Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy

1. SALVADOR ESCANO VS RAFAEL ORTIGAS (G.R. No. 151953, June 29, 2007)

FACTS: Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals Inc (FALCON) whereby PDCP
agreed to make available and lend to FALCON $ 320,000 for specific purposes and subject to certain terms and conditions.

There are three stockholders of FALCON, namely: respondent Rafael Ortigas, Jr., George A. Scholey and George T. Scholey executed an Assumption of
Solidary Liability whereby they agreed to assume in their individual capacity, solidary liability with FALCON for the due and punctual payment of the loan
contracted by FALCON with PDCP.

The TWO separate guaranties were executed to guarantee payment of the same loan by other stockholders and officers of FALCON, acting in their
personal and individual capacities. One guaranty was executed by ESCANO, SILOS, SILVERIO, INDUCTIVO and RODRIGUEZ. Two years later, an
agreement developed to cede control of FALCON to ESCANO, SILOS and MATTI. Contracts were executed whereby Ortigas, George A Scholey, Inductivo
and the heirs of then already deceased George T. Scholey assigned their shares in FALCON to ESCANO, SILOS and MATTI. An undertaking was executed
by the concerned parties, namely: with Escano, Silos and Matti as “SURETIES” and Ortigas Inductivo and Scholeys as “OBLIGORS.”

FALCON eventually availed of the sum of $178,655.59 from the credit line extended by PDCP. It would also execute a Deed of Chattel Mortgage over its
personal properties to further secure the loan. However, FALCON subsequently defaulted in its payments. After PDCP foreclosed on the chattel mortgage,
there remained a subsisting deficiency of Php 5,031,044.07 which falcon did not satisfy despite demand.

ISSUE: WON the obligation to repay is solidary.

HELD: NO. ESCANO, SILOS and MATTI are jointly liable to ORTIGAS jr. In the amount of Php 1.3 Million plus legal interest.

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.

As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Thus, a surety agreement is an
ancillary contract as it presupposes the existence of a principal contract. It appears that Ortigas’s argument rests solely on the solidary nature of the
obligation of the surety under Article 2047.

A suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation
between the principal debtor and the creditor. The suretyship does bind the surety to the creditor, inasmuch as the latter is vested with the right to
proceed against the former to collect the credit in lieu of proceeding against the principal debtor for the same obligation. At the same time, there is also a
legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. The moment the surety fully answers to the
creditor for the obligation created by the principal debtor, such obligation is extinguished. At the same time, the surety may seek reimbursement from the
principal debtor for the amount paid, for the surety does in fact “become subrogated to all the rights and remedies of the creditor.”

Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations to suretyship contracts. Article 1217 of
the Civil Code thus comes into play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of the
one who paid (i.e., the surety).

2. ASSET BUILDERS CO. VS. STRONGHOLD (G.R. No. 187116, October 18, 2010)

FACTS: ABC entered into an agreement with Lucky Star as part of the completion of its project to construct the ACG Commercial Complex. Lucky Star
was to supply labor, materials, tools, and equipment including technical supervision to drill one (1) exploratory production well on the project site. To
guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner ABC.

ABC paid Lucky Star P575,000.00 as advance payment, representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling work. On
agreed completion date, Lucky Star managed to accomplish only 10% of the drilling work. ABC sent a demand letter to Lucky Star for the immediate
completion of the drilling work. However, Lucky Star failed to fulfill its obligation. ABC sent Notice of Rescission of Contract with Demand for Damages to
Lucky Star and a Notice of Claim for payment to Stronghold to make good its obligation under its bonds.

Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold, prompting it to file its Complaint for Rescission with Damages against
both before the RTC. RTC rendered the assailed decision ordering Lucky Star to pay ABC but absolving Stronghold from liability. Relevant parts of the
decision reads: “The surety bond and performance bond executed by defendants Lucky Star and Stronghold Insurance are in the nature of accessory
contracts which depend for its existence upon another contract. Thus, when the agreement between the plaintiff Asset Builders and defendant Lucky Star
was rescinded, the surety and performance bond were automatically cancelled.”

Thus, Asset Builders filed this present petition for review on certiorari assailing decision of RTC which orders defendant Lucky Star to pay petitioner Asset
Builders the sum of P575,000.00 with damages, but absolving respondent Stronghold Insurance of any liability on its Surety Bond and Performance
Bond.

ISSUE: WON respondent insurance company, as surety, can be held liable under its bonds.

HELD: YES. As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a
surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary
only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom. Let it be stressed that notwithstanding the fact that the surety contract is secondary to the principal
obligation, the surety assumes liability as a regular party to the undertaking.

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the
accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the surety’s
solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not change in any material way the obligee’s relationship with the
principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship.

Thus, the acceptance does not give the surety the right to intervene in the principal contract. The surety’s role arises only upon the obligor’s default, at
which time, it can be directly held liable by the obligee for payment as a solidary obligor. In the case at bench, when Lucky Star failed to finish the drilling
work within the agreed time frame despite petitioner’s demand for completion, it was already in delay. Due to this default, Lucky Star’s liability attached
and, as a necessary consequence, respondent’s liability under the surety agreement arose.

3. CARMEN CASTELLVI DE HIGGINS and HORACE L. HIGGINS VS. GEORGE C. SELLNER (G.R. No. L-158025 November 5, 1920)

FACTS: An action brought by Higgins to recover from Sellner the sum of P10,000. The basis of plaintiff's action is a letter written by George C. Sellner to
John T. Macleod, agent for Mrs. Horace L. Higgins, on May 31, 1915, of the following tenor:

DEAR SIR: I hereby obligate and bind myself, my heirs, successors and assigns that if the promissory note executed the 29th day of
May, 1915 by the Keystone Mining Co., W.H. Clarke, and John Maye, jointly and severally, in your favor and due six months after date for Pesos
10,000 is not fully paid at maturity with interest, 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.
Respectfully, (Sgd.)
GEO. C. SELLNER.
Higgins contend that he is a surety; Sellner contends that he is a guarantor. Higgins also admit that if Sellner is a guarantor, articles 1830, 1831, and
1834 of the Civil Code govern.

ISSUE: WON Sellner is a surety or a guarantor

HELD: A guarantor.

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 Sellner 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.

4. ROMULO MACHETTI vs. HOSPICIO DE SAN JOSE and FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS (G.R. No. L-16666
April 10, 1922)

FACTS: Machetti undertook to construct a building for Hospicio. One of the agreement’s condition was for the contractor to obtain the "guarantee" of the
Fidelity and Surety Company. The guarantee was for the compliance of Machetti to the contract’s terms and conditions. Subsequently it was found that
the work had not been carried out in accordance with the specifications which formed part of the contract. Hospicio therefore refused to pay the balance
of the contract price. Machetti thereupon brought an action to which Hospicio presented a counterclaim. After the issue was joined, Machetti, on petition
of his creditors declared insolvency. An order was then entered suspending the proceeding in the case. Hospicio filed a motion asking that the Fidelity be
made cross-defendant which was granted. Hospicio then filed a complaint against the Fidelity asking for a judgment against the company upon its
guaranty. CFI rendered judgment against the Fidelity. The case is now before this court upon appeal by the Fidelity from said judgment.

ISSUE: WON the contract is one of guaranty or surety.

HELD: Contract of Guaranty.

The circumstances in the contract are distinguishing features of contracts of guaranty. The contract is the guarantor's separate undertaking in which the
principal does not join. It rests on a separate consideration moving from the principal and that although it is written in continuation of the contract for
the construction of the building, it is collateral undertaking separate and distinct from the latter. While a surety undertakes to pay if the principal does
not pay, the guarantor only binds himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer of the solvency of the
debtor.T he Fidelity having bound itself to pay only in the event its principal, Machetti, cannot pay it follows that it cannot be compelled to pay until it is
shown that Machetti is unable to pay. Such inability to pay is not determined until the final liquidation of his estate and is not sufficiently established by
the mere fact that he has been declared insolvent in insolvency proceedings. Hence, the judgment appealed from is reversed.

5. ESTRELLA PALMARES VS. CA & M.B. LENDING CORP. (G.R. No. 126490, March 31, 1998)

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. On four occasions after the execution of the promissory note
and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No
payments were made after the last payment on September 26, 1991.

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint against petitioner
Palmares as the lone partydefendant, 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; that
there has already been a partial payment in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate per month, as
well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of
the principal debtor, respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who
benefited from the proceeds of the loan.

ISSUE: WON such undertaking is deemed to be that of a surety.

HELD: YES. 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. 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. A suretyship is an undertaking that the debt shall be
paid; a guaranty, an undertaking that the debtor shall pay. 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. 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. 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. In a
desperate effort to exonerate herself from liability, petitioner erroneously invokes the rule on strictissimi juris, which holds that when the meaning of a
contract of indemnity or guaranty has once been judicially determined under the rule of reasonable construction applicable to all written contracts, then
the liability of the surety, under his contract, as thus interpreted and construed, is not to be extended beyond its strict meaning.

The rule, however, will apply only after it has been definitely ascertained that the contract is one of suretyship and not a contract of guaranty. It cannot
be used as an aid in determining whether a party's undertaking is that of a surety or a guarantor. 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. Resultantly, the theory advanced by petitioner, that she is merely
a guarantor because her liability attaches only upon default of the principal debtor, must necessarily fail for being incongruent with the judicial
pronouncements adverted to above. In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, and
as such is deemed an original promisor and debtor from the beginning. This is because in suretyship there is but one contract, and the surety is bound
by the same agreement which binds the principal. In essence, the contract of a surety starts with the agreement, which is precisely the situation
obtaining in this case before the Court.

6. GILAT SATELLITE NETWORK VS UNITED COCONUT PLANTERS BANK (UCPB) (G.R. No. 189563, April 7, 2014)

FACTS: One Virtual placed with Gilat Satellite network(GILAT) a purchase order for various telecommunications equipment for $2,128,250 , promising
to pay portions of the price according to payment schedule. To ensure the prompt payment, it obtained a surety bond from UCPB in favour of GILAT. One
Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due date of May 30, 2000 in accordance with the
payment schedule to the surety bond, prompting GILAT to write the surety defendant UCPB on June 5, 2000, a demand letter for payment of the said
amount of US$400,000.00. No part of the amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual
likewise failed to pay on the succeeding payment instalment date of 30 November 2000, prompting GILAT to send a second demand letter dated January
24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the surety bond, plus interests and expenses and which letter was
received by the defendant surety on January 25, 2001. However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof, hence,
the instant complaint.

ISSUE: WON the failure of One Virtual, as principal debtor, to fulfill its monetary obligation to petitioner GILAT gave the latter an immediate right to
pursue UCPB as the surety.

HELD: YES. In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of the principal debtor. This
undertaking makes a surety agreement an ancillary contract, as it presupposes the existence of a principal contract. Nevertheless, although the contract
of a surety is in essence secondary only to a valid principal obligation, its liability to the creditor or "promise" of the principal is said to be direct, primary
and absolute; in other words, a surety is directly and equally bound with the principal. He becomes liable for the debt and duty of the principal obligor,
even without possessing a direct or personal interest in the obligations constituted by the latter. bThus, a surety is not entitled to a separate notice of
default or to the benefit of excussion. It may in fact be sued separately or together with the principal debtor.

In the present case, petitioner GILAT had delivered all the goods to One Virtual and installed them. Despite these compliances, One Virtual still failed to
pay its obligation, triggering respondent’s liability to petitioner as the former’s surety In other words, the failure of One Virtual, as the principal debtor, to
fulfill its monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.

7. WILLEX VS CA (GR NO. 103066. April 25, 1996)

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
FACTS: In 1978, Inter-Resin took out a loan from Manila Bank. As additional security, Inter-Resin and Investment Underwriting (IUCP) executed a
Continuing Surety Agreement stating that they are liable to Manila Bank solidarily for the loan taken out by Inter-Resin. In 1979, Inter-Resin and Willex
Plastic executed a Continuing Guarantee for the loan which Inter-Resin obtained from Investment Underwriting to the extent of P5M.

In 1981, Investment Underwriting (IUCP) paid Manila Bank P4M to satisfy Inter-Resin’s . In, 1978 Obligation Investment Underwriting (IUCP) then
demanded payment of the P4M from both Inter-Resin and Willex. Inter-Resin paid IUCP P600K from the proceeds of its fire insurance. Willex denied
obligation, it alleged that it is only a guarantor of the principal, hence its liability was only secondary to the principal and that it did not receive
consideration nor benefit from the contract between the bank and Inter-Resin. Willex insisted that IUCP should pursue Inter-Resin and apply to the loan
the assets of the latter first before going after it. Willex further alleged that it is guarantor of a loan to Manila Bank and not to Interbank, hence the
Continuing Guaranty cannot be retroactive applied as contracts of suretyship contemplates future dealing.

ISSUE: WON Willex is liable as a guarantor for the loans obtained by Inter-Resin to IUCP.

HELD: YES. Intent is controlling. It is clear from the evidence that the Continuing Guarantee executed by Willex with Inter-Resin would cover
sums obtained (in the past – retroactive) and/or to be obtained by Inter-Resin Industrial from Interbank Although a contract of suretyship is ordinarily
not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling – apply it to the 1978 loan.

Guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. It is never necessary that
a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal.

8. RIZAL COMMERCIAL BANKING CORPORATION vs. HON. JOSE P. ARRO, and RESIDORO CHUA (G.R. No. L-49401 July 30, 1982)

FACTS: On October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreements to guaranty among others, any existing
indebtedness of Davao Agricultural Industries Corporation (DAICOR), and/or induce the bank at any time or from time to time thereafter, to make loans
or advances or to extend credit in other manner to, or at the request, or for the account of DAICOR, either with or without security, and/or to purchase
on discount, or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or other evidences of
indebtedness upon which DAICOR is or may become liable, provided that the liability shall not exceed at any one time the aggregate principal sum of
P100,000.00. The promissory note in the amount of P100,000.00 was issued in favor of RCBC signed by Enrique Go in behalf of DAICOR. The promissory
note was not fully paid despite repeated demands.

Hence, RCBC filed a complaint for a sum of money against DAICOR, Enrique Go, Sr. and Residoro Chua. A motion to dismiss was filed by Chua on the
ground that he cannot be held liable under the promissory note because it was only Enrique Go, Sr. who signed the same in behalf of DAICOR and in his
own personal capacity. RCBC alleged that by virtue of the execution of the comprehensive surety agreement, Chua is liable because said agreement covers
not merely the promissory note subject of the complaint, but is continuing; and it encompasses every other indebtedness DAICOR may, from time to time
incur with RCBC.

ISSUE: WON Chua is liable to pay the obligation evidence by the promissory note which he did not sign, in the light of the provisions of the
comprehensive surety agreement.

HELD: YES. The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr. to cover existing as well as
future obligations which DAICOR may incur with the RCBC, subject only to the proviso that their liability shall not exceed at any one time the aggregate
principal sum of P100,000.00.

The agreement was executed obviously to induce RCBC to grant any application for a loan DAICOR may desire to obtain from RCBC. The guaranty is a
continuing one which shall remain in full force and effect until the bank is notified of its termination. At the time the loan of P100,000.00 was obtained
from RCBC by DAICOR, the comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said
agreement, and Chua, even if he did not sign the promisory note, is liable by virtue of the surety agreement. The only condition that would make him
liable thereunder is that DAICOR "is or may become liable as maker, endorser, acceptor or otherwise". There is no doubt that DAICOR is liable on the
promissory note evidencing the indebtedness.

9. ATOK FINANCE CORPORATION vs. COURT OF APPEALS G.R. No. 80078. May 18, 1993
FELICIANO, J.:

FACTS: On 27 July 1979, private respondents Sanyu Chemical Corporation as principal and Sanyu Trading Corporation along with individual private
stockholders of Sanyu Chemical as sureties, executed a Continuing Suretyship Agreement in favor of Atok Finance as creditor. In 1981, Sanyu Chemical
assigned its trade receivables outstanding to Atok Finance in consideration of receipt from Atok Finance of the amount of P105,000.00. The assigned
receivables carried a standard term of thirty (30) days; it appeared, however, that the standard commercial practice was to grant an extension of up to one
hundred twenty (120) days without penalties. In 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo
and Leopoldo Halili before the Regional Trial Court of Manila to collect a sum of money plus penalty charges starting from 1 September 1983. Atok
Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables. Sanyu Chemical and the individual
private respondents sought dismissal of Atok's claim upon the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of
cause of action. The private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at
the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. After trial the trial court rendered a decision in favor of
Atok Finance. On appeal the CA reversed and set aside the decision of the trial court and entered a new judgment dismissing the complaint of Atok
Finance.

ISSUE: Whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the Continuing Suretyship
Agreement, or whether that Agreement must be held null and void as having been executed without consideration and without a pre-existing principal

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
obligation to sustain it. Whether private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu
Chemical, executed in favor of petitioner, on the receivables thereby assigned.

HELD: Although obligations arising from contracts have the force of law between the contracting parties, (Article 1159 of the Civil Code) this does not
mean that the law is inferior to it; the terms of the contract could not be enforced if not valid. So, even if, as in this case, the agreement was for a
continuing suretyship to include obligations enumerated in the agreement, the same could not be enforced. First, because this contract, just like
guaranty, cannot exist without a valid obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt (Art. 2053,
C.C.), the obligation contemplated in the case at bar cannot be considered 'future debt' as envisioned by this law. There is no proof that when the
suretyship agreement was entered into, there was a pre-existing obligation which served as the principal obligation between the parties. Furthermore, the
'future debts' alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown,
unlike in the case at bar where the obligation was acquired two years after the agreement." A guaranty or a suretyship agreement is an accessory
contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal
obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." Nevertheless, a guaranty may
be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation." Moreover, Article
2053 of the Civil Code states that a guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim
against the guarantor until the debt is liquidated. A conditional obligation may also be secured." Comprehensive or continuing surety agreements are in
fact quite commonplace in present day financial and commercial practice. A bank or a financing company which anticipates entering into a series of credit
transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its
sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with
such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to
the principal debtor. As we understand it, this is precisely what happened in the case at bar. As regards the second issue, the contention of Sanyu
Chemical was that Atok Finance had no cause of action under the Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors'
solvency had ceased. It relied on Article 1629 of the Civil Code which provides: In case the assignor in good faith should have made himself responsible for
the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the
time of the assignment if the period had already expired. If the credit should be payable within a term or period which has not yet expired, the liability
shall cease one year after the maturity." The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the
assignor which were later assigned to the assignee. The debt alluded to in the law, is not the debt incurred by the assignor to the assignee as contended
by the appellant. Applying the said law to the case at bar, the records disclose that none of the assigned receivables had matured when the Deed of
Assignment was executed. It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical.
Assignment of receivables is a commonplace commercial transaction today. It is an activity or operation that permits the assignee to monetize or realize
the value of the receivables before the maturity thereof. In other words, Sanyu Chemical received from Atok Finance the value of its trade receivables it
had assigned; Sanyu Chemical obviously benefitted from the assignment. The payments due in the first instance from the trade debtors of Sanyu
Chemical would represent the return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such
receivables. Article 1629 of the Civil Code is not material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of
solvency; the liability of Sanyu Chemical was not ex lege but rather ex contractu. Under the Deed of Assignment, the effect of non-payment by the original
trade debtors was a breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the
receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred
by virtue of the Deed of Assignment. The obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing
Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue
of the operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil
Code. It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a valid and enforceable cause of action against
Sanyu Chemical and the other private respondents. The Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the Court of Appeals
are hereby REVERSED and SET ASIDE. A new judgment is hereby entered REINSTATING the Decision of the trial court.

10. DINO V CA GR NO. 136780

FACTS:
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations
from Metrobank in the sum of Php700,000. This was secured by Continuing Suretyships separately executed by petitioners Norberto Uy (who
agreed to pay Php300,000) and Jacinto Diño (who bound himself liable up to Php800,000). Uy Tiam paid the obligation under this letter of
credit in 1977. UTEFS obtained another credit accommodation in 1978, which was likewise settled before he applied and obtained another in
1979 in the sum of Php815,600. This sum covered UTEFS’ purchase of fertilizers from Planters Producst. Uy and Diño did not sign the
application for this credit and were not asked to execute suretyship or guarantee. UTEFS executed a trust receipt whereby it agreed to deliver to
Metrobank the goods in the event of non-sale, and if sold, the proceeds will be delivered to Metrobank. However, UTEFS did not comply with its
obligation. As a result, Metrobank demanded payment from UTEFS and the sureties, Uy & Diño. The sureties refused to pay on the ground that
the obligation for which they executed the continuing suretyship agreement has been paid. RTC ruled in favor of the petitioners, CA affirmed.

ISSUE: Whether petitioners are liable for payment of the 1979 transaction under the continuing suretyship agreement they executed in 1977.
Assuming that they are, what is the extent of their liability?

HELD:
The Supreme Court held that Uy & Diño are liable. The agreement they executed in 1977 is a continuing suretyship, one which is not limited to a single
transaction but which contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. The agreement that petitioners
signed expressly provided that it is a continuing guaranty and shall be in full force and effect until written notice to the bank that it has been revoked by
the surety. As to the 2nd issue, petitioners are only liable up to the maximum limit fixed in the continuing suretyship agreements (Php800,000 for Diño
and Php300,000 for Uy). The law is clear that a guarantor may bind himself for less, but not for more than the principal debtor, both as regards the
amount and the onerous nature of the conditions (Art. 2054). CA decision ordering petitioners to pay P2,397,883.68 which represents the amount due
inclusive of interest and charges, is modified.

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
11. FORTUNE MOTORS (PHILS.) CORPORATION AND EDGAR L. RODRIGUEZA, PETITIONERS, VS. THE HONORABLE COURT OF APPEALS
AND FILINVEST CREDIT CORPORATION, RESPONDENTS. G.R. NO. 112191. FEBRUARY 7, 1997.

FACTS:
Petitioners herein executed an undated “Surety Undertaking” where they “absolutely, unconditionally and solidarily guarantee the “full, faithful and
prompt performance, payment and discharge of any and all obligations and agreements” of Fortune Motor (Phils) Corporation to Respondent and its
affiliated and subsidiary companies.

The following year, Petitioner Fortune, Respondent Filinvest and Canlubang Automotive Resources Corporation (“CARCO”) entered into an
“Automotive Wholesale Financing Agreement” wherein CARCO will deliver motor vehicles to Fortune for the purpose of resale in the latter’s ordinary
course of business; Fortune, in turn, will execute trust receipts over said vehicles and accept drafts drawn by CARCO, which will discount the same
together with the trust receipts and invoices and assign them in favor of Respondent Filinvest, which will pay the motor vehicles for Fortune. Under
the same agreement, Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of any sale for cash or on terms to
Respondent Filinvest immediately without necessity of demand.

Several vehicles were delivered by CARCO to Petitioner Fortune and trust receipts covered by demand drafts and deeds of assignment were executed
in favor of Respondent Filinvest. But when the demand drafts matured, not all the proceeds of the vehicles which petitioner had sold were remitted
and likewise failed to turn over several unsold vehicles covered by the trust receipts.
Thus, Respondent Filinvest through counsel, sent a demand letter to petitioner fortune. Despite said demands, the amount was still not paid. Hence,
respondent filed in the RTC of Manila a complaint for a sum of money with preliminary attachment against the petitioners.

The trial court declared that there was no factual issue to be resolved except for the correct balance of defendant’s account with Filinvest as agreed
upon by the parties during pre-trial.

Filinvest presented testimonial and documentary evidence but defendants, instead of presenting their evidence filed a “motion for judgement on
demurrer to evidence” anchored principally on the ground that the Surety Undertakings were null and void because at the time they were executed,
there was no principal obligation existing. The trial court denied the motion and scheduled the case for reception of defendant’s evidence, however,
defendats failed to present their evidence prompting the court to deem them have waived their right to present evidence.
Issue: Whether or no the Court of Appeals erred when it declared that there was no novation?

Ruling: NO

On the matter of novation, this has already been ruled upon when this Court denied defendants’ Motion to dismiss on the argument that what
happened was really an assignment of credit, and not a novation of contract, which does not require the consent of the debtors. The fact of
knowledge is enough. Besides, as explained by the plaintiff, the mother or the principal contract was the Financing Agreement, whereas the trust
receipts, the sight drafts, as well as the Deeds of assignment were only collaterals or accidental modifications which do not extinguish the original
contract by way of novation. This proposition holds true even if the subsequent agreement would provide for more onerous terms for, at any rate, it is
the principal or mother contract that is to be followed. When the changes refer to secondary agreements and not to the object or principal conditions
of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation

12. SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING CORPORATION, petitioners, vs. BA
FINANCE CORPORATION, respondent. G.R. No. 135462, December 7, 2001

FACTS:
On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant a Continuing
Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of
any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation. On February 3, 1983, Palawan Lumber Manufacturing
Corporation represented by Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-
appellant a Continuing Suretyship Agreement in which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and
prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp.
19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing
Suretyship Agreement in which said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and
discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation.

Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under which it agreed to
remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining unsold vehicles. ). The drafts and trust
receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO.
Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit the proceeds of
motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation
sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L.
G. Chua, George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp. 29-37). Since the defendants-appellants failed to settle their
outstanding account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary
attachment, with the Regional Trial Court of Manila.

ISSUE: Whether respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts transactions.

HELD: As an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors Corporation, pursuant to
the terms of the trust receipts. Having failed to do so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
action for collection of sum of money was, therefore, premature.
A trust receipt is a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to
finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the
merchandise imported or purchased.9 In the event of default by the entrustee on his obligations under the trust receipt agreement, it is not
absolutely necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder

13. PACIFIC BANKING CORPORATION, petitioner, vs. HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA, JR.,
respondents. G.R. No. 72275, November 13, 1991

DOCTRINE:
Under Article 1211 of NCC, Solidarity may exist although the creditors and the debtors may not be boundin the same manner and by the
same periods and conditions.

FACTS:
The defendant Celia Syjuco Regala applied for and obtained from the plaintiff the issuance and use of Pacificard credit card On October 24, 1975. On
the same date, Robert Regala, Jr., spouse of defendant Celia Regala, executed a "Guarantor's Undertaking" in favor of the appellee Bank, whereby
the latter agreed "jointly and severally of Celia Aurora Syjuco Regala, to pay the Pacific Banking Corporation upon demand. It was also agreed that
"any changes of or novation in the terms and conditions in connection with the issuance or use of the Pacificard, or any extension of time to pay
such obligations, charges or liabilities shall not in any manner release me/us from responsibility.
The defendant Celia Regala had purchased goods and/or services on credit under her Pacificard, for which the plaintiff advanced the cost amounting
to P92,803.98. In view of defendant Celia Regala's failure to settle her account for the purchases, a written demand was sent to the latter and also to
the defendant Roberto Regala, Jr. under his "Guarantor's Undertaking." A complaint was filed in Court for defendant's repeated failure to settle their
obligation. Defendant Celia Regala was declared in default for her failure to file her answer within the reglementary period. Defendant-appellant
Roberto Regala, Jr., filed his Answer with Counterclaim admitting his execution of the "Guarantor's Understanding". The Court renders judgment for
the plaintiff. The counterclaim of defendant is dismissed for lack of merit. On appeal, the Intermediate Appellate Court modified the decision of the
trial court. Private respondent was made liable only to the extent of the monthly credit limit granted to Celia Regala. A motion for reconsideration was
filed by Petitioner but appellate court denied for lack of merit.

ISSUE: Whether the Respondent as a uaranter, is solidarily liable with the principal debtor.

HELD:
Yes, the undertaking signed by Roberto Regala, Jr. although denominated "Guarantor's Undertaking," was in substance a contract of surety. As
distinguished from a contract of guaranty where the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in
case the latter should fail to do so, in a contract of suretyship, the surety binds himself solidarily with the principal debtor (Art. 2047, Civil Code of
the Philippines). The petition is GRANTED.

14. Molina V Security Diners

FACTS:
The Security Diners International Corporation (SDIC) operates a credit card system under the name of Diners Club through which it extends credit
accommodation to its cardholders for the purchase of goods and payment of services from its member establishments to be reimbursed later on by
the cardholder upon proper billing. There are two types of credit cards issued: one, the Regular (Local) Card which entitles the cardholder to
purchase goods and pay services from member establishments in an amount not exceeding P10,000.00; and two, the Diamond (Edition) Card which
entitles the cardholder to purchase goods and pay services from member establishments in unlimited amounts. One of the requirements for the
issuance of either of these cards is that an applicant should have a surety. Danilo A. Alto applied for a Regular (Local) Card with SDIC. He got as his
surety his own sister-in-law Jeanette Molino. Danilo wrote SDIC a letter requesting it to upgrade his Regular (Local) Diners Club Card to a Diamond
(Edition) one. As a requirement of SDIC, Danilo secured from Jeanette her approval. He used this card and made purchases from member
establishments. Danilo had incurred credit charged plus appropriate interest and service charges in the aggregate amount of P166,408.31. He
defaulted in the payment of this obligation. SDIC demanded of Danilo and Jeanette to pay said obligation but they did not pay. Thus, SDIC filed an
action to collect said indebtedness against Danilo and Jeanette. Danilo Alto failed to file an Answer, and during the pre-trial conference respondent
moved to have the complaint dismissed against him, without prejudice to a subsequent re-filing. Petitioner was left as the lone defendant, sued in
her capacity as surety of Danilo. She claimed that her liability under the Surety Undertaking was limited to P10,000.00 and that she did not
expressly and categorically agree to act as surety for Danilo in an amount higher than P10,000.00.

ISSUE:
Whether Dina acted as a surety under the upgraded card.

HELD:

Yes. There is no doubt that the upgrading was a novation of the original agreement covering the first credit card issued to Danilo Alto, basically since
it was committed with the intent of cancelling and replacing the said card. However, the novation did not serve to release petitioner from her surety
obligations because in the Surety Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of
the first credit card.
The nature and extent of petitioners obligations are set out in clear and unmistakable terms in the Surety Undertaking. Thus:

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
1. She bound herself jointly and severally with Danilo Alto to pay SDIC all obligations and charges in the use of the Diners Club Card, including fees,
interest, attorneys fees, and costs;
2. She declared that any change or novation in the Agreement or any extension of time granted by SECURITY DINERS to pay such obligation,
charges, and fees, shall not release (her) from this Surety Undertaking;
3. (S)aid undertaking is a continuous one and shall subsist and bind (her) until all such obligations, charges and fees have been fully paid and
satisfied; and
4. The indication of a credit limit to the cardholder shall not relieve (her) of liability for charges and all other amounts voluntarily incurred by the
cardholder in excess of said credit limit.
As a last-ditch measure, petitioner asseverates that, being merely a surety, a pronouncement should first be made declaring the principal debtor
liable before she herself can be proceeded against. The argument, which is hinged upon the dropping of Danilo as defendant in the complaint, is
bereft of merit.
The Surety Undertaking expressly provides that petitioners liability is solidary. A surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. Although the contract
of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable
for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.
15. GATEWAY ELECTRONICS and GERONIMO VS. ASIANBANK G.R. No. 172041

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 Gateway’s equipment.
Gateway initially made payments on its loan obligations, but eventually defaulted. Upon Gateway’s request, Asianbank extended the maturity dates
of the loan several times. These extensions bore the conformity of three of Gateway’s 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. Asianbank’s demands for payment made upon Gateway and its sureties went unheeded. As of November 23, 1999, Gateway’s
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
wife’s 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 Geronimo’s 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 Gateway’s 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.
Geronimo’s 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 Court’s 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 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. 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 creditor’s 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. Geronimo’s position that a surety cannot be made to pay when the principal is unable to pay is clearly specious and

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG

Credit Transactions Case Digest: Atty Fe Lamayan-Bangoy
must be rejected.

FROM THE JOINT EFFORTS OF Dale, Artfel and Gyrl. AMDG