee Agreement was also executed with Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee PPICs obligations under the loan agreement. The premise of the Guarantee Agreement is found in its preambular clause, which reads: Whereas,

(A) By an Agreement of even date herewith between IFC and PHILIPPINE POLYAMIDE INDUSTRIAL CORPORATION (herein called the Company), which agreement is herein called the Loan Agreement, IFC agrees to extend to the Company a loan (herein called the Loan) of seven million dollars ($7,000,000) on the terms therein set forth, including a provision that all or part of the Loan may be disbursed in a currency other than dollars, but only on condition that the Guarantors agree to guarantee the obligations of the Company in respect of the Loan as hereinafter provided. (B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in consideration of IFC entering into said Agreement, have agreed so to guarantee such obligations of the Company. The obligations of the guarantors are meticulously expressed in the following provision: Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as primary obligors and not as sureties merely, the due and punctual payment of the principal of, and interest and commitment charge on, the Loan, and the principal of, and interest on, the Notes, whether at stated maturity or upon prematuring, all as set forth in the Loan Agreement and in the Notes. By virtue of PPICs failure to pay, IFC, together with DBP, applied for the extra-judicial foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC. The deputy sheriff issued a notice of extra-judicial sale. IFC and DBP were the only bidders during the auction sale. IFCs bid was for P99,269,100.00

which was equivalent to US$5,250,000.00 (at the prevailing exchange rate of P18.9084 = US$1.00). The outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00. PPIC failed to pay the remaining balance. Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. However, despite the demand made by IFC, the outstanding balance remained unpaid. ISSUE WON ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC, for the payment of the loan HELD YES. While referring to ITM as a guarantor, the Agreement specifically stated that the corporation was jointly and severally liable. To put emphasis on the nature of that liability, the Contract further stated that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a surety. Indubitably therefore, ITM bound itself to be solidarily liable with PPIC for the latters obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable. Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITMs liability commenced only when it guaranteed PPICs obligation. It became a surety when it bound itself solidarily with the principal obligor. Thus, the applicable law is as follows: Article 2047. By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the obligation of the principal in case the latter should fail to do so.

If a person binds himself solidarily with the principa debtor, the provisions of Section 4, Chapter 3, Title I of this Boo shall be observed. In such case the contract shall be called suretyship. The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on Joint and Solidary Obligations. Relevant to this case is Article 1216, which states: The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against respondent. No Ambiguity in the Undertaking The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified by the term jointly and severally, the use of the word guarantor to refer to a surety does not violate the law. As Article 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the Agreementas primary obligor and not merely as suretystresses that ITM is being placed on the same level as PPIC. Those words emphasize the nature of their liability, which the law characterizes as a suretyship. The use of the word guarantee does not ipso facto make the contract one of guaranty. This Court has recognized that the word is frequently employed in business transactions to describe the intention to be bound by a primary or an independent obligation. The very terms of a contract govern the obligations of the parties or the extent of the obligors liability. Thus, this Court has ruled in favor of suretyship, even though contracts

were denominated as a Guarantors Undertaking or a Continuing Guaranty.

CONCHINGYAN V R & B SURETY & INSURANCE FELICIANO; June 30,1987 FACTS - In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an increase in its line of credit from P400,000 to P800,000 (the "Principal Obligation"), with the Philippine National Bank (PNB). To secure PNB's approval, PAGRICO had to give a good and sufficient bond in the amount of P400,000, representing the increment in its line of credit. In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765, issued by R & B Surety and Insurance Co., Inc. ("R & B Surety") in the specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R & B Surety bound themselves jointly and severally to comply with the "terms and conditions of the advance line [of credit] established by the [PNB]." PNB had the right under the Surety Bond to proceed directly against R & B Surety "without the necessity of first exhausting the assets" of the principal obligor, PAGRICO. The Surety Bond also provided that R & B Surety's liability was not to be limited to the principal sum of P400,000, but would also include "accrued interest" on the said amount "plus all expenses, charges or other legal costs incident to collection of the obligation [of R & B Surety]" under the Surety Bond. - In consideration of R & B Surety's issuance of the Surety Bond, two identical indemnity agreements were entered into with R & B Surety: (a) one agreement dated 23 December 1963 was executed by the Catholic Church Mart (CM and by petitioner Joseph Cochingyan, Jr.; the latter signed not only as President of CCM but also in his personal and individual capacity; and (b) another agreement dated 24 December 1963 was executed by PAGRICO, Pacific Copra Export Inc.(PACOCO), Jose K. Villanueva and Liu Tua Beh; Mr. Villanueva signed both as Manager of PAGRICO and in his personal and individual capacity; Mr. Liu signed both as

President of PACOCO and in his individual and personal capacity. Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R& B Surety to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set forth in said SURETY BOND for a period beginning x x x x until the same is CANCELLED and/or DISCHARGED." - When PAGRICO, failed to comply with its Principal Obligation to the PNB, the PNB demanded payment from R & B Surety of the sum of P400,000. R & B Surety made a series of payments to PNB by virtue of that demand totaling P70,000 evidenced by detailed vouchers and receipts. - R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Beh in the CFI of Manila. - Joseph Cochingyan, Jr. in his answer maintained that the Indemnity Agreement he executed in favor of R & B Surety: (i) did not expess the true intent of the parties thereto in that he had been asked by R & B Surety to execute the Indemnity Agreement merely in order to make it appear that R & B Surety had complied with the requirements of the PNB that credit lines be secured; (ii) was executed so that R & B Surety could show that it was complying with the regulations of the Insurance Commission concerning bonding companies; (iii) that R & B Surety had assured him considered a stranger to the transaction between the PNB and R & B Surety; and (iv) that R & B Surety was estopped from enforcing the Indemnity Agreement as against him. - Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity Agreement in favor of R & B Surety only "for accomodation purposes" and that it did not express their true intention; (ii) that the Principal Obligation of PAGRICO to the PNB secured by the Surety Bond had already been assumed by CCM by virtue of a Trust Agreement entered into with the PNB, where CCM represented by Joseph Cochingyan, Jr. undertook to pay the Principal

Obligation of PAGRICO to the PNB; (iii) that his obligation under the Indemnity Agreement was thereby extinguished by novation arising from the change of debtor under the Principal Obligation; and (iv) that the filing of the complaint was premature, considering that R & B Surety filed the case against him as indemnitor although the PNB had not yet proceeded against R & B Surety to enforce the latter's liability under the Surety Bond. - The Trust Agreement referred to by both petitioners was executed on 28 December 1965 (two years after the Surety Bond and the Indemnity Agreements were executed) between: (1) Jose and Susana Cochingyan, Sr., doing business under the name and style of the Catholic Church Mart, represented by Joseph Cochingyan, Jr., as Trustor[s]; (2) Tomas Besa, a PNB official, as Trustee; and (3) the PNB as beneficiary. The Trust Agreement provided, in pertinent part, as follows: 'WHEREAS, the TRUSTOR has guaranteed a bond in the amount of P400,000 issued by R & B Surety at the instance of PAGRICO on December 21, 1963, in favor of the BENEFICIARY in connection with the application of PAGRICO for an advance line of P400,000 to P800,000; 'WHEREAS, the TRUSTOR has also guaranteed a bond issued by the Consolacion Insurance & Surety Co., Inc. (CONSOLACION) in the amount of P900,000 in favor of the BENEFICIARY to secure certain credit facilities extended by the BENEFICIARY to the PACOCO; 'WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment of their respective obligations in favor of the BENEFICIARY guaranteed by the bonds issued by the R & B and the CONSOLACION, respectively, and by reason of said default, the BENEFICIARY has demanded compliance by the R & B and the CONSOLACION of their respective obligations under the aforesaid bonds; 'WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation under the indemnity agreements aforementioned executed by him in favor of R & B and the CONSOLACION, respectively and in order to forestall impending suits by the BENEFICIARY against said companies, he is willing as he hereby agrees to pay the obligations of said companies in favor of the BENEFICIARY in the total amount of P1,300,000 without interest from the

net profits arising from the procurement of reparations consumer goods made thru the allocation of WARVETS. [war veterans?] x x x This agreement shall not in any manner release the R & B and CONSOLACION from their respective liabilities under the bonds mentioned above. - The CFI of Manila rendered a decision in favor of R & B Surety, ordering the defendants to pay the total amount of the liability (P400,000) plus interest, unpaid premiums and attorneys fees. - Not satisfied with the decision of the trial court, the petitioners appealed to the CA which certified the case to the SC as one raising only questions of law. ISSUES WON the Trust Agreement extended the term of the Surety Bond so as to release petitioners from their obligation as indemnitors thereof as they did not give their consent to the execution of the Trust Agreement HELD NO Ratio Any extension of time granted by a creditor to any of the first-tier obligors could not prejudice the second-tier parties. Reasoning The petitioner-indemnitors are, as it were, second-tier parties so far as the PNB was concerned. The record is bereft of any indication that the petitioners indemnitors ever in fact became co-sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, remained simply indemnitors bound to R & B Surety but not to PNB, such that PNB could not have directly demanded payment of the Principal Obligation from the petitioners. Thus, we do not see how Article 2079 of the Civil Code-which provides in part that "[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty" -could apply in the instant case.

TUPAZ IV and TUPAZ v. CA and BPI, GR. No. 145578, Nov. 18, 2005 FACTS: Petitioners Jose Tupaz IV and Petronila Tupaz were Vice-President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation. El Oro Corporation had a contract with the Philippine Army to supply the latter with survival bolos. Petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Island for two commercial letters of credit to finance the purchase of the raw materials for the survival bolos. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated and Maresco Rubber and Retreading Corp o r a t i o n . R e s p o n d e n t b a n k g r a n t e d petitioners application and issued two letters of credit. Simultaneously, petitioners signed trust receipts in favor of respondent bank. On September 30, 1981, petitioner Jose Tupaz signed, in his personal capacity, a trust receipt corresponding to one letter of credi t while on October 9, 1981, both petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to the other. After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former. When petitioners did not comply with their undertaking under the trust rece i p t s a f t e r r e s p o n d e n t b a n k s s e v e r a l demands, the latter charged petitioners with estafa under the Trust Receipts Law. The trial court acquitted petitioners of estafa on reasonable doubt however it found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporations principal debt under the trust receipts. Petitioners appealed to the Court of Appeals contending that their acquittal operates to extinguish their civil liability and so they are not personally liable for El Oro Corporations debts. The Court of Appeals affirmed the trial courts ruling. Hence, this petition. ISSUE:

Whether or not petitioners are solidarily liable with El Oro Corporation. HELD: In the trust receipt dated 9 October 1981, petitioners s i g n e d a s o f f i c e r s o f E l O r o Corporation. By so signing that trust receipt, petitioners did not bind themselves personallyliablef o r E l O r o C o r p o r a t i o n s o b l i g a t i o n . H ence, for the trust receipt dated 9 October 1981 , petitioners are not personally liable for El Oro Corporations obligation. For the trust receipt dated 30 September 1981, petitioner Jose Tupaz signed alone in his personal capacity, he did not indicate that he was signing as El Oro Corporations Vice -President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila T upaz is not liable under such trust receipt.

requestedS e c u r i t y B a n k a c o m p l e t e r e s t r u c t u r e o f i t s i n d e b t e d n e s s , w h i c h w a s approved without prior n o t i c e t o , o r p r i o r c o n s e n t o f C u e n c a . S t i l l i t w a s unable to pay. B. Contention of the Petitioner Security Bank insists that the 1989 Loan Agreement was a mere renewal or extension of the Php 8M original accommodation, that Cuenca waived his right to be notified of and to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the same, and that it was a continuing surety. C. Contention of the Respondent Cuenca argues that the 1989 agreement extinguished the obligation under the 1980 credit accommodation by novation. II. Issues WON the 1989 Loan Agreement novated the original credit accommodation and Cuencas liability under the Indemnity Agreement. III. Ruling The 1989 Loan Agreement extinguished by novation the obligation under the1980 P8 million credit accommodation. It is essential in the law of suretyship thata n y a g r e e m e n t b e t w e e n t h e c r e d i t o r a n d t h e p r i n c i p a l d e b t o r t h a t e s s e n t i a l l y varies the terms of the principal contract without the consent of the surety, will release the surety from liability. The 1989 Loan Agreement expressly stipulatedt h a t i t s p u r p o s e w a s t o l i q u i d a t e , n o t t o r e n e w o r e x t e n d , t h e o u t s t a n d i n g indeb tedness. Moreover, respondent did not sign or consent to the 1 9 8 9 L o a n Agreement, which had allegedly extended the original P8 million credit facility.

SECURITY BANK AND TRUST COMPANY, Inc. vs RODOLFO M. CUENCA I. Facts * Creditor: Security Bank and Trust Co. Debtor: Sta. Ines Melale Corp. Surety: Rodolfo Cuenca A. Sta. Ines is a corporation engaged in logging o p e r a t i o n s . I n 1 9 8 0 , i t w a s granted by Security Bank a credit line in the amount of Php 8M. To secure payment, it executed a chattel mortgage over some of its machineries and equipments. And as an additional security, its President and Chairman of theB o a r d o f D i r e c t o r s R o d o l f o C u e n c a , e x e c u t e d a n I n d e m n i t y a g r e e m e n t i n favor of Security Bank whereby he bound himself jointly and severally with Sta. Ines. After Cuenca resigned, Sta. Ines obtained a Php 6M loan. Because of its difficulty in making the amortization payments, in 1989 it

Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan Agreement constituted a new indebtedness, the old loan having been already liquidated, the spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a surety for the new loan.