SECOND DIVISION

[G.R. No. 113931. May 6, 1998.]

E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS,

CONSOLIDATED BANK AND TRUST CORPORATION, and
SPOUSES RAUL AND ELEA R. CLAVERIA, respondents.

Herrera, Teehankee & Faylona for petitioner.

De los Reyes, Banaga, Briones & Associates for private respondents.
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DECISION

MARTINEZ, J : p

This petition for review on certiorari seeks the reversal of the decision 1
of the Court of Appeals dated July 13, 1993 which affirmed the Order of the
Regional Trial Court of Manila, Branch 51, denying petitioner's Motion to
Dismiss the complaint, as well as the Resolution 2 dated February 15, 1994
denying the motion for reconsideration thereto. cdasia

The facts are as follows:

Respondent spouses Raul and Elea Claveria, doing business under the
name "Agro Brokers," applied for a loan with respondent Consolidated Bank
and Trust Corporation (now SOLIDBANK) in the amount of Two Million Eight
Hundred Seventy Five Thousand Pesos (P2,875,000.00) to finance the
purchase of two (2) maritime barges and one tugboat 3 which would be used
in their molasses business. The loan was granted subject to the condition
that respondent spouses execute a chattel mortgage over the three (3)
vessels to be acquired and that a continuing guarantee be executed by
Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc., in
favor of SOLIDBANK. The respondent spouses agreed to the arrangement.
Consequently, a chattel mortgage and a Continuing Guaranty 4 were
executed.
Respondent spouses defaulted in the payment of the entire obligation
upon maturity. Hence, on January 31, 1991, SOLIDBANK filed a complaint for
sum of money with a prayer for a writ of preliminary attachment, against
respondents spouses and petitioner. The case was docketed as Civil Case
No. 91-55909 in the Regional Trial Court of Manila.
Petitioner moved to dismiss the complaint on the ground that its
liability as guarantor of the loan was extinguished pursuant to Article 2080
of the Civil Code of the Philippines. It argued that it has lost its right to be
subrogated to the first chattel mortgage in view of SOLIDBANK's failure to
register the chattel mortgage with the appropriate government agency.
SOLIDBANK opposed the motion contending that Article 2080 is not
applicable because petitioner is not a guarantor but a surety.
On February 18, 1993, the trial court issued an Order, portions of which
reads:
"After a careful consideration of the matter on hand, the Court
finds the ground of the motion to dismiss without merit. The
document referred to as 'Continuing Guaranty' dated August 21, 1985
(Exh. 7) states as follows:
'For and in consideration of any existing indebtedness to you of
Agro Brokers, a single proprietorship owned by Mr. Raul Claveria 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 other
manner, to, or at the request or for the account of the borrower, . . . '
"The provisions of the document are clear, plain and explicit.
"Clearly therefore, defendant E. Zobel, Inc. signed as surety.
Even though the title of the document is 'Continuing Guaranty', the
Court's interpretation is not limited to the title alone but to the
contents and intention of the parties more specifically if the language
is clear and positive. The obligation of the defendant Zobel being that
of a surety, Art. 2080 New Civil Code will not apply as it is only for
those acting as guarantor. In fact, in the letter of January 31, 1986 of
the defendants (spouses and Zobel) to the plaintiff it is requesting
that the chattel mortgage on the vessels and tugboat be waived
and/or rescinded by the bank inasmuch as the said loan is covered by
the Continuing Guaranty by Zobel in favor of the plaintiff thus
thwarting the claim of the defendant now that the chattel mortgage is
an essential condition of the guaranty. In its letter, it said that
because of the Continuing Guaranty in favor of the plaintiff the
chattel mortgage is rendered unnecessary and redundant.
"With regard to the claim that the failure of the plaintiff to
register the chattel mortgage with the proper government agency,
i.e. with the Office of the Collector of Customs or with the Register of
Deeds makes the obligation a guaranty, the same merits a scant
consideration and could not be taken by this Court as the basis of the
extinguishment of the obligation of the defendant corporation to the
plaintiff as surety. The chattel mortgage is an additional security and
should not be considered as payment of the debt in case of failure of
payment. The same is true with the failure to register, extinction of
the liability would not lie.
"WHEREFORE, the Motion to Dismiss is hereby denied and
defendant E. Zobel, Inc., is ordered to file its answer to the complaint
within ten (10) days from receipt of a copy of this Order." 5
Petitioner moved for reconsideration but was denied on April 26, 1993.
6

Thereafter, petitioner questioned said Orders before the respondent

Court of Appeals, through a petition for certiorari, alleging that the trial court
committed grave abuse of discretion in denying the motion to dismiss.
 On July 13, 1993, the Court of Appeals rendered the assailed decision
the dispositive portion of which reads:
"WHEREFORE, finding that respondent Judge has not committed
any grave abuse of discretion in issuing the herein assailed orders,
We hereby DISMISS the petition."
A motion for reconsideration filed by petitioner was denied for lack of
merit on February 15, 1994.
Petitioner now comes to us v i a this petition arguing that the
respondent Court of Appeals erred in its finding: (1) that Article 2080 of the
New Civil Code which provides: "The guarantors, even though they be
solidary, are released from their obligation whenever by some act of the
creditor they cannot be subrogated to the rights, mortgages, and
preferences of the latter," is not applicable to petitioner; (2) that petitioner's
obligation to respondent SOLIDBANK under the continuing guaranty is that of
a surety; and (3) that the failure of respondent SOLIDBANK to register the
chattel mortgage did not extinguish petitioner's liability to respondent
SOLIDBANK.
We shall first resolve the issue of whether or not petitioner under the
"Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a
surety.
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. 7 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. 8
Strictly speaking, guaranty and surety are nearly related, and many of
the principles are common to both. However, under our civil law, they may
be distinguished thus: A surety is usually bound with his principal by the
same instrument, executed at the same time, and on the same
consideration. He is an original promissor and debtor from the beginning,
and is held, ordinarily, to know every default of his principal. Usually, he will
not be discharged, either by the mere indulgence of the creditor to the
principal, or by want of notice of the default of the principal, no matter how
much he may be injured thereby. On the other hand, the contract of
guaranty is the guarantor's own separate undertaking, in which the principal
does not join. It is usually entered into before or after that of the principal,
and is often supported on a separate consideration from that supporting the
contract of the principal. The original contract of his principal is not his
contract, and he is not bound to take notice of its non-performance. He is
often discharged by the mere indulgence of the creditor to the principal, and
is usually not liable unless notified of the default of the principals. 9
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. 10
 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 . . .
(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, either with or
without purchase or discount, or to make any loans or advances
evidenced or secured by any notes, bills receivable, drafts,
acceptances, checks or other instruments or evidences of
indebtedness . . . upon which the Borrower is or may become liable as
maker, endorser, acceptor, or otherwise, the undersigned agrees to
guarantee , and does hereby guarantee, the punctual payment, at
maturity or upon demand, to you of any and all such instruments,
loans, advances, credits and/or other obligations herein before
referred to, and also any and all other indebtedness of every kind
which is now or may hereafter become due or owing to you by the
Borrower, together with any and all expenses which may be incurred
by you in collecting all or any such instruments or other indebtedness
or obligations hereinbefore referred to, and or in enforcing any rights
hereunder, and also to make or cause any and all such payments to
be made strictly in accordance with the terms and provisions of any
agreement (g), express or implied, which has (have) been or may
hereafter be made or entered into by the Borrower in reference
thereto, regardless of any law, regulation or decree, now or hereafter
in effect which might in any manner affect any of the terms or
provisions of any such agreements(s) or your right with respect
thereto as against the Borrower, or cause or permit to be invoked any
alteration in the time, amount or manner of payment by the Borrower
of any such instruments, obligations or indebtedness; . . . " (Emphasis
Supplied) cdasia

One need not look too deeply at the contract to determine the nature
of the undertaking and the intention of the parties. The contract clearly
disclose that petitioner assumed liability to SOLIDBANK, as a regular party to
the undertaking and obligated itself as an original promissor. It bound itself
jointly and severally to the obligation with the respondent spouses. In fact,
SOLIDBANK need not resort to all other legal remedies or exhaust
respondent spouses' properties before it can hold petitioner liable for the
obligation. This can be gleaned from a reading of the stipulations in the
contract, to wit:

' . . . If default be made in the payment of any of the instruments,

indebtedness or other obligation hereby guaranteed by the
undersigned, or if the Borrower, or the undersigned should die,
dissolve, fail in business, or become insolvent, . . , or if any funds or
 other property of the Borrower, or of the undersigned which may be or
come into your possession or control or that of any third party acting in
your behalf as aforesaid should be attached of distrained, or should be
or become subject to any mandatory order of court or other legal
process, then, or any time after the happening of any such event any or
all of the instruments of indebtedness or other obligations hereby
guaranteed shall, at your option become (for the purpose of this
guaranty) due and payable by the undersigned forthwith without
demand of notice, and full power and authority are hereby given you,
in your discretion, to sell, assign and deliver all or any part of the
property upon which you may then have a lien hereunder at any
broker's board, or at public or private sale at your option, either for
cash or for credit or for future delivery without assumption by you of
credit risk, and without either the demand, advertisement or notice of
any kind, all of which are hereby expressly waived. At any sale
hereunder, you may, at your option, purchase the whole or any part of
the property so sold, free from any right of redemption on the part of
the undersigned, all such rights being also hereby waived and
released. In case of any sale and other disposition of any of the
property aforesaid, after deducting all costs and expenses of every
kind for care, safekeeping, collection, sale, delivery or otherwise, you
may apply the residue of the proceeds of the sale and other disposition
thereof, to the payment or reduction, either in whole or in part, of any
one or more of the obligations or liabilities hereunder of the
undersigned whether or not except for disagreement such liabilities or
obligations would then be due, making proper allowance or interest on
the obligations and liabilities not otherwise then due, and returning the
overplus, if any, to the undersigned; all without prejudice to your rights
as against the undersigned with respect to any and all amounts which
may be or remain unpaid on any of the obligations or liabilities
aforesaid at any time(s)"

xxx xxx xxx

'Should the Borrower at this or at any future time furnish, or
should be heretofore have furnished, another surety or sureties to
guarantee the payment of his obligations to you, the undersigned
hereby expressly waives all benefits to which the undersigned might
be entitled under the provisions of Article 1837 of the Civil Code
(beneficio division), the liability of the undersigned under any and all
circumstances being joint and several;" (Emphasis Ours)

The use of the term "guarantee" does not ipso facto mean that the
contract is one of guaranty. Authorities recognize that the word " guarantee"
is frequently employed in business transactions to describe not the security
of the debt but an intention to be bound by a primary or independent
obligation. 11 As aptly observed by the trial court, the interpretation of a
contract is not limited to the title alone but to the contents and intention of
the parties.
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.
I n Bicol Savings and Loan Association vs. Guinhawa, 12 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.
But even assuming that Article 2080 is applicable, SOLIDBANK's failure
to register the chattel mortgage did not release petitioner from the
obligation. In the Continuing Guaranty executed in favor of SOLIDBANK,
petitioner bound itself to the contract irrespective of the existence of any
collateral. It even released SOLIDBANK from any fault or negligence that may
impair the contract. The pertinent portions of the contract so provides:
" . . . the undersigned (petitioner) who hereby agrees to be and
remain bound upon this guaranty, irrespective of the existence, value
or condition of any collateral, and notwithstanding any such change,
exchange, settlement, compromise, surrender, release, sale,
application, renewal or extension, and notwithstanding also that all
obligations of the Borrower to you outstanding and unpaid at any
time(s) may exceed the aggregate principal sum herein above
prescribed.
'This is a Continuing Guaranty and shall remain in full force and
effect until written notice shall have been received by you that it has
been revoked by the undersigned, but any such notice shall not be
released the undersigned from any liability as to any instruments,
loans, advances or other obligations hereby guaranteed, which may
be held by you, or in which you may have any interest, at the time of
the receipt or such notice. No act or omission of any kind on your part
in the premises shall in any event affect or impair this guaranty, nor
shall same be affected by any change which may arise by reason of
the death of the undersigned, of any partner(s) of the undersigned, or
of the Borrower, or of the accession to any such partnership of any
one or more new partners." (Emphasis supplied)
In fine, we find the petition to be without merit as no reversible error
was committed by respondent Court of Appeals in rendering the assailed
decision.
WHEREFORE, the decision of the respondent Court of Appeals is hereby
AFFIRMED. Costs against the petitioner.
SO ORDERED. cdasia

Regalado, Melo and Puno, JJ ., concur.

Mendoza, J ., took no part, having concurred in the decision of the
Court of Appeals when I was a member of that Court.
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Footnotes

1. Â Annex "I," p. 80, Rollo ; The decision was penned by Justice Ma. Alicia
Austria-Martinez and concurred in by Justice Vicente V. Mendoza and Justice
Alfredo L. Benipayo.

2. Â Annex "J," p. 91, ibid.

3. Â Annex "A," p. 39, Rollo .

4. Â Annex "B," pp. 41-42.

5. Â Annex "G," pp. 70-75, Rollo .

6. Â Annex "H," p. 77, ibid.

7. Â Bouvier's Law Dictionary, Vol. I, Eighth Edition, p. 1386; Hope vs. Board, 43
La. Ann. 738, 9 South. 754.

8. Â Ibid.; Shaw, C. J. Dole vs Young, 24 Pick. (Mass.), 252.

9. Â Brandt, Surety and Guaranty; cited in Bouvier's Law Dictionary, supra., p.

1386.

10. Â Machetti vs. Hospicio, 43 Phil. 297.

11. Â 24 Am. Jur. 876 cited in De Leon, Credit Transactions, 1984 Ed.. p. 187.

12. Â 188 SCRA 647.