Aguilar, Jaspher P.

Commercial Laws I | JD 2-3

US v. Varadero de la Quinta., GR 14370. Sep. 1, 1919, 40 Phil. 48

Facts:
The case involves the United States suing Varadero de la Quinta for non-performance of a
contract to construct scows, with guarantors Arellano and Jose also being implicated. The
court determined that while the principal debtor Varadero de la Quinta was liable for excess
costs, the guarantors could be held liable without needing to be sued jointly with the principal.

Issue:
Whether the guarantors can be held liable for the non-performance of the contract without
being sued jointly with the principal debtor.

Ruling:
The court ruled that the guarantors could be held liable for damages resulting from the
principal's non-performance, even though they were not sued jointly with the principal debtor.

Application:
The obligation of a guarantor is secondary to that of the principal debtor, allowing for the
guarantor's liability to be enforced independently once it is established that the principal has
failed to perform their contractual obligations.

Conclusion:
Judgment is modified so that so much as adjudges Cho Chung Chee liable as principal is
eliminated, and, as thus modified, judgment is affirmed with interest, and with the costs of
this instance against the appellants. So ordered.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Towers Assurance Corp. v. Ororama Supermart, GR L-45848. Nov. 9, 1977, 80 SCRA

Facts:
The case involves Towers Assurance Corporation, which acted as a surety for the Ong spouses
in a counterbond to lift a writ of preliminary attachment. After the Ong spouses were declared
in default and a judgment was rendered against them, a writ of execution was issued against
both the spouses and the surety without giving the surety an opportunity to be heard.

Issue:
whether the lower court violated procedural due process by issuing a writ of execution against
the surety without providing notice and a hearing.

Ruling:
The court ruled that the lower court acted with grave abuse of discretion in issuing the writ
of execution against Towers Assurance Corporation without first giving it an opportunity to be
heard, as required by Rule 57 of the Rules of Court.

Analysis:
A surety is entitled to a hearing before execution can be enforced against it, emphasizing the
importance of procedural due process in ensuring that the surety has the opportunity to
defend against liability under the counterbond. The court highlighted that notice and hearing
are essential before any execution against a surety can occur.

Conclusion:
WHEREFORE, the order and writ of execution, insofar as they concern Towers Assurance
Corporation, are set aside. The lower court is directed to conduct a summary hearing on the
surety's liability on its counter bond. No costs.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Tuason, Tuason, Inc. v. Machuca, GR L-22177. Dec. 2, 1924, 46 Phil. 561

Facts:
The case involves Tuason, Tuason, Inc. seeking reimbursement from Antonio Machuca for a
debt of P12,197.27 that it was obligated to pay to "Manila Compania de Seguros" due to a
bond executed by the Universal Trading Company. The plaintiff claimed reimbursement based
on a solidary agreement, despite not having made the actual payment to "Manila Compania
de Seguros."

Issue:
Whether Tuason, Tuason, Inc. can recover the amount from Antonio Machuca without having
made the payment to "Manila Compania de Seguros."

Ruling:
The court ruled that Tuason, Tuason, Inc. has the right to recover P9,663 from Antonio
Machuca, as it was bound by a final judgment to pay this amount, despite not having actually
paid "Manila Compania de Seguros."

Analysis:
A surety can seek reimbursement based on a solidary agreement, but must demonstrate the
existence of a binding obligation. The court clarified that the action was not under Article 1843
since the plaintiff's claim was based on the premise of payment, which had not occurred.

Conclusion:
The judgment appealed from is modified, and the defendant is sentenced to pay the plaintiff
the sum of P9,663, with interest thereon at the rate of 10 per cent per annum from July 19,
1923, when the complaint was filed until full payment thereof, plus the sum of P1,653.65 for
attorney's fees, without special pronouncement as to costs. So ordered.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Saenz v. Yap Chuan., GR 5470. Mar. 22, 1910, 16 Phil. 76

Facts:
Engracio Palanca, as the judicial administrator of an estate, executed a bond with Luis S. de
Vizmanos and others as sureties. When Palanca failed in his obligations, Vizmanos was
ordered by the court to pay the estate. After paying part of the debt, Vizmanos sought
reimbursement from the other sureties based on a separate agreement they had executed in
his favor.

Issue:
Whether or not the four sureties are liable to reimburse Vizmanos the full amount of P5,000
each or only their proportional share of what he actually paid.

Ruling:
The court ruled that the four sureties are only liable to reimburse Vizmanos in proportion to
what he actually paid, reducing their individual liability from P2,000 each to P1,000 each.

Analysis:
The obligation of the sureties was one of indemnity, meaning they were only required to
reimburse the actual loss suffered by Vizmanos. Since he paid only P8,000, the proper division
among the four sureties was P1,000 each. Allowing them to pay more would result in unjust
enrichment.

Conclusion:
In virtue of the foregoing, the judgment appealed from is reversed in so far as it sentences
each one of the four defendants, Yap Chutco, Carlos Palanca Tanguinlay, Serafin Palanca Yap
Poco, and Lim Biang Pong (alias Lim Pongco), to pay to the plaintiff, Luis Saenz de Vizmanos,
the sum of P2,000. The amount to be paid is hereby fixed at P1,000, to the payment of which,
in favor of the aforesaid plaintiff, each of the four defendants mentioned were sentenced,
"with legal interest at the rate of 6 per cent per annum on the said respective sums, from
March 31, 1908, the date on which the plaintiff paid to the present administrator of the said
estate the said sum of P8,000, until its complete payment. The said four defendants shall pay
the costs in equal shares." the costs of this instance shall be assessed against the plaintiff
and appellant Vizmanos. So ordered.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

PNB v. Luzon Surety Co., Inc., GR L-29587. Nov. 28, 1975, 68 SCRA 207

Facts:
The case involves Luzon Surety Co., Inc. as a guarantor for a crop loan obtained by Augusto
R. Villarosa from the Philippine National Bank (PNB). The Supreme Court ruled that Luzon
Surety was liable for the bond amount and that it could be held responsible for interest on
the debt due to its failure to pay upon demand.

Issue:
Whether Luzon Surety Co., Inc. is entitled to be released from its obligations due to material
alterations in the loan terms without its consent.

Ruling:
The court ruled that Luzon Surety was liable for the amount of P10,000, with interest
computed from the date the complaint was filed, as the alterations in the loan terms were
made with its consent.

Analysis:
A surety is bound by the terms of the contract, and alterations made with the surety's consent
do not release it from liability. Additionally, the court clarified that a surety can be held liable
for interest if it fails to pay upon demand, regardless of the bond amount.

Conclusion:
PREMISES CONSIDERED, the judgment appealed from is reversed and set aside. In lieu
thereof another is rendered reinstating the judgment of the Court of First Instance of Negros
Occidental, 12th Judicial District, dated March 29, 1961, holding Luzon Surety liable for the
amount of P10,000.00 with the modification that interest thereon shall be computed at the
legal rate from June 8, 1960 when the complaint was filed.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Chemphil Export & Import Corp. v. CA, GR 112438-39, Dec. 12, 1995, 251 SCRA
257

Facts:
The case involves Chemphil Export and Import Corporation (CEIC) claiming ownership of
shares in the Chemical Industries of the Philippines after acquiring them from Ferro Chemicals,
Inc. (FCI), which had purchased them from Antonio Garcia. CEIC argued for subrogation to
the rights of Security Bank & Trust Company (SBTC) after paying Garcia's debt, asserting that
it should inherit SBTC's rights over the shares.

Issue:
Whether CEIC has the right to claim subrogation to SBTC's rights regarding the disputed
shares.

Ruling:
The court ruled that CEIC's claims of subrogation were dismissed because the payment to
SBTC was made with Garcia's funds, not CEIC's, thus CEIC could not claim the rights of SBTC.

Analysis:
Legal subrogation under Article 1302(2) of the Civil Code does not apply when the payment
is made with the debtor's funds. Therefore, CEIC could not assert any rights over the shares
based on subrogation.

Conclusion:
WHEREFORE, premises considered the appealed decision in G.R. Nos. 112438-39 is hereby
AFFIRMED and the appealed decision in G.R. No. 113394, insofar as it adjudged the CEIC the
rightful owner of the disputed shares, is hereby REVERSED. Moreover, for wantonly resorting
to forum-shopping, PCIB is hereby REPRIMANDED and WARNED that a repetition of the same
or similar acts in the future shall be dealt with more severely.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Escano v. Ortigas, Jr., GR 151953. June 29, 2007, 526 SCRA 26

Facts:
The case involves a loan agreement where Falcon Minerals, Inc. defaulted on its obligations
to PDCP, leading to a dispute over the liability of the petitioners, who executed an Undertaking
to assume the obligations of Ortigas, one of the stockholders. The court examined whether
the rights of indemnification and subrogation, typically granted to a guarantor, extend to the
sureties identified in the Undertaking.

Issue:
Whether the petitioners are solidarily liable to Ortigas under the terms of the Undertaking or
merely jointly liable.

Ruling:
The court ruled that the petitioners were only jointly liable to Ortigas, not solidarily, and
modified the lower court's order accordingly.

Analysis:
In the absence of express terms indicating solidary liability, obligations are presumed to be
joint. The court clarified that the rights of indemnification and subrogation granted to sureties
do not automatically confer solidary liability unless explicitly stated in the agreement.

Conclusion:
WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5
October 1995 is modified by declaring that petitioners and Joseph M. Matti are only jointly
liable, not jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of
P1,300,000.00.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Manila Surety & Fidelity Co., Inc. v. Almeda, GR L-27249. July 31, 1970, 34 SCRA
136

Facts:
The case involves Manila Surety & Fidelity Co., Inc. seeking release from its obligation as a
surety after the principal debtor, Generoso Esquillo, was declared insolvent. The surety argued
that it should be released from liability under the bonds without the creditor's consent, given
the insolvency of the debtor.

Issue:
Whether a surety can be released from its liability under a bond without the creditor's consent,
despite the prior declaration of insolvency of the principal debtor.

Ruling:
The court ruled that the insolvency of the debtor-principal did not discharge the surety's
liability under the bond, emphasizing that the surety's release can only be sought against the
principal debtor and not against the creditor.

Analysis:
Guarantor's obligation remains intact despite the principal debtor's insolvency, as the
creditor's consent is necessary for any release of the guaranty. The surety's rights can only
be asserted through a contingent claim in the insolvency proceedings, and the surety remains
liable for any unsatisfied amounts up to the bond limit.

Conclusion:
WHEREFORE, with the modification that appellant's liability shall be limited to the payment of
whatever amount may remain due to the appellee NAMARCO and is unsatisfied in the
insolvency proceeding, but not to exceed the amount of the surety's undertaking under the
bonds, the decision appealed from is affirmed in all other respects. Costs against appellant
surety company.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Tecnogas Phils. Manufacturing Corp. v. PNB, GR 161004, Apr. 14, 2008, 551 SCRA
183

Facts:
Tecnogas Philippines Manufacturing Corporation defaulted on its loan obligations to the
Philippine National Bank (PNB), leading to the proposal of dacion en pago as a means to settle
the debt. However, PNB did not accept this proposal, which was crucial in determining the
validity of the foreclosure of the Real Estate Mortgage (REM) securing the loan.

Issue:
Whether or not Tecnogas had a clear legal right to injunctive relief against the extrajudicial
foreclosure initiated by PNB.

Ruling:
The court ruled that Tecnogas lacked a clear legal right to injunctive relief since its proposal
for dacion en pago was not accepted by PNB, and thus the foreclosure was a proper
consequence of Tecnogas' default.

Analysis:
A valid tender of payment requires acceptance by the creditor; without such acceptance, the
obligation remains, and the creditor is entitled to enforce the mortgage. The court emphasized
that the failure to establish a clear legal right precludes the issuance of a preliminary
injunction.

Conclusion:
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed Decision and
Resolution dated July 24, 2003 and November 5, 2003, respectively, of the Court of Appeals
in CA-G.R. SP No. 73822 are hereby AFFIRMED. Costs against petitioner.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Bicol Savings & Loan Association v. Guinhawa, GR 62415. Aug. 20, 1990, 188 SCRA
642

Facts:
The case involves a loan agreement where Jaime Guinhawa acted as a solidary co-maker with
Victorio Depositario, who provided a Yamaha Motorcycle as collateral through a chattel
mortgage. After the motorcycle was foreclosed due to non-payment, a deficiency amount
remained, leading to a legal dispute over Guinhawa's liability for the deficiency.

Issue:
Whether Guinhawa can be held liable for the deficiency after the foreclosure of the chattel
mortgage, given that he was not a party to the mortgage.

Ruling:
The court ruled that Guinhawa could be held liable for the deficiency, as he was a solidary co-
maker on the promissory note and the creditor had the right to pursue any solidary debtor
for the full amount owed.

Analysis:
Under Article 1216 of the Civil Code, a creditor may proceed against any solidary debtor for
the full amount owed, regardless of whether they were a party to the collateral agreement,
as the obligation remains enforceable against all solidary debtors.

Conclusion:
WHEREFORE, the appealed decision dated October 12, 1982 is hereby REVERSED and SET
ASIDE and the decision of the City Court dated December 4, 1981 is hereby REINSTATED.
Costs against the private respondent.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Agro Conglomerates, Inc. v. CA, GR 117660. Dec. 18, 2000, 348 SCRA 450

Facts:
The case involved Agro Conglomerates, Inc. and Mario Soriano, who signed promissory notes
as accommodation parties for a loan obtained by Wonderland Food Industries, Inc. Despite
the addendum stating that Wonderland would be responsible for the loan repayment, the
court found that the petitioners remained liable as sureties when Wonderland failed to fulfill
its obligations.

Issue:
Whether the addendum constituted a novation of the contract by substitution of debtor, which
would exempt the petitioners from any liability over the promissory notes.

Ruling:
The court ruled that there was no valid novation because the promissory notes were executed
after the addendum, and the obligations under the notes remained intact, thus the petitioners
were still liable for the loans.

Analysis:
Novation must be clearly established and cannot be presumed; in this instance, the
relationship between the petitioners and Wonderland was one of principal and surety, with
the petitioners directly liable to the bank despite the addendum. The court highlighted that
the rescission of the sales contract extinguished the suretyship, but the petitioners could not
retain the loan proceeds without legal grounds.

Conclusion:
WHEREFORE, the petition is DENIED for lack of merit. The assailed decision of the Court of
Appeals dated October 17, 1994 is AFFIRMED. Costs against petitioners.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Palmares v. CA, GR 126490. Mar. 31, 1998, 288 SCRA 422

Facts:
The case involves Estrella Palmares, who signed a promissory note as a co-maker for a loan
extended to the Azarraga spouses, binding herself to be jointly and severally liable. The
dispute arose over whether her liability was that of a surety, which is direct and immediate
upon default, or that of a guarantor, which is contingent upon the principal debtor's default.

Issue:
Whether Estrella Palmares is liable as a surety or merely as a guarantor under the promissory
note.

Ruling:
The court ruled that Estrella Palmares is primarily liable as a surety, affirming that her
obligations under the promissory note were clear and unequivocal, thus allowing the creditor
to pursue her for the entire obligation without first demanding payment from the principal
debtors.

Analysis:
A surety is directly liable for the debt, while a guarantor's liability arises only upon the
principal's default. The court clarified that the terms of the promissory note indicated
Palmares' solidary liability, which is characteristic of a suretyship, thereby negating her claims
of being merely a guarantor.

Conclusion:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award
of attorneyas fees is reduced to P10,000.00.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Manila Surety & Fidelity Co., Inc. v. Batu Construction & Co., GR L-9353 May 21,
1957, 101 Phil. 494

Facts:
The case involves Manila Surety and Fidelity Company, which posted a surety bond for P8,812
to secure the performance of Batu Construction & Company in a government project. The
bond was linked to an indemnity agreement where the defendants agreed to indemnify the
plaintiff for any losses incurred due to the bond. The construction contract was annulled due
to unsatisfactory progress, raising concerns about the defendants' solvency.

Issue:
Whether the provisions of Article 2071 of the Civil Code, which pertain to guaranty, can be
invoked by a surety.

Ruling:
The court ruled that the provisions of Article 2071 are applicable to a surety, allowing the
plaintiff to seek security to protect against the defendants' potential insolvency.

Analysis:
A surety, unlike a guarantor, assumes a greater obligation and can seek security against
creditor actions without needing to exhaust the principal debtor's properties first. The court
emphasized that the lack of proof of the defendants' insolvency did not negate the surety's
right to seek protection under the law.

Conclusion:
The order appealed from dismissing the complaint is reversed and set aside, and the case
remanded to the court below for determination of the amount of security that would protect
the plaintiff Company from any proceedings by the creditor or from the danger of insolvency
of the defendants, the principal debtors, and direction to the defendants to put up such
amount of security as may be established by competent evidence, without pronouncement as
to costs.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Ong v. Phil. Commercial International Bank, GR 160466. Jan. 17, 2005, 448 SCRA
705.

Facts:
The case involves petitioners Alfredo and Susana Ong, who acted as sureties for Baliwag
Mahogany Corporation's loans totaling five million pesos. After BMC filed for rehabilitation and
suspension of payments, the Ongs contended that the suspension should extend to their
liabilities as sureties, citing Articles 2063 and 2081 of the Civil Code.

Issue:
whether the suspension of payments declared by the SEC for BMC extends to the liabilities of
the petitioners as sureties.

Ruling:
The court ruled that the collection suit against the petitioners as sureties could proceed,
affirming that the provisions of the Memorandum of Agreement regarding the suspension of
payments pertain only to BMC and do not affect the sureties' obligations.

Analysis:
Sureties are directly liable for the debt and do not benefit from the same defenses available
to guarantors. The court emphasized that the creditor can pursue the surety independently
of the principal debtor's obligations, as established under Article 1216 of the Civil Code.

Conclusion:
IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement as to
costs.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Lim v. Security Bank Corp., GR 188539. Mar. 12, 2014, 718 SCRA 709

Facts:
The case involves Mariano Lim, who executed a Continuing Suretyship to secure credit
accommodations for Raul Arroyo. After Arroyo defaulted on a loan obtained six months post-
execution of the suretyship, Lim was held liable for the total amount due, including interest
and penalties.

Issue:
Whether Mariano Lim can be held liable for a loan obtained by the principal debtor, Raul
Arroyo, six months after the execution of the Continuing Suretyship.

Ruling:
The court ruled that Mariano Lim was liable for the loan obtained by the principal debtor, even
though it was secured after the execution of the Continuing Suretyship, as the terms of the
agreement bound him to all future debts incurred by the debtor.

Analysis:
A Continuing Suretyship obligates the surety to cover not only existing debts but also future
obligations, making the surety's liability direct and absolute in relation to the creditor,
regardless of the timing of the loan acquisition.

Conclusion:
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals, dated
July 30, 2008, in CA-G.R. CV No. 00462, is AFFIRMED with MODIFICATION in that the award
of attorney's fees is reduced to ten percent (10%) of the principal debt only.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Pastoral v. Mutual Security Insurance Corp., GR L-20469, Aug. 31, 1965

Facts:
The case involves Pedro C. Pastoral leasing a crane to Mapada & Company, Inc., with a surety
bond from Mutual Security Insurance Corporation. The bond required the lessor to notify the
surety of any lease violations within five days, but Pastoral only received the bond after the
defaults had occurred, leading to a dispute over the surety's liability.

Issue:
whether the surety was released from liability due to Pastoral's failure to notify them of
defaults within the stipulated five-day period.

Ruling:
The court ruled that the surety was not released from liability because Pastoral could not
comply with the notification requirement until he was aware of the bond's existence, which
was after the defaults occurred.

Analysis:
The principle of "strictissimi juris" does not apply to compensated sureties, as they operate
as businesses and are expected to protect themselves against losses through adequate
counterbonds. The court emphasized that the surety's failure to timely notify Pastoral of the
bond's conditions constituted a waiver of the notification requirement for defaults that had
already occurred.

Conclusion:
Wherefore, the decision of the Court of Appeals is reversed, and that of the Court of First
Instance of Manila is upheld and confirmed. Respondent-appellee Mutual Security Insurance
Corporation shall pay the costs in all instances.

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Aguilar, Jaspher P.
Commercial Laws I | JD 2-3

Pacific Tobacco Corp. v. Lorenzana, GR L-8086. Oct. 31, 1957, 102 Phil. 234

Facts:
The case involves the Pacific Tobacco Corporation and Ricardo D. Lorenzana, where
Lorenzana, as a distributor, entered into a contract requiring him to sell tobacco products in
specified territories and post a surety bond with the Visayan Surety & Insurance Corporation.
The surety argued that modifications to the contract, specifically the delivery of products
outside the agreed territories, should release them from liability, invoking the rule of
strictissimi juris.

Issue:
Whether the delivery of products outside the specified territories constitutes a material
alteration of the contract that would release the surety from its liability.

Ruling:
The court ruled that the delivery of products outside the specified territories did not constitute
a material alteration of the contract and therefore did not release the surety from its liability
under the bond.

Analysis:
The rule of strictissimi juris applies primarily to accommodation sureties, which act without
profit motives, while compensated sureties, like the Visayan Surety & Insurance Corporation,
must demonstrate material injury to evade liability. The court found no evidence that the
alleged contract modifications caused any loss or injury to the surety.

Conclusion:
Wherefore, the decision appealed from is hereby affirmed, "with costs against appellant. It is
so ordered.

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