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Phil. Export v. V.P. Eusebio FACTS: Respondent entered into contract with SOB for construction of Therapy Bldg. SOB demanded bonds to secure performance. Project was delayed DOCTRINE: 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 the person binds himself solidarily with the principal debtor, the contract is called suretyship. That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition. Unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had. INTERNATIONAL FINANCE CORPORATION, Petitioner, vs. IMPERIAL TEXTILE MILLS, INC.,* Respondent

The terms of a contract govern the rights and obligations of the contracting parties. When the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. If solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of suretyship. The creditor in the present Petition was able to show convincingly that, although denominated as a "Guarantee Agreement," the Contract was actually a surety. Notwithstanding the use of the words "guarantee" and "guarantor," the subject Contract was indeed a surety, because its terms were clear and left no doubt as to the intention of the parties. The obligations of the guarantors are meticulously expressed in the following provision: "Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as primary obligors and not as sureties merely, the due and punctual payment of the principal of, and interest and commitment charge on, the Loan, and the principal of, and interest on, the Notes, whether at stated maturity or upon prematuring, all as set forth in the Loan Agreement and in the Notes." PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING, petitioners, vs. COURT OF APPEALS and TRADERS ROYAL BANK, respondents Whether Ching is liable for obligations PBM contracted after execution of the Deed of Suretyship

Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM "may now be indebted or may hereafter become indebted" to TRB. The law expressly allows a suretyship for "future debts". Article 2053 of the Civil Code provides: 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. (Emphasis supplied) Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract states that the guaranty is to secure advances to be made "from time to time," it will be construed to be a continuing one.

BENJAMIN BITANGA, petitioner, vs. PYRAMID CONSTRUCTION CORPORATION, respondent.

ENGINEERING

We further affirm the findings of both the RTC and the Court of Appeals that, given the settled facts of this case, petitioner cannot avail himself of the benefit of excussion. The afore-quoted provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latter’s demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt.39 It must be stressed that despite having been served a demand letter at his office, petitioner still failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code. Such failure on petitioner’s part forecloses his right to set up the defense of excussion.

Worthy of note as well is the Sheriff’s return stating that the only property of Macrogen Realty which he found was its deposit of P20,242.23 with the Planters Bank. Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote: Art. 2059. This excussion shall not take place: (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR STA. ANA, Petitioners, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.34 The guarantor who pays for a debtor, in turn, must be indemnified by the latter.35 However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor.36 This is what is otherwise known as the benefit of excussion. It is clear that excussion may only be invoked after legal remedies against the principal debtor have been expanded. Thus, it was held that the creditor must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor, "for obviously the ‘exhaustion of the principal’s property’ cannot even begin to take place before judgment has been obtained." 37 The law imposes conditions precedent for the invocation of the defense. Thus, in order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latter’s demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt.38 While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is made on him. Excussion, after all, is a right granted to him by law and as such he may opt to make use of it or waive it. PhilGuarantee’s waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The law clearly requires the debtor to indemnify the guarantor what the latter has paid INTRA-STRATA ASSURANCE CORPORATION and PHILIPPINE HOME ASSURANCE CORPORATION, Petitioners, vs. REPUBLIC OF THE PHILIPPINES Considered in relation with the underlying laws that are deemed read into these bonds, it is at once clear that the bonds shall subsist – that is, "shall remain in full force and effect" – unless the imported articles are "regularly and lawfully withdrawn. . .on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall be subject…." Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principal Grand Textile; it was allowed to warehouse the imported articles without need for prior

payment of the amounts due, conditioned on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, and charges due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties’ liability, except to signal both the principal’s default and the elevation to a due and demandable status of the sureties’ solidary obligation to pay. Under the bonds’ plain terms, this solidary obligation subsists for as long as the amounts due on the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties, and charges. From a commonsensical perspective, it may well be asked: why else would the law require a surety when such surety would be bound only if the withdrawal would be regular due to the payment of the required duties, taxes, and other charges? We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous.16 We find under the facts of this case no significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The obligation, and one that never varied, is – on the part of the importer, to pay the customs duties, taxes, and charges due on the importation, and on the part of the sureties, to be solidarily bound to the payment of the amounts due on the imported goods upon their withdrawal or upon expiration of the given terms. The petitioners’ lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between them and the principal Grand Textile; it is a matter outside the concern of government whose interest as creditor-obligee in the importation transaction is the payment by the importerobligor of the duties, taxes, and charges due before the importation process is concluded. With respect to the sureties who are there as third parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties’ solidary obligation that has become due and demandable. Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principal’s default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal’s default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.

AUTOCORP GROUP and PETER Y. RODRIGUEZ, petitioner, vs. INTRA STRATA ASSURANCE CORPORATION and BUREAU OF CUSTOMS The Court of Appeals, in its assailed Decision, already directly addressed petitioners’ arguments by ruling that an actual forfeiture of the subject bonds is not necessary for petitioners to be liable thereon to ISAC as surety under the Indemnity Agreements. According to the relevant provision of the Indemnity Agreements executed between petitioner and ISAC, which reads: [W]here the obligation involves a liquidated amount for the payment of which [ISAC] has become legally liable under the terms of the obligation and its suretyship undertaking or by the demand of the [BOC] or otherwise and the latter has merely allowed the [ISAC’s] aforesaid liability, irrespective of whether or not payment has actually been made by the [ISAC], the [ISAC] for the protection of its interest may forthwith proceed against [petitioners Autocorp Group and Rodriguez] or either of them by court action or otherwise to enforce payment, even prior to making payment to the [BOC] which may hereafter be done by [ISAC][,]12 petitioners’ obligation to indemnify ISAC became due and demandable the moment the bonds issued by ISAC became answerable for petitioners’ non-compliance with its undertaking with the BOC. Stated differently, petitioners became liable to indemnify ISAC at the same time the bonds issued by ISAC were placed at the risk of forfeiture by the BOC for non-compliance by petitioners with its undertaking. The subject bonds, Instrata Bonds No. 5770 and No. 7154, became due and demandable upon the failure of petitioner Autocorp Group to comply with a condition set forth in its undertaking with the BOC, specifically to reexport the imported vehicles within the period of six months from their date of entry. Since it issued the subject bonds, ISAC then also became liable to the BOC. At this point, the Indemnity Agreements already give ISAC the right to proceed against petitioners via court action or otherwise. The Indemnity Agreements, therefore, give ISAC the right to recover from petitioners the face value of the subject bonds plus attorney’s fees at the time ISAC becomes liable on the said bonds to the BOC, regardless of whether the BOC had actually forfeited the bonds, demanded payment thereof and/or received such payment. It must be pointed out that the Indemnity Agreements explicitly provide that petitioners shall be liable to indemnify ISAC "whether or not payment has actually been made by the [ISAC]" and ISAC may proceed against petitioners by court action or otherwise "even prior to making payment to the [BOC] which may hereafter be done by [ISAC]." It is worthy to note that petitioners did not impugn the validity of the stipulation in the Indemnity Agreements allowing ISAC to proceed against petitioners the moment the subject bonds become due and demandable, even prior to actual forfeiture or payment thereof. Even if they did so, the Court would be constrained to uphold the validity of such a stipulation for it is but a slightly expanded contractual expression of Article 2071 of the Civil Code which provides, inter alia, that the guarantor may proceed against the principal debtor the moment the debt becomes due and demandable. SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs.

SOLID BANK CORPORATION This Court holds that the Continuing Guaranty is a valid and binding contract of petitioner-spouses as it is a public document that enjoys the presumption of authenticity and due execution. Although petitioners as appellees may raise issues that have not been assigned as errors by respondent Bank as party-appellant, i.e., unenforceability of the surety contract, we are bound by the consistent finding of the courts a quo that petitioner-spouses Luis Toh and Vicky Tan Toh "voluntarily affixed their signature[s]" on the surety agreement and were thus "at some given point in time willing to be liable under those forms." 46 In the absence of clear, convincing and more than preponderant evidence to the contrary, our ruling cannot be otherwise. Finally, the foregoing omission or negligence of respondent Bank in failing to safe-keep the security provided by the marginal deposit and the twenty-five percent (25%) requirement results in the material alteration of the principal contract, i.e., the "letter-advise," and consequently releases the surety.61 This inference was admitted by the Bank through the testimony of its lone witness that "[w]henever this obligation becomes due and demandable, except when you roll it over, (so) there is novation there on the original obligations." As has been said, "if the suretyship contract was made upon the condition that the principal shall furnish the creditor additional security, and the security being furnished under these conditions is afterwards released by the creditor, the surety is wholly discharged, without regard to the value of the securities released, for such a transaction amounts to an alteration of the main contract."62 SPOUSES ALFREDO and SUSANA ONG, petitioners, vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondent Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitioners-spouses are not guarantors but sureties of BMC’s debts. There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the conve rte d by We b2PDFC onve rt.com

debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning.5

ANICETO G. SALUDO, JR., Petitioner, vs. SECURITY BANK CORPORATION, Respondent The essence of a continuing surety has been highlighted in the case of Totanes v. China Banking Corporation 19 in this wise: Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally 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.20 In Gateway Electronics Corporation v. Asianbank Corporation,21 the Court emphasized that "[b]y its nature, a continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are x x x ‘within the description or contemplation of the contract of guaranty.’" GATEWAY ELECTRONICS CORPORATION and GERONIMO B. DELOS REYES, JR., petitioners, vs. ASIANBANK CORPORATION, respondent. 1aw phil

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. Since, generally, it is not necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. Perforce, x x x a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound.12 BANK OF COMMERCE and STEPHEN Z. TAALA, Petitioners, vs. Spouses ANDRES and ELIZA FLORES

The sole issue for resolution is whether the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject property. A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is to give a

standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. In other jurisdictions, it has been held that the use of particular words and expressions, such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time" or "on such time" that the principal debtor may require, has been construed to indicate a continuing guaranty.25 In the instant case, the language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the back of CCT No. 2130, and as security for all amounts that respondents may owe petitioner bank. It is well settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness can be gathered.26 A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage until the full amounts of the advancements are paid.27 Respondents’ full payment of the loans annotated on the title of the property shall not effect the release of the mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the amounts that they have incurred from petitioner bank, the property is burdened by the mortgage.

Accommodation mortgagors are not liable for the payment of the loan of the debtor. The liability of the accommodation mortgagors extends only up to the loan value of their mortgaged property and not to the entire loan itself. Hence, it is only just that they be allowed to redeem their mortgaged property by paying only the winning bid price thereof (plus interest thereon) at the public auction sale. (Belo v. PNB, G.R. No. 134330, Mar. 1, 2001) FBDC vs. YLLAS LENDING CORP Respondents, as well as the trial court, contend that Section 22 constitutes a pactum commissorium, a void stipulation in a pledge contract. FBDC, on the other hand, states that Section 22 is merely a dacion en pago. Section 22 of the Lease Contract between FBDC and Terrano states: Section 22. Lien on the Properties of the Lessee Upon the termination of this Contract or the expiration of the Lease Period without the rentals, charges and/or damages, if any, being fully paid or settled, the LESSOR shall have the right to retain possession of the properties of the LESSEE used or situated in the Leased Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof as appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the LESSOR does not want to use said properties, it may instead sell the same to third parties

and apply the proceeds thereof against any unpaid rentals, charges and/or damages. Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of pledge: (1) the pledge is constituted to secure the fulfillment of a principal obligation; (2) the pledgor is the absolute owner of the thing pledged; (3) the persons constituting the pledge have the free disposal of their property or have legal authorization for the purpose; and (4) the thing pledged is placed in the possession of the creditor, or of a third person by common agreement. Article 2088 of the Civil Code prohibits the creditor from appropriating or disposing the things pledged, and any contrary stipulation is void. Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of termination of the lease contract or the expiration of the lease period and there are unpaid rentals, charges, or damages. The existence of a contract of pledge, however, does not arise just because FBDC has means of collecting past due rent from Tirreno other than direct payment. The fourth requisite, that the thing pledged is placed in the possession of the creditor, is absent. There is non-compliance with the fourth requisite even if Tirreno’s personal properties are found in FBDC’s real property. Tirreno’s personal properties are in FBDC’s real property because of the Contract of Lease, which gives Tirreno possession of the personal properties. Since Section 22 is not a contract of pledge, there is no pactum commissorium. On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in payment, as the alienation of property to the creditor in satisfaction of a debt in money. Philippine National Bank v. Pineda held that dation in payment requires delivery and transmission of ownership of a thing owned by the debtor to the creditor as an accepted equivalent of the performance of the obligation. There is no dation in payment when there is no transfer of ownership in the creditor’s favor, as when the possession of the thing is merely given to the creditor by way of security.

Spouses Yu vs PCIB RATIONALE1. As to the first issue, the court finds that petitioners have mistaken a notion that the indivisibilityof a real estate mortgage relates to the venue of extra judicial foreclosure proceedings. The rule n indivisibility of a real estate mortgage is provided for in Article 2089 of the Civil Code whichprovides.Article 2089: A pledge or mortgage is indivisible even though the debt may be dividedamong the successors in interest of the debtor or the creditor.Indivisibility means that the mortgage obligation cannot be divided among the differentlots,

that is each & every parcel under mortgage answers for the totality of the debt. Theindivisibility of the real estate mortgage by conducting 2 separate foreclosure proceedings onmortgaged properties located in different provinces as long as each parcel of land is answerablefor the entire debt.