Credit Transaction

PICZON VS. PICZON

G.R. No. L-29139, November 15, 1974
FACTS:
This an appeal from the decision of the Court of
First Instance of Samar in its Civil Case No. 5156, entitled
Consuelo P. Piczon, et al. vs. Esteban Piczon, et al.,
sentencing defendants-appellees, Sosing Lobos and Co.,
Inc., as principal, and Esteban Piczon, as guarantor, to pay
plaintiffs-appellants "the sum of P12,500.00 with 12%
interest from August 6, 1964 until said principal amount of
P12,500.00 shall have been duly paid, and the costs."
Annex "A", the actionable document of appellants
reads thus:
AGREEMENT OF LOAN
KNOW YE ALL MEN BY THESE PRESENTS:
That I, ESTEBAN PICZON, of legal age, married,
Filipino, and resident of and with postal address in
the municipality of Catbalogan, Province of Samar,
Philippines, in my capacity as the President of the
corporation known as the "SOSING-LOBOS and
CO., INC.," as controlling stockholder, and at the
same time as guarantor for the same, do by these
presents contract a loan of Twelve Thousand Five
Hundred Pesos (P12,500.00), Philippine
Currency, the receipt of which is hereby
acknowledged, from the "Piczon and Co., Inc."
another corporation, the main offices of the two
corporations being in Catbalogan, Samar, for
which I undertake, bind and agree to use the loan
as surety cash deposit for registration with the
Securities and Exchange Commission of the
incorporation papers relative to the "Sosing-Lobos
and Co., Inc.," and to return or pay the same
amount with Twelve Per Cent (12%) interest per
annum, commencing from the date of execution
hereof, to the "Piczon and Co., Inc., as soon as the
said incorporation papers are duly registered and
the Certificate of Incorporation issued by the
aforesaid Commission.
IN WITNESS WHEREOF, I hereunto signed my
name in Catbalogan, Samar, Philippines, this 28th
day of September, 1956.
(signed)Esteban Piczon

ISSUE:
Was the trial court correct in its decision that
defendant will only have to pay the interest from August 6,
1964 instead of September 28, 1956?
RULING:
No. Instead of requiring appellees to pay interest
at 12% only from August 6, 1964, the trial court should
have adhered to the terms of the agreement which plainly
provides that Esteban Piczon had obligated Sosing-Lobos
and Co., Inc. and himself to "return or pay (to Piczon and
Co., Inc.) the same amount (P12,500.00) with Twelve Per
Cent (12%) interest per annum commencing from the date
of the execution hereof", Annex A, which was on
September 28, 1956. Under Article 2209 of the Civil Code
"(i)f the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per
cent per annum." In the case at bar, the "interest agreed
upon" by the parties in Annex A was to commence from
the execution of said document.
Appellees' contention that the reference in Article
2209 to delay incurred by the debtor which can serve as
the basis for liability for interest is to that defined in
Article 1169 of the Civil Code is untenable. In Quiroz vs.
Tan Guinlay, 5 Phil. 675, it was held that the article cited
by appellees (which was Article 1100 of the Old Civil Code
read in relation to Art. 1101) is applicable only when the
obligation is to do something other than the payment of
money. And in Firestone Tire & Rubber Co. (P.I.) vs.
Delgado, 104 Phil. 920, the Court squarely ruled that if the
contract stipulates from what time interest will be counted,
said stipulated time controls, and, therefore interest is
payable from such time, and not from the date of the filing
of the complaint (at p. 925). Were that not the law, there
would be no basis for the provision of Article 2212 of the
Civil Code providing that "(I)nterest due shall earn legal
interest from the time it is judicially demanded, although
the obligation may be silent upon this point." Incidentally,
appellants would have been entitled to the benefit of this
article, had they not failed to plead the same in their
complaint. Their prayer for it in their brief is much too
late. Appellees had no opportunity to meet the issue
squarely at the pre-trial.

Guaranty and Suretyship (Articles 2047-2084)Chapter 1. Nature and

Extent of Guaranty (Arts. 2047-2084)
Piczon vs. Piczon
Facts: Sosing-Lobos & Co. obtained loan from Piczon Co. Esteban Piczon
(president of borrowing firm)bound himself as guarantor and agreed to the use of
the loan as surety cash deposit for theregistration with the SEC. Consuelo Piczon
(lending firm) brought action to recover the amount loaned.Court ruled in favor
of Consuelo Piczon and ordered Esteban Piczon and Sosing-Lobos to pay
him asguarantor the amount of the loan + interest.
Issue: WON Esteban Piczon is a surety or a guarantor?
Held: Under the terms of the contract Esteban Piczon expressly bound himself
only as guarantor. Aguaranty must express, and it would be violative of the law
to consider a party to be bound as suretywhen the very word used in the
agreement is guarantor.
Palmares vs. CA
(288 SCRA 422)
Facts:
Private respondent M.B. Lending Corporation extended a loan to the spouses
Osmea andMerlyn Azarraga, together with petitioner Estrella Palmares, in
the amount of P30,000.00 payable on orbefore May 12, 1990, with compounded
interest at the rate of 6% per annum to be computed every 30days from the date
thereof. 1 On four occasions after the execution of the promissory note and
evenafter the loan matured, petitioner and the Azarraga spouses were able to
pay a total of P16,300.00,thereby leaving a balance of P13,700.00. No payments
were made after the last payment onSeptember 26, 1991. 2Consequently, on
the basis of petitioner's solidary liability under the promissory
note, respondentcorporation filed a complaint 3 against petitioner Palmares as
the lone party-defendant, to theexclusion of the principal debtors, allegedly by
reason of the insolvency of the latter.
Issue: WON Palmares is liable
Held:
If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter3, Title I of this Book shall be observed. In such case
the contract is called a suretyship. It is a cardinalrule in the interpretation of
contracts that if the terms of a contract are clear and leave no doubt uponthe
intention of the contracting parties, the literal meaning of its stipulation shall
control. 13 In thecase at bar, petitioner expressly bound herself to be jointly and
severally or solidarily liable with theprincipal maker of the note. The terms of the
contract are clear, explicit and unequivocal thatpetitioner's liability is that of a
surety.

Castellvi de Higgins & Higgins vs. Sellner

Facts: Sellner (defendant) wrote a letter to Mcleod (Castellvis agent) saying that
he would boundhimself to pay the promissory note of Mining, Clarke and Maye
amounting 10K + % if not fully paid atmaturity, upon the surrender 8k worth of
MCMs stock which is held by Castellvi.
Issue: WON Sellner is a guarantor or surety?
Held: Sellner is a GUARANTOR. Sellner was not bound with Castellvi by the same
instrument executedat the time and the same consideration, but his
responsibility was secondary, one founded on anindependent collateral
agreement. Neither was he jointly and severally liable with Castellvi.
Reiss vs. Memije
Facts: Memije entered into a contract with D (building contractor) for repair of
a house. D has no creditline so Reiss refused to sell D lumber without
an advance. Memije accompanied D and told Reiss that he would guarantee
payment for lumber. The lumber extended by Reiss solely and exclusively
toMemije was under a verbal agreement. Reiss brought an action for the
purchase price of the lumber.
Issue: WON Memije is liable as guarantor or as original promisor?
Held: Memije is primarily liable. It is evident that Memije used the words
gurantor not in a technica lsense but rather that after satisfying, Reiss as to his
own financial responsibility. 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.
Machetti vs. Hospicio de San Jose
Facts: By a written agreement, Machetti undertook to construct a building for
Hospicio de San Jose.One of the conditions was that Machetti obtain the
guarantee of Fidelity & Surety Co. to the amount of 12K. It was subsequently
found out that the work had not been carried out in accordance with the
specifications. Hospicio refused to pay therefore Machetti brought an action to
recover the amount.
Issue: WON the undertaking assumed by FSC that of guarantor or surety?
Held: Circumstances may be shown which convert the contract into one
of suretyship but that does notexist. It appears that the contract is the
guarantors separate undertaking in which the principal doesnot join, that it rests
on a separate consideration moving from the principal, and that although it is

written in continuation of the contract for the construction of the building, it is

collateral undertakingseparate and distinct from the latter. All these are features
of a contract of guaranty.

Severino vs. Severino

Facts: Melecio Severino upon his death, left considerable properties. To end
litigation among heirs acompromise was effected where defendant (son of MS)
took over the property of deceased and agreedto pay installment of 100K 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 nothingfrom affixing his signature in the document
and the contract lacked the consideration as to him.
Issue: WON there is a consideration for the guaranty?
Held: 1. The guarantor or surety is bound by the same consideration that makes
the contract effectivebetween the principal parties thereto. 2. It is neither
necessary that guarantor or surety should receiveany part of the benefit, if such
there be accruing to his principal.

Municipaity of Gasan vs. Marasigan

Facts: Municipality of Gasan granted Marasigan fishing privileges within the
jurisdictional waters. Tosecure payment of license fees, Marasigan filed a bond
subscribed by G and H who bound themselvesto pay if Marasigan failed to
comply with the terms of the contract. Contract was declared illegal bythe
Executive Bureau therefore the Municipality awarded the privilege to another
person who failed topay the deposit and yielded the privilege to Marasigan. The
municipality told Marasigan that thecontract was to be effective so
the municipality sought to recover from Marasigan and G and H, theamount
representing the license.Issue: WON the contract and bond are valid and
enforceable?Held: No. Contract was not consummated and was cancelled.
It ceased to be valid when it wascancelled so Marasigsan and G&H were not
bound to comply with the terms of the contract. Aguaranty cannot exist
without a valid obligation.
Plaridel Surety Insurance vs. Artex Development Co.
Facts: Artex withdrew from the Bureau of Customs shipments of imported goods
which were subject tocustoms duties and other taxes after posting surety bonds
pursuant to RA 4086 because itsapplications for tax exemptions were not

approved by the Board of Industries. In consideration of theobligation assumed

by Plaridel, Artex agreed to pay the premiums and cost of documentary stamps
inadvance due on bonds for each period of 12 months until bonds and its
renewals, extensions orsubstitutions be cancelled in full by the person or entity
guaranteed or by court of competent jurisdiction. Artex stopped paying
premiums and costs of documentary stamps after it was granted taxexemption.
Plaridel maintains that it renewed the surety bonds more or less 8 months before
the taxexemption. Plaridel seeks recovery of renewal of premiums on bonds
which were already null and voidupon grant of tax exemption to principal
Issue: WON Artex is liable for accrued premiums and costs of doc stamps on
renewals of the suretybonds after grant of tax exemption to Plaridel?
Held: No. Suretyship cannot exsist without valid obligation. The renewals were
without consideration.Plaridel incurred no risk from Artex tax exemption
application was approved. Any renewals were voidfrom the beginning because
the cause or object of said renewals did not exist at the time of thetranstaction.
Express stipulation by parties, surety bonds became null and void upon grant of
taxexemption.
Pacific Banking Corp. vs. IAC
Facts: Cecilia Regala obtained from plaintiff the issuance and use of Pacific card
credit card. RobertRegala Jr., spouse of Cecilia, executed a Guarantors
Undertaking in favor of Pacific wherein theRegala Jr., agreed jointly and
severally with Cecilia Regala, to pay Pacific upon demand and allindebtedness,
obligations, charges or liabilities due and incurred by her. Cecilia was declared in
defaultfor failure to pay 92K within the reglementary period. Regala Jr. admitting
the execution of theGuarantors Understanding but with the understanding that
his liability would be limited to2K/month.
Issue: WON the Guarantors Understanding is a guaranty or suretyship?
Held: It is in substance a contract of suretyship. A contract of guaranty is where a
guarantor bindshimself to pay only in case the latter should fail to do so; while
a contract of suretyship, the suretybinds himself solidarily with the principal
debtor. Since Regala Jr. bound himself jointly and severally,he is bound to pay the
amount of indebtedness of his wife.
Commonwealth of the Philippines vs. Far Eastern Surety and Insurance
Facts:
Issue:
Held:

PNB vs. CA, Luzon Surety Co.

Facts: Estanislao Depusoy, and the Republic of the Philippines, represented by

the Director of PublicWorks, entered into a building contract, for the construction
of the GSTS building at Arroceros
Street,Manila, Depusoy to furnish all materials, labor, plans, and supplies needed
in the construction.Depusoy applied for credit accommodation with the plaintiff.
This was approved by the Board of Directors in various resolutions subject to the
conditions that he would assign all payments to bereceived from the Bureau of
Public Works of the GSIS to the bank, furnish a surety bond, and
thesurety to deposit P10,000.00 to the plaintiff. The total accommodation
granted to Depusoy wasP100,000.00. This was later extended by another
P10,000.00 and P25,000.00, but in no case shouldthe
loan exceed P100,000.00. In compliance with these conditions, Depusoy
executed a Deed of Assignment of all money to be received by him from the
GSIS to PNB. Depusoy defaulted in hisbuilding contract with the Bureau of Public
Works, and sometime in September, 1957, the Bureau of Public Works rescinded
its contract with Dernisoy. No furher amounts were thereafter paid by the GSISto
lie plaintiff bank. The amount of the loan of Depusoy which
remains unpaid, including interest, isover P100,000.00. Demands for payment
were made upon Depusoy and Luzon, and as no paymentwas made, therefore
herein petitioner filed with the trial court a complaint against Estanislao
Depusoyand private respondent Luzon Surety Co. Inc. (LSCI).
Issue: WON Luzon Surety is liable
Held: the bonds executed by private respondent LSCI were to guarantee the
faithful performance of Depusoy of his obligation under the Deed of Assignment
and not to guarantee payment of the loans orthe debt of Depusoy to petitioner to
the extent of P100,000.00. Besides, even if there had been anydoubt on the
terms and conditions of the surety agreement, the doubt should be resolved in
favor of the surety. As concretely put in Article 2056 of the Civil Code, "A
guaranty is not presumed, it must beex-pressed and cannot extend to more than
what is stipulated therein." LSCI is liable to the full extentthereof, such liability is
strictly limited to that assumed by its terms."
El Vencedor vs. Canlas
Facts: An accounting between X company and D, its agent for the sale of
merchandise, showed that Dhad failed to pay X for the merchandise of the value
of 5K. X therefore refused to continue to furnish Dmerchandise for sale unless he
gave a bond. Canlas bound himself as surety and guarantor to D tobecome liable
in case of his inability to pay damages. It did not appear that at the time
of theexecution of the bond Canlas had knowledge of the fact that D was
indebted to X in any sum. Canlashad no knowledge.
Issue: Should the bond respond for the debt contracted by D prior to execution?
Held: No. Canlas was liable only for the value of goods furnished to D subsequent
to the execution of the bond. A contract of suretyship or guaranty is ordinarily
not retrospective and no liability attachedfor defaults occurring before it is

entered into unless intent to be so liable is indicated either byexpress words or

by necessary implication.
BPI vs. Forester
Facts: The Board of directors of corporation X authorized its treasures to obtain
for them a credit ncurrent account for 100K from BPI. Credit was granted and X
began to draw against it even before theformal document of the agreement for
the said credit was issued. The accountant G gave a bond in hisname as surety
and agreed to be bound jointly and severally in the sum of 100K. The overdraft
andinterest amounted to 84,900. BPI was able to collect 43,100 as a result of an
action brought against X.BPI receives 25,500 subsequently.
Issue: WON the bond covered the amounts from BPI prior to its date?
Held: Yes. It is very true that bonds or other contracts of suretyship are ordinarily
not to be construedretrospectively, but that rule must yield to the intention of
the contracting parties as revealed by theevidence. In the present case,
the circumstances clearly indicated that the bond given by G wasintended to
cover all of the indebtedness.

Standard Oil Co. of NY vs. Cho Siong

Facts: To guarantee the fulfillment of the obligation of D, as agent of X in the sale
of the latterspetroleum products, Cho
Siong subscribed to a personal bond in the sum of 3K. Cho Siong alsosubscribed
the 3K bond and signed an instrument in favor of X in which he assumed
responsibility foraccount of Xs former agent.
Isssue: WON Cho Siong is liable for the debt of the former agent of X which D
assumed in virtue of another contract of which Cho Siong was not aware?
Held: No. Under the terms of the bond, Cho Siong did not answer for D, save for
the latters acts byvirtue of the contract of agreement between D and X.
A contract of suretyship or guaranty is to strictlyinterpreted and is not to be
extended beyond its terms.
Municipality of Lemery vs. Mendoza and Blas
Facts: Municipality of Lemery granted fishing privileges to D for a period of 2
years for the sum of 23K for each year. Mendoza and Blas as bondsmen,
executed a document which declared, among otherthing, the lease by D of the
privilege of fishing referred to for the term of 2 years. In said document,Mendoza
and Blass obligated themselves jointly and severally to pay the sum of 46K in
case D shall failto comply with the conditions of the bond of which we are
informed. D failed to pay.

Issue: WON Mendoza and Blas are bound to pay 46K or 23K
Held: 23K. The obligating clause of the contract of guaranty is quite clear to the
effect that the rent tobe paid for the privilege of fishery was 23K for the full term
of 2 years. It is true that Mendoza and Blasdeclared 46K, but it was only because
the bond was required to be made in double the amount of theprincipal liability
as an assurance of the performance of the principal obligation.
Wise and Co. vs. Kelly
Facts: D purchased merchandise from C on credit and agreed that D would apply
the proceeds of itssale to the discharge of his indebtedness in the amount of 13K
the purchase price. Kelly as surety forD, undertook that D would pay over to C
the entire proceeds from the sale of the merchandise.
Issue: WON Kelly is liable for the difference between the
amount realized from the sale of themerchandise and the purchase price of
the same?
Held: No. Kelly did not undertake absolutely to pay the sum of 13K. His
agreement was limited torespond for the performance by D of his undertaking to
deliver to C the total proceeds of the sale of the merchandise for the invoice
value of which a promissory note was given by D.

Pacific Tobacco Corp. vs. Lorenzana

Facts: The Pacific Tobacco Corp. is engaged in the business of manufacturing and
distributingcigarettes cigars and other tobacco products. Lorenzana and PTC
entered into an agreement wherebyLorenzana will act as Distributor of PTC.
Lorenzana put up a bond in the amount of 3K with VisayanSurety & Insurance
Corporation, as surety, to guarantee the faithful fulfillment of Lorenzanas part
inthe contract to sell and distribute PTCs cigarettes.
Issue: WON the delivery of merchandise to Lorenzana at a place other than that
appearing in thecontract constitutes a material alteration of the same that would
release Lorenzana from liability?
Held: No. The mention of Manila and Rizal in said agreement was designed more
as a declaration oridentification of the places wherein Lorenzana was expressly
authorized and assigned to sell PTCsproducts which is no obstacle to his
acceptance of additional territories in order to fulfill his obligation.A departure
from the terms of contract will not have the effect of discharging a compensated

suretyunless it appears that such departure has resulted in injury, loss or

prejudice to the surety.