Palmares vs.

Court of Appeals, 288 SCRA 422(1998)

Facts: Private respondent M.B. Lending Corporation extended a loan to the spouses Osmea 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. 1 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. 2
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.
MAIN QUESTION: Where a party signs a promissory note as a co-maker and binds herself to be jointly
and severally liable with the principal debtor in case the latter defaults in the payment of the loan, is
such undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a guarantor
who warrants the solvency of the debtor?
Suretyship and Guaranty Distinguished.A surety is an insurer of the debt, whereas a guarantor is an insurer of
the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking
that the debtor shall pay. Stated differently, a surety promises to pay the principals debt if the principal will not pay,
while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the
guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without
regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply
that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if
the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot
be made out of the principal debtor.
Same; Same; Same; It is a well-entrenched rule that in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall also be principally considered.It is a well-entrenched rule that in
order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall also be
principally considered. Several attendant factors in that genre lend support to our finding that petitioner is a surety.
For one, when petitioner was informed about the failure of the principal debtor to pay the loan, she immediately
offered to settle the account with respondent corporation. Obviously, in her mind, she knew that she was directly and
primarily liable upon default of her principal. For another, and this is most revealing, petitioner presented the
receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her
name and of the Azarraga spouses. This can only be construed to mean that the payments made by the principal
debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit
of petitioner. The concomitant and simultaneous compliance of petitioners obligation with that of her principals only
goes to show that, from the very start, petitioner considered herself equally bound by the contract of the principal
makers.
Same; Same; Same; A surety is bound equally and absolutely with the principal and as such is deemed an original
promisor and debtor from the beginning.In this regard, we need only to reiterate the rule that a surety is bound

equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the
beginning. This is because in suretyship there is but one contract, and the surety is bound by the same agreement
which binds the principal. In essence, the contract of a surety starts with the agreement, which is precisely the
situation obtaining in this case before the Court.
Same; Same; Same; A surety is not even entitled, as a matter of rights to be given notice of the principals default.
Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the
commencement of the suit is a sufficient demand. 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 principals 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 principals 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.
Same; Same; Same; A surety is liable as much as his principal is liable and absolutely liable as soon as default is
made without any demand upon the principal whatsoever or nay notice of default.The alleged failure of respondent
corporation to prove the fact of demand on the principal debtors, by not attaching copies thereof to its pleadings, is
likewise immaterial. In the absence of a statutory or contractual requirement, it is not necessary that payment or
performance of his obligation be first demanded of the principal, especially where demand would have been useless;
nor is it a requisite, before proceeding against the sureties, that the principal be called on to account. The underlying
principle therefor is that a suretyship is a direct contract to pay the debt of another. A surety is liable as much as his
principal is liable, and absolutely liable as soon as default is made, without any demand upon the principal
whatsoever or any notice of default. As an original promisor and debtor from the beginning, he is held ordinarily to
know every default of his principal.
Same; Same; Same; A creditors right to proceed against the surety exists independently of his right to proceed
against the principal; The rule, therefore, is that if the obligation is joint and several, the creditor has the right to
proceed even against the surety alone
Mercantile Ins. Co., Inc. vs. Felipe Ysmael, Jr. & Co., Inc., 169 SCRA 66(1989)
Mercantile Law; Insurance; Surety; The surety can demand indemnification from the principal upon the latters
default, even before the former has paid to the creditor.The question as to whether or not under the Indemnity
Agreement of the parties, the Surety can demand indemnification from the principal, upon the latters default, even
before the former has paid to the creditor, has long been settled by this Court in the affirmative.
Same; Same; Same; Cause of action of the appellants was derived from the terms of the indemnity agreement.
Correspondingly, it is readily apparent that said cause of action was derived from the terms of the Indemnity
Agreement, paragraph 3 thereof, as above quoted. By virtue of the provisions of the Indemnity Agreement,
defendantsappellants have undertaken to hold plaintiff-appellee free and harmless from any suit, damage or liability
which may be incurred by reason of non-performance by the defendants-appellants of their obligation with the
Philippine National Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in
case of default of defendants-appellants; and the liability of the parties under the surety bonds is joint and several,
so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. (Brief for PlaintiffAppellee, p. 7).

Same; Same; Same; Same; Pursuant to the indemnity agreement, the appellants have given the surety the
prerogative of filing an action even prior to the latters making any payment to the PNB.Defendantsappellants
have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the prerogative of filing an action even prior
to the latters making any payment to the Philippine National Bank.
Garcia, Jr. Court of Appeals, 191 SCRA 493(1990)
Suretyship; Definition and nature of Surety-ship.Suretyship is a contractual relation resulting from an agreement
whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as
the principal. The suretys obligation is not an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is
in essence secondary only to a valid principal obligation, his liability to the creditor or promise of the principal is
said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. The
surety therefore becomes liable for the debt or duty of another although he possesses no direct or personal interest
over the obligations nor does he receive any benefit therefrom.
Same; Same; Same; The peculiar nature of a surety agreement is that it is regarded as valid despite the absence of
any direct consideration received by the surety either from the principal obligor or from the creditor.The peculiar
nature of a surety agreement is that it is regarded as valid despite the absence of any direct consideration received
by the surety either from the principal obligor or from the creditor. A contract of surety, like any other contract, must
generally be supported by a sufficient consideration. However, the consideration necessary to support a surety
obligation need not pass directly to the surety; a consideration moving to the principal alone will suffice.
PNB vs. CA, 198 SCRA 767(1991)
There is no room for interpretation when the bond is clear, explicit and unequivocal.We are in full accord with the
conclusion of the trial court and the Court of Appeals that the bonds executed by private respondent LSCI were to
guarantee the faithful performance of Depusoy of his obligation under the Deed of Assignment and not to guarantee
the payment of the loans or the debt of Depusoy to petitioner to the extent of P100,000.00. The language of the bonds
is clear, explicit and unequivocal. It leaves no room for interpretation. Article 1370 of the Civil Code provides: If the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of
its stipulations shall control.
Same; Any doubt on the terms and conditions of the surety agreement should be resolved in favor of the surety.
Besides, even if there had been any doubt on the terms and conditions of the surety agreement, the doubt should be
resolved in favor of the surety. As concretely put in Article 2055 of the Civil Code, A guaranty is not presumed, it
must be expressed and cannot extend to more than what is stipulated therein.
De Leon vs. Court of Appeals, 186 SCRA 345(1990)
Ambiguous contract is construed against the party who caused the ambiguity.Besides, the Letter-Agreement shows
on its face that it was prepared by Sylvia, and in this regard, the ambiguity in a contract is to be taken contra
proferentem, i.e., construed against the party who caused the ambiguity and could have also avoided it by the
exercise of a little more care. Thus, Article 1377 of the Civil Code provides: The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.

Same; Same; Consent; Intimidation to vitiate consent, requisites.In order that intimidation may vitiate consent and
render the contract invalid, the following requisites must concur: (1) that the intimidation must be the determining
cause of the contract, or must have caused the consent to be given; (2) that the threatened act be unjust or unlawful;
(3) that the threat be real and serious, there being an evident disproportion between the evil and the resistance
which all men can offer, leading to the choice of the contract as the lesser evil; and (4) that it produces a reasonable
and well-grounded fear from the fact that the person from whom it comes has the necessary means or ability to
inflict the threatened injury. Applying the foregoing to the present case, the claim of Macaria that Sylvia threatened
her to bring Jose Vicente to court for support, to scandalize their family by baseless suits and that Sylvia would
pardon Jose Vicente for possible crimes of adultery and/or concubinage subject to the transfer of certain properties
to her, is obviously not the intimidation referred to by law. With respect to mistake as a vice of consent, neither is
Macarias alleged mistake in having signed the Letter-Agreement because of her belief that Sylvia will thereby
eliminate inheritance rights from her and Jose Vicente, the mistake referred to in Article 1331 of the Civil Code,
supra. It does not appear that the condition that Sylvia will eliminate her inheritance rights principally moved
Macaria to enter into the contract. Rather, such condition was but an incident of the consideration thereof which, as
discussed earlier, is the termination of Pari delicto;
Article 1414 of the New Civil Code, exception to the pari delicto rule.In the ultimate analysis, therefore, both
parties acted in violation of the laws. However, the pari delicto rule, expressed in the maxims Ex dolo malo non
oritur actio and In pari delicto potior est conditio defendentis, which refuses remedy to either party to an illegal
agreement and leaves them where they are, does not apply in this case. Contrary to the ruling of the respondent
Court that x x x. [C]onsequently, intervenor appellees obligation under the said agreement having been annulled,
the contracting parties shall restore to each other that things which have been subject matter of the contract, their
fruits and the price or its interest, except as provided by law (Art. 1398, Civil Code). Article 1414 of the Civil Code,
which is an exception to the pari delicto rule, is the proper law to be applied.
Rizal Commercial Banking Corp. vs. Arro, 115 SCRA 777(1982)
Surety Agreement; Obligations; Liability of a person who is signatory to the surety agreement although he did not
sign the promissory note for a loan obtained under that agreement.At the time the loan of P100,000.00 was
obtained from petitioner by Daicor, for the purpose of having an additional capital for buying and selling coco-shell
charcoal and importation of activated carbon, the comprehensive surety agreement was admittedly in full force and
effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the
promisory note, is liable by virtue of the surety agreement. The only condition that would make him liable
thereunder is that the Borrower is or may become liable as maker, endorser, acceptor or otherwise. There is no
doubt that Daicor is liable on the promissory note evidencing the indebtedness.
Same; Same; Same; Surety agreement an accessory obligation to the principal which is the loan obtained under the
promissory note; Surety agreement executed to guarantee future debts is legally allowable.The surety agreement
which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent
upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What
obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound
themselves solidarily to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it
can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with
petitioner, as is legally allowable under the Civil Code.

Dio vs. Court of Appeals, 216 SCRA 9(1992)

Guaranty; Suretyship; Nature and basis for contracts denominated as a continuing guaranty or suretyship.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 a 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 of guaranty states that the same is to secure
advances to be made from time to time the guaranty will be construed to be a continuing one.
Fortune Motors (Phils.) Corp. vs. Court of Appeals, 267 SCRA 653(1997)
Guaranty; Distinction which the appellate court sought to make with respect to Article 2053 has previously been
rejected.We ruled then that the appellate court was in serious error. The distinction which said court sought to
make with respect to Article 2053 (that future debts referred to therein relate to debts already existing at the
time of the constitution of the agreement but the amount [of which] is unknown'' and not to debts not yet incurred
and existing at that time) has previously been rejected, citing the RCBC and NARIC cases.
Same; Same; 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.ln
Dio vs. Court of Appeals, we again had occasion to discourse on continuing guaranty/suretyship thus: x x x 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 of guaranty states that the same is to secure
advances to be made from time to time the guaranty will be construed to be a continuing one.
Same; Same; The surety undertakings executed by Chua and Rodrigueza were continuing guaranties or suretyships
covering all future obligations of Fortune Motors (Phils.) Corporation with Filinvest Credit Corporation.We have no
reason to depart from our uniform ruling in the abovecited cases. The facts of the instant case bring us to no other
conclusion than that the surety undertakings executed by Chua and Rodrigueza were continuing guaranties or
suretyships covering all future obligations of Fortune Motors (Phils.) Corporation with Filinvest Credit Corporation.
This is evident from the written contract itself which contained the words absolutely, unconditionally and solidarily

guarantee(d)" to Respondent Filinvest and its affiliated and subsidiary companies the full, faithful and prompt
performance, payment and discharge of any and all obligations and agreements of Petitioner Fortune under or
with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or
otherwise)" of the latter with Filinvest.