7/11/2015

EZobelIncvsCA:113931:May6,1998:J.Martinez:SecondDivision

SECONDDIVISION

[G.R.No.113931.May6,1998]

E.ZOBEL,INC.,petitioner,vs.THECOURTOFAPPEALS,CONSOLIDATED
BANKANDTRUSTCORPORATION,andSPOUSESRAULandELEAR.
CLAVERIA,respondents.
DECISION
MARTINEZ,J.:

This petition for review on certiorari seeks the reversal of the decision[1] of the Court of
Appeals dated July 13, 1993 which affirmed the Order of the Regional Trial Court of Manila,
Branch 51, denying petitioner's Motion to Dismiss the complaint, as well as the Resolution[2]
datedFebruary15,1994denyingthemotionforreconsiderationthereto.
Thefactsareasfollows:
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)intheamountofTwoMillionEightHundredSeventyFiveThousandPesos(P2,
875,000.00)tofinancethepurchaseoftwo(2)maritimebargesandonetugboat[3]whichwould
be used in their molasses business. The loan was granted subject to the condition that
respondentspousesexecuteachattelmortgageoverthethree(3)vesselstobeacquiredand
that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein
petitioner E. Zobel, Inc. in favor of SOLIDBANK. The respondent spouses agreed to the
arrangement.Consequently,achattelmortgageandaContinuingGuaranty[4]wereexecuted.
Respondent spouses defaulted in the payment of the entire obligation upon maturity.
Hence,onJanuary31,1991,SOLIDBANKfiledacomplaintforsumofmoneywithaprayerfor
a writ of preliminary attachment, against respondents spouses and petitioner. The case was
docketedasCivilCaseNo.9155909intheRegionalTrialCourtofManila.
Petitionermovedtodismissthecomplaintonthegroundthatitsliabilityasguarantorofthe
loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued
thatithaslostitsrighttobesubrogatedtothefirstchattelmortgageinviewofSOLIDBANK's
failuretoregisterthechattelmortgagewiththeappropriategovernmentagency.
SOLIDBANK opposed the motion contending that Article 2080 is not applicable because
petitionerisnotaguarantorbutasurety.
OnFebruary18,1993,thetrialcourtissuedanOrder,portionsofwhichreads:
"Afteracarefulconsiderationofthematteronhand,theCourtfindsthegroundofthemotionto
dismisswithoutmerit.Thedocumentreferredtoas'ContinuingGuaranty'datedAugust
21,1985(Exh.7)statesasfollows:
'ForandinconsiderationofanyexistingindebtednesstoyouofAgroBrokers,asingle
http://sc.judiciary.gov.ph/jurisprudence/1998/may1998/113931.htm

1/6

7/11/2015

EZobelIncvsCA:113931:May6,1998:J.Martinez:SecondDivision

proprietorshipownedbyMr.RaulClaveriaforthepaymentofwhichtheundersignedisnow
obligatedtoyouassuretyandinordertoinduceyou,inyourdiscretion,atanyothermanner,
to,orattherequestorfortheaccountoftheborrower,xxx'
"Theprovisionsofthedocumentareclear,plainandexplicit.
"Clearlytherefore,defendantE.Zobel,Inc.signedassurety.Eventhoughthetitleofthe
documentis'ContinuingGuaranty',theCourt'sinterpretationisnotlimitedtothetitlealonebut
tothecontentsandintentionofthepartiesmorespecificallyifthelanguageisclearand
positive.TheobligationofthedefendantZobelbeingthatofasurety,Art.2080NewCivilCode
willnotapplyasitisonlyforthoseactingasguarantor.Infact,intheletterofJanuary31,1986
ofthedefendants(spousesandZobel)totheplaintiffitisrequestingthatthechattelmortgage
onthevesselsandtugboatbewaivedand/orrescindedbythebankinasmuchasthesaidloan
iscoveredbytheContinuingGuarantybyZobelinfavoroftheplaintiffthusthwartingtheclaim
ofthedefendantnowthatthechattelmortgageisanessentialconditionoftheguaranty.Inits
letter,itsaidthatbecauseoftheContinuingGuarantyinfavoroftheplaintiffthechattel
mortgageisrenderedunnecessaryandredundant.
"Withregardtotheclaimthatthefailureoftheplaintifftoregisterthechattelmortgagewiththe
propergovernmentagency,i.e.withtheOfficeoftheCollectorofCustomsorwiththeRegister
ofDeedsmakestheobligationaguaranty,thesamemeritsascantconsiderationandcouldnot
betakenbythisCourtasthebasisoftheextinguishmentoftheobligationofthedefendant
corporationtotheplaintiffassurety.Thechattelmortgageisanadditionalsecurityandshould
notbeconsideredaspaymentofthedebtincaseoffailureofpayment.Thesameistruewith
thefailuretoregister,extinctionoftheliabilitywouldnotlie.
"WHEREFORE,theMotiontoDismissisherebydeniedanddefendantE.Zobel,Inc.,is
orderedtofileitsanswertothecomplaintwithinten(10)daysfromreceiptofacopyofthis
Order."[5]
PetitionermovedforreconsiderationbutwasdeniedonApril26,1993.[6]
Thereafter, petitioner questioned said Orders before the respondent Court of Appeals,
throughapetitionforcertiorari,allegingthatthetrialcourtcommittedgraveabuseofdiscretion
indenyingthemotiontodismiss.
On July 13,1993, the Court of Appeals rendered the assailed decision the dispositive
portionofwhichreads:
"WHEREFORE,findingthatrespondentJudgehasnotcommittedanygraveabuseof
discretioninissuingthehereinassailedorders,WeherebyDISMISSthepetition."
A motion for reconsideration filed by petitioner was denied for lack of merit on February
15,1994.
Petitionernowcomestousvia this petition arguing that the respondent Court of Appeals
erredinitsfinding:(1)thatArticle2080oftheNewCivilCodewhichprovides:"Theguarantors,
eventhoughtheybesolidary,arereleasedfromtheirobligationwheneverbysomeactofthe
creditortheycannotbesubrogatedtotherights,mortgages,andpreferencesofthelatter,"is
notapplicabletopetitioner(2)thatpetitioner'sobligationtorespondentSOLIDBANKunderthe
continuing guaranty is that of a surety and (3) that the failure of respondent SOLIDBANK to
registerthechattelmortgagedidnotextinguishpetitioner'sliabilitytorespondentSOLIDBANK.
http://sc.judiciary.gov.ph/jurisprudence/1998/may1998/113931.htm

2/6

7/11/2015

EZobelIncvsCA:113931:May6,1998:J.Martinez:SecondDivision

Weshallfirstresolvetheissueofwhetherornotpetitionerunderthe"ContinuingGuaranty"
obligateditselftoSOLIDBANKasaguarantororasurety.
Acontractofsuretyisanaccessorypromisebywhichapersonbindshimselfforanother
alreadybound,andagreeswiththecreditortosatisfytheobligationifthedebtordoesnot.[7] A
contractofguaranty,ontheotherhand,isacollateralundertakingtopaythedebtofanotherin
casethelatterdoesnotpaythedebt.[8]
Strictly speaking, guaranty and surety are nearly related, and many of the principles are
common to both. However, under our civil law, they may be distinguished thus: A surety is
usuallyboundwithhisprincipalbythesameinstrument,executedatthesametime,andonthe
same consideration. He is an original promissor and debtor from the beginning, and is held,
ordinarily,toknoweverydefaultofhisprincipal.Usually,hewillnotbedischarged,eitherbythe
mere indulgence of the creditor to the principal, or by want of notice of the default of the
principal,nomatterhowmuchhemaybeinjuredthereby.Ontheotherhand,thecontractof
guarantyistheguarantor'sownseparateundertaking,inwhichtheprincipaldoesnotjoin.Itis
usuallyenteredintobeforeorafterthatoftheprincipal,andisoftensupportedonaseparate
consideration from that supporting the contract of the principal. The original contract of his
principal is not his contract, and he is not bound to take notice of its nonperformance. He is
oftendischargedbythemereindulgenceofthecreditortotheprincipal,andisusuallynotliable
unlessnotifiedofthedefaultoftheprincipal.[9]
Simplyput,asuretyisdistinguishedfromaguarantyinthataguarantoristheinsurerofthe
solvencyofthedebtorandthusbindshimselftopayiftheprincipalisunable to pay whilea
suretyistheinsurerofthedebt,andheobligateshimselftopayiftheprincipaldoesnotpay.
[10]

Basedontheaforementioneddefinitions,itappearsthatthecontractexecutedbypetitioner
infavorofSOLIDBANK,albeitdenominatedasa"ContinuingGuaranty,"isacontractofsurety.
Thetermsofthecontractcategoricallyobligatespetitioneras"surety"toinduceSOLIDBANK
toextendcredittorespondentspouses.Thiscanbeseeninthefollowingstipulations.
"ForandinconsiderationofanyexistingindebtednesstoyouofAGROBROKERS,asingle
proprietorshipownedbyMR.RAULP.CLAVERIA,oflegalage,marriedandwithbusiness
addressxxx(hereinaftercalledtheBorrower),forthepaymentofwhichtheundersignedis
nowobligatedtoyouassuretyandinordertoinduceyou,inyourdiscretion,atanytimeor
fromtimetotimehereafter,tomakeloansoradvancesortoextendcreditinanyothermanner
to,orattherequestorfortheaccountoftheBorrower,eitherwithorwithoutpurchaseor
discount,ortomakeanyloansoradvancesevidencedorsecuredbyanynotes,bills
receivable,drafts,acceptances,checksorotherinstrumentsorevidencesofindebtednessxx
uponwhichtheBorrowerisormaybecomeliableasmaker,endorser,acceptor,orotherwise,
theundersignedagreestoguarantee,anddoesherebyguarantee,thepunctualpayment,
atmaturityorupondemand,toyouofanyandallsuchinstruments,loans,advances,
creditsand/orotherobligationshereinbeforereferredto,andalsoanyandallother
indebtednessofeverykindwhichisnowormayhereafterbecomedueorowingtoyou
bytheBorrower,togetherwithanyandallexpenseswhichmaybeincurredbyyouin
collectingalloranysuchinstrumentsorotherindebtednessorobligationshereinbeforereferred
to,andorinenforcinganyrightshereunder,andalsotomakeorcauseanyandallsuch
paymentstobemadestrictlyinaccordancewiththetermsandprovisionsofanyagreement(g),
expressorimplied,whichhas(have)beenormayhereafterbemadeorenteredintobythe
Borrowerinreferencethereto,regardlessofanylaw,regulationordecree,noworhereafterin
effectwhichmightinanymanneraffectanyofthetermsorprovisionsofanysuch
http://sc.judiciary.gov.ph/jurisprudence/1998/may1998/113931.htm

3/6

7/11/2015

EZobelIncvsCA:113931:May6,1998:J.Martinez:SecondDivision

agreements(s)oryourrightwithrespecttheretoasagainsttheBorrower,orcauseorpermitto
beinvokedanyalterationinthetime,amountormannerofpaymentbytheBorrowerofany
suchinstruments,obligationsorindebtednessxxx"(ItalicsOurs)
One need not look too deeply at the contract to determine the nature of the undertaking
andtheintentionoftheparties.Thecontractclearlydisclosethatpetitionerassumedliabilityto
SOLIDBANK,asaregularpartytotheundertakingandobligateditselfasanoriginalpromissor.
It bound itself jointly and severally to the obligation with the respondent spouses. In fact,
SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses'
properties before it can hold petitioner liable for the obligation. This can be gleaned from a
readingofthestipulationsinthecontract,towit:
'xxxIfdefaultbemadeinthepaymentofanyoftheinstruments,indebtednessorother
obligationherebyguaranteedbytheundersigned,oriftheBorrower,ortheundersigned
shoulddie,dissolve,failinbusiness,orbecomeinsolvent,xxx,orifanyfundsorother
propertyoftheBorrower,oroftheundersignedwhichmaybeorcomeintoyour
possessionorcontrolorthatofanythirdpartyactinginyourbehalfasaforesaidshould
beattachedofdistrained,orshouldbeorbecomesubjecttoanymandatoryorderof
courtorotherlegalprocess,then,oranytimeafterthehappeningofanysucheventany
oralloftheinstrumentsofindebtednessorotherobligationsherebyguaranteedshall,at
youroptionbecome(forthepurposeofthisguaranty)dueandpayablebythe
undersignedforthwithwithoutdemandofnotice,andfullpowerandauthorityarehereby
givenyou,inyourdiscretion,tosell,assignanddeliveralloranypartofthepropertyupon
whichyoumaythenhavealienhereunderatanybroker'sboard,oratpublicorprivatesaleat
youroption,eitherforcashorforcreditorforfuturedeliverywithoutassumptionbyyouofcredit
risk,andwithouteitherthedemand,advertisementornoticeofanykind,allofwhicharehereby
expresslywaived.Atanysalehereunder,youmay,atyouroption,purchasethewholeorany
partofthepropertysosold,freefromanyrightofredemptiononthepartoftheundersigned,all
suchrightsbeingalsoherebywaivedandreleased.Incaseofanysaleandotherdisposition
ofanyofthepropertyaforesaid,afterdeductingallcostsandexpensesofeverykindfor
care,safekeeping,collection,sale,deliveryorotherwise,youmayapplytheresidueof
theproceedsofthesaleandotherdispositionthereof,tothepaymentorreduction,
eitherinwholeorinpart,ofanyoneormoreoftheobligationsorliabilitieshereunderof
theundersignedwhetherornotexceptfordisagreementsuchliabilitiesorobligations
wouldthenbedue,makingproperallowanceorinterestontheobligationsandliabilities
nototherwisethendue,andreturningtheoverplus,ifany,totheundersignedall
withoutprejudicetoyourrightsasagainsttheundersignedwithrespecttoanyandall
amountswhichmaybeorremainunpaidonanyoftheobligationsorliabilitiesaforesaid
atanytime(s)"
xxxxxxxxx
'ShouldtheBorroweratthisoratanyfuturetimefurnish,orshouldbeheretoforehave
furnished,anothersuretyorsuretiestoguaranteethepaymentofhisobligationstoyou,
theundersignedherebyexpresslywaivesallbenefitstowhichtheundersignedmightbe
entitledundertheprovisionsofArticle1837oftheCivilCode(beneficiodivision),the
liabilityoftheundersignedunderanyandallcircumstancesbeingjointandseveral"
(ItalicsOurs)
The use of the term "guarantee" does not ipso facto mean that the contract is one of
guaranty.Authoritiesrecognizethattheword"guarantee"is frequently employed in business
http://sc.judiciary.gov.ph/jurisprudence/1998/may1998/113931.htm

4/6

7/11/2015

EZobelIncvsCA:113931:May6,1998:J.Martinez:SecondDivision

transactionstodescribenotthesecurityofthedebtbutanintentiontobeboundbyaprimaryor
independentobligation.[11]Asaptlyobservedbythetrialcourt,theinterpretationofacontractis
notlimitedtothetitlealonebuttothecontentsandintentionoftheparties.
Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied
upon by petitioner, finds no application to the case at bar. In Bicol Savings and Loan
Associationvs.Guinhawa,[12]wehaveruledthatArticle2080oftheNewCivilCodedoesnot
applywheretheliabilityisasasurety,notasaguarantor.
But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the
chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty
executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the
existenceofanycollateral.ItevenreleasedSOLIDBANKfromanyfaultornegligencethatmay
impairthecontract.Thepertinentportionsofthecontractsoprovides:
"xxxtheundersigned(petitioner)whoherebyagreestobeandremainbounduponthis
guaranty,irrespectiveoftheexistence,valueorconditionofanycollateral,and
notwithstandinganysuchchange,exchange,settlement,compromise,surrender,release,sale,
application,renewalorextension,andnotwithstandingalsothatallobligationsoftheBorrower
toyououtstandingandunpaidatanytime(s)mayexceedtheaggregateprincipalsumherein
aboveprescribed.
'ThisisaContinuingGuarantyandshallremaininfullforceandeffectuntilwrittennoticeshall
havebeenreceivedbyyouthatithasbeenrevokedbytheundersigned,butanysuchnotice
shallnotbereleasedtheundersignedfromanyliabilityastoanyinstruments,loans,advances
orotherobligationsherebyguaranteed,whichmaybeheldbyyou,orinwhichyoumayhave
anyinterest,atthetimeofthereceiptofsuchnotice.Noactoromissionofanykindonyour
partinthepremisesshallinanyeventaffectorimpairthisguaranty,norshallsamebe
affectedbyanychangewhichmayarisebyreasonofthedeathoftheundersigned,ofany
partner(s)oftheundersigned,oroftheBorrower,oroftheaccessiontoanysuchpartnership
ofanyoneormorenewpartners."(Italicssupplied)
In fine, we find the petition to be without merit as no reversible error was committed by
respondentCourtofAppealsinrenderingtheassaileddecision.
WHEREFORE, the decision of the respondent Court of Appeals is hereby AFFIRMED.
Costsagainstthepetitioner.
SOORDERED.
Regalado,Melo,andPuno,JJ.,concur.
Mendoza, J., no part, having concurred in the decision of the Court of Appeals when he
wasamemberoftheCourt.
[1] Annex "I," p. 80,Rollo The decision was penned by Justice Ma. Alicia AustriaMartinez and concurred in by

JusticeVicenteV.MendozaandJusticeAlfredoL.Benipayo.
[2] Annex"J,"p.91,Ibid.
[3] Annex"A,"p.39,Rollo.
[4] Annex"B,"pp.4142.
[5]

Annex"G,"pp.7075,Rollo.

http://sc.judiciary.gov.ph/jurisprudence/1998/may1998/113931.htm

5/6

7/11/2015

EZobelIncvsCA:113931:May6,1998:J.Martinez:SecondDivision

[6] AnnexH,p.77,Ibid.
[7] Bouvier'sLawDictionary,Vol.I,EighthEdition,p.1386Hopevs.Board,43La.Ann.738,9South.754
[8] Ibid.Shaw,C.J.Dolevs.Young,24Pick.(Mass.),252.
[9] Brandt,SuretyandGuarantycitedinBouvier'sLawDictionary,supra.,p.1386.
[10] Machettivs.Hospicio,43Phil.297.
[11] 24Am.Jur.876citedinDeLeon,CreditTransactions,1984Ed..p.187.
[12] 188SCRA647.

http://sc.judiciary.gov.ph/jurisprudence/1998/may1998/113931.htm

6/6