CASTELLVI DE HIGGINS VS. SELLNER
PICZON
41 PHIL. 142
MALCOLM, J.
Facts
This is an action brought by plaintiffs to recover from
defendant the sum of P10,000. The brief decision of the trial
court held that the suit was premature, and absolved the
defendant from the complaint, with the costs against the
plaintiffs. Sellner wrote;
…I will, within fifteen days after notice of such default, pay
you in cash the sum of P10,000 and interest upon your
surrendering to me the three thousand shares of stock of the
Keystone Mining Co. held by you as security for the payment
of said note.
Issue
Determination of defendant's status in the transaction referred
to. Plaintiffs contend that he is a surety; defendant contends
that he is a guarantor. Plaintiffs also admit that if defendant is
a guarantor, articles 1830, 1831, and 1834 of the Civil Code
govern.
Held
The points of difference between a surety and a guarantor are
familiar to American authorities. A surety and a guarantor are
alike in that each promises to answer for the debt or default of
another. A surety and a guarantor are unlike in that the surety
assumes liability as a regular party to the undertaking, while
the liability as a regular party to upon an independent
agreement to pay the obligation if the primary pay or fails to
do so. A surety is charged as an original promissory; the
engagement of the guarantor is a collateral undertaking. The
obligation of the surety is primary; the obligation of the
guarantor is secondary.
It is perfectly clear that the obligation assumed by defendant
was simply that of a guarantor, or, to be more precise, of the
fiador whose responsibility is fixed in the Civil Code. The
letter of Mr. Sellner recites that if the promissory note is not
paid at maturity, then, within fifteen days after notice of such
default and upon surrender to him of the three thousand shares
of Keystone Mining Company stock, he will assume
responsibility. Sellner is not bound with the principals by the
same instrument executed at the same time and on the same
consideration, but his responsibility is a secondary one found
in an independent collateral agreement, Neither is Sellner
jointly and severally liable with the principal debtors.
PICZON VS.
61 SCRA 67 (1974)
BARREDO, J.
Facts
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.
Issue:
Whether or not Esteban was only a guarantor and not a surety.
Ruling
Under the terms of the contract, Annex A, Esteban Piczon
expressly bound himself only as guarantor, and there are no
circumstances in the record from which it can be deduced that
his liability could be that of a surety. A guaranty must be
express, (Article 2055, Civil Code) and it would be violative
of the law to consider a party to be bound as a surety when the
very word used in the agreement is "guarantor
MUNICIPALITY OF GASAN VS. MARASIGAN DINO VS. CA

63 PHIL. 51 216 SCRA 9 (1992)

DIAZ, J.
PUNO, J.
Facts
Facts
This is an action brought by the municipality of Gasan of the
Province of Marinduque, against Miguel Marasigan, Angel R.
Sevilla and Gonzalo L. Luna, to recover from them the sum of
P3,780, alleging that it forms a part of the license fees which Issue
Miguel Marasigan failed to pay for the privilege granted him
of gathering whitefish spawn (semillas de bañgus) in the
Ruling
jurisdictional waters of the plaintiff municipality during the
period from January 1, 1931, to December 31 of said year.

Error raised by the Defendant-Sureties; The court a quo erred

in not absolving the defendants Angel R. Sevilla and Gonzalo
L. Luna, sureties of the defendant Miguel Marasigan,
notwithstanding the fact that resolution No. 161, by virtue of
which said defendant subscribed the bond Exhibit B of the
complaint, had been declared null and void by the provincial
board and by the Executive Bureau.

Issue: Whether or not a suretyship exist

Ruling:

In either case, it is a fact that, said contract ceased to have life

or force to bind each of the contracting parties. It ceased to be
valid from the time it was cancelled and this being so, neither
the appellant Marasigan nor his sureties or the appellants were
bound to comply with the terms of their respective contracts of
fishing privilege and suretyship. This is so, particularly with
respect to the sureties-appellants, because suretyship cannot
exist without a valid obligation (art. 1824 of the Civil Code).
The obligation whose compliance by the appellant Marasigan
was guaranteed by the sureties-appellants, was exclusively
that appearing in Exhibit A, which should begin on January 1,
1931, not on the 14th of said month and year, and end on
December 31st next. They intervened in no other subsequent
contract which the plaintiff and Miguel Marasigan might have
entered into on or after January 14, 1931. Guaranty is not,
presume; it must be expressed and cannot be extended beyond
its specified limits (art. 1827 of the Civil Code). Therefore,
after eliminating the obligation for which said sureties-
appellants desired to answer with their bond, the bond
necessarily ceased and it ceases to have effects. Consequently,
said errors I and III are true and well founded.
PASTORAL VS. MUTUAL SECURITY INSURANCE
14 SCRA 1011
REYES, JBL.
Facts
It appears that on and from October 1, 1957, plaintiff Pedro C.
Pastoral leased a crane to defendant Mapada & Company, Inc.,
at a monthly rental of P900.00, Exhibit A. The contract
provides that if the crane be not returned 10 days after notice
therefor, defendant will pay plaintiff P15,000, as the value of
the crane. In compliance with paragraph 2(b) of Exhibit A,
defendant on October 22, 1957, put up a surety bond, Exhibit
B, in the total amount of P15,000 executed by appellant
Mutual Security Insurance Corporation to fully and faithfully
guarantee compliance by defendant of "all the conditions and
obligations" under the lease contract.
The surety company appealed, urging that the trial court erred
in not holding that it was released from liability under the
surety bond which had become null and void from the failure
of plaintiff to report within five days to appellant the violation
of the lease contract.
Issue
Ruling
This Court has ruled that where the guaranty requires action
by the creditor before the obligation becomes fixed, it is not
binding until accepted (National Bank vs. Garcia, 47 Phil. 63;
Texas Co. [Phil.] Inc. vs. Alonzo, 73 Phil. 90). The rule is
grounded on common sense; otherwise, the debtor and the
guarantor could easily defraud the creditor by inserting in the
bond conditions that would render it nugatory.
inquire, since his assent to the condition was necessary; and if
no acceptable bond was forthcoming, he could always rescind
the lease of the machinery to Mapada & Co., Inc., and recover
his crane.
The Court of Appeals further held that the act of Pastoral in
granting to the debtor on October 31, 1957 time up to the end
of November, 1957 to pay the rentals that fell due on the first
five days of October and November, without the surety's
consent, constituted a material alteration that discharged the
surety. We agree with appellant that this view is untenable.
When Pastoral agreed on October 31 that the October and
November rentals be paid at the end of November, he had not
yet learned of them on November 21. On the latter date, the
debtor was not yet in default, because the extension given had
wiped out the previous failures to pay on October 5 and
November 5. The first default after the bond had become
effective in law (on November 21) occurred on the last day of
November, and Pastoral gave notice thereof to the surety on
the 5th day of December, within the five-day period prescribed
by the bond.
A contract of guaranty or suretyship is only prospective, and
not retroactive in operation (Socony Vacuum, Corp. vs.
Miraflores, 67 Phil. 304; El Venceder vs. Canlas, 44 Phil. 699;
Asiastic Petroleum Co. vs. De Pio, 46 Phil. 167), unless a
contrary intent is clearly shown. Consequently, Pastoral, was
entitled to assume that the notice provided by the surety bond
did not, and was not intended to include any defaults incurred
prior to his acceptance. The surety, which drafted the bond,
could have expressly provided, if it so chose, that the five-day
notice therein provided should extend to the amounts of falling
due on October 5 and November 5, but the surety failed to do
so, and cannot blame Pastoral therefor.

The suretyship contract, therefore, was not perfected and was

not binding on Pastoral until November 21, 1957, when he
received copy thereof and tacitly accepted it. By then two
defaults had already occurred (even disregarding the extension
agreement of October 31, hereinafter discussed); and Pastoral
was in no position to give notice of them within 5 days after
default, as required by the bond, because the latest happened
on November 5. The 5-day period to notify expired November
10, and Pastoral only learned of the existence of the condition
on November 21. Ad impossibilia nemor tenetur. In fact, by
not notifying Pastoral earlier, the surety must be deemed to
have waived the condition as to rentals already due, since a
condition is deemed fulfilled when the obligor voluntarily
prevents its fulfillment (Civ. Code, Art. 1186).

The Court of Appeals held that Pastoral was duty-bound to

know and secure copy of the surety contract within a
reasonable time from its execution on October 22, 1957, and
that not having done so, he was chargeable with its contents.
We find no justification for this pronouncement. If anyone was
obligated to notify Pastoral of the conditions attached to the
bond, that one was the guarantor. Pastoral was not obligated to
WISE & CO. VS. TANGLAO BABST. VS. CA,

62 PHIL. 372 G.R. NO. 99398, January 26, 2001

AVANCENA, C.J. YNARES-SANTIAGO, J.

Facts In the Court of First Instance of Manila, Wise & Co. Facts
instituted civil case No. 41129 against Cornelio C. David for
the recovery of a certain sum of money David was an agent of Issue
Wise & Co. and the amount claimed from him was the result
of a liquidation of accounts showing that he was indebted in Ruling
said amount. In said case Wise & Co. asked and obtained a
preliminary attachment of David's property. To avoid the
execution of said attachment, David succeeded in having his BPI gives no cogent reason in withholding its consent to the
Attorney Tanglao execute on January 16, 1932, a power of substitution, other than its desire to preserve its causes of
attorney (Exhibit A) in his favor, with the following clause: action and legal recourse against the sureties of ELISCON. It
must be remembered, however, that while a surety is
solidarily liable with the principal debtor, his obligation to
To sign for me as guarantor for himself in his pay only arises upon the principal debtor’s failure or
indebtedness to Wise & Company of Manila, which refusal to pay. A contract of surety is an accessory promise
indebtedness appears in civil case No. 41129, of the by which a person binds himself for another already
Court of First Instance of Manila, and to mortgage bound, and agrees with the creditor to satisfy the
my lot (No. 517-F of the subdivision plan Psd-20, obligation if the debtor does not. [] A surety is an insurer of
being a portion of lot No. 517 of the cadastral survey the debt; he promises to pay the principal’s debt if the
of Angeles, G. L. R. O. Cad. Rec. No. 124), to principal will not pay.
guarantee the said obligations to the Wise &
Company, Inc., of Manila.
In the case at bar, there was no indication that the principal
debtor will default in payment. In fact, DBP, which had
Issue stepped into the shoes of ELISCON, was capable of payment.
Its authorized capital stock was increased by the government.
Ruling [39] More importantly, the National Development Company
took over the business of ELISCON and undertook to pay
There is no doubt that under Exhibit, A, Tanglao empowered ELISCON’s creditors, and earmarked for that purpose the
David, in his name, to enter into a contract of suretyship and a amount of P4,015,534.54 for payment to BPI.[40]
contract of mortgage of the property described in the
document, with Wise & Co. However, David used said power
of attorney only to mortgage the property and did not enter
into contract of suretyship. Nothing is stated in Exhibit B to
the effect that Tanglao became David's surety for the payment
of the sum in question. Neither is this inferable from any of
the clauses thereof, and even if this inference might be made,
it would be insufficient to create an obligation of suretyship
which, under the law, must be express and cannot be
presumed.

It appears from the foregoing that defendant, Tanglao could

not have contracted any personal responsibility for the
payment of the sum of P640. The only obligation which
Exhibit B, in connection with Exhibit A, has created on the
part of Tanglao, is that resulting from the mortgage of a
property belonging to him to secure the payment of said P640.
However, a foreclosure suit is not instituted in this case
against Tanglao, but a purely personal action for the recovery
of the amount still owed by David.
PALMARES VS. CA
G.R. NO. 126490, March 31, 1998
REGALADO, J.
Facts
Issue
Ruling
The Civil Code pertinently provides:
Art. 2047. 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.
It is a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulation shall control. 13 In the case at bar, petitioner
expressly bound herself to be jointly and severally or
solidarily liable with the principal maker of the note. The
terms of the contract are clear, explicit and unequivocal that
petitioner's liability is that of a surety.
A surety is an insurer of the debt, whereas a guarantor is an
insurer of the solvency of the debtor. 17 A suretyship is an
undertaking that the debt shall be paid; a guaranty, an
undertaking that the debtor shall pay. 18 Stated differently, a
surety promises to pay the principal's 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. 19 A surety binds
himself to perform if the principal does not, without regard to
his ability to do so. A guarantor, on the other hand, does not
contract that the principal will pay, but simply that he is able
to do so. 20 In other words, a surety undertakes directly for the
payment and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by the use
of due diligence, the debt cannot be made out of the principal
debtor. 21
In this regard, we need only to reiterate the rule that a surety is
bound equally and absolutely with the principal, 26 and as such
is deemed an original promisor and debtor from the beginning.
27
This is because in suretyship there is but one contract, and
the surety is bound by the same agreement which binds the
principal. 28 In essence, the contract of a surety starts with the
agreement, 29 which is precisely the situation obtaining in this
case before the Court.

Her pretension that the terms "jointly and severally or

solidarily liable" contained in the second paragraph of her
contract are technical and legal terms which could not be
easily understood by an ordinary layman like her is
diametrically opposed to her manifestation in the contract that
she "fully understood the contents" of the promissory note and
that she is "fully aware" of her solidary liability with the
principal maker. Petitioner admits that she voluntarily affixed
her signature thereto; ergo, she cannot now be heard to claim
otherwise. Any reference to the existence of fraud is
unavailing. Fraud must be established by clear and convincing
evidence, mere preponderance of evidence not even being
adequate. Petitioner's attempt to prove fraud must, therefore,
fail as it was evidenced only by her own uncorroborated and,
expectedly, self-serving allegations. 14

Having entered into the contract with full knowledge of its

terms and conditions, petitioner is estopped to assert that she
did so under a misapprehension or in ignorance of their legal
effect, or as to the legal effect of the undertaking. 15 The rule
that ignorance of the contents of an instrument does not
ordinarily affect the liability of one who signs it also applies to
contracts of suretyship. And the mistake of a surety as to the
legal effect of her obligation is ordinarily no reason for
relieving her of liability. 16
BAYLON VS. CA the principal debtor before assuming to run after the
alleged guarantor.
G.R. NO. 10994 August 17, 1999

GONZAGA-REYES, J.

Facts

Issue

Ruling

It is petitioner's contention that, even though she is held

to be a guarantor under the terms of the promissory note,
she is not liable because private respondent did not
exhaust the property of the principal debtor and has not
resorted to all the legal remedies provided by the law
against the debtor. Petitioner is invoking the benefit of
excussion pursuant to article 2058 of the Civil Code,
which provides that -

The guarantor cannot be compelled to pay the creditor

unless the latter has exhausted all the property of the
debtor, and has resorted to all the legal remedies against
the debtor.

It is axiomatic that the liability of the guarantor is only

subsidiary. All the properties of the principal debtor must
first be exhausted before his own is levied upon. Thus,
the creditor may hold the guarantor liable only after
judgment has been obtained against the principal debtor
and the latter is unable to pay, “for obviously the
‘exhaustion of the principal’s property’ - the benefit of
which the guarantor claims - cannot even begin to take
place before judgment has been obtained.” This rule is
embodied in article 2062 of the Civil Code which
provides that the action brought by the creditor must be
filed against the principal debtor alone, except in some
instances when the action may be brought against both
the debtor and the principal debtor.

Under the circumstances availing in the present case, we

hold that it is premature for this Court to even determine
whether or not petitioner is liable as a guarantor and
whether she is entitled to the concomitant rights as such,
like the benefit of excussion, since the most basic
prerequisite is wanting - that is, no judgment was first
obtained against the principal debtor Rosita B. Luanzon.
It is useless to speak of a guarantor when no debtor has
been held liable for the obligation which is allegedly
secured by such guarantee. Although the principal
debtor Luanzon was impleaded as defendant, there is
nothing in the records to show that summons was served
upon her. Thus, the trial court never even acquired
jurisdiction over the principal debtor. We hold that
private respondent must first obtain a judgment against