VELASQUEZ vs.

SOLIDBANK CORPORATION Admittedly, petitioner was discharged from liability under the sight draft when respondent
G.R. No. 157309
March 28, 2008
FACTS: The case arose out of a business transaction for the sale of dried sea cucumber for
export to South Korea between Wilderness Trading (of Velasquez), as seller, and Goldwell
Trading of Pusan, South Korea, as buyer. To facilitate payment of the products, Goldwell
Trading opened a letter of credit in favor of Wilderness Trading with the Bank of Seoul,
Pusan, Korea.
Petitioner applied for credit accommodation with Solidbank for pre-shipment financing. The
credit accommodation was granted. Petitioner was successful in his first two export
transactions both drawn on the letter of credit. The third export shipment, however, yielded a
different result. Petitioner submitted to Solidbank the necessary documents for his third
shipment. Wanting to be paid the value of the shipment in advance, petitioner negotiated for
adocumentary sight draft to be drawn on the letter of credit, chargeable to the account of
Bank of Seoul. The sight draft represented the value of the shipment.
As a condition for the issuance of the sight draft, petitioner executed a letter of
undertaking in favor of respondent. Under the terms of the letter of undertaking, petitioner
promised that the draft will be accepted and paid by Bank of Seoul according to its tenor.
Petitioner also held himself liable if the sight draft was not accepted.
Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the
Bank of Seoul. The reasons given for the dishonor were late shipment, forged inspection
certificate, and absence of countersignature of the negotiating bank on the inspection
certificate.Goldwell Trading likewise issued a stop payment order on the sight draft because
most of the bags of dried sea cucumber exported by petitioner contained soil.
failed to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable
outside the Philippines is a foreign bill of exchange. When a foreign bill is dishonored by
non-acceptance or non-payment, protest is necessary to hold the drawer and indorsers liable.
Verily, respondents failure to protest the non-acceptance of the sight draft resulted in the
discharge of petitioner from liability under the instrument.
Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing
that it is a separate contract from the sight draft. The liability of petitioner under the letter of
undertaking is direct and primary. It is independent from his liability under the sight draft.
Liability subsists on it even if the sight draft was dishonored for non-acceptance or non-
payment.
Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking
that he will reimburse the amount in case the sight draft is dishonored. The bank would
certainly not have agreed to grant petitioner an advance export payment were it not for the
letter of undertaking. The consideration for the letter of undertaking was petitioners promise
to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank
of Seoul.
**GUARANTY**
We cannot accept petitioners thesis that he is only a mere guarantor under the letter of
credit. Petitioner cannot be both the primary debtor and the guarantor of his own
debt. This is inconsistent with the very purpose of a guarantee which is for the creditor to
proceed against a third person if the debtor defaults in his obligation. Certainly, to accept
such an argument would make a mockery of commercial transactions.

Due to the dishonor of the sight draft and the stop payment order, respondent demanded
restitution of the sum advanced. Petitioner failed to heed the demand.

Solidbank filed a complaint for recovery of sum of money with the RTC. In his answer,
petitioner alleged that his liability under the sight draft was extinguished when respondent
failed to protest its non-acceptance, as required under the Negotiable Instruments Law (NIL).
He also alleged that the letter of undertaking is not binding because it is a superfluous
document, and that he did not violate any of the provisions of the letter of credit.

RTC rendered judgment in favor of respondent. The CA affirmed with modification. hence this
petition.

ISSUE: WON not petitioner should be held liable to respondent under the sight draft or the
letter of undertaking.

Held: petition denied.

YES; letter of undertaking
 AUTOCORP and Rodriguez vs. ISAC and BOC
G.R. No. 166662
June 27, 2008
FACTS: Autocorp Group, represented by its President, Rodriguez, secured an ordinary re-
export bond from private respondent Intra Strata Assurance Corporation (ISAC) in favor of
public Bureau of Customs (BOC), to guarantee the re-export of 2 units of car (at 2 different
dates) and/or to pay the taxes and duties thereon. Petitioners executed and signed two
Indemnity Agreements with identical stipulations in favor of ISAC, agreeing to act as surety of
the subject bonds.
In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their
undertaking with the BOC to re-export the imported vehicles within the given period and pay
the taxes and/or duties due thereon. In turn, petitioners agreed, as surety, to indemnify ISAC
for the liability the latter may incur on the said bonds.
Autocorp failed to re-export the items guaranteed by the bonds and/or liquidate the entries or
cancel the bonds, and pay the taxes and duties pertaining to the said items, despite repeated
demands made by the BOC, as well as by ISAC. By reason thereof, the BOC considered the
two bonds forfeited.
Article 2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid, may proceed against the principal
debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within a specified
period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the period
for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed period for its
maturity, unless it be of such nature that it cannot be extinguished except within a period
longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to abscond;

Failing to secure from petitioners the payment of the face value of the two bonds, ISAC filed
with the RTC an action against petitioners to recover a sum of money plus AF. ISAC
impleaded the BOC as a necessary party plaintiff in order that the reward of money or
judgment shall be adjudged unto the said necessary plaintiff.
Petitioners filed a MTD, which was denied. RTC ordered Autocorp to pay ISAC and/or BOC
the face value of the subject bonds plus AF. Autocorps MR was denied. CA affirmed the trial
courts decision. MR was denied. Hence this Petition for Review on Certiorari.
ISSUE: WON these bonds are now due and demandable, as there is yet no actual forfeiture
of the bonds, but merely a recommendation of forfeiture, for no writ of execution has been
issued against such bonds, therefore the case was prematurely filed by ISAC.
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the guaranty, or to
demand a security that shall protect him from any proceedings by the creditor and from the
danger of insolvency of the debtor.
NOTES:
A demand is only necessary in order to put an obligor in a due and demandable obligation in
delay, which in turn is for the purpose of making the obligor liable for interests or damages for
the period of delay. Thus, unless stipulated otherwise, an extrajudicial demand is not required
before a judicial demand, i.e., filing a civil case for collection, can be resorted to

HELD: PETITION IS WITHOUT MERIT

YES
The Indemnity Agreements give ISAC the right to recover from petitioners the face value of
the subject bonds plus attorneys fees at the time ISAC becomes liable on the said bonds to
the BOC, (specifically to re-export the imported vehicles within the period of six months from
their date of entry) regardless of whether the BOC had actually forfeited the bonds,
demanded payment thereof and/or received such payment. It must be pointed out that the
Indemnity Agreements explicitly provide that petitioners shall be liable to indemnify ISAC
whether or not payment has actually been made by the [ISAC] and ISAC may proceed
against petitioners by court action or otherwise even prior to making payment to the [BOC]
which may hereafter be done by [ISAC].
 Delos Santos vs. Vibar
G.R. No. 150931
July 16, 2008
FACTS: De Leon borrowed P100k from Vibar. De Leon issued a promissory note and bound
himself to pay the loan three months from date with a monthly interest rate. Delos Santos
signed as a guarantor of de Leons loan.
Later, de Leon asked Vibar for another loan. Together with Delos Santos and Conte, de Leon
went to Vibars house. After some discussion, they all agreed that the outstanding P100k loan
together with the accrued interest would be deducted from the new loan of P500,000
De Leon signed a typewritten promissory note acknowledging the debt of P500k payable
within 12 months. Then, Delos Santos signed as a witness under the phrase signed in the
presence of. However, de Leon, in his own handwriting, inserted the word guarantor
besides Delos Santoss name, as Delos Santos nodded her head to what de Leon was doing.
De Leon also added the phrase, as security for this loan this TCT No. T-47375, Registry of
Baguio City, is being submitted by way of mortgage.
On maturity date, de Leon failed to pay any of the monthly installments. Vibar made several
verbal and written demands on de Leon for payment but to no avail asDe Leon failed to
respond. Vibars counsel again sent a demand letter not only to de Leon as principal debtor,
but also to delos Santos.delos Santos was being made to answer for de Leons debt as the
latters guarantor. delos Santos then remitted to Vibar P15k to pay one months interest on
the loan. However, this was the only payment Delos Santos made to Vibar as Delos Santos
claimed she had no money to pay the full amount of the loan
her liability to Vibar as guarantor until this case was filed in court. Lastly, Delos Santos wrote
a letter to the RD of Baguio City inquiring on the status of the property mentioned in the
promissory note as a mortgage security for de Leons loan. Here, Delos Santos clearly stated
that she appears to be a guarantor in the promissory note. This serves as a written
admission that Delos Santos knew she was a guarantor. During the trial, Delos Santos did
not impugn the letter or its contents.
Further, It is axiomatic that the written word guarantor prevails over the typewritten word
witness. In case of conflict, the written word prevails over the printed word. Section 15 of
Rule 130 provides:
Sec. 15. Written words control printed. When an instrument consists partly of written words
and partly of a printed form, and the two are inconsistent, the former controls the latter.
We agree with CA that estoppel in pais arose in this case. estoppel is a doctrine that prevents
a person from adopting an inconsistent position, attitude, or action if it will result in injury to
anotherOne who, by his acts, representations or admissions, or by his own silence when he
ought to speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief, can no longer
deny the existence of such fact as it will prejudice the latter.

Vibar filed an action for recovery of money with the RTC, which although ruled that De Leon
is liable, Delos Santos is not a guarantor. The trial court ruled that there was no express
consent given by Delos Santos binding her as guarantor.

However, Ca ruled that Delos santos is guarantor of De Leons loan. Delos Santos filed an
MR which was denied. Hence this petition for review on certiorari.

ISSUE: WON Delos Santos is liable as guarantor of de Leons loan from Vibar

HELD: petition denied

YES

We are convinced that the insertion was made with the express consent of Delos Santos.
Delos Santoss act of nodding her head showed her consent to be a guarantor. Also, Vibar
would not have extended a loan to de Leon without the representations of Delos Santos.
Also, Delos Santos acknowledged her liability as guarantor but simply claimed that she had
no money to pay Vibar. In fact, Delos Santos made an initial payment of P15K as partial
compliance of her obligation as guarantor. This only shows that Delos Santos never denied
 Bitanga vs. Pyramid Const.
G.R. No. 173526
August 28, 2008
FACTS: Pyramid filed with the RTC a Complaint for specific performance and damages with
application for the issuance of a writ of preliminary attachment against the petitioner and wife
Marilyn.
Respondent alleged in its Complaint that, it entered into an agreement with Macrogen Realty, of
which Bitanga is the President, to construct for the latter the Shoppers Gold Building located in
Paraaque City. Respondent commenced civil, structural, and architectural works on the
construction project. However, Macrogen failed to settle respondents progress billings. Petitioner,
through his representatives and agents, assured respondent that the outstanding account of
Macrogen would be paid and relying on the assurances made by petitioner, respondent continued
the construction project.
Later, respondent suspended work on the construction project since the conditions that it imposed
for the continuation thereof, including payment of unsettled accounts, had not been complied with
by Macrogen. Respondent instituted with the Construction Industry Arbitration Commission (CIAC)
a case for arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings
and project costs. Before the arbitration case could be set for trial, Pyramid and Macrogen entered
into a Compromise Agreement, with petitioner acting as signatory for and in behalf of Macrogen
Realty.
Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the total amount
of P6,000,000.00 by installments. Petitioner guaranteed the obligations of Macrogen Realty
under the Compromise Agreement by executing a Contract of Guaranty in favor of
respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and complete
payment of the principal amount of liability of Macrogen. Upon joint motion of respondent and
Macrogen Realty, the CIAC approved the Compromise Agreement.
Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the
Compromise Agreement. Hence respondent moved for the issuance of a writ of execution against
Macrogen, which CIAC granted.
The sheriff filed a return stating that he was unable to locate any property of Macrogen Realty,
except its bank deposit of P20,242.33, with the Planters Bank, Buendia Branch.
Respondent then made, a written demand on petitioner, as guarantor of Macrogen to pay the
liability or to point out available properties of the Macrogen within the Philippines sufficient to cover
the obligation guaranteed. It also made verbal demands on petitioner. Yet, respondents demands
were left unheeded.
Petitioner filed with the RTC his Answer to respondents Complaint. As a special and affirmative
defense, petitioner argued that the benefit of excussion was still available to him as a guarantor
since he had set it up prior to any judgment against him. According to petitioner, respondent failed
to exhaust all legal remedies to collect from Macrogen the amount due under the Compromise
Agreement, considering that Macrogen Realty still haduncollected credits which were more than
enough to pay for the same. Given these premise, petitioner could not be held liable as guarantor.
ISSUE: WON petitioner cam avail of the benefit of excussion
HELD: petition denied for lack of merit; CA affirmed; Bitanga (alone; not including his wife who is
not a party to the compromise agreement) is liable as per Compromise Agreement or the contract
of guaranty.
NO
Under a contract of guarantee, 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 guarantor who pays for a debtor, in
turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the
creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal
remedies against the debtor. This is what is otherwise known as the benefit of excussion.
Article 2060 of the Civil Code reads:
In order that the guarantor may make use of the benefit of excussion, he must set it up against the
creditor upon the latters demand for payment from him, and point out to the creditor available
property of the debtor within Philippine territory, sufficient to cover the amount of the debt.
It must be stressed that despite having been served a demand letter at his office, petitioner still
failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt as
required under Article 2060 of the Civil Code. Such failure on petitioners part forecloses his right
to set up the defense of excussion.
Worthy of note as well is the Sheriffs return stating that the only property of Macrogen Realty
which he found was its deposit of P20,242.23 with the Planters Bank.
Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing
the defense of excussion. We quote:
Art. 2059. This excussion shall not take place:
xxxx
(5) If it may be presumed that an execution on the property of the principal debtor would not result
in the satisfaction of the obligation.
As the Court of Appeals correctly ruled:
We find untenable the claim that the Bitanga cannot be compelled to pay Pyramid because the
Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had not genuinely
controverted the return made by Sheriff Bisnar, who affirmed that, after exerting diligent efforts, he
was not able to locate any property belonging to the Macrogen Realty, except for a bank deposit
with the Planters Bank at Buendia, in the amount of P20,242.23. It is axiomatic that the liability of
the guarantor arises when the insolvency or inability of the debtor to pay the amount of debt is
proven by the return of the writ of execution that had not been unsatisfied
 GATEWAY ELECTRONICS and GERONIMO VS. ASIANBANK
G.R. No. 172041
DECEMBER 18, 2008
FACTS: Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that
used to be engaged in the semi-conductor business. During the period material, petitioner
Geronimo delos Reyes was its president and one Andrew delos Reyes its executive vice-
president. On July 23, 1996, Geronimo and Andrew executed separate but almost identical deeds
of suretyship for Gateway in favor of respondent Asianbank for Domestic Bills Purchased Line
and the Omnibus Credit Line.
Later developments saw Asianbank extending to Gateway several export packing loans .This loan
package was later consolidated with A Dollar Promissory Note (and secured by a chattel mortgage
over Gateways equipment.
Gateway initially made payments on its loan obligations, but eventually defaulted. Upon Gateways
request, Asianbank extended the maturity dates of the loan several times. These extensions bore
the conformity of three of Gateways officers, among them Andrew.
Gateway issued two Philippine Commercial International Bank checks as payment for its
arrearages and but both checks were dishonored for insufficiency of funds. Asianbanks demands
for payment made upon Gateway and its sureties went unheeded. As of November 23, 1999,
Gateways obligation to Asianbank, inclusive of principal, interest, and penalties, totaled USD
2,235,452.17.
Thus Asianbank filed with the RTC in Makati City a complaint for a sum of money against
Gateway, Geronimo, and Andrew.
In its answer to the amended complaint, Gateway traced the cause of its financial difficulties,
described the steps it had taken to address its mounting problem, and faulted Asianbank for trying
to undermine its efforts toward recovery.
Andrew also filed an answer alleging, among other things, that the deed of suretyship he executed
covering the Domestic Bills Purchased Line and the Omnibus Credit Line did NOT include the
Dollar Promissory Note, the payment of which was extended several times without his consent.
Geronimo, on the other hand, alleged that the subject deed of suretyship, assuming the
authenticity of his signature on it, was signed without his wifes consent and should, thus, be
considered as a mere continuing offer. Like Andrew, Geronimo argued that he ought to be relieved
of his liability under the surety agreement inasmuch as he too never consented to the repeated
loan maturity date extensions given by Asianbank to Gateway.
After due hearing, the RTC rendered judgment holding Gateway, Geronimo and Andrew jointly
and severally liable to pay Asianbank.
Petitioners herein appealed to the CA. Following the filing of its and Geronimos joint appellants
brief, Gateway filed on a petition for voluntary insolvency6 with the RTC in Imus, Cavite, which was
granted. CA affirmed the decision of the lower court. MR denied, hence this petition for review
under Rule 45.
ISSUE: Is Geronimo discharged from liability because of the insolvency of Gateway, the principal?
HELD: petition denied
NO
Asianbank argues that the stay of the collection suit against Gateway (because its case is
transferred to an insolvency court) is without bearing on the liability of Geronimo as a surety.
Pursuing the point, Asianbank avers that Geronimo may not invoke the insolvency of Gateway as
a defense to evade liability.
Geronimo counters with the argument that his liability as a surety cannot be separated from
Gateways liability. As surety, he continues, he is entitled to avail himself of all the defenses
pertaining to Gateway, including its insolvency, suggesting that if Gateway is eventually released
from what it owes Asianbank, he, too, should also be so relieved.
Geronimos above contention is untenable.
Suretyship is covered by Article 2047 of the Civil Code, which states:
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.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship.
The Courts disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus:
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.
A suretyship is an undertaking that the debt shall be paid x x x. Stated differently, a surety
promises to pay the principals debt if the principal will not pay, while a guarantor agrees that the
creditor, after proceeding against the principal, may proceed against the guarantor if the principal
is unable to pay. A surety binds himself to perform if the principal does not, without regard to his
ability to do so. x x xIn other words, a surety undertakes directly for the payment and is so
responsible at once if the principal debtor makes default.
x x x.x x x x
A creditors right to proceed against the surety exists independently of his right to proceed
against the principal.Under Article 1216 of the Civil Code, the creditor may proceed against any
one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the
obligation is joint and several, the creditor has the right to proceed even against the surety
alone.
A Suretyship contract refers to an agreement whereunder one person, the surety, engages to be
answerable for the debt, default, or miscarriage of another known as the principal.
Geronimos position that a surety cannot be made to pay when the principal is unable to pay is
clearly specious and must be rejected.