UNIVERSITY OF THE CORDILLERAS – CREDIT TRANSACTIONS

PROFESSOR – ATTY. JINKY FIANZA

Submitted by: Balaodan, Fernando Jr.

CASES:
1. Palmares vs. CA, 288 SCRA 422

DOCTRINE:
A creditor’s right to proceed against a surety exists independently of his right to
proceed against the principal. A surety is not even entitled, as a matter of right, to be given
notice of the principal’s default. A surety is an insurer of the debt, whereas a guarantor is an
insurer of the insolvency of the debtor).

FACTS:
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.

Consequently, on the basis of petitioner's solidary liability under the promissory note,
respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-
defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of
the latter.

ISSUE:
Whether Palmares is liable as a surety.

RULING:
Yes. 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. 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. In other words, a surety undertakes directly for the payment and
is so responsible at once if the principal debtor makes.

2. E. Zobel, Inc. vs. CA, 290 SCRA 1

DOCTRINE:
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.
Article 2080 of the New Civil Code does not apply where the liability is a surety, not as a
guarantor

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. Solid Bank 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:
Whether petitioner’s obligation to SOLIDBANK under the continuing guaranty is that of a
surety.

RULING:
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.

3. Paramount Insurance Corp. vs. CA, 310 SCRA 377

DOCTRINE:
By the contract of suretyship, it is not for the obligee to see to it that the principal pays the
debt, but for the surety to see to it that the principal pay.

FACTS:
McAdore Finance and Investment, Inc. (McAdore) and Dagupan Electric Corporation
(DECORP) entered into a contract whereby DECORP shall provide electric power to
McAdore’s Hotel. During the term of their contract, DECORP notice discrepancies between
the actual monthly billings and the estimated monthly billings of McAdore which was later
discovered that it was due to a slow rotation of the meter. DECORP issued a corrected bill
but McAdore refused to pay thus, DECORP disconnected the power supply to the hotel.
McAdore commenced a suit against DECORP for damages with prayer for a writ of
preliminary injunction, accompanied by an injunction bond from several sureties, one of
which was Paramount Insurance Corporation (Paramount). Accordinly, a writ of preliminary
injunction was issued and DECORP was ordered to continue the supply of electric power.
The RTC rendered judgment in favor of DECORP and likewise adjudged Paramount to pay.
On appeal by Paramount, the CA affirmed the decision of the trial court. Before this Court,
Paramount contends that the injunction bond was issued to guarantee “actual and material
damages as may be sustained and duly proved by DECORP,” to the effect that it is liable to
pay such actual and material damages only and no other damages.

ISSUE:
Whether Paramount is liable to pay actual and material damages only
 RULING:
It may not be amiss to point out that by the contract of suretyship, it is not for the obligee to
see to it that the principal pays the debt or fulfills the contract, but for the surety to see to it
that the principal pays or perform. The purpose of the injunction bond is to protect the
defendant against loss or damage by reason of the injunction in case the court finally decides
that the plaintiff was not entitled to it, and the bond is usually conditioned accordingly. Thus,
the bondsmen are obligated to account to the defendant in the injunction suit for all damages,
or costs and reasonable counsel’s fees, incurred or sustained by the latter in case it is
determined that the injunction was wrongfully issued.

The posting of a bond in connection with a preliminary injunction (or attachment under Rule
57, or receivership under Rule 59, or seizure or delivery of personal property under Rule 60)
does not operate to relieve the party obtaining an injunction from any and all responsibility
for the damages that the writ may thereby cause. It merely gives additional protection to the
party against whom the injunction is directed. It gives the latter a right of recourse against
either the applicant or his surety, or against both. In the same manner, when petitioner
PARAMOUNT issued the bond in favor of its principal, it undertook to assume all the
damages that may be suffered after finding that the principal is not entitled to the relief being
sought.

4. Security Bank and Trust Co. vs. Cuenca, 341 SCRA 781

DOCTRINE:
An extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty. The 1989 Loan Agreement expressly stipulated that its purpose
was to “liquidate,” not to renew or extend, the outstanding indebtedness. Moreover,
respondent did not sign or consent to the 1989 Loan Agreement, which had allegedly
extended the original P8 million credit facility. Hence, his obligation as a surety should be
deemed extinguished, pursuant to Article 2079 of the Civil Code, which specifically states
that “[a]n extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the guaranty.

An essential alteration in the terms of a Loan Agreement without the consent of the surety
extinguishes the latter’s obligation. The submission that only the borrower, not the surety, is
entitled to be notified of any modification in the original loan accommodation is untenable
such theory is contrary to the to the principle that a surety cannot assume an obligation more
onerous than that of the principal. That the Indemnity Agreement is a continuing surety does
not authorize the lender to extend the scope of the principal obligation inordinately; A
continuing guaranty is one which covers all transaction, including those arising in the future,
which are within the description or contemplation of the contract of guaranty, until the
expiration or termination thereof.

FACTS:
 Security Bank granted a credit line in the amount of 8 million pesos in favour of Sta. Ines, a
corporation engaged in logging operations and in which Rodolfo Cuenca is the President. In
order to secure payment, Sta. Ines executed a chattel mortgage over some of its machineries
and equipments and as an additional security Cuenca executed an Indemnity Agreement
where he bound himself jointly and severally with Sta. Ines and without the benefit of
excussion of whatever amount the client may be indebted to the bank by virtue of aforesaid
credit accommodation(s) including the substitutions, renewals, extensions, increases,
amendments, conversions and revivals of the aforesaid credit accommodation(s). After
Cuenca resigned, Sta. Ines was able to obtained a loan of 6 million pesos, but was unable
to pay the amortization payments and requested Security Bank a complete restructure of its
indebtedness which was approved and without prior notice to or consent of Cuenca. Despite
that Sta. Ines was still unable to pay. As a result, Security Bank made failed attempts to
demand from Sta. Ines and Cuenca the fulfillment of their obligation, thus a complaint was
filed and a decision in favour of Security Bank was rendered which held Cuenca liable. On
appeal, Cuenca contends that the original agreement of 8 million loan was extinguished by
novation when the obligation under the 6 million loan and subsequent restructuring was
granted.

ISSUE:
Whether Cuenca is liable as a surety to the 6 million loan under the Indemnity Agreement.

RULING:
No. The Indemnity Agreement is a continuing surety and as such does not authorize the
bank to extend the scope of the principal obligation inordinately. A surety being an onerous
undertaking, a surety agreement is strictly construed against the creditor, and every doubt
is resolved in favor of the solidary debtor. The fundamental rules of fair play require the
creditor to obtain the consent of the surety to any material alteration in the principal loan
agreement, or at least to notify it thereof. Hence, petitioner bank cannot hold herein
respondent liable for loans obtained in excess of the amount or beyond the period stipulated
in the original agreement, absent any clear stipulation showing that the latter waived his right
to be notified thereof, or to give consent thereto. This is especially true where, as in this
case, respondent was no longer the principal officer or major stockholder of the corporate
debtor at the time the later obligations were incurred. He was thus no longer in a position to
compel the debtor to pay the creditor and had no more reason to bind himself anew to the
subsequent obligations.

5. Babst vs. CA, January 26, 2001

TOPIC: Surety becomes liable when the principal debtor failed or refused to pay.

FACTS:
The complaint was commenced principally to enforce payment of a promissory note and
three domestic letters of credit which Elizalde Steel Consolidated, Inc. (ELISCON) executed
and opened with Commercial Bank and Trust Company (CBTC).

ELISCON obtained from CBTC a loan in the amount of PhP8,015,900.84 with interest rate
of 14% per annum, evidenced by a promissory note. Eliscon defaulted in its payment leaving
an outstanding indebtedness amounting to PhP2,795,240.67 as of 31 October 1982.

Subsequently, Antonio Roxas Chua and Chester Babst executed continuing suretyship
whereby they bound themselves jointly and severally liable to pay any existing indebtedness
of MULTI to CBTC to extent of Php8m each.

On 22 December 1980 BPI and CBTC entered into a merger wherein BPI as the surviving
corporation, acquired all the assets and assumed all the liabilities of CBTC.

Eliscon encountered financial difficulties and became heavily indebted to DBP. In order to
settle its obligations, Eliscon proposed to convey to DBP by way of dacion and pago all its
fixed assets mortgaged with DBP, as payment for its total indebtedness in the amount of
PhP201,181,833.16. Eliscon and DBP executed a deed of cession of property in payment of
debt.

DBP took over the assets of Eliscon including the indebtedness to BPI. Thereafter DBP
proposed formulas for the settlement of all of Eliscon’s obligations to its creditors, but BPI
expressly rejected the formula submitted to it for not being acceptable.

BPI as successor in interest of CBTC instituted with RTC a complaint for sum of money
against Eliscon, MULTI and Babst

RTC favored BPI while CA affirmed with modification the decision of RTC. Hence the petition
to SC.

ISSUES:
1. Whether BPI is entitled to recover from petitioner Eliscon the latter’s obligation with CBTC;
and
2. Whether or not there is a valid novation of obligation

RULING:
1) Yes, BPI can collect from Eliscon. It is settled that in the merger of two existing
corporations, one of the corporation survives and continues the business, while the other
is dissolved and all its rights, properties and liabilities are acquired by the surviving
corporation. The surviving corporation therefore has a right to institute a collection suit on
accounts of one of one of the constituent corporations.
 2) BPI's conduct evinced a clear and unmistakable consent to the substitution of DBP for
ELISCON as debtor. Hence, there was a valid novation which resulted in the release of
ELISCON from its obligation to BPI, whose cause of action should be directed against
DBP as the new debtor.

6. Taňedo vs. Allied Banking Corp., February 1, 2002.

TOPIC: Continuing surety.

FACTS:
The foregoing summary judgment has its roots in a complaint with preliminary attachment
filed by plaintiff bank to recover sums of money from defendant corporation on its seven past
due promissory notes with principal amounts totaling P10,000,000.00, from defendants
Alfredo Ching and Emilio Tañedo under a Continuing Guaranty providing for joint and several
liability relative to the said promissory notes. The preliminary attachment sought was granted
upon the required bond and was thereafter maintained despite defendant corporation’s
efforts to have it discharged.

The appeal of plaintiff bank is limited to paragraph 9 of the summary judgment which declared
defendants Alfredo Ching and Emilio Tañedo as free from any liability under the Continuing
Guaranty since their respective liabilities thereunder became extinguished when plaintiff
bank in its pleading branded the Continuing Guaranty as "worthless security”.

On the other hand, defendant corporation’s appeal is an attack on the summary nature of the
proceeding adopted by the lower court since, according to defendant corporation, there was
a petition for suspension of payment filed by it with the Securities and Exchange Commission
which, although dismissed, was duly appealed to the Court of Appeals.

Defendant corporation’s petition for suspension of payment was dismissed by the Securities
and Exchange Commission for lack of quorum. At the creditor’s meeting called and
accordingly held to approve the corporation’s petition for suspension of payment, out of
outstanding liabilities of P237,718,426.00, only the creditors representing P110,355,607.37
thereof attended. This was far short of the three-fifths quorum unqualifiedly required by law
which should have been P142,631,055.

On October 16, 1984, the trial court rendered a summary judgment, as quoted above.

Both plaintiff Allied Banking Corporation and the defendant Cheng Ban Yek & Co., Inc.
appealed from the summary judgment to the Court of Appeals.
 On March 27, 1990, the Court of Appeals promulgated a decision, the dispositive portion of
which reads:
"WHEREFORE, the Order appealed from is in part REVERSED and MODIFIED by
deleting paragraph 9 from the dispositive portion thereof, and declaring the defendants
Alfredo Ching and Emilio Tañedo solidarily liable with defendant Cheng Ban Yek Co.,
Inc. for all items of the money judgment set forth in paragraphs one (1) to eight (8)
inclusive, and paragraph ten (10), of said dispositive portion. The Order is AFFIRMED
in its other aspects. No costs in this instance.

On April 11, 1990, petitioner Emilio Y. Tañedo filed a motion for reconsideration of the
decision, contending that while the case was pending before the Court of Appeals the Allied
Bank and Cheng Ban Yek & Co., Inc. agreed to extend the time of payment of the
indebtedness, without the consent of petitioner, thereby relieving him of his obligation as
guarantor or surety of such obligation.

On November 27, 1998, the Court of Appeals denied the motion for lack of merit.

ISSUES:
1. Whether the execution by the respondent Bank of the Fourth Amendatory Agreement
extinguished petitioner’s obligations as surety; and
2. Whether the "continuing guarantee" executed by the petitioner is a contract of surety
adhesion.

RULING:
We find the petition without merit. As to the first issue, we note that the amendatory
agreement between the respondent Allied Banking Corporation and Cheng Ban Yek & Co.,
Inc. extended the maturity of the promissory notes without notice or consent of the petitioner
as surety of the obligations. However, the "continuing guarantee" executed by the petitioner
provided that the he consents and agrees that the bank may, at any time or from time to time
extend or change the time of payments and/or the manner, place or terms of payment of all
such instruments, loans, advances, credits or other obligations guaranteed by the surety.
Hence, the extensions of the loans did not release the surety.

As to the second issue, even if the "continuing guarantee" were considered as one of
adhesion, we find the contract of "surety" valid because petitioner was "free to reject it
entirely." Petitioner was a stockholder and officer of Cheng Ban Yek and Co., Inc. and it was
common business and banking practice to require "sureties" to guarantee corporate
obligations.

7. Diamond Builders Conglomeration vs. Country Bankers Insurance Corp, 540 SCRA
194 (2007)
FACTS:
Marceliano Borja filed a petition in RTC against Rogelio S. Acidre (Rogelio) for the latter’s
breach of his obligation to construct a residential and commercial building. Rogelio is the sole
proprietor of petitioner Diamond Builders Conglomeration (DBC).

To end the litigation, the parties entered into a Compromise Agreement. The RTC Caloocan
approved the Compromise Agreement and rendered a Decision in accordance with the terms
and conditions contained therein. The Compromise Agreement provides that Petitioner
Rogelio admits full payment of plaintiff to him the amount of P1,530,000.00 leaving the
balance of P570,000.00 of the contractual price of P2,100,000.00 for the construction of the
buildings. P370,000.00 shall be paid on the 5th day from approval of this compromise
agreement by the Court and also the start of the 75 days for petitioner Rogelio to complete
the construction of the building. The remaining 200k shall be paid out when the building is
fully constructed. However, in the event petitioner Rogelio shall fail to fully complete the
construction of the building within 75 days he shall not be entitled to any further payments
and the performance of a surety bond shall be fully implemented by way of penalizing
petitioner Rogelio and/or as award for damages in favor of plaintiff. That any violation and/or
avoidance of the terms and conditions of this Compromise Agreement by either of the parties
herein shall forthwith entitle the aggrieved party to an immediate execution hereof.

DBC obtained a Surety Bond from Country Bankers in favor of the spouses Borja. In this
regard, Rogelio and his spouse, petitioner Teresita P. Acidre, together with DBC employees
Grace C. Osias, Violeta S. Faiyaz and Emma S. Cutillar (the other petitioners herein), signed
an Indemnity Agreement consenting to their joint and several liability to Country Bankers
should the surety bond be executed upon.

On April 23, 1992, Country Bankers received a Motion for Execution of the surety bond filed
by Borja with the RTC Caloocan for Rogelio’s alleged violation of the Compromise
Agreement. Rogelio then filed an Urgent Omnibus Motion to suspend the Writ of Execution,
it was not immediately acted upon and so DBP was constrained to pay the amount of the
surety bond.

In the meantime, after Country Bankers was compelled to pay the amount of the surety bond,
it demanded reimbursement from the petitioners under the Indemnity Agreement. However,
petitioners refused to reimburse Country Bankers.

In addition, upon the dismissal of their petition in CA, petitioners wrote Country Bankers and
informed the latter that the voluntary payment of the bond effectively prevented them from
contesting the validity of the issuance of the Writ of Execution.

As a result, Country Bankers filed a complaint for sum of money against the petitioners which
the RTC Manila dismissed.
 In reversing the trial court, the CA ruled that Country Bankers, as surety of Rogelio’s loan
obligation, did not effect voluntary payment on the bond. The appellate court found that what
Country Bankers paid was an obligation legally due and demandable. It declared that Country
Bankers acted upon compulsion of a writ of execution which is validly issued. Hence this
appeal.

ISSUE:
Whether petitioners should indemnify Country Bankers for the payment of the surety bond.

RULING:
Yes. The Compromise Agreement between Borja and Rogelio explicitly provided that the
latter’s failure to complete construction of the building within the stipulated period shall cause
the full implementation of the surety bond as a penalty for the default, and as an award of
damages to Borja. Furthermore, the Compromise Agreement contained a default executory
clause in case of a violation or avoidance of the terms and conditions thereof. Therefore, the
payment made by Country Bankers to Borja was proper, as failure to pay would have
amounted to contumacious disobedience of a valid court order.

Article 2047 of the Civil Code specifically calls for the application of the provisions on solidary
obligations to suretyship contracts. In particular, Article 1217 of the Civil Code recognizes the
right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in
favor of the one who paid (i.e., the surety).

In contrast, Article 1218 of the Civil Code is definitive on when reimbursement is unavailing,
such that only those payments made after the obligation has prescribed or became illegal
shall not entitle a solidary debtor to reimbursement. Nowhere in the invoked CA Decision
does it declare that a surety who pays, by virtue of a writ of execution, is not entitled to
reimbursement from the principal co-debtor.

8. Erma Industries, Inc.vs. Security Bank Corp., G.R. No. 191274, Dec. 06, 2017

DOCTRINE:
A counter-offer to an offer to novate a contract shall operate as a rejection of the previous
offer, and no novation shall arise unless there is a new agreement.

FACTS:
Petitioner Erma Industries obtained from Respondent Security Bank a credit facility, as
agreed upon in a Credit Extension agreement. Sergio Ortiz-Luis executed a Continuing
Suretyship Agreement in favor of Security Bank, as surety for Erma Industries. Erma
obtained several loans from Security Bank, but defaulted in its payment. In total, about
P17,995,214.47 and US$289,730.10 were u paid. Erma offered a restructuring of the unpaid
 debts into a 5- year loan plan, but Security Bank was willing to restructure the debt only up
to 5 million pesos. Security Bank filed a claim over the entire debt, and the lower courts
adjudged both Erma and Ortiz-Luis jointly and severally liable. Ortiz-Luis argues that he
cannot be made surety anymore, as the subsequent transactions between petitioner and
respondent concerning the restructuring of the loan amounted to a novation.

ISSUE:
Whether inconclusive restructuring transactions tantamount to novation?

HELD:
No. Respondent Ortiz's claim of novation was likewise rejected by the lower courts. The
Regional Trial Court and the Court of Appeals were in agreement that while there were
ongoing negotiations between Erma and Security Bank for the restructuring of the loan, the
same did not materialize. Erma offered to restructure its entire outstanding obligation and
delivered TCT No. M-7021 as collateral, to which Security Bank counter-offered a partial
restructuring or only up to P5,000,000. This counter-offer was not accepted by Erma. There
was no new contract executed between the parties evidencing the restructured loan.

9. FGU Ins. Corp. vs. Sps. Roxas, G.R. No. 189526, Aug. 09, 2017

FACTS:
The liability of a surety is determined strictly in accordance with the actual terms of the
performance bond it issued. It may, however, set up compensation against the amount owed
by the creditor to the principal.

The Spouses Roxas entered into a Contract of Building Construction with Rosendo P.
Dominguez, Jr. (Dominguez) and Philtrust Bank to complete the construction of their housing
project known as "Vista Del Mar Executive Houses."

Pursuant to the Contract of Building Construction, Dominguez secured a performance bond

(Surety Bond), with face amount of P450,000.00, from FGU. FGU and Dominguez bound
themselves to jointly and severally pay Floro Roxas (Floro) and Philtrust Bank the agreed
amount in the event of Dominguez's non-performance of his obligation under the Contract.

Dominguez failed to complete even 60% of the project despite its release of P876,000.00.
As such, it asked Dominguez to pay P1,000.00 per day of delay as liquidated damages until
fulfillment of his obligation. Lastly, Philtrust Bank averred that it sent several demand letters
to FGU to pay P450,000.00 for non-performance of its principal, but the latter refused to pay
 The Court of Appeals held that FGU, as surety under was obligated to pay the Spouses
Roxas and Philtrust Bank the amount of P450,000.00 for Dominguez's non-completion of the
construction project within the stipulated period

ISSUE:
Whether the Court of Appeals erred in holding FGU Insurance Corporation liable for the full
amount of P450,000.00 of its Surety Bond rather than the cost overrun on account of
Rosendo P. Dominguez, Jr.'s non-completion of the project.

RULING:
A surety's liability is joint and several with the principal. "Article 2047 of the Civil Code
provides that suretyship arises upon the solidary binding of a person deemed the surety with
the principal debtor for the purpose of fulfilling an obligation."

Although the surety's obligation is merely secondary or collateral to the obligation contracted
by the principal, this Court has nevertheless characterized the surety's liability to the creditor
of the principal as "direct, primary, and absolute; in other words, the surety is directly and
equally bound with the principal."

Moreover, Article 1216 in relation to Article 2047 of the Civil Code provides:

The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle
to those which may subsequently be directed against the others, so long as the debt
has not been fully collected.

Pursuant to the foregoing provisions, FGU, as surety, may be sued by the creditor separately
or together with Dominguez as principal, in view of the solidary nature of its liability.

10. Dev’t. Bank of the Phils. vs. Hon. Carpio, G.R. No. 195450, Feb. 01, 2017

FACTS:
Petitioners certificates of title were submitted to DBP for safekeeping pursuant to the loan
agreement they entered into with DBP. The same certificates of title were turned over by
DBP to GFSME because of its call on GFSME's guarantee on their loan, which became due
and demandable, and pursuant to the guarantee agreement between DBP and GFSME.

Due to the non-delivery of the certificates of title by Abad, et al., DBP filed its
Motion/Application to Call on Plaintiff's Surety Bond, dated February 3, 2004, praying for the
release of the bond issued by CBIC to answer for the damages it sustained as a result of the
failure to return the 228 certificates of title.
 The CA dismissed the case and provided that the claim for damages against the bond must
be filed before trial or before appeal was perfected or before the judgment became executory.

ISSUE:
Whether DBP has any recourse available.

RULING:
DBP could enforce its guarantee agreement with GFSME. A contract of guaranty gives rise
to a subsidiary obligation on the part of the guarantor.3A guarantor agrees that the creditor,
after proceeding against the principal, may proceed against the guarantor if the principal is
unable to pay. Moreover, he contracts to pay if, by the use of due diligence, the debt cannot
be made out of the principal debtor.

11. Castellvi de Higgins and Higgins vs. Sellner, 41 Phil 142 (1921)

FACTS:
Sellner (defendant) wrote a letter to Mcleod (Castellvi’s agent) saying that he would bound
himself to pay the promissory note of Mining, Clarke and Maye amounting 10K + interest if
not fully paid at maturity, upon the surrender 3k shares of Keystone Mining Company.

Plaintiffs contend that he is a surety; defendant contends that he is a guarantor. Plaintiffs

also admit that if defendant is a guarantor, articles 1830, 1831, and 1834 of the Civil Code
govern.

ISSUE:
Whether Sellner is a guarantor or surety.

RULING:
Sellner is a GUARANTOR. 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 was not bound with Castellvi by the same instrument executed at the time and the
same consideration, but his responsibility was secondary, one founded on an independent
collateral agreement. Neither was he jointly and severally liable with Castellvi.
In the original Spanish of the Civil Code now in force in the Philippine Islands, Title XIV of
Book IV is entitled "De la Fianza." The Spanish word "fianza" is translated in the Washington
and Walton editions of the Civil Code as "security." "Fianza" appears in the Fisher translation
as "suretyship." The Spanish world "fiador" is found in all of the English translations of the
Civil Code as "surety." The law of guaranty is not related of by that name in the Civil Code,
although indirect reference to the same is made in the Code of Commerce. In terminology at
least, no distinction is made in the Civil Code between the obligation of a surety and that of
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.

The civil law suretyship is, accordingly, nearly synonymous with the common law guaranty;
and the civil law relationship existing between codebtors liable in solidum is similar to the
common law suretyship.