Eduardo Fajardo

11690232

BPI vs. Intermediate Appellate Court

GR No. L-66826, August 19, 1988
Facts:
Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso
current account. An application for a dollar drat was accomplished by Virgillo Garcia branch manager
of COMTRUST payable to a certain Leovigilda Dizon. In the PPLICtion, Garcia indicated that the
amount was to be charged to the dolar savings account of the Zshornacks. There wasa no indication
of the name of the purchaser of the dollar draft. Comtrust issued a check payable to the order of
Dizon. When Zshornack noticed the withdrawal from his account, he demanded an explainaiton from
the bank. In its answer, Comtrust claimed that the peso value of the withdrawal was given to Atty.
Ernesto Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashier’s check for
P8450 issued by the manila banking corporation payable to Ernesto.
Issue:
Whether the contract between petitioner and respondent bank is a deposit?
Held:
The document which embodies the contract states that the US$3,000.00 was received by the bank for
safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for
the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack
demanded the return of the money on May 10, 1976, or over five months later.
The above arrangement is that contract defined under Article 1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another,
with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Chan V. Maceda
GR No. 142591
Bonifacio Maceda, respondent, obtained a loan of 7.3mphp from the DBP to construct the New Gran
Hotel project in Tacloban. Then Respondent entered into a building construction contract with
Moreman Builders Co. Inc., (Builders). They agreed that the construction would be finished not later
than Dec 22, 1977.
Maceda purchased various contruction materials and equipment in Manila. Builders then deposted the
materials in the warehouse of Petitioners Chan, which the deposit was free.
Unfortunately Builders failed to finish in time, where respondents sued the former for rescission and
damages, and during the pendency of the case, Respondent ordered Petitioners to return the
materials which Builders left in their warehouse but the Petitioners said Builders withdrew the
materials a year before the suit was brought.
Respondents brought suit for damages.
Issues:
WON A contract of deposit had existed between the parties
Held:
Article 1311 of the NCC, contracts are binding between the parties who execute them. Parties not
privy to the contract creates no obligations or liabilities to speak of.
In an action of deposit, the burden of proof is on the plaintiff to prove the bailment or deposit. A
depositary is obliged to return the thing to the depositor, or to his heirs or successors, etc.
The record is bereft of any Contract of deposit, in any form between the petitioner and the respondent.
Actually, the contract of deposit was between Builders and Petitioners. And the Respondents held the
burden of proof proving that such contract actually existed, which they failed to do.
Also, respondent failed to actually prove that there were any construction materials and equipment in
the petitioners’ warehouse when demand was made.
Since the Respondents failed to prove the existence of the contract of deposit, and the existence of
construction materials in the warehouse of the petitioners, no liability exists on the part of petitioners.

TRIPLE-V FOOD SERVICES INC. vs. FILIPINO MERCHANTS INSURANCECOMPANY

GR. No. 160554
FACTS:
Mary Jo-Anne De Asis dined at petitioner's Kamayan Restaurant. De Asis was using a Mitsubishi
Galant Super Saloon Model 1995 issued by her employer Crispa Textile Inc. On said date, De Asis
availed of the valet parking service of petitioner and entrusted her car key to petitioner's valet counter.
Afterwards, a certain Madridano, valet attendant, noticed that the car was not in its parking slot and its
key no longer in the box where valet attendants usually keep the keys of cars entrusted to them. The
car was never recovered.
Thereafter, Crispa filed a claim against its insurer, herein respondent Filipino Merchants Insurance
Company, Inc. Having indemnified Crispa for the loss of the subject vehicle, FMICI, as subrogee to
Crispa's rights, filed with the RTC at Makati City an action for damages against petitioner Triple-V
Food Services, Inc.
Petitioner claimed that the complaint failed to adduce facts to support the allegations of recklessness
and negligence committed in the safekeeping and custody of the subject vehicle. Besides, when De
Asis availed the free parking stab which contained a waiver of petitioner’s liability in case of loss, she
had thereby waived her rights.

ISSUE:
Whether or not petitioner Triple-V Food Services, Inc. is liable for the loss.
HELD:
The Supreme Court ruled in the affirmative. In a contract of deposit, a person receives an object
belonging to another with the obligation of safely keeping it and returning the same.
A deposit may be constituted even without any consideration. It is not necessary that the depositary
receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it
later to the depositor. Petitioner cannot evade liability by arguing that neither a contract of deposit nor
that of insurance, guaranty or surety for the loss of the car was constituted when De Asis availed of its
free valet parking service.

THE ROMAN CATHOLIC BISHOP OF JARO, vs. GREGORIO DE LA PEÑA,

G.R. No. L-6913
Facts:
In 1898 Fr. De la Peña assigned as trustee of the sum of P6,641, collected by him for the charitable
purposes he deposited in his personal account P19,000 in the Hong-kong and Shanghai Bank at Iloilo.
During the war of the revolution, Father De la Peña was arrested by the military authorities as a
political prisoner. The arrest of Father De la Peña and the confiscation of the funds in the bank were
the result of the claim of the military authorities that he was an insurgent and that the funds deposited
had been collected by him is for revolutionary purposes. The money was taken from the bank by the
military authorities by virtue of such order, was confiscated and turned over to the Government.
Issue:
Whether or not Father De la Peña is liable for the loss of the funds?
Held:
No, he is not liable because there is no negligent act on the part of Fr. De la Peña. It was so happened
that during that time the money was taken from him by the U.S. military forces which is unforeseen
event. Although the Civil Code states that “a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family”, it also provides, following the
principle of the Roman law that “no one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the exception of the cases expressly mentioned in
the law or those in which the obligation so declares.”

CA Agro-Industrial vs CA,
G.R. No. 90027
Facts
Petitioner (through its President) purchased 2 parcels of land from spouses Pugao for P350 K with a
downpayment of P75 K. Per agreement, the land titles will be transferred upon full payment and will be
placed ina safety deposit box (SBDB) of any bank. Moreover, the same could be withdrawn only upon
the joint signatures of a representative of the Petitioner and the Pugaos upon full payment of the
purchase price.
Thereafter, Petitioner and spouses placed the titles in SDB of Respondent Security Bankand signed a
lease contract which substantially states that the Bank will not assume liability for the contents of the
SDB. Subsequently, 2 renter's keys were given to the renters — one to the Petitioner and the other to
the Pugaos. A guard key remained in the possession of the Respondent Bank. The SDB can only be
opened using these 2 keys simultaneously.
Afterwards, a certain Mrs. Ramos offered to buy from the Petitioner the 2 lots that would yield a profit
of P285K. Mrs. Ramos demanded the execution of a deed of sale which necessarily entailed the
production of the certificates of title. Thus, Petitioner with the spouses went to Respondent Bank to
retrieve the titles. However, when opened in the presence of the Bank's representative, the SDB
yielded nosuch certificates. Because of the delay in the reconstitution of the title, Mrs. Ramos
withdrew her earlier offer to purchase the lots; as a consequence, the Petitioner allegedly failed to
realize the expected profit of P285K. Hence, Petitioner filed a complaint for damages against
Respondent Bank.
Lower courts ruled in favour of Respondent Bank. Thus, this petition.
Issues:
1. Whether or not the disputed contract is an ordinary contract of lease?
2. Whether or not the provisions of the cited contract are valid?
Held:
1. No. SC ruled that it is a special kind of deposit because the full and absolute possession and control
of the SDB was not given to the joint renters — the Petitioner and the Pugaos. The guard key of the
box remained with the Respondent Bank; without this key, neither of the renters could open the box
and vice versa. In this case, the said key had a duplicate which was made so that both renters could
have access to the box. Moreover, the renting out of the SDBs is not independent from, but related to
or in conjunction with, the principal function of a contract of deposit the receiving in custody of funds,
documents and other valuable objects for safekeeping.
2. NO. SC opined that it is void. Generally, the Civil Code provides that the depositary (Respondent
Bank) would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. In the absence of any stipulation, the diligence of a good
father of a family is to be observed. Hence, any stipulation exempting the depositary from any liability
arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for
being contrary to law and public policy (which is present in the disputed contract) Said provisions are
inconsistent with the Respondent Bank's responsibility as a depositary under Section 72(a) of the
General Banking Act

YHT Realty v. CA
FACTS:
Respondent McLoughlin would stay at Tropicana Hotel every time he is here in the Philippines and
would rent a safety deposit box. The safety deposit box could only be opened through the use of 2
keys, one of which is given to the registered guest, and the other remaining in the possession of the
management of the hotel. McLoughlin allegedly placed the following in his safety deposit box –
2envelopes containing US Dollars, one envelope containing Australian Dollars, Letters, credit cards,
bankbooks and a checkbook.
When he went abroad, a few dollars were missing and the jewelry he bought was likewise missing.
Eventually, he confronted Lainez and Paiyam who admitted that Tan opened the safety deposit box
with the key assigned to him. McLoughlin went up to his room where Tan was staying and confronted
her. Tan admitted that she had stolen McLouglin’s key and was able to open the safety deposit box
with the assistance of Lopez, Paiyam and Lainez. Lopez also told McLoughlin that Tan stole the key
assigned to McLouglin while the latter was asleep.
McLoughlin insisted that it must be the hotel who must assume responsibility for the loss
he suffered. Lopez refused to accept responsibility relying on the conditions for renting the
safety deposit box entitled “Undertaking For the Use of Safety Deposit Box”
ISSUE:
WON the hotel’s undertaking is valid?
HELD:
No, Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to
apply to situations such as that presented in this case. The hotel business like the common
carrier’s business is imbued with public interest. Catering to the public, hotelkeepers are bound
to provide not only lodging for hotel guests and security to their persons and belongings. The twin duty
constitutes the essence of the business. The law in turn does not allow such duty to the public to be
negated or diluted by any contrary stipulation in so-called “undertakings” that ordinarily appear in
prepared forms imposed by hotel keepers on guests for their signature.
Paragraphs (2) and (4) of the “undertaking” manifestly contravene Article 2003,CC for they allow
Tropicana to be released from liability arising from any loss in the contents and/or use of the safety
deposit box for any cause whatsoever. Evidently, the undertaking was intended to bar any claim
against Tropicana for any loss of the contents of the safety deposit box whether or not negligence
was incurred by Tropicana or its employees.

PNB v. PRES. JUDGE BENITO C. SE,

GR No. 119231
Facts:
In accordance with Act No. 2137, the Warehouse Receipts Law, Noah's Ark Sugar Refinery issued on
several dates, the following Warehouse Receipts (Quedans):
(a) March 1, 1989, Receipt No. 18062, covering sugar deposited by Rosa Sy;
(b) March 7, 1989, Receipt No. 18080, covering sugar deposited by RNS Merchandising (Rosa Ng
Sy);
(c) March 21, 1989, Receipt No. 18081, covering sugar deposited by St. Therese Merchandising;
(d)March 31, 1989, Receipt No. 18086, covering sugar deposited by St. Therese Merchandising;
and (e) April 1, 1989, Receipt No. 18087, covering sugar deposited by RNS Merchandising.
Subsequently, Warehouse Receipts Nos. 18080 and 18081 were negotiated and endorsed to Luis T.
Ramos; and Receipts Nos. 18086, 18087 and 18062 were negotiated and endorsed to Cresencia K.
Zoleta. Ramos and Zoleta then used the quedans as security for two loan agreements - one for P15.6
million and the other for P23.5 million - obtained by them from the Philippine National Bank. The
aforementioned quedans were endorsed by them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay their loans upon maturity on January 9, 1990.
Consequently, on March 16, 1990, the Philippine National Bank wrote to Noah's Ark Sugar Refinery
demanding delivery of the sugar stocks covered by the quedans endorsed to it by
Zoleta and Ramos. Noah's Ark Sugar Refinery refused to comply with the demand alleging ownership
thereof... the Philippine National Bank filed with the Regional Trial Court of Manila a verified complaint
for "Specific Performance with Damages and Application for a Writ of Attachment
On January 31, 1991, the Philippine National Bank filed a Motion for Summary Judgment/ On May 2,
1991, the Regional Trial Court issued an order denying the Motion for Summary Judgment. The
Philippine National Bank filed a Petition for Certiorari with the Court of Appeals.
On December 13, 1991, the Court of Appeals nullified and set aside the orders of May 2 and July 4,
1990 of the Regional Trial Court and ordered the trial court to render summary judgment in favor of the
PNB. On June 18, 1992, the trial court rendered judgment dismissing... plaintiffs complaint against
private respondents for lack of cause of action and likewise dismissed private respondents'
counterclaim against PNB and of the Third-Party Complaint and the Third-Party Defendant's
Counterclaim. On September 4, 1992, the trial court denied PNB's
Motion for Reconsideration.
Private respondents thereupon filed before the trial court an Omnibus Motion seeking among others
the deferment of the proceedings until private respondents are heard on their claim for
warehouseman's lien.
Issues:
Can the warehouseman enforce his warehouseman's lien before delivering the sugar stocks as
ordered by the Court of Appeals or need he file a separate action to enforce payment of storage fees?
Held:
Petitioner's submission is on a technicality, that is, that private respondents have lost their right to
recover warehouseman's lien on the sugar stocks covered by the five (5) Warehouse Receipts for the
reason that they failed to set up said claim in their Answer before the... trial court... private
respondents maintain that they could not have claimed the right to a warehouseman' s lien in their
Answer to the complaint before the trial court as it would have been inconsistent with their stand that
they claim ownership of the stocks covered by the Quedans since the checks issued for payment
thereof were dishonored. If they were still the owners, it would have been absurd for them to ask
payment for storage fees and preservation expenses.
Of considerable relevance is the pertinent stipulation in the subject Warehouse Receipts which
provides for respondent Noah's Ark's right to impose and collect warehouseman's lien: "Storage of the
refined sugar quantities mentioned herein shall be free up to one (1) week from the date of the
Quedans covering said sugar and thereafter, storage fees shall be charged in accordance with the
Refining Contract under which the refined sugar covered by this Quedan was produced. Accordingly,
petitioner PNB is legally bound to stand by the express terms and conditions on the face of the
Warehouse Receipts as to the payment of storage fees.
Even in the absence of such a... provision, law and equity dictate the payment of the warehouseman' s
lien pursuant to Sections 27 and 31 of the Warehouse Receipts Law (R.A. 2137), to wit:
SECTION 27. What claims are included in the warehouseman's lien. - Subject to the provisions of
section thirty, a warehouseman shall have lien on goods deposited or on the proceeds thereof in his
hands, for all lawful charges for storage and preservation of the... goods; also for all lawful claims for
money advanced, interest, insurance, transportation, labor, weighing coopering and other charges and
expenses in relation to such goods; also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the... goods where default has been made in satisfying the
warehouseman's lien.
SECTION 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien
valid against the person demanding the goods may refuse to deliver the goods to him until the lien is
satisfied."
Considering that petitioner does not deny the existence, validity and genuineness of the Warehouse
Receipts on which it anchors its claim for payment against private respondents, it cannot disclaim
liability for the payment of the storage fees stipulated therein. As contracts, the receipts must be
respected by authority of Article 1159 of the Civil Code, to wit:
"ART. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith."
Principles:
While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because,
in accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon
goods by surrendering possession thereof. In other words, the lien may be lost where the
warehouseman surrenders the possession of the goods without requiring payment of his lien, because
a warehouseman's lien is possessory in nature.

Bank of America NT & SA v Court of Appeals and Francisco et. al

G.R. No. 105395
Facts:
Bank of America received an Irrevocable Letter of Credit issued by Bank of Ayudhya for the Account
of General Chemicals Ltd., Inc. for the sale of plastic ropes and agricultural files. Under the letter of
credit, Bank of America acted as an advising bank and Inter-Resin Industrial Corp. (IR) acted as the
beneficiary. Upon receipt of the letter advice, Inter- Resin told Bank of America to confirm the letter of
credit. Notwithstanding such instruction, Bank of America failed to confirm the letter of credit. Inter-
Resin made a partial availment of the Letter of Credit after presentment of the required documents to
Bank of America. After confirmation of all the documents Bank of America issued a check in favor of
IR. BA advised Bank of Ayudhya of IR’s availment under the letter of credit and asked for the
corresponding reimbursement. IR presented documents for the second availment under the same
letter of credit. However, BA stopped the processing of such after they received a telex from Bank of
Ayudhya delaring that the LC fraudulent. BA sued IR for the recovery of the first LC payment.
The IR contended that Bank of America should have first checked the authenticity of the letter of credit
with bank of Ayudhya

Issue:
Whether or not Bank of America may recover what it has paid under the letter of credit to Inter-Resin
Held:
May Bank of America then recover what it has paid under the letter of credit when the corresponding
draft
There would at least be three (3) parties:
(a) the buyer, who procures the letter of credit and obliges himself to reimburse the issuing bank
upon receipts of the documents of title;
(b) the bank issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft and
proper document of titles and to surrender the documents to the buyer upon reimbursement; and,
(c) the seller, who in compliance with the contract of sale ships the goods to the buyer and delivers the
documents of title and draft to the issuing bank to recover payment.
The services of an advising (notifying) bank may be utilized to convey to the seller the existence of the
credit; or, of a confirming bank 16 which will lend credence to the letter of credit issued by a lesser
known issuing bank; or, of a paying bank, which undertakes to encash the drafts drawn by the
exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may
approach another bank, termed the negotiating bank, 18 to have the draft discounted.

Bank of America has acted independently as a negotiating bank, thus saving Inter-Resin from the
hardship of presenting the documents directly to Bank of Ayudhya to recover payment. As a
negotiating bank, Bank of America has a right to recourse against the issuer bank and until
reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent
liability thereon.
Furthermore, bringing the letter of credit to the attention of the seller is the primordial obligation of an
advising bank. The view that Bank of America should have first checked the authenticity of the letter of
credit with bank of Ayudhya, by using advanced mode of business communications, before
dispatching the same to Inter-Resin finds no real support.

Transfield Philippines vs Luzon Hydro Electric Corp.

GR No 146717
Facts:
Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp.
(LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos.
Transfield was given the sole responsibility for the design, construction, commissioning, testing and
completion of the Project.
The contract provides for a period for which the project is to be completed and also allows for the
extension of the period provided that the extension is based on justifiable grounds such as fortuitous
event. In order to guarantee performance by Transfield, two stand-by letters of credit were required to
be opened. During the construction of the plant, Transfield requested for extension of time citing
typhoon and various disputes delaying the construction.
LHC did not give due course to the extension of the period prayed for but referred the matter to
arbitration committee. Because of the delay in the construction of the plant, LHC called on the stand-
by letters of credit because of default. However, the demand was objected by Transfield on the ground
that there is still pending arbitration on their request for extension of time.

Issue:
Whether or not LHC can collect from the letters of credit despite the pending arbitration case

Held:
Transfield’s argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence
would convert the letter of credit into a mere guarantee.
The independent nature of the letter of credit may be:
(a) independence in toto where the credit is independent from the justification aspect and is a separate
obligation from the underlying agreement like for instance a typical standby; or
(b) independence may be only as to the justification aspect like in a commercial letter of credit or
repayment standby, which is identical with the same obligations under the underlying agreement. In
both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the
credit would constitute fraudulent abuse of the credit.
Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the
settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter
of credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a
letter of credit is drawable only after settlement of the dispute on the contract entered into by the
applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in
commercial transactions.
The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and
the required documents are presented to it. The so-called “independence principle” assures the seller
or the beneficiary of prompt payment independent of any breach of the main contract and precludes
the issuing bank from determining whether the main contract is actually accomplished or not. Under
this principle, banks assume no liability or responsibility for the form, sufficiency, accuracy,
genuineness, falsification or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they assume any liability or
responsibility for the description, quantity, weight, quality, condition, packing, delivery, value or
existence of the goods represented by any documents, or for the good faith or acts and/or omissions,
solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any
other person whomsoever.

Colinares v CA
G.R. No. 90828
Facts:
Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of
P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latter’s convent at
Camaman-an, Cagayan de Oro City. Colinares applied for a commercial letter of credit with the
Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders
Centre. PBC approved the letter of credit for P22,389.80 to cover the full invoice value of the goods.
Petitioners signed a pro-forma trust receipt as security.
PBC debited P6,720 from Petitioners’ marginal deposit as partial payment of the loan. After the initial
payment, the spouses defaulted. PBC wrote to Petitioners demanding that the amount be paid within
seven days from notice. Instead of complying with PBC’s demand, Veloso confessed that they lost
P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June 1980
to settle the account. Colinares proposed that the terms of payment of the loan be modified P2,000
on or before 3 December 1980, and P1,000 per month . Pending approval of the proposal, Petitioners
paid P1,000 to PBC on 4 December 1980, and thereafter P500 on 11 February 1981, 16 March 1981,
and 20 April 1981. Concurrently with the separate demand for attorney’s fees by PBC’s legal counsel,
PBC continued to demand payment of the balance. On 14 January 1983, Petitioners were charged
with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal
Code
During trial, petitioner Veloso insisted that the transaction was a “clean loan” as per verbal guarantee
of Cayo Garcia Tuiza, PBC’s former manager. He and petitioner Colinares signed the documents
without reading the fine print, only learning of the trust receipt implication much later. When he brought
this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality. The
Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty
and abuse of confidence in the handling of money or goods to the prejudice of another regardless of
whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither
dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners
continually endeavored to meet their obligations, as shown by several receipts issued by PBC
acknowledging payment of the loan.
Issue:
Whether or not the transaction of Colinares falls within the ambit of the Law on Trust Receipt
Held:
Colinares received the merchandise from CM Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already transferred to Petitioners who were to use the materials
for their construction project. It was only a day later, 31 October 1979, that they went to the bank to
apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust
receipt transaction where goods are owned by the bank and only released to the importer in trust
subsequent to the grant of the loan.
The bank acquires a “security interest” in the goods as holder of a security title for the advances it had
made to the entrustee. The ownership of the merchandise continues to be vested in the person who
had advanced payment until he has been paid in full, or if the merchandise has already been sold, the
proceeds of the sale should be turned over to him by the importer or by his representative or
successor in interest. To secure that the bank shall be paid, it takes full title to the goods at the very
beginning and continues to hold that title as his indispensable security until the goods are sold and the
vendee is called upon to pay for them; hence, the importer has never owned the goods and is not able
to deliver possession. In a certain manner, trust receipts partake of the nature of a conditional sale
where the importer becomes absolute owner of the imported merchandise as soon as he has paid its
price. There are two possible situations in a trust receipt transaction. The first is covered by the
provision which refers to money received under the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to “return” it (devolvera) to the owner. Failure of
the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in accordance with the terms of the trust
receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of
proving intent to defraud.

Hur Tin Yang v. People of the Philippines

G.R. No. 195117
Facts:
Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction
business. On various occasions, Metropolitan Bank and Trust Company (Metrobank), extended
several commercial letters of credit (LCs) to Supermax. These commercial LCs were used by
Supermax to pay for the delivery of several construction materials which will be used in their
construction business. Thereafter, Metrobank required petitioner, as representative of Supermax, to
sign trust receipts as security for the construction materials and to hold those materials or the
proceeds of the sales in trust for Metrobank to the extent of the amount stated in the trust receipts.
When the trust receipts fell due and despite the receipt of a demand letter, Supermax failed to pay or
deliver the goods or proceeds to Metrobank. Instead, Supermax requested the restructuring of the
loan. When the intended restructuring of the loan did not materialize, Metrobank sent another demand
letter. As the demands fell on deaf ears, Metrobank, filed the instant criminal complaints against
petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts
were demanded by Metrobank as additional security for the loans extended to Supermax for the
purchase of construction equipment and materials.

In support of this argument, petitioner presented a witness who testified that the construction
materials covered by the trust receipts were delivered way before petitioner signed the corresponding
trust receipts. Further, petitioner argued that Metrobank knew all along that the construction materials
subject of the trust receipts were not intended for resale but for personal use of Supermax relating to
its construction business.
SC dismissed the Petition on the ground that the CA committed no reversible error in the assailed
decision. Hence, petitioner filed the present MR contending that the transactions between the parties
do not constitute trust receipt agreements but rather of simple loans.
Issue:
Whether or not petitioner is liable for Estafa under Art. 315, par. 1(b) of the RPC in relation to PD 115,
even if it was sufficiently proved that the entruster (Metrobank) knew beforehand that the goods
(construction materials) subject of the trust receipts were never intended to be sold but only for use in
the entrustee’s construction business.
Held:
In determining the nature of a contract, courts are not bound by the title or name given by the parties.
The decisive factor in evaluating such agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by their conduct, words, actions and deeds
prior to, during and immediately after executing the agreement. As such, therefore, documentary and
parol evidence may be submitted and admitted to prove such intention.
In the instant case, the factual findings of the trial and appellate courts reveal that the dealing between
petitioner and Metrobank was not a trust receipt transaction but one of simple loan. Petitioner’s
admission––that he signed the trust receipts on behalf of Supermax, which failed to pay the loan or
turn over the proceeds of the sale or the goods to Metrobank upon demand––does not conclusively
prove that the transaction was, indeed, a trust receipts transaction. In contrast to the nomenclature of
the transaction, the parties really intended a contract of loan.
In Ng v. People and Land Bank of the Philippines v. Perez, cases which are in all four corners the
same as the instant case––ruled that the fact that the entruster bank knew even before the execution
of the trust receipt agreements that the construction materials covered were never intended by the
entrustee for resale or for the manufacture of items to be sold is sufficient to prove that the transaction
was a simple loan and not a trust receipts transaction.
The petitioner was charged with Estafa committed in what is called, under PD 115, a "trust receipt
transaction.

A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the
price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There
are, therefore, two obligations in a trust receipt transaction: the first refers to money received under
the obligation involving the duty to turn it over (entregarla) to the owner of the merchandise sold, while
the second refers to the merchandise received under the obligation to "return" it (devolvera) to the
owner. A violation of any of these undertakings constitutes Estafa defined under Art. 315, par. 1(b) of
the RPC, as provided in Sec. 13 of PD 115.
Nonetheless, when both parties enter into an agreement knowing fully well that the return of the goods
subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a
trust receipt transaction penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the
RPC, as the only obligation actually agreed upon by the parties would be the return of the proceeds of
the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay
the bank the amount spent for the purchase of the goods.
Considering that the goods in this case were never intended for sale but for use in the fabrication of
steel communication towers, the trial court erred in ruling that the agreement is a trust receipt
transaction.

Sps Dela Cruz vs Planters Products Inc.

G.R. No. 158649
Facts:
Spouses Quirino V. Dela Cruz and Gloria Dela Cruz, petitioners herein, operated the Barangay
Agricultural Supply, an agricultural supply store in Aliaga, Nueva Ecija engaged in the distribution and
sale of fertilizers and agricultural chemical products, among others. At the time material to the case,
Quirino, a lawyer, was the Municipal Mayor of Aliaga, Nueva Ecija.
On March 23, 1978, Gloria applied for and was granted by respondent Planters Products, Inc. (PPI) a
regular credit line of P200,000.00 for a 60-day term, with trust receipts as collaterals. Quirino and
Gloria submitted a list of their assets in support of her credit application for participation in the Special
Credit Scheme (SCS) of PPI. On August 28, 1978, Gloria signed in the presence of the PPI
distribution officer/assistant sales representative two documents labelled “Trust Receipt/Special Credit
Scheme,” indicating the invoice number, quantity, value, and names of the agricultural inputs (i.e.,
fertilizer or agricultural chemicals) she received “upon the trust” of PPI. Gloria thereby subscribed to
specific undertakings.
Issue:
Whether or not Gloria can be held liable on the basis of the signed Trust receipt/SCS.
Held:
Yes. To be clear, the obligation assumed by Gloria under the Trust Receipt/SCS involved “the
execution of a Trust Agreement by the farmer-participants” in her favor, which, in turn, she would
assign “in favor of PPI with recourse” in case of delivery and sale to the farmer-participants. The term
recourse as thus used means “resort to a person who is secondarily liable after the default of the
person who is primarily liable.” An indorsement “with recourse” of a note, for instance, makes the
indorser a general indorser, because the indorsement is without qualification. Accordingly, the term
with recourse confirms the obligation of a general indorser, who has the same liability as the original
obligor. As the assignor “with recourse” of the Trust Agreement executed by the farmer participating in
the SCS, therefore, Gloria made herself directly liable to PPI for the value of the inputs delivered to the
farmer-participants. Obviously, the signature of the representative of PPI found in the demand letters
Gloria sent to the farmer-participants only indicated that the Trust Agreement was part of the SCS of
PPI.
The petitioners could not validly justify the non-compliance by Gloria with her obligations under the
Trust Receipt/SCS by citing the loss of the farm outputs due to typhoon Kading. There is no question
that she had expressly agreed that her liability would not be extinguished by the destruction or
damage of the crops. The use of the term with recourse was, in fact, consonant with the provision of
the Trust Receipt/SCS stating that if Gloria could not deliver or serve “all the inputs” to the farmer-
participants within 60 days, she agreed that “the undelivered inputs will be charged” to her “regular
credit line.” Under her arrangement with PPI, the trust receipts were mere securities for the credit line
granted by PPI, having in fact indicated in her application for the credit line that the trust receipts were
“collaterals” or separate obligations “attached to any other contract to guaranty its performance.

JOSE C. TUPAZ IV v. CA,

GR No. 145578
Facts:
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz ("petitioners") were Vice-President for Operations
and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation ("El Oro Corporation"). El
Oro Corporation had a contract with the Philippine Army to supply the... latter with "survival bolos."
To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro
Corporation, applied with respondent Bank of the Philippine Islands ("respondent bank") for two
commercial letters of credit. The letters of credit were in favor of El Oro Corporation's suppliers,
Tanchaoco Manufacturing Incorporated[3] ("Tanchaoco Incorporated") and Maresco Rubber and
Retreading Corporation[4] ("Maresco Corporation"). Respondent bank granted petitioners' application
and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of
Credit No. 2-00914-5 for P294,000 to Maresco Corporation.
On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust
receipt corresponding to Letter of Credit.
Petitioners did not comply with their undertaking under the trust receipts.
Issues:
Whether petitioners bound themselves personally liable for El Oro Corporation's debts under the trust
receipts; whether petitioners' liability is solidary with El Oro Corporation whether petitioners' acquittal
of estafa under Section 13, PD 115 extinguished their civil liability.
Held:
The petition is partly meritorious. We affirm the Court of Appeals' ruling wit... h the modification that
petitioner Jose Tupaz is liable as guarantor of El Oro Corporation's debt under the trust receipt dated
30 September 1981.
The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with
El Oro Corporation for the latter's debt under that trust receipt.
The lower courts correctly applied the 18% interest rate per annum considering that the face value of
each of the trust receipts is based on the drafts drawn under the letters of credit.
The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is
not extinguished by acquittal. Neither is there merit to petitioners' claim that the trust receipts were
simulated.

SECURITY BANK v. RODOLFO M. CUENCA

GR No. 138544
Facts:
On 10 November 1980, [Petitioner] Security Bank and Trust Co. granted appellant Sta. Ines Melale
Corporation [SIMC] a credit line in the amount of P8,000,000.00 to assist the latter in meeting the
additional capitalization requirements of its logging operations.
To secure the payment of the amounts drawn by appellant SIMC from the above-mentioned credit
line, SIMC executed a Chattel Mortgage dated 23 December 1980 (Exhibit `A') over some of its
machinery and equipment in favor of SBTC. As additional security for the payment of the loan, Cuenca
executed an Indemnity Agreement
On 26 November 1981, four (4) days prior to the expiration of the period of effectivity of the P8M-
Credit Loan Facility, appellant SIMC made a first drawdown from its credit line with [Petitioner] SBTC
in the amount of P6,100,000.00.
Sometime in 1985, Cuenca resigned as President and Chairman of the Board of Directors of
defendant-appellant Sta. Ines.
Thus, SBTC filed a complaint for collection of sum of money on 14 June 1993, resulting after trial on
the merits in a decision by the court a quo, x x x from which [Respondent] Cuenca appealed.
Issues:
Whether or not the Honorable Court of Appeals erred in releasing Respondent Cuenca from liability as
surety under the Indemnity Agreement for the payment of the principal amount
Whether or not Respondent Cuenca's liability under the Indemnity Agreement was extinguished by the
payments made by SIMC;
Held:
The Petition has no merit.
An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, Petitioner
contends that there was no absolute incompatibility between the old and the new obligations, and that
the latter did not extinguish the earlier one.
We reject these contentions. Clearly, the requisites of novation are present in this case.
Pursuing another course, petitioner contends that Respondent Cuenca "impliedly gave his consent to
any modification of the credit accommodation or otherwise waived his right to be notified of, or to give
consent to, the same."
In this case, petitioner's assertion - that respondent consented to the alterations in the credit
accommodation -- finds no support in the text of the Indemnity Agreement
Indeed, it has been held that a contract of surety "cannot extend to more than what is stipulated. It is
strictly construed against the creditor, every doubt being resolved against enlarging the liability of the
surety.
We reject petitioner's submission that only Sta. Ines as the borrower, not respondent, was entitled to
be notified of any modification in the original loan accommodation.
There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree to
act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a
stockholder of the debtor-corporation.
In this light, we find no more need to resolve the issue of whether the loan obtained before the expiry
date of the credit accommodation has been paid.
ESTRELLA PALMARES v. CA,
GR No. 126490
Facts:
Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation
extended a loan to the spouses Osmeña and Merlyn Azarraga, together with petitioner Estrella
Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest
at the rate of 6% per annum to be computed every 30 days from the date thereof.
Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent
corporation filed a complaint against petitioner Palmares as the lone party-defendant, to the exclusion
of the principal debtors, allegedly by reason of the insolvency of the latter.
In her Amended Answer with Counterclaim, petitioner alleged that sometime in August 1990,
immediately after the loan matured, she offered to settle the obligation with respondent corporation but
the latter... informed her that they would try to collect from the spouses Azarraga and that she need
not worry about it
On November 26, 1992, the Regional Trial Court of Iloilo City, Branch 23, rendered judgment
dismissing the complaint without prejudice... to the filing of a separate action for a sum of money
against the spouses Osmeña and Merlyn Azarraga who are primarily liable on the instrument.

Respondent Court of Appeals, however, reversed the decision of the trial court, and rendered
judgment declaring herein petitioner Palmares liable to pay respondent corporation. Petitioner
accordingly concludes that her liability should be deemed restricted by the clause in the third
paragraph of the promissory note to be that of a guarantor.
Issues:
Whether or not a party signs a promissory note as a co-maker and binds herself to be jointly and
severally liable with the principal debtor in case the latter defaults in the payment of the loan
Held:
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.
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.
Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation contained
in the third paragraph of the controverted suretyship contract merely elucidated on and made more
specific the obligation of petitioner as generally defined in the second paragraph thereof. There is no
merit in petitioner's contention that the complaint was prematurely filed because the principal debtors
cannot as yet be considered in default, there having been no judicial or extrajudicial demand made by
respondent corporation.
Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because
the moment the latter accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, then the obligation shall be deemed fully complied with.
Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be
eliminated.
Finally, with respect to the award of attorney's fees, this Court has previously ruled that even with an
agreement thereon between the parties, the court may nevertheless reduce such attorney's fees fixed
in the contract when the amount thereof appears to be unconscionable or unreasonable.

Zobel, Inc. vs. CA

Facts:
Respondent spouses Raul and Elea Claveria applied for a loan with respondent SOLIDBANK. The
loan was granted subject to the condition that spouses execute a chattel mortgage over the 3 vessels
to be acquired by them and that a continuing guarantee be executed by petitioner EZ, Inc. in favor of
Solid Bank. The spouses defaulted in payment of the entire obligation upon maturity. SolidBank filed a
complaint for the sum of money against EZ Zobel. Petitioner moved to dismiss the complaint on the
ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080. Issue:
WON, Art. 2080 is applicable to petitioner;
Issue:
Whether or not petitioner’s obligation to SOLIDBANK under the continuing guaranty is that of a surety
Held:
A contract of surety is an accessory promise by which a person binds himself for another already
bound, and agrees with the creditor to satisfy the obligation if the debtor does not.
A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case
the latter does not pay the debt. Simply put, a surety is distinguished from a guaranty in that a
guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is
unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal
does not pay.
Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of
SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the
contract categorically obligates petitioner as surety to induce SOLIDBANK to extend credit to
respondent spouses. This can be seen in the following stipulations. "For and in consideration of any
existing indebtedness to you of AGRO BROKERS, a single proprietorship owned by MR. RAUL P.
CLAVERIA, of legal age, married and with business address x x x (hereinafter called the Borrower),
for the payment of which the undersigned is now obligated to you as surety and in order to induce you,
in your discretion, at any time or from time to time hereafter, to make loans or advances or to extend
credit in any other manner to, or at the request or for the account of the Borrower…”
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 Association vs. Guinhawa
we have ruled that Article 2080 of the New Civil Code does not apply where the liability is as a surety,
not as a guarantor.

PHILIPPINE BLOOMING MILLS v. CA

GR No. 142381
Facts:
Ching was the Senior Vice President of PBM. In his personal capacity and not as a corporate officer,
Ching signed a Deed of Suretyship dated 21 July 1977 binding himself
On 24 March and 6 August 1980, TRB granted PBM letters of credit on application of Ching in his
capacity as Senior Vice President of PBM. Ching later accomplished and delivered to TRB trust
receipts, which acknowledged receipt in trust for TRB of the merchandise subject of the... letters of
credit.
On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as co-maker in the
notarized Promissory Note evidencing this trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the SEC, docketed
as SEC Case No. 2250.
On 9 July 1982, the SEC placed all of PBM's assets, liabilities, and obligations under the rehabilitation
receivership of Kalaw, Escaler and Associates.
On 13 May 1983, ten months after the SEC placed PBM under rehabilitation receivership, TRB filed
with the trial court a complaint for collection against PBM and Ching.
On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground that the SEC had
already placed PBM under receivership.
On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the ground that the trial
court had no jurisdiction over the subject matter of the case.
Issues:
Whether or not Petitioner Ching was liable for Obligations Contracted by PBM long after the execution
of the deed of suretyship
Held:
The case before us is an offshoot of the trial court's denial of Ching's motion to have the case
dismissed against him. The petition is a thinly veiled attempt to make this Court reconsider its decision
in the prior case of Traders Royal Bank v. Court of Appeals. This Court has already resolved the issue
of Ching's separate liability as a surety despite the rehabilitation proceedings before the SEC.
Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of
the 21 July 1977 Deed of Suretyship. Ching would like this Court to rule that his liability is limited, at
most, to the amount stated in PBM's rehabilitation plan.
Ching is still liable for the amounts stated in the letters of credit covered by the trust receipts. Other
than his bare allegations, Ching has not shown proof of payment or settlement with TRB. Atty. Vicente
Aranda, TRB's corporate secretary and First Vice
President of its Human Resource Management Department, testified that the conditions in the TRB
board resolution presented by Ching were not met or implemented
The trial court found and the appellate court affirmed that the outstanding principal amounts as of the
filing of the complaint with the trial court on 13 May 1983

IFC v. Imperial Textile Mills

GR NO. 160324
Facts:
"On December 17, 1974, [Petitioner] International Finance Corporation (IFC) and [Respondent]
Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC
extended to PPIC a loan of US$7,000,000.00, payable in sixteen (16) semi-annual... installments of
US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with interest at the rate of 10%
per annum on the principal amount of the loan advanced and outstanding from time to time.
On December 17, 1974, a 'Guarantee Agreement' was executed with x x x Imperial Textile Mills, Inc.
(ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties thereto. ITM and
Grandtex agreed to guarantee PPIC's obligations under the loan agreement.
PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. The payments
due on December 1, 1978, June 1, 1979 and December 1, 1979 were rescheduled as requested by
PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted.
Hence, on April 1, 1985, IFC served a written notice of default to PPIC demanding the latter to pay the
outstanding principal loan and all its accrued interests. Despite such notice, PPIC failed to pay the
loan and its interes
On July 30, 1985, the deputy sheriff of Calamba, Laguna issued a notice of extrajudicial sale.
IFC's 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.
Issues:
Whether or not ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC, for
the payment of the loan.
Held:
IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC's obligations
proceeding from the Loan Agreement.[15] For its part, ITM asserts that, by the terms of the
Guarantee Agreement, it was merely a guarantor[16] and not a surety. Moreover, any ambiguity in the
Agreement should be construed against IFC -- the party that drafted it.[17]

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 premature, all as set forth in the Loan Agreement and in
the Notes.
The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument on those
words.[20] This Court is not convinced that the use of the two words limits the Contract to a mere
guaranty. The specific stipulations in the Contract... show otherwise.
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 Agreement -- "as primary obligor and not merely as
surety" -- stresses 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.[24] 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.[25] The very terms of a contract
govern the obligations of the parties or the extent of the obligor's liability. Thus, this Court has ruled in
favor of suretyship, even though contracts were denominated as a "Guarantor's Undertaking" or a
"Continuing Guaranty."
Principles:
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.

MARIANO LIM v. SECURITY BANK CORPORATION

GR No. 188539
Facts:
Petitioner executed a Continuing Suretyship in favor of respondent to secure "any and all types of
credit accommodation that may be granted by the bank hereinto and hereinafter" in favor of Raul
Arroyo for the amount of P2,000,000.00 which is covered by a Credit Agreement/Promissory Note.
The Continuing Suretyship executed by petitioner stipulated that: a) "Guaranteed Obligations" the
obligations of the Debtor arising from all credit accommodations extended by the Bank to the Debtor,
including increases, renewals, roll-overs, extensions, restructurings, amendments or novations
thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears
in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all
expenses which the Bank may incur in enforcing any of its rights, powers and remedies under... the
Credit Instruments as defined herein below.
Issues:
Whether petitioner may validly be held liable for the principal debtor's loan obtained six months after
the execution of the Continuing Suretyship.

Ruling:
The terms of the Continuing Suretyship executed by petitioner, quoted earlier, are very clear. It states
that petitioner, as surety, shall, without need for any notice, demand or any other act or deed,
immediately become liable and shall pay "all credit... accommodations extended by the Bank to the
Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations
thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears
in the... accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all
expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the
Credit Instruments as defined herein below.
Principles:
Such... stipulations are valid and legal and constitute the law between the parties, as Article 2053 of
the Civil Code provides that "[a] guaranty may also be given as security for future debts, the amount of
which is not yet known;" Thus, petitioner is unequivocally bound by the... terms of the Continuing
Suretyship. There can be no cavil then that petitioner is liable for the principal of the loan, together
with the interest and penalties due thereon, even if said loan was obtained by the principal debtor
even after the date of execution of the Continuing Suretyship.

TRADE v. ASIA PACES CORPORATION

GR No.187403
Facts:
To finance its working capital requirements, ASPAC obtained loans from foreign banks Banque
Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital) which, upon the latter's request, were
secured by several Letters of Guarantee issued by petitioner Trade and Investment Development
Corporation of the Philippines (TIDCORP),[6] then Philippine Export and Foreign Loan Guarantee
Corp., a government owned and controlled corporation created for the primary purpose of, among
others, "guarantee[ing], with the prior concurrence of the Monetary Board, subject to the rules and
regulations that the Monetary Board may prescribe, approved foreign... loans, in whole or in part,
granted to any entity, enterprise or corporation organized or licensed to engage in business in the
Philippines.
In the same light, ASPAC, as principal debtor, entered into surety agreements (Surety Bonds) with
Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as sureties, also holding
themselves solidarily liable to TIDCORP, as creditor, for whatever damages or liabilities the latter may
incur under the Letters of Guarantee.
Taking into account the moratorium request[30] issued by the Minister of Finance of the Republic of
the Philippines (whereby members of the international banking community were requested to grant
government financial institutions,[31]... such as TIDCORP, among others, a 90-day roll over from their
foreign debts beginning October 17, 1983), TIDCORP and its various creditor banks, such as Banque
Indosuez and PCI Capital, forged a Restructuring Agreement[32] on April 16, 1986, extending the...
maturity dates of the Letters of Guarantee.
TIDCORP fully settled its obligations under the Letters of Guarantee to both Banque Indosuez and
PCI Capital TIIDCORP filed a collection case[36] against: (a) ASPAC, PICO, and Balderrama on...
account of their obligations under the deeds of undertaking; and (b) the bonding companies on
account of their obligations under the Surety Bonds.
Issues:
Whether or not the CA erred in holding that the bonding companies' liabilities to TIDCORP under the
Surety Bonds have been extinguished by the payment extensions granted by Banque Indosuez and
PCI Capital to TIDCORP under... the Restructuring Agreement.
Ruling:
Applying these principles, the Court finds that the payment extensions granted by Banque Indosuez
and PCI Capital to TIDCORP under the Restructuring Agreement did not have the effect of
extinguishing the bonding companies' obligations to TIDCORP under the Surety Bonds,...
notwithstanding the fact that said extensions were made without their consent.
Proceeding from the foregoing discussion, it is quite clear that there are two sets of transactions that
should be treated separately and distinctly from one another following the civil law principle of relativity
of contracts "which provides that contracts can only bind the... parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof
Principles:
This is because Article 2079 of the Civil Code refers to a payment extension granted by the creditor to
the principal debtor without the consent of the guarantor or surety. In this case, the Surety
Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the
Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the
Letters of Guarantee, within the bounds of the bonds' respective coverage periods... and amounts. No
payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence,
Article 2079 of the Civil Code should not be applied with respect to the bonding companies' liabilities
to TIDCORP under the Surety Bonds.

Escaño and Silos vs Ortigas Jr.

G.R. No. 151953
Facts:
On April 28, 1980, Private Development Corp. of the Philippines (PDCP) entered into a loan
agreement with the Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to male available and lend
to Falcon the amount of US $320, 000.00 for specific purposes and subject to certain terms and
conditions.
Three stockholder officers of the Falcon assumed solidary liability, in their individual capacity, with
Falcon for the due and punctual payment of the loan.
Two years later, control of Falcon was ceded to Escaño, Silos and Matti, and the shares of deceased
Scholey, through his heirs Ortigas, Scholey and Inductivo, were assigned to the three new stock-
holders, as well as all of their guaranteed to PDCP and PAIC..
The other parties entered into compromise agreement with PDCP. Ortigas pursued his claim against
Escaño, Silos and Matti, and filing a motion for Summary Judgement in his favor against Escaño, Silos
and Matti.
On appeal, the Court of Appeals affirmed the Summary Judgement. Hence, the present petition for
review.
Issue:
Whether or not there was solidary obligation.
Ruling:
No. The obligation was joint.
In this case, there is a concurrence of two or more creditors or of two or more debtors in one and the
same obligation. Article 1207 of the Civil Code states that among them, there is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity. Article 1210 supplies further caution against the broad interpretation of solidarity by
providing that the indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.
These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or
more debtors in one and the same obligation, and in the absence of express and indubitable terms
characterizing the obligation as solidary, the presumption is that the obligation is only joint. It thus
becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove
such fact with a preponderance of evidence.
The Undertaking does not contain any express stipulation that the petitioners agreed to bind
themselves jointly and severally in their obligations to the Ortigas group, or any such terms to that
effect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas, as
the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption
of joint obligations. The SC ruled that he failed to discharge such burden.