FIRST DIVISION

G.R. No. 163116 June 29, 2015

ALLIED BANKING CORPORATION, Petitioner, v.

JESUS S. YUJUICO (DECEASED), REPRESENTED BY BRENDON V.
YUJUICO, Respondent.

BERSAMIN, J.

FACTS: The board of directors of General Bank & Trust Company (Genbank) approved a
resolution granting YLTC an Omnibus Credit Line in the amount of P800,000.00 to be made
available by overdrafts, loans and advances upon condition that the principals of YLTC would
personally bind themselves in a Continuing Guarantee to secure payment of obligations drawn
on said credit extended by Genbank. In order to secure punctual payment at maturity of YLTC's
obligations, Gregoria Y. Paredes, Clarencio S. Yujuico and Jesus S. Yujuico, principal
stockholders of YLTC as sureties, executed a Continuing Guarantee binding themselves in their
personal capacities as required by Genbank.

Successive renewals was made until the Credit Line was increased up to P5.2M. Meanwhile,
loans contracted by YLTC evidenced by promissory notes became due and demandable.

Genbank was placed under liquidation by the Monetary Board and Allied Banking Corporation
acquired all assets and liabilities of Genbank. Plaintiff-appellant, as successor-in-interest of
Genbank, sought to collect the amount covered by the promissory notes. YLTC failed to pay
constraining plaintiff-appellant to file the instant collection suit in court.

In view of the revocation letter executed in the name and behalf of Jesus being considered
existing and valid, the RTC found that Yujuico may continue to be held responsible only for
loans and obligations of YLTC already contacted as of the time the letter was sent but not after
the revocations was made. It follows then that defendant Yujuico cannot be held liable for them.
ISSUE: Whether or not Jesus undertaking was that of a surety that he is solidarily liable with
Genbank.

HELD: YES. The undertaking of Jesus was that of a surety, not a guarantor

It is apparent that the courts below, as well as the petitioner, interchangeably used the terms
guaranty and surety in characterizing the undertakings of Jesus under the continuing
guaranties. The terms are distinct from each other, however, and the distinction is expressly
delineated in the Civil Code under Article 2047. If a person binds himself solidarily with the
principal debtor, the contract is called a suretyship.

Thus, in guaranty, the guarantor "binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so." The liability of the guarantor is
secondary to that of the principal debtor because he "cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor, and has resorted to all the legal
remedies against the debtor." In contrast, the surety is solidarily bound to the obligation of the
principal debtor.

Although the first part of the continuing guaranties showed that Jesus as the signatory had
agreed to be bound "either as guarantor or otherwise," the usage of term guaranty or guarantee
in the caption of the documents, or of the word guarantor in the contents of the documents did
not conclusively characterize the nature of the obligations assumed therein. What properly
characterized and defined the undertakings were the contents of the documents and the
intention of the parties. In holding that the continuing guaranty executed in E. Zobel, Inc. v.
Court of Appeals was a surety instead of a guaranty, the Court accented the distinctions between
them, viz.:

A contract of surety is an accessory promise by which a person binds himself for another already
bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of
guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the
latter does not pay the debt.

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 promissory 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 principal.

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.

With the stipulations in the continuing guaranties indicating that he was the surety of the credit
line extended to YLTC, Jesus was solidarily liable to Genbank for the indebtedness of YLTC. In
other words, he thereby rendered himself "directly and primarily responsible" with YLTC,
"without reference to the solvency of the principal.