COMMODATUM

1. Herrera vs. Petrophil Corporation, 146 SCRA 385 [1986].

Facts: On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil Corp.,) entered into a
lease agreement, whereby the former leased to the latter a portion of his property for a period of 20yrs. subject
to the condition that monthly rentals should be paid and there should be an advance payment of rentals for the
first eight years of the contract, to which ESSO paid on December 31, 1969. However, ESSO deducted the
amount of 101, 010.73 as interest or discount for the eight years advance rental.

On August 20, 1970, ESSO informed Herrera that there had been a mistake in the computation of the interest
and paid an additional sum of 2,182.70; thus, it was reduced to 98, 828.03.

As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that this had been illegally
deducted to him in violation of the Usury Law.

ESSO argued that amount deducted was not usurious interest but rather a discount given to it for paying the
rentals in advance. Judgment on the pleadings was rendered in favor of ESSO. Thus, the matter was elevated
to the SC for only questions of law was involve.

ISSUE: W/N the contract between the parties is one of loan or lease.
RULING:
Contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE
AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a
lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because
there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in advance by paying the eight years rentals, and
it was for this advance payment that it was getting a rebate or discount.

Book: A provision for the payment of rentals in advance with the lessee getting a rebate or discount cannot be
construed as a repayment of a loan because there is no grant or forbearance of money. The difference between a
discount and a loan or forbearance is that the former does not have to be repaid, while the latter is subject to
repayment.

2. Bonnevie v. CAGR No. L-49101 October 24, 1983

Facts: Spouses Lozano mortgaged their property to secure the payment of a loan amounting to 75K with
private respondent Philippine Bank of Communication (PBCom). The deed of mortgage was executed on 12-
6-66, but the loan proceeeds were received only on 12-12-66. Two days after the execution of the deed of
mortgage, the spouses sold the property to the petitioner Bonnevie for and in consideration of 100k—25K of
which payable to the spouses and 75K as payment to PBCom. Afterwhich, Bonnevie defaulted payments to
PBCom prompting the latter to auction the property after Bonnivie failed to settle despite subsequent
demands, in order to recover the amount loaned. The latter now assails the validity of the mortgage between
Lozano and Pbcom arguing that on the day the deed was executed there was yet no principal obligation to
secure as the loan of P75,000.00 was not received by the Lozano spouses, so that in the absence of a
 principal obligation, there is want of consideration in the accessory contract, which consequently impairs its
validity and fatally affects its very existence.

Issue: Was there a perfected contract of loan?

Held: Yes. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was
executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not
collect from the respondent Bank the consideration of the mortgage on the date it was executed is
immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the
same time the contract of mortgage was executed. The promissory note executed on December 12, 1966 is
only an evidence of indebtedness and does not indicate lack of consideration of the mortgage at the time of
its execution.

Book: A contract of loan being consensual, it was perfected at the same time that the contract of mortgage
was executed, the promissory note being only an evidence of an indebtedness and did not indicate lack of
consideration of the mortgage at the time of its execution.

3. Republic vsBagtas 6 SCRA 262

FACTS:

 Jose Bagtas borrowed from the Bureau of Animal Industry three bulls for a period of one year for breeding
purposes subject to a government charge of breeding fee of 10% of the book value of the books.
 Upon the expiration of the contract, Bagtas asked for a renewal for another one year, however, the Secretary
of Agriculture and Natural Resources approved only the renewal for one bull and other two bulls be
returned.
 Bagtas then wrote a letter to the Director of Animal Industry that he would pay the value of the three bulls
with a deduction of yearly depreciation. The Director advised him that the value cannot be depreciated and
asked Bagtas to either return the bulls or pay their book value.
 Bagtas neither paid nor returned the bulls. The Republic then commenced an action against Bagtas ordering
him to return the bulls or pay their book value.
 After hearing, the trial Court ruled in favor of the Republic, as such, the Republic moved ex parte for a writ
of execution which the court granted.
 FelicidadBagtas, the surviving spouse and administrator of Bagtas’ estate, returned the two bulls and filed a
motion to quash the writ of execution since one bull cannot be returned for it was killed by gunshot during a
Huk raid. The Court denied her motion hence, this appeal certified by the Court of Appeals because only
questions of law are raised.

ISSUE: WON the contract was commodatum;thus, Bagtas be held liable for its loss due to force majeure.
RULING:

 A contract of commodatum is essentially gratuitous. Supreme Court held that Bagtas was liable for the loss
of the bull even though it was caused by a fortuitous event.
 If the contract was one of lease, then the 10% breeding charge is compensation (rent) for the use of the bull
and Bagtas, as lessee, is subject to the responsibilities of a possessor. He is also in bad faith because he
continued to possess the bull even though the term of the contract has already expired.
 If the contract was one of commodatum, he is still liable because: (1) he kept the bull longer than the period
stipulated; and (2) the thing loaned has been delivered with appraisal of its value (10%). No stipulation that
in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from
liability.
 The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November
1953 when during a Huk raid it was killed by stray bullets.

Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised
book value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was
not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be
exempt from liability.

Book: A contract of commodatum is essentially gratuitous. If the breeding fee be considered compensation,
then the contract would be a lease of the bull. Under Article 1671 of the Civil Code, the lessee would be subject
to the responsibilities of a possessor in bad faith because she had continued possession of the bull after the
expiration of the contract. And even if the contract be commodatum, still B is liable under Article 1942(2,

4. Mina v. Pascual, 25 Phil 540

Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that lot. Both
Francisco and Andres died and their children became their respective heirs: Mina for Francisco and Pascual for
Andres. Pascual sold his share of the warehouse and lot. Mina opposed because the lot is hers because her
predecessor (Francisco) never parted with its ownership when he let Andres construct a warehouse, hence, it
was a contract of commodatum. What is the nature of the contract between Francisco and Andres?

The Supreme Court held that it was not a commodatum. It is an essential feature of commodatum that the use of
the thing belonging to another shall be for a certain period. The parties never fixed a definite period during
which Andres could use the lot and afterwards return it.

NOTA BENE: It would seem that the Supreme Court failed to consider the possibility of a contract of
precardium between Francisco and Andres. Precardium is a kind of commodatum wherein the bailor may
demand the object at will if the contract does not stipulate a period or use to which the thing is devoted.

5. Catholic Vicar Vs. CA

Facts:

- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the court an
application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet, said lots
being used as sites of the Catholic Church, building, convents, high school building, school gymnasium,
dormitories, social hall and stonewalls.

- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership over lots 1, 2
and 3. (2 separate civil cases)
- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4. Upon appeal by
the private respondents (heirs), the decision of the lower court was reversed. Title for lots 2 and 3 were
cancelled.

- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals
dismissing his application for registration of Lots 2 and 3.

- During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership of the
land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his written demand to Vicar for
the return of the land to them; and the reasonable rentals for the use of the land at P10,000 per month. On the
other hand, Vicar presented the Register of Deeds for the Province of Benguet, Atty. Sison, who testified that
the land in question is not covered by any title in the name of Egmidio Octaviano or any of the heirs. Vicar
dispensed with the testimony of Mons. Brasseur when the heirs admitted that the witness if called to the witness
stand, would testify that Vicar has been in possession of Lot 3, for 75 years continuously and peacefully and has
constructed permanent structures thereon.

Issue: WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum, a
gratuitous loan for use.

Held: YES.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after the
church and the convent were destroyed. They never asked for the return of the house, but when they allowed its
free use, they became bailors in commodatum and the petitioner the bailee.

The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession
on the part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse
claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of petitioner
Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive prescription because of the
absence of just title.

The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for
ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe the
findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary evidence to
support the same and the alleged purchases were never mentioned in the application for registration.

6. Pajuyo v. CA, G.R. No. 146364, June 3, 2004

Pajuyo purchased the rights over a property from Pedro Perez. Thereafter, he constructed a house and he and his
family lived there. Later, Pajuyo agreed to let Guevarra live in the house for free provided that Guevarra
maintain cleanliness and orderliness of the house. They also agreed that Guevarra should leave upon demand.
But when Pajuyo later told Guevarra that he needed the house, Guevarra refused, hence an ejectment case was
filed.

Supreme Court held that the contract is not a commodatum. “In a contract of commodatum, one of the parties
delivers to another something not consumable so that the latter may use the same for a certain time and return it.
An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of
the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of the thing
loaned until after expiration of the period stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return for
temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at
will, in which case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of
commodatum.”
Loan/Mutuum

1.Citibank vs Sabeniano

FACTS: ModestaSabeniano is a client of Citibank and FNCB Finance. On February 1978, Sabeniano obtained
a loan of Php 200,000 from Citibank. This loan was followed with several other loans – some were paid, while
some were not. Those that were not paid upon maturity were rolled over, reflecting a total unpaid loan of Php
1,069,847.40 as of September 1979.

These loans were secured by Sabeniano’s money market placements with FNCB Finance through a Deed of
Assignment plus a Declaration of Pledge which states that all present and future fiduciary placements held in
her personal and/or joint name with Citibank Switzerland, will secure all claims that Citibank may have or, in
the future, acquire against her.The Deeds of Assignment were duly notarized, while the Declaration of Pledge
was not notarized and Citibank’s copy was undated, while that of Sabeniano bore the date, September 24, 1979.

Since Sabeniano failed to pay her obligations to Citibank, the latter sent demand letters to request payment. Her
total unpaid loan initially amounted to Php 2,123,843.20 (inclusive of interests).

Still failing to pay, Citibank executed the Deeds of Assignment and used the proceeds of Sabeniano’s money
market placement from FNCB Finance which totaled Php 1,022,916.66 and her deposits with Citibank which
totaled Php 31,079.14 to set-off her loan. This reduced the unpaid balance to Php 1,069,847.40 as previously
mentioned. Since the loan remains unpaid, Citibank proceeded to execute the Declaration of Pledge and
remitted a total of $149,632.99 from Sabeniano’s Citibank-Geneva accounts to off-set the loan.

Sabeniano then filed a complaint against Citibank for damages and specific performance (for proper accounting
and return of the remitted proceeds from her personal accounts). She also contended that the proceeds of 2
promissory notes (PN) from her money market placements with Citibank were rolled over or reinvested into the
petitioner bank, and these should also be returned to her.

Regarding the execution of the pledge, the RTC declared this illegal, null and void. Citibank was ordered to
return the $149,632.99 to Sabeniano’s Citibank-Geneva account with a legal interest of 12% per annum. The
RTC also ordered Sabeniano to pay her outstanding loan to Citibank without interests and penalty charges.

Both parties appealed to the CA which affirmed the RTC’s decision, but further ruled entirely in favor of
Sabeniano – holding that Citibank failed to establish her indebtedness and that all the executed deeds should be
returned to her account. The case has now reached the Supreme Court.

ISSUE: Whether or not Citibank’s execution of deeds and pledge to off-set Sabeniano’s loan was valid and
legal.

HELD: The Supreme Court reversed the CA’s findings regarding Sabeniano’s Citibank loan as this was
properly documented and sufficient in evidence. Thus, the execution of deeds was valid, especially that the
agreement was duly notarized, signed and prepared in accordance with the law.

The court also ordered Citibank to return the amount of P318,897.34 and P203,150.00 plus 14.5% per annum to
Sabeniano. This is the total amount from the 2 PNs which were executed despite being reinvested in said bank.
The bank was also ordered to pay moral damages of P300,000, exemplary damages for P250,000, attorney’s
fees of P200,000.
The SC however affirmed the RTC’s decision regarding the pledge. Being a separate entity, Citibank cannot
exercise automatic remittance from Sabeniano’s Citibank Geneva account to off-set her outstanding loan. The
court also noted that the pledge was filled out irregularly – it was not notarized and Citibank’s copy bore no
date. The original copy was not also produced in court.

Regarding Sabeniano’s obligation, the Supreme Court affirmed RTC’s decision and ordered her to pay the
remaining balance of her loan which amounts to P1,069,847.40 as of 5 September 1979. These loans continue
to earn interest based on the maturity date that were agreed and stipulated upon by the parties.

Republic vs Grijaldo

FACTS:

In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd.
in Bacolod City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly.
These loans are evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan,
Ltd., as follows: On June 1, 1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9,
1943,P300.00; on August 13, 1943, P200.00, all notes without due dates, but because the loans were due one
year after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on
the standing crops on his land, Lot No. 1494 known as Hacienda Campugas in Hinigiran, Negros Occidental.

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading
with the Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the
Government of the United States. Pursuant to the Philippine Property Act of 1946 of the United States, these
assets, including the loans in question, were subsequently transferred to the Republic of the Philippines by the
Government of the United States under Transfer Agreement dated July 20, 1954. These assets were among the
properties that were placed under the administration of the Board of Liquidators created under Executive Order
No. 372, dated November 24, 1950, and in accordance with Republic Acts Nos. 8 and 477 and other pertinent
laws.

On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question.
The record shows that the appellant had actually received the written demand for payment, but he failed to pay.

On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros
Occidental, to collect from the appellant the unpaid account in question. The Justice of the Peace OfHinigaran,
after hearing, dismissed the case on the ground that the action had prescribed. The appellee appealed to the
Court of First Instance of Negros Occidental and on March 26, 1962 the court a quo rendered a decision
ordering the appellant to pay the appellee the sum of P2,377.23 as of December 31, 1959, plus interest at the
rate of 6% per annum compounded quarterly from the date of the filing of the complaint until full payment was
made. The appellant was also ordered to pay the sum equivalent to 10% of the amount due as attorney's fees and
costs.

The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo
died. Upon motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel
Lagtapon, Jacinto Lagtapon, Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to
appear and be substituted as appellants in accordance with Section 17 of Rule 3 of the Rules of Court.

ISSUE:

Whether or not the obligation to pay is extinguished.

The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that
because the loans were secured by a chattel mortgage on the standing crops on a land owned by him and these
crops were lost or destroyed through enemy action his obligation to pay the loans was thereby extinguished.

HELD:

This argument is untenable. The terms of the promissory notes and the chattel mortgage that the appellant
executed in favor of the Bank of Taiwan, Ltd. do not support the claim of appellant. The obligation of the
appellant under the five promissory notes was not to deliver a determinate thing namely, the crops to be
harvested from his land, or the value of the crops that would be harvested from his land. Rather, his obligation
was to pay a generic thing — the amount of money representing the total sum of the five loans, with interest.
The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of five contracts of simple loan
of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ... money or other
consumable thing upon the condition that the same amount of the same kind and quality shall be paid." (Article
1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in
questions is to pay the value thereof; that is, to deliver a sum of money — a clear case of an obligation to
deliver, a generic thing. Article 1263 of the Civil Code provides:

In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.

The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of
appellant's obligation covered by the five promissory notes, and the loss of the crops did not extinguish his
obligation to pay, because the account could still be paid from other sources aside from the mortgaged crops.

3. Tan vs Valehueza

Facts:Defendants herein, Arador, Rediculo, Pacita, Concepcion and Rosario, allsurnamed Valdehueza, are
brothers and sisters; the parcel of land describedin the first cause of action was the subject matter of the public
auction salewherein the plaintiff was the highest bidder and as such a Certificate of Salewas executed in favor
of LUCIA TAN the herein plaintiff. Due to the failure of defendant AradorValdehueza to redeem the said land
within the period of one year as being provided by law, an ABSOLUTE DEED OF SALE in favor of the
plaintiff LUCIA; that defendants ARADOR VALDEHUEZA andREDICULO VALDEHUEZA have executed
two documents of DEED OF

PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN of twoportions of a parcel of land
which is described in the second cause of actionwith the total amount of P1,500; that from the execution of the
Deed of Salewith right to repurchase mentioned in the second cause of action, defendantsAradorValdehueza
and RediculoValdehueza remained in the possession of

the land.A complaint for injunction filed by Tan to enjoin the Valdehuezas "fromentering the parcel of land and
gathering the nuts therein ...." This complaintand the counterclaim were subsequently dismissed for failure of
the parties"to seek for the immediate trial thereof, thus evincing lack of interest on their part to proceed with the
case.robles virtual law library

The Deed of Pacto de Retro referred to was not registered in the Registry of Deeds, while the 2nd Deed of Pacto
de Retro was registered.

Issue:Whether the transactions between the parties were simple loan?

Held:NO. Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of
a mortgage even as between the parties, but under article 2125 of the new Civil Code (in effect since August
30,1950), this is no longer so.TheValdehuezas having remained in possession of the land and the realty taxes
having been paid by them, the contracts which purported to be pacto de retro transactions are presumed to be
equitable mortgages, 5 whether registered or not, there being no third parties involved.

(guyshinabaankonaang ruling para gets-able siya. *wink)

RADIOWEALTH FINANCE COMPANYvs.Spouses VICENTE and MA. SUMILANG DEL ROSARIO
FACTS: Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly and severally executed,
signed and delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory
Note[5] for P138,948.

FOR VALUE RECEIVED, on or before the date listed below, I/We promise to pay jointly and
severally Radiowealth Finance Co. or order the sum of ONE HUNDRED THIRTY EIGHT THOUSAND NINE
HUNDRED FORTY EIGHT Pesos (P138,948.00) without need of notice or demand, in installments as follows:

P11,579.00 payable for 12 consecutive months starting on ________ 19__ until the amount
of P11,579.00 is fully paid. Each installment shall be due every ____ day of each month.A late
payment penalty charge of two and a half (2.5%) percent per month shall be added to each unpaid
installment from due date thereof until fully paid.

It is hereby agreed that if default be made in the payment of any of the installments or late payment charges
thereon as and when the same becomes due and payable as specified above, the total principal sum then
remaining unpaid, together with the agreed late payment charges thereon, shall at once become due and
payable without need of notice or demand.If any amount due on this note is not paid at its maturity and this
Note is placed in the hands of an attorney or collection agency for collection, I/We jointly and severally agree to
pay, in addition to the aggregate of the principal amount and interest due, a sum equivalent to ten (10%) per
cent thereof as attorneys and/or collection fees, in case no legal action is filed, otherwise, the sum will be
equivalent to twenty-five (25%) percent of the amount due which shall not in any case be less than FIVE
HUNDRED PESOS (P500.00) plus the cost of suit and other litigation expenses and, in addition, a further sum
of ten per cent (10%) of said amount which in no case shall be less than FIVE HUNDRED PESOS (P500.00),
as and for liquidated damages.[6]
Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they failed to pay
their obligations under their Promissory Note.
Petitioner filed a Complaintfor the collection of a sum of money.
ISSUE:The petitioner raises this lone issue: (b) the date when the obligation became due and demandable.
RULING:Petitioner claims that respondents are liable for the whole amount of their debt and the interest
thereon, after they defaulted on the monthly installments.Respondents, counter that the installments were not
yet due and demandable. Petitioner had allegedly allowed them to apply their promotion services for its
financing business as payment of the Promissory Note. This was supposedly evidenced by the blank space left
for the date on which the installments should have commenced.[19] In other words, respondents theorize that the
action for immediate enforcement of their obligation is premature because its fulfillment is dependent on the
sole will of the debtor. Hence, they consider that the proper court should first fix a period for payment, pursuant
to Articles 1180 and 1197 of the Civil Code.
This contention is untenable. The act of leaving blank the due date of the first installment did not necessarily
mean that the debtors were allowed to pay as and when they could. If this was the intention of the parties, they
should have so indicated in the Promissory Note. However, it did not reflect any such intention. The note
expressly stipulated that the debt should be amortized monthly in installments of P11,579 for twelve
consecutive months. While the specific date on which each installment would be due was left blank, the Note
clearly provided that each installment should be payable each month.
Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which showed
the intention of the parties that the installments should be paid at a definite date. Had they intended that the
debtors could pay as and when they could, there would have been no need for these two clauses.
Verily, the acts of the parties manifest their intention and knowledge that the monthly installments would
be due and demandable each month.[20] In this case, the conclusion that the installments had already
became due and demandable is bolstered by the fact that respondents started paying installments on the
Promissory Note, even if the checks were dishonored by their drawee bank. We are convinced neither by
their avowals that the obligation had not yet matured nor by their claim that a period for payment should
be fixed by a court.
Convincingly, petitioner has established not only a cause of action against the respondents, but also a due
and demandable obligation. The obligation of the respondents had matured and they clearly defaulted when
their checks bounced. Per the acceleration clause, the whole debt became due one month (April 2, 1991) after
the date of the Note because the check representing their first installment bounced.
It should be stressed that respondents do not contest the amount of the principal obligation. Their liability
as expressly stated in the Promissory Note and found by the CA is P13[8],948.00[22] which is payable in twelve
(12) installments at P11,579.00 a month for twelve (12) consecutive months. As correctly found by the CA, the
"ambiguity" in the Promissory Note is clearly attributable to human error.[23]
Petitioner, in its Complaint, prayed for 14% interest per annum from May 6, 1993 until fully paid. We
disagree. The Note already stipulated a late payment penalty of 2.5 percent monthly to be added to each unpaid
installment until fully paid. Payment of interest was not expressly stipulated in the Note. Thus, it should be
deemed included in such penalty.
 In addition, the Note also provided that the debtors would be liable for attorneys fees equivalent to 25
percent of the amount due in case a legal action was instituted and 10 percent of the same amount as liquidated
damages. Liquidated damages, however, should no longer be imposed for being unconscionable.[24] Such
damages should also be deemed included in the 2.5 percent monthly penalty. Furthermore, we hold that
petitioner is entitled to attorneys fees, but only in a sum equal to 10 percent of the amount due which we deem
reasonable under the proven facts.[25]
The Court deems it improper to discuss respondents' claim for moral and other damages.
WHEREFORE, the Petition is GRANTED. The appealed Decision is MODIFIED in that the remand
is SET ASIDE and respondents are ordered TO PAY P138,948, plus 2.5 percent penalty charge per month
beginning April 2, 1991 until fully paid, and 10 percent of the amount due as attorneys fees. No costs.
SO ORDERED.

REPUBLIC OF THE PHILIPPINES, v UNIMEX

FACTS: (Unimex) shipped a 40-foot container and 171 cartons of Atari game computer cartridges, duplicators,
expanders, remote controllers, parts and accessories to (Handyware). Don Tim Shipping Corporation
transported the goods with Evergreen Marine Corporation as shipping agent.After the shipment arrived, the
Bureau of Customs (BOC) discovered that it did not tally with the description appearing on the cargo manifest.
The Collector of Customs forfeited the goods in favor of the government. The CTA reversed the forfeiture
decree and ordered the release of the subject shipment to respondent subject to the payment of customs
duties.Unfortunately, respondent’s counsel failed to secure a writ of execution to enforce the CTA decision.
Respondent filed in the CTA a petition for the revival of its decision. It prayed for the immediate release by
BOC of its shipment or, in the alternative, payment of the shipment’s value plus damages. The BOC
Commissioner failed to file his answer, hence, he was declared in default.During the ex parte presentation of
respondent’s evidence, BOC informed the court that the subject shipment could no longer be found at its
warehouses.The CTA declared that its decision could no longer be executed due to the loss of respondent’s
shipment so it ordered the BOC to pay respondent the commercial value of the goods based on the prevailing
exchange rate at the time of their importation.

…Considering that the BOC was grossly negligent in handling the subject shipment, this Court finds Unimex
entitled to legal interests. Accordingly, the actual damages thus awarded shall be subject to 6% interest per
annum.

Finally, Unimex is likewise entitled to 12% interest per annum in lieu of 6% per annum from the time this
Decision becomes final and executory until fully paid, in as much as the interim period is equivalent to a
forbearance of credit.

The BOC Commissioner and respondent again filed their respective MRs of the above decision. The
Commissioner insisted that the BOC was not liable to respondent. On the other hand, respondent’s MR sought
payment of the goods’ value in euros, not in US dollars.12 It also demanded that the 6% legal interest be
reckoned from the date of its judicial demand on June 15, 1987.
ISSUE: W/N CA’s imposition of the 12% p.a. legal interest upon the finality of the decision of this case
until the value of the goods is fully paid (as forbearance of credit) is likewise bereft of any legal anchor?

RULING: NO. We agree with petitioner.

Petitioner likewise argues that the CA erred in imposing the 6% p.a. legal interest. According to petitioner, the
obligation to pay legal interest only arises by virtue of a contract or on account of damages due to delay or
failure to pay the principal on which the interest is exacted. It added that since the CTA decision did not involve
a monetary award but merely the release of the goods to respondent, there was no basis for the computation
and/or imposition of the 6% p.a. legal interest.Interest may be paid only either as compensation for the use of
money (monetary interest)24 or as damages (compensatory interest).25 We quote in agreement the CTA’s
disquisition in its decision dated September 19, 2002:

Interest may be paid either as compensation for the use of money (monetary interest) referred to in
Article 1956 of the New Civil Code or as damages (compensatory interest) under Article 2209 above
cited. As clearly provided in [Article 2209], interest is demandable if: a) there is monetary obligation and
b) debtor incurs delay.

This case does not involve a monetary obligation to be covered by Article 2209. There is no dispute that this
case was originally filed questioning the seizure of the shipment by the Bureau of Customs. Our decision
subject of this action for revival [of judgment] did not refer to any monetary obligation by [petitioner]
towards the [respondent]. In fact, if there was any monetary obligation mentioned, it referred to the obligation
of [respondent] to pay the correct taxes, duties, fees and other charges before the release of the goods can be
had. In one case, the Supreme Court held:

"In a comprehensive sense, the term "debt" embraces not merely money due by contract, but whatever one is
bound to render to another, either for contract or the requirement of the law, such as tax where the law imposes
personal liability therefor."

Therefore, the government was never a debtor to the petitioner in order that [Article] 2209 could apply.
Nor was it in default for there was no monetary obligation to pay in the first place. There is default
when after demand is made either judicially or extrajudicially. In other words, for interest to be demandable
under Article 2209, there should be a monetary obligation and the debtor was in default…

In the instant case, [petitioner] was never under monetary obligation to [respondent], no demand can be made
either judicially or extrajudicially. Parallel thereto, there could be no default… 26

No doubt, the present case does not fall within the first situation. Neither can it be considered as one involving
interest based on damages under the second situation.

More importantly, interest is not chargeable against petitioner except when it has expressly stipulated to pay it
or when interest is allowed by the legislature or in eminent domain cases where damages sustained by the owner
take the form of interest at the legal rate.27 Consequently, the CA’s imposition of the 12% p.a. legal interest
upon the finality of the decision of this case until the value of the goods is fully paid (as forbearance of
credit) is likewise bereft of any legal anchor.
Garcia v Thio
FACTS:
In Carolyn Garcia v. Rica Marie Thio, March 16, 2007, Rica received from Carolyn a crossed check in the
amount of $100,000.00 payable to the order of Marilou Santiago. Thereafter, Carolyn received from Rica
payments. Again, Rica received a check in the amount of P500,000.00 from Carolyn and payable to the order of
Marilou and payments were again made by her representing interests. There was failure to pay the principal
amounts hence, a complaint for sum of money with damages was filed. Rica contended that she had no
obligation to her as it was Marilou who was indebted as she was merely asked to deliver the checks to Marilou
and that the check payments she issued were merely intended to accommodate Marilou. The RTC ruled in favor
of Carolyn but the CA reversed on the ground that there was no contract between Rica and Carolyn. On appeal,
the SC

Held:
There was a contract of loan between Carolyn and Rica.A loan is a real contract, not consensual(this is
differentfrom a consensual contract which only requires consent) and as such is perfected only upon the
delivery of the object of the contract. This is evident in Art. 1934 of the Civil Code which provides. An
accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but
the commodatum or simple loan itself shall not be perfected until the delivery of the object of the
contract.Upon delivery of the object of the contract of loan (in this case the money received by the debtor when
the checks were encashed) the debtor acquired ownership of such money or loan proceeds and is bound to pay
the creditor an equal amount. It is undisputed that the checks were delivered to Rica. However, these checks
were crossed and payable not to the order of Rica but to the order of a certain Marilou Santiago.The Court agree
with petitioner. Delivery is the act by which the res or substance thereof is placed within the actual or
constructive possession or control of another.Although Rica did not physically receive the proceeds of the
checks, these instruments were placed in her control and possession under an arrangement whereby she actually
re-lent the amounts to Marilou.
Several factors support this conclusion.
(1) Carolyn did not know personally Marilou. This was admitted by Rica, hence, it is not possible for
Carolyn to grant loans in such big sum of money even without any acknowledgment of debt. It was Rica
who had transactions with Marilou.(2) It is unbelievable that Rica would put herself in a position where
she would be compelled to pay interest out of her own funds for loans she never contracted.(3) When
Marilou filed a petition for insolvency, it was Rica who was listed as a debtor.Hence, Rica is the debtor
and not Marilou.
No interest if there is no written agreement to pay it; exception.
Whether the debtor is liable to pay interest since there was no written agreement to pay interest, the SC
Held: No, because no interest shall be due unless it has been expressly stipulated in writing. (Art. 1956,
NCC).Be that as it may, while there can be no stipulated interest, there can be legal interest pursuant to Article
2209 of the Civil Code. It is well-settled:
 When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. (Eusebio-Calderon v. People, G.R. No. 158495,
October 21, 2004, 441 SCRA 137; Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12,
1994, 234 SCRA 78; Garcia v. Thio, G.R. No. 154878, March 16, 2007).

Hence, Rica is liable for the payment of legal interest per annum to be computed from the date when she
received the demand letter. From the finality of the decision until it is fully paid, the amount due shall earn
interest at 12% per annum, the interim period being deemed equivalent to a forbearance of credit. (Cabrera v.
People, G.R. 150618, July 24, 2003, 407 SCRA 247).
CASES FOR CONTRACT OF DEPOSIT

1. BPI v IAC. 164 SCRA 630 (1988)

FACTS: A contract of depositum was entered into by Garcia, on behalf of COMTRUST (BPI), wherein he
received US $3,000 (foreign exchange) from Zshornack for safekeeping. Later on or over five months later,
Zshornack demanded the return of the money but the bank refused alleging that the amount was sold and
transferred to her current account

COMTRUST (BPI) averred that the parties entered into a contract of depositum which banks do not enter into.
Thus, Garcia exceeded his powers when he entered into the contract on behalf of the bank, hence, the bank
cannot be liable under the contract.

ISSUE: Whether the contract entered into is a contract of depositum

RULING: YES. The situation is one contemplated in Art. 1962 of the NCC:

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with
the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit but some other contract.

Since the document and the subsequent acts of the parties show that they intended the bank to safekeep the
foreign exchange, and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident,
the parties did not intend to sell the US dollars to the Central Bank within one business day from receipt.
Otherwise, the contract of depositum would never have been entered into at all.

2. ROMAN CATHOLIC BISHOP OF JARO v DELA PENA, 26 PHIL. 144 (1913)

FACTS:The Roman Catholic Bishop of Jaro (Plaintiff) is the trustee of a charitable bequest made for the
construction of a leper hospital and that Father de la Pena was the duly authorized representative of the plaintiff
to receive the legacy. Defendant in this case is the administrator of the estate of de la Pena.

In 1898 the books of de la Pena showed that he had on hand, as trustee, the sum of P6,641, collected by
him for charitable purposes. In the same year he deposited in his personal account P19,000 in the Hongkong and
Shanghai Bank at Iloilo. Shortly thereafter and during the war with the Americans, de la Pena was arrested by
theAmerican military as a political prisoner. While under detention an order was made on the said bank to
transfer the fund in favour of a US army officer holding de la Pena. The arrest and confiscation of the funds in
the bank of Father de la Pena was due to claims that he was an insurgent and the funds were collected by him
for revolutionary purposes. The money was thus confiscated by the military authorities and turned over to the
American Government.

While there is dispute in the case over whether the P6,641 of trust funds was included in the P19,000
deposited as aforesaid, nevertheless, an examination of the case leads to the conclusion that said trust funds
were part of the funds deposited and which were removed and confiscated by the US military.

ISSUE:Whether the estate of de la Pena is liable for the trust fund

RULING: No. Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art.1094), it also provides, following the
principle of the Roman law, major casus est, cui humanainfirmitasresistere non potest, that "no one shall be
liable for events which could not be foreseen, or which having been foreseen were inevitable, with the
exception of the cases expressly mentioned in the law or those in which the obligation so declares."

By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an
obligation different from that under which he would have lain if such deposit had not been made, nor did he
thereby make himself liable to repay the money at all hazards. If it had been forcibly taken from his pocket or
from his house by the military forces of one of the combatants during a state of war, it is clear that under the
provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed the trust
fund in the bank in his personal account does not add to his responsibility. Such deposit did not make him a
debtor who must respond at all hazards.

The precise question in this case is not of negligence. There was no law prohibiting De la Pena from depositing
it as he did and there was no law which changed his responsibility be reason of the deposit. While it may be true
that one who is under obligation to do or give a thing is in duty bound, when he sees events approaching

the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if
unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between
two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had
selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this action was deposited
by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was
forcibly taken from the bank by the armed forces of the United States during the war of the insurrection; and
that said Father De la Peña was not responsible for its loss.

3. SIA v CA, 222 SCRA 24 (1993)

FACTS: Plaintiff Luzon Sia rented a safety deposit box of Security Bank and Trust Co. (Security Bank) at its
Binondo Branch wherein he placed his collection of stamps. The said safety deposit box leased by the plaintiff
was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank. During the floods that
took place in 1985 and 1986, floodwater entered into the defendant bank’s premises, seeped into the safety
deposit box leased by the plaintiff and caused, according damage to his stamps collection. Security Bank
rejected the plaintiff’s claim for compensation for his damaged stamps collection.

Sia, thereafter, instituted an action for damages against the defendant bank. Security Bank contended
that its contract with the Sia over safety deposit box was one of lease and not of deposit and, therefore,
governed by the lease agreement which should be the applicable law; the destruction of the plaintiff’s stamps
collection was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that
inundated its premises at Binondo branch which allegedly seeped into the safety deposit box leased to the
plaintiff. The trial court rendered in favor of plaintiff Sia and ordered Sia to pay damages.

ISSUE: Whether the Bank is liable for negligence

RULING: YES. Contract of the use of a safety deposit box of a bank is not a deposit but a lease. Section 72 of
the General Banking Act [R.A. 337, as amended] pertinently provides: In addition to the operations specifically
authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the
following services (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes
for the safequarding of such effects.

As correctly held by the trial court, Security Bank was guilty of negligence. The bank’s negligence
aggravated the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it
also knew that the floodwaters inundated the room where the safe deposit box was located. In view thereof, it
should have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the
stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise the
reasonable care and prudence expected of a good father of a family, thereby becoming a party to the
aggravation of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is
absent. Article 1170 of the Civil Code, which reads “Those who in the performance of their obligation are guilty
of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for
damages” is applicable. Hence, the petition was granted.

The provisions contended by Security Bank in the lease agreement which are meant to exempt SBTC from any
liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its own
agents’ fraud, negligence or delay must be stricken down for being contrary to law and public policy.

4. CA Agro-Industrial Dev’t Corp v CA 219 SCRA 426

FACTS:
Petitioner (through its President- Sergio Aguirre) and the Spouses Ramon and Paula Pugao entered into
an agreement whereby the former purchase two parcel of lands from the latter. It was paid with down payment
while the balance was covered by three postdated checks. Among the terms and conditions embodied in the
agreement were the titles shall be transferred to the petitioner upon full payment of the price and the owner's
copies of the certificate of titles shall be deposited in a safety deposit box of any bank. Petitioner and the Pugaos
then rented Safety Deposit box of private respondent Security Bank and Trust Company.
Thereafter, a certain Margarita Ramos offered to buy from the petitioner. Mrs Ramos demand the
execution of a deed of sale which necessarily entailed the production of the certificate of titles. In view thereof,
Aguirre, accompanied by the Pugaos, then proceed to the respondent Bank to open the safety deposit box and
get the certificate of titles. However, when opened in the presence of the Bank's representative, the box yielded
no such certificate. Because of the delay in the reconstitution of the title, Mrs Ramos withdrew her earlier offer
to purchase. Hence this petition.
ISSUE:
Whether the contract of rent between a commercial bank and another party for the use of safety deposit
box can be considered alike to a lessor-lessee relationship.
RULING:
 NO, the Court do not really subscribe to its view that the same is a contract of deposit that is to be
strictly governed by the provisions in Civil Code on Deposit; the contract in the case at bar is a special kind of
deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box was not given to the joint renters- the
petitioner and the Pugaos. The guard key of the box remained with the respondent bank; without this key,
neither of the renters could open the box. On the other hand, the respondent bank could not likewise
open the box without the renter's key.
In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is
clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the
General Banking Act pertinently provides: xxx Note that the primary function is still found within the
parameters of a contract of deposit. i.e., the receiving in custody of funds, documents and other valuable objects
for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in
conjunction with, this principal function.
The depositary's responsibility for the safekeeping of the objects deposited in the case at bar is
governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement. In
the absence of any stipulation prescribing the degree of diligence required, that of a good father of a
family is to be observed. Hence, any stipulation exempting ng the depositary from any liability arising
from the loss of the thing deposited on account of fraud, negligence or delay or that of its agents or
servants, and if a provision of the contract may be construed as an attempt to do so, would be void for
being contrary to law and public policy.
With respect to property deposited in a safe-deposit box by a customer of a safedeposit company, the
parties, since the relation is a contractual one, may by special contract define their respective duties or
provide for increasing or limiting the liability of the deposit company, provided such contract is not in
violation of law or public policy. Although it has been held that the lessor of a safe-deposit box cannot limit its
liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor
may limit its liability to some extent by agreement or stipulation.
In the instant case, the respondent Bank's exoneration cannot, be based on or proceed from a
characterization of the impugned contract as a contract of lease, but rather on the fact that no competent
proof was presented to show that respondent Bank was aware of the agreement between the petitioner
and the Pugaos to the effect that the certificates of title were withdrawable from the safety deposit box only
upon both parties' joint signatures, and that no evidence was submitted to reveal that the loss of the certificates
of title was due to the fraud or negligence of the respondent Bank. This in turn flows from this Court's
determination that the contract involved was one of deposit. Since both the petitioner and the Pugaos
agreed that each should have one (1) renter's key, it was obvious that either of them could ask the Bank
for access to the safety deposit box and, with the use of such key and the Bank's own guard key, could
open the said box, without the other renter being present.

5. Javellana v Lim 11 Phil 141

FACTS:
On 26 May 1897, Jose and others executed a document in favor of Angel, wherein it stated that they had
received a sum of Php 2,600.86 as a “deposit” without interest from the latter. The document also stipulated that
they would return the same amount jointly and severally on 20 January 1898.
 Upon the stipulated due date, however, Jose and others asked for an extension to pay and bound
themselves to pay 15% interest per annum on the amount of their indebtedness, to which the Angel acceded.
Despite the extension, Jose and others still failed to pay the full amount of their indebtedness. Consequently,
this prompted Angel to file a civil action before the CFI of Iloilo. The CFI of Iloilo subsequently ruled in favor
of Angel to recover the amount due plus the payment of 15% interest per annum.
ISSUE:
Whether or the contract executed by Angel and Jose and others was that of a deposit
RULING:
NO, the contract executed by Angel and Jose and others was not a deposit. Instead, it was a contract of
simple loan ormutuum.It must be understood that Jose and others were lawfully authorized to make use of the
amount deposited, which they have done as subsequently shown when they asked for an extension of the time
for the return thereof. They were conscious that they had used, for their own profit and gain, the money which
they apparently received as a “deposit”. Moreover, they engaged to pay interest to Angel from the stipulated
date until the time when the refund should have been made.
Where money, consisting of coins of legal tender, is deposited with a person and the latter is authorized
by the depositor to use and dispose of the same, the agreement is not a contract of deposit, but a loan. Moreover,
Article 1978 of the New Civil Code provides that when the depository has permission to make use of the thing
deposited, the contract loses the character of a deposit and becomes a loan or bailment.
A subsequent agreement between the parties as to interest on the amount said to have been deposited,
because the same could not be returned at the time fixed therefore, does not constitute a renewal of an
agreement of deposit, but it is the best evidence that the original contract entered into between them was for a
loan under the guise of a deposit.

6. People v Ong 204 SCRA 942

FACTS:
Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust Company (HSBTC)
opened a savingsaccount with HSBTC with an initial deposit of P22.14 in cash and P10,000.00 in check.Ong
was allowed to withdraw from his savings account with the Bank the sum of P5,000.00, without his check
undergoingthe usual and reglementary clearance. The withdrawal slip was signed and approved by Lino Morfe,
then the BranchManager, and accused LucilaTalabis, the Branch Cashier.Subsequently, Ong deposited eleven
checks in his savings account with the Bank and against which he made withdrawalsagainst its amount. Again,
the withdrawal of the amount by Ong was made before said checks were cleared and the Bank had collected
their amounts and with the approval of Talabis.However, when the Bank presented the eleven checks issued,
deposited and against which Ong made withdrawals againstits amounts, to their respective drawee banks for
payment, they were all dishonored for lack or insufficiency of funds.Because of this, the Bank filed a criminal
action for Estafa against Ong, and the Bank’s officer in charge Villaran andTalabis.Talabis testified that the
approval of the withdrawals of Ong against his uncleared checks was in accordance with theinstruction of their
then bank manager and that it is a kind of accommodation given to Ong and also a common practice of the
Bank.RTC ruled Ong as guilty for the crime of estafa but acquitted Villarin and Talabis as their guilt were not
proven beyondreasonable doubt. CA affirmed RTCs decisions.

ISSUE:
What is the nature of bank deposits?
Whether Ong is guilty of Estafa
RULING:
The Supreme Court held that bank deposits are in the nature of irregular deposits. Bank deposits are
really loans because they earn interest. Whether fixed, savings, or current, all bank depositsare to be treated as
loans and are to be covered by the law on loans.Current and savings deposits are loans to a bank because it can
use the same.
NO. In this case, the fact was established that Ong either issued or indorsed the subject checks.
However, it must be remembered that the reason for the conviction of an accused of the crime of estafa is his
guilty knowledge of the fact that he had no funds in the bank when he negotiated the spurious check.In the
present case, however, the prosecution failed to prove that Ong had knowledge with respect to the checkshe
indorsed.Moreover, it has also been proven that it was the Bank which granted him a drawn against uncollected
deposit(DAUD) privilege without need of any pretensions on his part. The privilege was not only for thesubject
checks, but for other past transactions. If ever, he, indeed acted fraudulently, he could not have done so without
the active cooperation of the Banks employees. Since Talabis andVillaran were declared innocent of the crimes
charged against them, the same should be said for the Ong.Thus, Ong cannot be held criminally liable against
the Bank. He can only be held civilly liable as the Bank incurred damages.

7. BANCO DE ORO-EPCI, INC., vs. JAPRL DEVELOPMENT CORPORATION

Facts: Banco de Oro extended financial facilities to JAPRL Development Corporation (JAPRL) amounting to
P230,000,000 with co-respondents Rapid Forming Corporation (RFC) and Jose Arollado acting as sureties.
JAPRL defaulted in the payment of four trust receipts. Petitioner bank subsequently found out that JAPRL
altered and falsified its financial statements to project itself as a viable investment. Because the demand for
payment was unheeded, petitioner bank sued JAPRL and the sureties for payment of the balance due on the
trust receipts in RTC Makati. Respondents then hastily filed a petition for rehabilitation and stay order in
Calamba of RTC which were granted. As a result, the complaint was dismissed with respect to JAPRL and
RFC. Arollado remained as defendant.

Issue:
Whether or not the bank (BPO- EPCI) may demand the immediate payment of JAPRL’s outstandingobligations.

Ruling:
YES. Banks have the right to annul any credit accommodation or loan, and demand the immediate payment
thereof from borrowers proven to be guilty of fraud. Banks operate (and earn income) by extending credit
facilities financed primarily by deposits from the public. They plough back the bulk of said deposits into the
economy in the form of loans. Since banks deal with the public’s money, their viability depends largely on their
ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest.
Consequently, much importance is given to sound lending practices and good corporate governance.
Considering the amount of petitioner’s exposure in JAPRL, justice and fairness dictate that the Makati RTC
hear whether or not respondents indeed committed fraud in securing the credit accomodation. In this event,
petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.
Moreover, under Sec. 40 of the General Banking Law, should such statements (financial) prove to be false or
incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis
of said statements and shall have the right to demand immediate repayment or liquidation of the obligation.
8. PAULINO GULLAS V. PNB 62 Phil 519

Facts: Petitioner Gullas maintains a current account with herein respondent PNB. He together with one Pedro
Lopez signed as endorsers of a Warrant issued by the US Veterans Bureau payable to the order of one Francisco
Bacos. PNB cashed the check but was subsequently dishonored by the Insular Treasurer. PNB then sent notices
to petitioner which could not be delivered to him at the time because he was in Manila. PNB in the letter
informed the petitioner the outstanding balance on his account was applied to the part payment of the
dishonored check. Upon petitioner’s return, he received the notice of dishonor and immediately paid the unpaid
balance of the warrant. As a consequence of these, petitioner was inconvenienced when his insurance was not
paid due to lack of funds and was publicized widely at his area to his mortification.

Issue:Whether or not PNB has the right to apply petitioner’s deposit to his debt to the bank.

Ruling: NO.As a general rule, a bank has a right of set off of the deposits in its hands for the payment of any
indebtedness to it on the part of a depositor. The Civil Code contains provisions regarding compensation (set
off) and deposit. The portions of Philippine law provide that compensation shall take place when two persons
are reciprocally creditor and debtor of each other. In this connection, it has been held that the relation existing
between a depositor and a bank is that of creditor and debtor.

Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of Gullas
a right of set off, we next consider if that remedy was enforced properly. The fact we believe is undeniable that
prior to the mailing of notice of dishonor, and without waiting for any action by Gullas, the bank made use of
the money standing in his account to make good for the treasury warrant.
Gullas was merely an indorser and had issued in good faith. As to an indorser, the situation is different and
notice should actually have been given him in order that he might protect his interests. We accordingly are of
the opinion that the action of the bank was prejudicial to Gullas.

9. BANK OF THE PHILIPPINE ISLANDS VS. COURT OF APPEALS

FACTS: Eastern Plywood Corporation and Benigno Lim as officer of the corporation, had an “AND/OR” joint
account with Commercial Bank and Trust Co (CBTC), the predecessor-in-interest of petitioner Bank of the
Philippine Islands. Lim withdraw funds from such account and used it to open a joint checking account (an
“AND” account) with Mariano Velasco. When Velasco died in 1977, said joint checking account had
P662,522.87. By virtue of an Indemnity Undertaking executed by Lim and as President and General Manager of
Eastern withdrew one half of this amount and deposited it to one of the accounts of Eastern with CBTC.

Eastern obtained a loan of P73,000.00 from CBTC which was not secured. However, Eastern and CBTC
executed a Holdout Agreement providing that the loan was secured by the “Holdout of the C/A No. 2310-001-
42” referring to the joint checking account of Velasco and Lim. Meanwhile, a judicial settlement of the estate of
Velasco ordered the withdrawal of the balance of the account of Velasco and Lim.
Asserting that the Holdout Agreement provides for the security of the loan obtained by Eastern and that it is the
duty of CBTC to debit the account of respondents to set off the amount of P73,000 covered by the promissory
note, BPI filed the instant petition for recovery. Private respondents Eastern and Lim, however, assert that the
amount deposited in the joint account of Velasco and Lim came from Eastern and therefore rightfully belong to
Eastern and/or Lim. Since the Holdout Agreement covers the loan of P73,000, then petitioner can only hold that
amount against the joint checking account and must return the rest.

ISSUE: Whether BPI can demand the payment of the loan despite the existence of the Holdout Agreement

RULING: Yes. Bank deposits are in the nature of irregular deposits; they are really loans because they earn
interest. The relationship then between a depositor and a bank is one of creditor and debtor. The deposit under
the questioned account was an ordinary bank deposit; thus, it was payable on demand of the depositor. In this
case, the Holdout Agreement conferred on CBTC the power, not the duty, to set off the loan from the account
subject of the Agreement. When BPI demanded payment of the loan from Eastern, it exercised its right to
collect payment based on the promissory note, and disregarded its option under the Holdout Agreement.
Therefore, its demand was in the correct order.

10. Serrano vs. Central Bank, 96 SCRA 96 (1980)

Facts: Petitioner Serrano made a time deposit of P350,000.00 in Overseas Central Bank. Upon encashment, not
a single time deposit certificate was honored by Overseas Central Bank. He filed a case against Overseas
Central band including Central Bank to be jointly and severally liable for damages on the ground that Central
Bank failed to supervise the acts of overseas bank and protect the interests of its depositors.

Issue: Whether Central Bank should be liable?

Ruling: No. There is no breach of trust from a bank’s failure to return the subject matter of the deposit. Bank
deposits are in the nature of irregular deposits. They are really loans because they earn interest. The petitioner
here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a
creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner.

Accordingly, the relation between a depositor and a bank is that of a creditor and a debtor. The depositor
(creditor) lends the bank (debtor) money and the bank agrees to pay the depositor on demand. The deposit
agreement between the bank and the depositor determines the rights and obligations of the parties.
Consequently: (a) A bank’s failure to honor a deposit is failure to pay its obligation as debtor and not a breach
of trust arising from a depositary’s failure to return the subject matter of the deposit.

11. Citibank vs. Cabamongan 488 SCRA 517 (2006)

Facts: Respondent spouses Cabamongan opened a joint foreign currency time deposit in trust for their sons with
Citibank. Prior to maturity, a person claiming to be Carmelita Cabamongan pre-terminated the said account
upon presenting identification cards. Though not being able to surrender the Original Certificate of Deposit, the
money was released to her despite the release and waiver documents not being notarized. Respondent spouses
learned of the incident and informed petitioner bank that Carmelita could not have pre-terminated the account
since she was in the US at that time. The spouses made a formal demand of payment of the deposit and
consequently, filed a complaint when petitioner refused to pay. Petitioner bank insists that it was not negligent
of its duties since the deposit was released upon proper identification and verification. RTC ruled in favor of the
spouses
Issue:
Whether or not petitioner bank was negligent in its duties as to be liable for damages

Ruling:
Yes. Citibank was negligent. First, the “depositor” didn’t present the Certificate of Deposit. Second, from the
internal memorandum issued by the Account Officer, he admitted to the fact that the specimen signature was
different from the one who misrepresented herself as CarmelitaCabamongan. Third, the bank kept in
itsrecords pictures of its depositors. It is inconceivable how the bank was duped by an impostor.

The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on
simple loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof
categorically provides that ". . . savings . . . deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan." Thus, the relationship between a bank and its depositor is
that of a debtor-creditor, the depositor being the creditor as it lends the bank money, and the bank is the debtor
which agrees to pay the depositor on demand.

The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the guidelines
set forth in Eastern Shipping Lines, Inc. v. Court of Appeals to wit:

Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the
absence thereof, the rate shall be 12% per annum counted from the time of demand. Accordingly, the stipulated
interest rate of 2.562% per annum shall apply for the 182-day contract period from August 16, 1993 to
February 14, 1994. For the period from the date of extra-judicial demand, September 16, 1994, until full
payment, the rate of 12% shall apply. As for the intervening period between February 15, 1994 to September
15, 1994, the rate of interest then prevailing granted by Citibank shall apply since the time deposit provided for
roll over upon maturity of the principal and interest.

Hence, such deposits are governed by the provisions on mutuum or simple loan, and the rules on the imposition
of legal interest. While the bank has the obligation to return the amount deposited, it has, however, no
obligation to return or deliver the same money that was deposited.

12. Solid Bank Corporation vs. Tan, 520 SCRA 123

Facts:
Respondents’ representative deposited a total of ten checks with petitioner bank where respondents maintain an
account. It was later found that one of the checks was not posted to respondents’ passbook. The duplicate
deposit slip listing the checks deposited by their representative but it did not include the missing check.
Petitioners subsequently learned that the check had cleared after it was inexplicably deposited in a different
bank. The spouses filed a case for collection of a sum of money after the bank refused to pay them the amount
of the check.

Issue:
Whether or not petitioner bank was negligent.
Ruling: Yes. The bank is engaged in business impressed with public interest, and it is its duty to protect in
return its many clients and depositors who transact business with it with the highest degree of care, more than
that of a good father of the family or of an ordinary business firm. It is its obligation to see to it that all funds
invested with it are properly accounted for and duly posted in its ledger. In every case, the depositor expects the
bank to treat his account with utmost fidelity, whether such account consists of only a few hundred pesos or of
millions, always having in mind the fiduciary nature of their relationship.

Like a common carrier whose business is imbued with public interest, a bank should exercise extraordinary
diligence to negate its liability to its depositors.
Warehouse Receipts Law

TELENGTAN BROTHERS (LA SUERTE CIGAR) V. COURT OF APPEALS

Facts:

Shipper contracted K-line for the shipment of container board liners. A bill of lading was issued. The shipment was loaded on
two vessels of K-Line. But because the customs arrastre refused to act on the shipment due to a discrepancy in the bill of
lading and the manifest, the consignee was not able to discharge the shipment. Thus, demmurage charges accrued. Consignee
paid all the demurrage charges but was not able to obtain all of the shipment. Thus, it demands refund contending that the
bill of lading does not provide for the payment of container demurrage but only for a demurrage referring to damages for
detention of vessels.

Issue: Whether the consignee should pay the demurrage charges.

Ruling: Yes, because of its failure to remove the cargoes from the containers. Whatever may be the interpretation of the
consignee for the word “demurrage,” the fact is that the bill of lading provides for the payment of a demurrage for the
detention of containers and other equipments for the so-called “free-time.” And because a bill of lading is both a receipt and a
contract, its terms and conditions are conclusive on the parties, including the consignee. Here, the consignee should pay only
from the time of the arrival of the shipment up to the time when the customs arrastre refused action. This is so because
customs arrastre’s ground for refusal was not due to the fault of the consignee but because of the fault of the carrier/shipping
agent. Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for the detention of
the vessel beyond the time agreed on for loading and unloading. Essentially, demurrage is the claim for damages for failure to
accept delivery.

BPI vs. Intermediate Appellate Court

Facts:

Rizaldy T. Zshornack and his wife maintained in COMTRUST a dollar savings account and a peso current account. An
application for a dollar draft was accomplished by Virgillo Garcia branch manager of COMTRUST payable to a certain
Leovigilda Dizon. In the application, Garcia indicated that the amount was to be charged to the dollar savings account of the
Zshornacks. There was no indication of the name of the purchaser of the dollar draft. Comtrust issued a check payable to the
order of Dizon with an indication that it was to be charged to Dollar Savings Account. When Zshornack noticed the withdrawal
from his account, he demanded an explanation from the bank. In its answer, Comtrust claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, brother of Rizaldy. When he encashed with COMTRUST a cashier’s check for
P8450 issued by the manila banking corporation payable to Ernesto.

Petitioner bank has not shown how the transaction involving the cashier's check is related to the transaction involving the
dollar draft in favor of Dizon financed by the withdrawal from Rizaldy's dollar account. The two transactions appear entirely
independent of each other. Moreover, Ernesto Zshornack, Jr., possesses a personality distinct and separate from Rizaldy
Zshornack. Payment made to Ernesto cannot be considered payment to Rizaldy.

Note that the object of the contract between Zshornack and COMTRUST was foreign exchange. Hence, the transaction was
covered by Central Bank Circular No. 20, Restrictions on Gold and Foreign Exchange Transactions. This was modified by
Section 6 of Central Bank Circular No. 281. It provides:

SEC. 6. All receipts of foreign exchange by any resident person, firm, company or corporation shall be sold to authorized
agents of the Central Bank by the recipients within one business day following the receipt of such foreign exchange.
Any resident person, firm, company or corporation residing or located within the Philippines, who acquires foreign exchange
shall not, unless authorized by the Central Bank, dispose of such foreign exchange in whole or in part, nor receive less than its
full value, nor delay taking ownership thereof except as such delay is customary; Provided, That, within one business day upon
taking ownership or receiving payment of foreign exchange the aforementioned persons and entities shall sell such foreign
exchange to the authorized agents of the Central Bank.

Issue: Whether the contract between petitioner and respondent bank is a deposit?

Ruling:

Yes. The document and the subsequent acts of the parties show that they intended the bank to safekeep the foreign exchange,
and return it later to Zshornack, who alleged in his complaint that he is a Philippine resident. The parties did not intended to
sell the US dollars to the Central Bank within one business day from receipt. Otherwise, the contract of depositum would never
have been entered into at all.

Since the mere safekeeping of the greenbacks, without selling them to the Central Bank within one business day from receipt,
is a transaction which is not authorized by CB Circular No. 20, it must be considered as one which falls under the general class
of prohibited transactions. Hence, pursuant to Article 5 of the Civil Code, it is void, having been executed against the
provisions of a mandatory/prohibitory law.

[The case only mentioned deposit]

Roman v. Asia Banking Corp.

Facts:

U. de Poli, for value received, issued a quedan covering the 576 bultos of tobacco to the Asia Banking Corporation (claimant &
appellant). It was executed as a security for a loan. The aforesaid 576 butlos are part and parcel of the 2,766 bultos purchased
by U. de Poli from Felisa Roman (claimant & appellee).

The quedan was marked as Exhibit D which is a warehouse receipt issued by the warehouse of U. de Poli for 576 bultos of
tobacco. In the left margin of the face of the receipt, U. de Poli certifies that he is the sole owner of the merchandise therein
described. The receipt is endorsed in blank; it is not marked”non-negotiable” or “not negotiable”.

Since a sale was consummated between Roman and U. de Poli, Roman’s claim is a vendor’s lien. The lower court ruled in favor
of Roman on the theory that since the transfer to Asia Banking Corp. (ASIA) was neither a pledge nor a mortgage, but a
security for a loan, the vendor’s lien of Roman should be accorded preference over it.

However, if the warehouse receipt issued was negotiable, the vendor’s lien of Roman cannot prevail against the rights of ASIA
as indorsee of the receipt.

Issue: Whether the receipt is negotiable.

Ruling: YES. The warehouse receipt in question is negotiable. It recited that certain merchandise deposited in the warehouse
“por orden” of the depositor instead of “a la orden”, there was no other direct statement showing whether the goods
received are to be delivered to the bearer, to a specified person, or to a specified order or his order. However, the use of “por
orden” was merely a clerical or grammatical error and that the receipt was negotiable.

As provided by the Warehouse Receipts Act, in case the warehouse man fails to mark it as “non-negotiable”, a holder of the
receipt who purchase if for value supposing it to be negotiable may, at his option, treat such receipt as imposing upon the
warehouseman the same liabilities he would have incurred had the receipt been negotiable. This appears to have given any
warehouse receipt not marked “non-negotiable” practically the same effect as a receipt which, by its terms, is negotiable
provided the holder of such unmarked receipt acquired it for value supposing it to be negotiable, circumstances which
admittedly exist in the present case. Hence, the rights of the indorsee, ASIA, are superior to the vendor’s lien.

Por orden - by order

A la orden - to the order

4. Gonzales v Go Tiongand Luzon Surety Co., 104 Phil. 492 (1958)

De Leon Book: Contract converted to ordinary deposit. — The issuance of a warehouse receipt in the form
provided by the law is merely permissive and directory and not mandatory in the sense that if the
requirements are not observed, then the goods delivered for storage become ordinary deposits. (Gonzales vs.
Go Tiong and Luzon Surety Co., 104 Phil. 492 [1958].)

RAMON GONZALES,plaintiff-appellee, vs.GO TIONG and LUZON SURETY CO., INC.,defendants-

appellants.

Facts:

Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. He obtained a license of a
bonded businessman with Luzon Surety Co., with conditions he failed to fulfill. The warehouse and palay
deposited therein were insured with the Alliance Surety and Insurance Company. Ramon Gonzales
deposited palay to Go Tiong even before he got the license who later demanded the value of his
deposits. But GoTiongfailed to give him his value until fire burned down the warehouse, with sacks in
excess of that was authorized under his license. The receipts issued to Gonzales were ordinary receipts and not
the warehouse receipts as defined by Warehouse receipts act. Plaintiff filed their claims with the Bureau of
Commerce and the proceeds of the insurance policy, BOC paid off some claims. Plaintiff’s counsel withdrew
the claims, because according to court nothing came from plaintiff's efforts to have his claim paid,
inconsistent with what Go Tiong claimed that it was denied Gonzales filed claims both against
Gonzales and Luzon Surety, and renewed his claim with BOC. Gonzales and Go Tiong entered into a
contract of amicable settlement to the effect that upon the settlement of all accounts, but upon failure to
comply, Gonzales prosecuted his court action. Court ruled in favor of Gonzales. Hence this appeal.

Issue: Is the plaintiff’s claim covered by the Civil Law, and not Bonded Warehouse Act for the reason that, Go
Tiong issued to plaintiff were ordinary receipts, not the warehouse receipts contemplated by the
Warehouse Receipts Law, and because the deposits of palay of plaintiff were gratuitous?

Ruling: Consequently, any deposit made with him as a bonded warehouseman must necessarily be
governed by the provisions of Act No. 3893.Though it is desirable that receipts issued by a bonded
warehouseman should conform to the provisions of the Warehouse Receipts Law, said provisions are not
mandatory and indispensable in the sense that if they fell short of the requirements of the Warehouse Receipts
Act, then the commodities delivered for storage become ordinary deposits and will not be governed by the
provisions of the Bonded Warehouse Act. As the trial courtwell observed, as far as Go Tiong was concerned,
the fact that the receipts issued by him were not "quedans" is no valid ground for defense because he
was the principal obligor. Furthermore, as found by the trial court, Go Tiong had repeatedly promised plaintiff
to issue to him "quedans" and had assured him that he should not worry; and that Go Tiong was in the
habit of issuing ordinary receipts (not"quedans") to his depositors. Considering the fact, as already
stated, that prior to the burning of the warehouse, plaintiff demanded the payment of the value of his
palay from Go Tiong on two occasions but was put off without any valid reason, it is illogical and
unreasonable to hold that the presumption of negligence in case of this kind is rebutted by the bailee by simply
proving that the property bailed was destroyed byan ordinary fire which broke out on the bailee's own premises,
without regard to the care exercised by the latter to prevent the fire, or to save the property after the
commencement of the fire. Besides, as observed by the trial court, the defendant violated the terms of his
license by accepting for deposit palay in excess of the limit authorized by his license, which fact must
have increased the risk. Appealed decision affirmed.

5. Lu Kuan vs. Manila Railroad Co. and Manila Port Service, 19 Scra 5 (1967)

Arrastre operator who received into its custody shipment of cases of milk for two consignees delivered cases
more than as per markings but less as per bill of lading to one of them.

Facts: A (arrastre operator) received into its custody a shipment of 5,000 cases of milk, of which 3,171 cases
were marked for B, as consignee, and 1,829 cases were marked for C, but, according to the bills of lading in A’s
possession, B was entitled only to 3,000 cases and C to 2,000 cases. A actually delivered 1,913 cases to C
which is only 87 cases short of 2,000 cases as per bill of lading.

The present suit was filed by LuaKian against the Manila Railroad Co. and Manila Port Service for the recovery
of the invoice value of imported evaporated "Carnation" milk alleged to have been undelivered. The following
stipulation of facts was made:

1. They admit each other's legal personality, and that during the time material to this action, defendant Manila
Port Service as a subsidiary of defendant Manila Railroad Company operated the arrastre service at the Port of
Manila under and pursuant to the Management Contract entered into by and between the Bureau of Customs
and defendant Manila Port Service on February 29, 1956;

2. On December 31, 1959, plaintiff LuaKian imported 2,000 cases of Carnation Milk from the Carnation
Company of San Francisco, California, and shipped on Board SS "GOLDEN BEAR" per Bill of Lading No. 17;

3. Out of the aforesaid shipment of 2,000 cases of Carnation Milk per Bill of Lading No. 17, only 1,829 cases
marked `LUA KIAN 1458' were discharged from the vessel SS `GOLDEN BEAR' and received by defendant
Manila Port Service per pertinent tally sheets issued by the said carrying vessel, on January 24, 1960;

4. Discharged from the same vessel on the same date unto the custody of defendant Manila Port Service were
3,171 cases of Carnation Milk marked "CEBU UNITED 4860-PH-MANILA" consigned to Cebu United
Enterprises, per Bill of Lading No. 18, and on this shipment, Cebu United Enterprises has a pending claim for
short-delivery against defendant Manila Port Service;

5. Defendant Manila Port Service delivered to the plaintiff thru its broker, Ildefonso Tionloc, Inc. 1,913 cases of
Carnation Milk marked "LUA KIAN 1458" per pertinent gate passes and broker's delivery receipts;

6. A provisional claim was filed by the consignee's broker for and in behalf of the plaintiff on January 19, 1960,
with defendant Manila Port Service;
7. The invoice value of the 87 cases of Carnation Milk claimed by the plaintiff to have been short-delivered by
defendant Manila Port Service is P1,183.11 while the invoice value of the 87 cases of Carnation Milk claimed
by the defendant Manila Port Service to have been over-delivered by it to plaintiff is P1,130.65;

8. The 1,913 cases of Carnation mentioned in paragraph 5 hereof were taken by the broker at Pier 13, Shed 3,
sometime in February, 1960, where at the time, there were stored therein, aside from the shipment involved
herein, 1000 cases of Carnation Milk bearing the same marks and also consigned to plaintiff LuaKian but had
been discharged from SS `STEEL ADVOCATE' and covered by Bill of Lading No. 11;

9. Of the shipment of 1000 cases of Carnation Milk which also came from the Carnation Company, San
Francisco, California, U.S.A. and bearing the same marks as the shipment herein but had been discharged from
S/S "STEEL ADVOCATE" and covered by Bill of Lading No. 11, LuaKian as consignee thereof filed a claim
for short-delivery against defendant Manila Port Service, and said defendant Manila Port Service paid LuaKian
plaintiff herein, P750.00 in settlement of its claim;

10. They reserve the right to submit documentary evidence;

11. They submit the matter of attorney's fees and costs to the sound discretion of the Court.

Issue: Is A (arrastre operator) liable to C for the undelivered cases of milk?

Ruling: Yes. The legal relationship between an arrastre operator and the consignee is akin to that of a depositor
and warehouseman.

As custodian of the goods discharged from the vessel, it was A’s duty like that of any other depositary to take
good care of the goods and to turn them over to the party entitled to their possession. Under this particular set of
circumstances, A should have withheld delivery because of the discrepancy between the bill of lading and the
markings and conducted its own investigation not unlike that under Section 18 of the Warehouse Receipts Law,
or called upon the parties to interplead such as in case under Section 17 of the same law, in order to determine
the rightful owner of the goods. (Lu Kian vs. Manila Railroad Co. and Manila Port Service, 19 SCRA 5 [1967].)
(book)

It is true that Section 12 of the Management Contract exempts the arrastre operator from responsibility for
misdelivery or non-delivery due to improper or insufficient marking. We cannot however excuse the aforestated
defendant from liability in this case before Us now because the bill of lading showed that only 3,000 cases were
consigned to Cebu United Enterprises. The fact that the excess of 171 cases were marked for Cebu United
Enterprises and that the consignment to LuaKian was 171 cases less than the 2,000 in the bill of lading, should
have been sufficient reason for the defendant Manila Port Service to withhold the goods pending determination
of their rightful ownership.

We therefore find the defendants liable, without prejudice to their taking whatever proper legal steps they may
consider worthwhile to recover the excess delivered to Cebu United Enterprises.

With respect to the attorney's fees awarded below, this Court notices that the same is about 50 per cent of the
litigated amount of P1,183.11. We therefore deem it reasonable to decrease the attorney's fees to P300.00.

Wherefore, with the aforesaid reservation, and with the modification that the attorney's fee is reduced to
P300.00, the judgment appealed from is affirmed, with costs against appellants. So ordered.
Guaranty and Suretyship

1. Velasquez v Solidbank Corp., 550 Scra 119 (2008)

Characteristics of the contract.
The following are its characteristics:
(1) It is accessory because it is dependent for its existence upon the principal obligation guaranteed by it;
(2) It is subsidiary and conditional because it takes effect only when the principal debtor fails in his obligation
subject to limitation (see Arts. 2053, 2058, 2063, 2065.);
(3) It is unilateral because —
(a) it gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa although
after its fulfillment, the principal debtor becomes liable to indemnify
the guarantor1 (Art. 2066.) but this is merely an incident of the contract; and also because
(b) it may be entered into even without the intervention of the principal debtor (Art. 2050.); and
(4) It is a contract which requires that the guarantor must be a person distinct from the debtor because a
person cannot be the personal guarantor of himself. A person cannot be both the primary debtor and the
guarantor of his own debt as this is inconsistent with the very purpose of a guarantee which is for the
creditor to proceed against a third person if the debtor defaults in his obligation. (Velasquez vs. Solidbank
Corporation, 550 SCRA 119 [2008].) (book) However, in real guaranty, like pledge (Art. 2093.) and mortgage
(Art. 2124.), a person may guarantee his own obligation with his personal or real properties. (see 12 Manresa
155-156.)
Facts: The case is out of a business transaction for the sale of dried sea cucumber for export to South Korea
between Wilderness Trading (of Velasquez), as seller, and Goldwell Trading of Pusan, South Korea, as buyer.
To facilitate payment of the products, Goldwell Trading opened a letter of credit in favor of Wilderness Trading
with the Bank of Seoul, Pusan, Korea.
Petitioner applied for credit accommodation with Solidbank for pre-shipment financing. The credit
accommodation was granted. Petitioner was successful in his first two export transactions both drawn on the
letter of credit. The third export shipment, however, yielded a different result. Petitioner submitted to Solidbank
the necessary documents for his third shipment. Wanting to be paid the value of the shipment in advance,
petitioner negotiated for a documentary sight draft to be drawn on the letter of credit, chargeable to the account
of Bank of Seoul. The sight draft represented the value of the shipment.
As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in favor of
respondent. Under the terms of the letter of undertaking, petitioner promised that the draft will be accepted and
paid by Bank of Seoul according to its tenor. Petitioner also held himself liable if the sight draft was not
accepted.
Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul.
The reasons given for the dishonor were late shipment, forged inspection certificate, and absence of
countersignature of the negotiating bank on the inspection certificate.Goldwell Trading likewise issued a stop
payment order on the sight draft because most of the bags of dried sea cucumber exported by petitioner
contained soil.
Due to the dishonor of the sight draft and the stop payment order, respondent demanded restitution of the sum
advanced. Petitioner failed to heed the demand.
Solidbank filed a complaint for recovery of sum of money with the RTC. In his answer, petitioner alleged that
his liability under the sight draft was extinguished when respondent failed to protest its non-acceptance, as
required under the Negotiable Instruments Law (NIL). He also alleged that the letter of undertaking is not
binding because it is a superfluous document, and that he did not violate any of the provisions of the letter of
credit.
RTC rendered judgment in favor of respondent. The CA affirmed with modification. hence this petition.
Issue: WON not petitioner should be held liable to respondent under the sight draft or the letter of undertaking.
Ruling: petition denied. YES; letter of undertaking
Admittedly, petitioner was discharged from liability under the sight draft when respondent failed to protest it for
non-acceptance by the Bank of Seoul. A sight draft made payable outside the Philippines is a foreign bill of
exchange. When a foreign bill is dishonored by non-acceptance or non-payment, protest is necessary to hold the
drawer and indorsers liable. Verily, respondent’s failure to protest the non-acceptance of the sight draft resulted
in the discharge of petitioner from liability under the instrument.
Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a
separate contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and
primary. It is independent from his liability under the sight draft. Liability subsists on it even if the sight draft
was dishonored for non-acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will
reimburse the amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant
petitioner an advance export payment were it not for the letter of undertaking. The consideration for the letter of
undertaking was petitioner’s promise to pay respondent the value of the sight draft if it was dishonored for any
reason by the Bank of Seoul.
**GUARANTY**
We cannot accept petitioner’s thesis that he is only a mere guarantor under the letter of credit. Petitioner cannot
be both the primary debtor and the guarantor of his own debt. This is inconsistent with the very purpose of a
guarantee which is for the creditor to proceed against a third person if the debtor defaults in his obligation.
Certainly, to accept such an argument would make a mockery of commercial transactions.

2. Agro Conglomerates, Inc. vs. CA

Facts: Petitioner Agro-Conglomerates, Inc. as vendor, sold 2 parcels of land to Wonderland Food Industries,
Inc. The vendor, the vendee, and the respondent bank Regent Savings & Loan Bank, executed an Addendum to
the previous Memorandum of Agreement. It provided, among others, that the vendee undertakes to pay the loan
procured in the name of the VENDOR; that the VENDEE will be the one liable to pay the entire proceeds
thereof including interest and other charges. Consequently, petitioner Mario Soriano signed as maker several
promissory notes, payable to the respondent bank. Thereafter, the bank released the proceeds of the loan to
petitioners. However, petitioners failed to meet their obligations as they fell due. Mario Soriano manifested his
intention to re-structure the loan, yet he did not show up nor submit his formal written request.

Issue: Whether the petitioner is liable as an accommodation party?

Ruling: A subsidiary contract of suretyship had taken effect since petitioners signed the promissory notes as
maker and accommodation party for the benefit of Wonderland. Petitioners became liable as accommodation
party. They have the right, after paying the holder, to obtain reimbursement from the party accommodated,
since the relation between them has in effect become one of principal and surety, the accommodation party
being the surety. The surety’s liability to the creditor or promisee of the principal is said to be direct, primary,
and absolute; in other words, he is directly and equally bound with the principal. The creditor may proceed
against any one of the solidary debtors.

3. Autocorp Group vs. Intra Strata Assurance Corp.

Facts: Autocorp Group, represented by its president, Rodriguez, secured an ordinary re-export bond from
private respondent Intra Strata Assurance Corporation (ISAC) in favor of the Bureau of Customs (BOC), to
guarantee the re-export of 2 units of car and/or to pay the taxes and duties thereon. Petitioners executed and
signed 2 Indemnity Agreements with identical stipulations in favor of ISAC, agreeing to act as surety of the
subject bonds

In sum, ISAC issued the subject bonds to guarantee compliance by petitioners with their undertaking with the
BOC to re-export the imported vehicles within the given period and pay the taxes and/or duties due thereon. In
turn, petitioners agreed, as surety, to indemnify ISAC for the liability the latter may incur on the said bonds.

Autocorp failed to re-export the items guaranteed by the bonds and/or liquidate the entries or cancel the bonds,
and pay the taxes and duties pertaining to the said items, despite repeated demands made by the BOC, as well as
by ISAC. By reason thereof, the BOC considered the 2 bonds forfeited.

Failing to secure from petitioners the payment of the face value of the 2 bonds, ISAC filed with the RTC an
action against petitioners to recover a sum of money plus attorney’s fees. ISAC impleaded the BOC “as a
necessary party plaintiff in order that the reward of money or judgment shall be adjudged unto the said
necessary plaintiff.”
Petitioners filed a motion to dismiss, which was denied. The RTC ordered Autocorp to pay ISAC and/or BOC
the face value of the subject bonds plus attorney’s fees. Autocorp’s motion for reconsideration was denied. The
CA affirmed the trial court’s decision. The motion for reconsideration was denied. Hence, this Petition for
Review on Certiorari.

Issue: Whether these bonds are now due and demandable, as there is yet no actual forfeiture of the bonds, but
merely a recommendation of forfeiture, for no writ of execution has been issued against such bonds, therefore
the case was prematurely filed by ISAC?

Ruling: Yes. The Indemnity Agreements 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.”

Article 2071 of the Civil Code provides that the guarantor, even before having paid, may proceed against
the principal debtor when, among others, the debt has become demandable, by reason of the expiration
of the period for payment.
A demand is only necessary in order to put an obligor in a due and demandable obligation in delay, which in
turn is for the purpose of making the obligor liable for interests or damages for the period of delay. Thus, unless
stipulated otherwise, an extrajudicial demand is not required before a judicial demand, i.e., filing a civil case for
collection, can be resorted to.

4. Palmares vs. CA

Facts: Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña 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. On 4 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.

Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation
filed a complaint against petitioner Palmares as the lone party-defendant, to the exclusion of the principal
debtors, allegedly by reason of the insolvency of the latter.

Issue: Whether Palmares is liable?

Ruling: If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of Book IV of the Civil Code shall be observed. In such case the contract is called a suretyship. It is a
cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of its stipulation shall control. In the case at bar,
petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the
note. The terms of the contract are clear, explicit, and unequivocal that petitioner's liability is that of a surety.

ANTONIO GARCIA, JR., Petitioner, v. COURT OF APPEALS, LASAL DEVELOPMENT

CORPORATION,Respondents.

Facts: the Western Minolco Corporation (WMC) obtained from the Philippine Investments Systems
Organization (PISO) two loans for P2,500,000.00 and P1,000,000.00 for which it issued the corresponding
promissory notes payable on May 30, 1977. On the same date, Antonio Garcia and Ernest Kahn executed a
surety agreement binding themselves jointly and severally for the payment of the loan of P2,500,000.00 on due
date.

Upon failure of WMC to pay after repeated demands, demand was made on Garcia pursuant to the surety
agreement.Garcia also failed to pay. Hence, on April 5, 1983, Lasal Development Corporation (to which the
credit had been assigned earlier by PISO) sued Garcia for recovery of the debt in the Regional Trial Court of
Makati.

On May 18, 1983, Garcia moved to dismiss on the grounds that: (a) the complaint stated no cause of action; (b)
the suit would result in unjust enrichment of the plaintiff because he had not received any consideration from
PISO; (c) the surety agreement violated the doctrine of the limited liability of corporations; and (d) the principal
obligation had been novated.After considering the arguments and evidence of the parties, the trial court granted
the motion and dismissed the complaint on the ground that the surety agreement was invalid for absence of
consideration.
Issue:Whether the surety agreement is invalid for absence of consideration

Ruling: 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 surety’s
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 promisee of the principal is
said to be direct, primary and absolute; 1 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.

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.

PHILIPPINE NATIONAL BANK, petitioner, vs.

HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of
Rizal, Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents

Facts: Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of
P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the
controlling interest of private respondent Tayabas Cement Company, Inc. (TCC).2 As security for said loan, the
spouses Arroyo executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title
No. 55323 of the Register of Deeds of Quezon City known as the La Vista property.Thereafter, TCC filed with
petitioner bank an application and agreement for the establishment of an eight (8) year deferred letter of credit
(L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a
cement plant machinery and equipment.The imported cement plant machinery and equipment arrived from
Japan and were released to TCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made
the corresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the
corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt agreement,
PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for failure
of TCC to settle its obligations under the L/C. The foreclosure sale of the La Vista property was scheduled on
August 11, 1975. At the auction sale, PNB was the highest bidder with a bid price of P1,000,001.00.

Issue:Whether the PNB has the right to foreclose the mortgages executed by the spouses Arroyo?

Ruling:PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of TCC. A
surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as to be inseparable.21 As sureties, the Arroyo
spouses are primarily liable as original promissors and are bound immediately to pay the creditor the amount
outstanding.

JEANETTE D. MOLINO, petitioner, vs.

SECURITY DINERS INTERNATIONAL CORPORATION, respondent

Facts: The Security Diners International Corporation ("SDIC') operates a credit card system under the name of
Diners Club through which it extends credit accommodation to its cardholders for the purchase of goods and
payment of services from its member establishments to be reimbursed later on by the cardholder upon proper
billing. There are two types of credit cards issued: one, the Regular (Local) Card which entitles the cardholder
to purchase goods and pay services from member establishments in an amount not exceeding P10,000.00; and
two, the Diamond (Edition) Card which entitles the cardholder to purchase goods and pay services from
member establishments in unlimited amounts. One of the requirements for the issuance of either of these cards
is that an applicant should have a surety.On July 24, 1987, Danilo A. Alto applied for a Regular (Local) Card
with SDIC. He got as his surety his own sister-in-law Jeanette Molino Alto. Thus, Danilo signed the printed
application form (Exhibit 'A') and Jeanette signed the Surety Undertaking.On the basis of the completed and
signed Application Form and Surety Undertaking, the SDIC issued to Danilo Diners Card No. 36510293216-
0006. The latter used this card and initially paid his obligations to SDIC. On February 8, 1988, Danilo wrote
SDIC a letter (Exhibit "B") requesting it to upgrade his Regular (Local) Diners Club Card to a Diamond
(Edition) one. As a requirement of SDIC, Danilo secured from Jeanette her approval.SDIC demanded of Danilo
and Jeanette to pay said obligation but they did not pay. So, on November 9, 1988, SDIC filed an action to
collect said indebtedness against Danilo and Jeanette.In the Answer with Compulsory Counterclaim that she
filed with the RTC, petitioner claimed that her liability under the Surety Undertaking was limited to P10,000.00
and that she did not expressly and categorically agree to act as surety for Danilo in an amount higher than
P10,000.00.

Issue: Whether petitioner is liable as surety under the Diamond card revolves around the effect of the upgrading
by Danilo Alto of his card

Ruling: Petitioner’s content is devoid of merit.The Surety Undertaking expressly provides that petitioner's
liability is solidary. A surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.14
Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the
creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.15 There
being no question that Danilo Alto incurred debts of P166,408.31 in credit card advances, an obligation shared
solidarily by petitioner, respondent was certainly within its rights to proceed singly against petitioner, as surety
and solidary debtor, without prejudice to any action it may later file against Danilo Alto, until the obligation is
fully satisfied.

Topic: Surety

1. Tiu Hiong Guan vs. Metropolitan Bank 2006

Facts: Sometime in October 1990, petitioners applied for a continuing credit facility for and in behalf of
themselves and their corporation, Sunta Rubberized Industrial Corporation (Sunta), and executed in their
personal and official capacities a Continuing Surety Agreement. In the said Agreement, petitioners jointly and
severally obligated themselves to pay all loans and credit accommodations that they and Sunta may incur,
supposedly not exceeding three million pesos. It was further stipulated therein that, in case of default in the
payment thereof, notwithstanding Sunta's dissolution, failure in business, insolvency, and the filing of a petition
for bankruptcy or suspension of payments in the proceeding related thereto, the whole obligation shall become
due and payable without benefit of demand or notice of payment. On July 9, 1990, petitioners opened an
irrevocable Commercial Letter of Credit (LC) for the purchase of raw materials amounting toP480,000 in favor
of Sunta. These materials were delivered and custody thereof transferred to Sunta, after which a Trust Receipt
Agreement was jointly and severally executed by petitioners in their personal capacities.

On August 18, 1990, Sunta and petitioners also in their personal capacities obtained a loan
of P350,000. After maturity of the obligation, there was both failure of payment and compliance with the surety
and trust receipt agreements, sight draft, and promissory note. The total unpaid obligation as of February 15,
1993 was P1,571,972.86. Prayed for by respondent in its complaint a quo were the payments of P741,599.64,
with interest and penalties on the promissory note, per Order dated June 9, 1993; P830,373.20, with interest and
penalties as stipulated in the Trust Receipt Agreement; and attorney's fees.

In their Answer, petitioners admitted execution of the Continuing Surety Agreement not in their personal
capacities but as officers of Sunta. It was also asserted therein that none of them personally benefited from the
loan transaction, while two of them signed the LC as mereofficers of Sunta. The failure of Sunta to
pay its obligation was attributed to both force majeure – when fire “gutted down” its factory buildings,
equipment, machinery, raw materials and finished products – and the Order dated April 20, 1993 by the
Securities and Exchange Commission (SEC) in SEC Case No. 4240 suspending all actions for claims against
Sunta that are pending before any court or tribunal.

It was contended that the real party-in-interest as far as the actionable documents herein were concerned
was Sunta, not petitioners who merely acted as its agents and as guarantors of its obligation. Therefore,
petitioners should not be compelled to pay the obligations of Sunta, because Sunta is solvent and its assets have
not yet been exhausted.

Issue: Whether petitioners can be held liable for the unpaid loan due and owing respondent.

Ruling: Yes. Petitioners should be held liable for their unpaid obligation of P1,571,972.86 as of February 15,
1993, with penalties, interest, attorney’s fees, and costs of suit, based on both the non-negotiable Promissory
Note and Continuing Surety Agreement they executed. Under the Promissory Note, petitioners Tiu Hiong Guan
and JuanitoRellera promised to pay respondent jointly and severally the single-payment loan of P350,000 at
28.92% interest per annum, binding themselves in both their personal and official capacities. In case of
default inter alia in the payment of any installment, interest, or charges, it is stipulated that the entire
principal, as well as the interest andcharges, shall become due and payable at the option of and without notice
by respondent. A penalty charge of 18% per annum and attorney's fees of 10% were also agreed upon therein.

The Continuing Surety Agreement clearly states that the liability of all petitioners, as sureties, shall
be solidary with Sunta, as their principal, for all of the latter's loans, credits, overdrafts, advances, discounts
and/or other credit accommodations not exceeding P3,000,000. In case of default inter alia in the payment of
any obligation upon maturity or any amortization thereof, it is similarly stipulated that all instruments,
indebtedness, or other obligations thereby secured shall become due and payable by the sureties, at the option
of and without demand or notice by respondent. In fact, their liability is expressly stated to be direct and
immediate, not contingent upon the pursuit by respondent of whatever remedies it may have against Sunta. All
parties therein have agreed that the sureties shall at any time pay respondent,with or without demand upon
Sunta, any of the loans, indebtedness, or other obligations secured, whether due or not. Any notice given
byrespondent to any of the sureties shall be sufficient notice to all.

From these two documents, the liability of petitioners is joint and several in both their personal and
official capacities. They are not mere guarantors, but sureties. They do not insure the solvency of the debtor,
but rather the debt itself. They obligate themselves “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.”[5]
 “Suretyship arises upon the solidary binding of a person — deemed the surety — with the principal debtor,
for the purpose of fulfilling an obligation.”[9] “[A] suretyship is merely an accessory x xx to a principal
obligation. Although a surety contract is secondary to the principal obligation, the liability of the surety is
direct, primary and absolute; or equivalent to that of a regular party to the undertaking. A surety becomes liable
to the debt and duty of the principal obligor even without possessing a direct or personal interest in the
obligations constituted by the latter.”[10] Petitioners are considered “as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.”[11]

It is irrelevant that none of petitioners personally benefited from the loan transaction between Sunta and
respondent. The failure to pay attributable to either force majeure or the SEC Order does not veer away from
the fact of liability as sureties. Even though ownership over the goods remains with respondent, the loss thereof
has nothing to do with the loan that petitioners bound themselves to be solidarily liable with respondent. The
Trust Receipt Agreement between them is a mere collateral agreement independent of the Continuing Surety
Agreement, the purpose of which is to serve as additional security for the loan.[12] “[P]arties are bound by the
terms of their contract, which is the law between them.”[13]

2. Suico Rattan and Buri Interiors Inc vs. Court of Appeals G.R No. 138145, June 15, 2006

Facts:Metrobank filed an action for the Recovery of a Sum of Money arising from the obligations of SRBII and
the Suico spouses on their export bills purchases. SRBII and the Suico spouses filed their Answer contending
that their indebtedness are secured by a real estate mortgage and that the value of the mortgaged properties is
more than enough to answer for all their obligations to Metrobank.The trial court dismissed Metrobank’s
complaint declaring that all obligations of defendants to plaintiffs incurred either as principal, surety or
guarantor, which matured and had become due and demandable on the foreclosure of the Real Estate Mortgage
are already fully paid by the mortgage security.

On appeal, the CA ruled that since the proceeds from the foreclosure sale of the mortgaged properties amounted
only to P10,383,141.63, the same is not sufficient to answer for the entire obligation of petitioners to Metrobank
and that the latter may still recover the deficiency of P16,585,286.27 representing the value of the export bills
purchased by herein petitioners.

Issues:

a. THE RESPONDENT CA ERRED IN NOT HOLDING THAT THE REAL ESTATE

MORTGAGE DATED SEPTEMBER 5, 1991 SERVED AS THE COLLATERAL FOR ALL
THE OBLIGATIONS OF THE PETITIONERS.
b. THE RESPONDENT CA ERRED IN ORDERING THE PETITIONERS TO PAY
SOLIDARILY THE AMOUNT OF P16,585,286.27 REPRESENTING THE PRINCIPAL
OBLIGATION AND INTEREST AS OF OCTOBER 31, 1992 AND TO PAY AN INTEREST
ON THE PRINCIPAL SUM OF P12,218,866,23 AT THE RATE OF 26% PER ANNUM
FROM NOVEMBER 1, 1992 UNTIL THE SAID AMOUNTS ARE FULLY PAID
c. THE RESPONDENT CA ERRED IN HOLDING THAT PETITIONERS SUICO SPOUSES
ARE SOLIDARILY LIABLE WITH PETITIONER CORPORATION FOR PAYMENT OF
INTEREST PRIOR TO THE FILING OF THE COMPLAINT.
Ruling:

a. As to the first assigned error, the Court agrees with petitioners that all their obligations,
including their indebtedness arising from their purchase of export bills, are secured by the Real
Estate Mortgage contract.
b. With respect to the second assigned error, the petitioners’ contention that they are not liable to
pay since there is no showing that the principal debtor cannot pay, the time-honored rule is that
 the surety 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, creditor Metrobank
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 because the liability of the surety is direct, primary
and absolute; or equivalent to that of a regular party to the undertaking.
c. The same principle applies with respect to the payment of interest. Since the Suico spouses
obligated themselves to be solidarily bound with SRBII, it follows that they are also liable to pay
the interest.

SECURITY PACIFIC ASSURANCE v. TRIA-INFANTE (2005)

FACTS:Reynaldo Anzures filed a complaint in RTC against Teresita Villaluz for BP 22. Anzures filed an Ex-
Parte Motion for Preliminary Attachment, praying that pending the hearing on the merits of the case, a WPA
is to be issued ordering the sheriff to attach the properties of Villaluz in accordance with the Rules.RTC issued a
WPA upon complainant’s (Anzures) posting of a bond (P2.1M). Sheriff attached certain properties of Villaluz
and were duly annotated on the corresponding certificates of title.
RTC acquitted Villaluz of the crime charged (BP22) but held her civilly liable. Villaluz appealed but
decision was affirmed. The case was elevated to the SC and during it’s pendency, Villaluz posted a counter-
bond of P2.5M issued by Security Pacific Assurance Corporation, as well as filed an Urgent Motion to
Discharge Attachment. SC affirmed CA; Anzures moved for execution of judgment. Pursuant to a writ of
execution issued, Sheriff Reynaldo R. Buazon tried to serve the writ of execution upon Villaluz, but the latter
no longer resided in her given address.
1. Sheriff sent a Notice of Garnishment to Security Pacific Assurance Corporation’s office in Makati
City, by virtue of the counter-bond posted by Villaluz with said insurance corporation in the amount
of P2.5M but refused to assume it’s obligation on the counter-bond it posted for the discharge of the
attachment made by Villaluz on the ground that the bond was not approved by SC and that the condition
by which the bond was issued, did not happen. – court denied. 9. CA – affirmed RTC= Security Pacific
liable; no GAD

ISSUES:

1. W/N CA committed an error in affirming the decision of RTC to allow execution on the counter-
bond issued by Security Pacific (MAIN ISSUE)

2. W/N CA correct in ruling that the that the mere act of posting the counter-bond was sufficient to
discharge the attachment on the property (attachment on the property of Villaliz was discharged without
need of court approval of the counter-bond) - YES

RULING:

1. NO. When a judgment which has become executory, is returned unsatisfied, liability of the bond
automatically attaches in failure of the surety to satisfy the judgment against the defendant despite demand
therefore, writ of execution may issue against the surety to enforce the obligation of the bond. - Tijam v.
Sibonghanoy. “

Security Pacific was saying that although, it has a surety agreement with Villaluz, it is one which merely waives
its right of excussion. This is wrongThecounter-bond itself states that the parties jointly and severally
bind themselves to secure the payment of any judgment that the plaintiff may recover against the
defendant in the action.
 In a contract of suretyship, surety agrees to be answerable directly, primarily and absolutely to the principal’s
debt, default or miscarriage of another. This means that the surety is equally bound with the principal regardless
of his interest in the obligation or receipt of benefits. Security Pacific therefore cannot deny liability as a surety.

2. YES, CA correct in ruling that attachment discharged without need of court approval There are two (2) ways
to secure the discharge of an attachment. 1. - the party whose property has been attached or a person appearing
on his behalf may post a security (Sec 12 Rule 57). 2.- party whose property is attached may show that the
order of attachment was improperly or irregularly issued. The mere filing of the counter-attachment bond by
Villaluz has discharged the attachment on the properties and made the petitioner corporation liable on the
counter-attachment bond.

This can be gleaned from the “DEFENDANT’S BOND FOR THE DISSOLUTION OF ATTACHMENT”,
which states that Security Pacific Assurance Corporation, as surety, in consideration of the dissolution of
the said attachment jointly and severally, binds itself with petitioner Villaluz for any judgment that may
be recovered by private respondent Anzures against petitioner Villaluz.

TOPIC: GUARANTY AND SURETYSHIP

Emerita Garon vs. Project Realty Movers and Development Corporation and Stronghold Insurance
Company, Inc.
G.R. No. 166058, April 4, 2007

J. Callejo Sr., ponente

 On December 19, 2007, Project Movers Realty and Development Corporation (PMRDC) obtained a
loan from Emerita Garon in the amount of P6,088,783.68. The loan was covered by promissory note
which is to mature on December 19, 1998, with a stipulated interest of 36% per annum.
 To secure the loan, PMRDC undertook to assign to Garon its leasehold rights over a space at the
Monumento Plaza Commercial Complex. The parties stipulated that failure to pay the note or any
portion thereof, or any interest thereon, shall constitute default, and the entire obligation shall become
due and payable without need of demand.
 On December 31, 1997, PMRDC obtained another loan from Garon in the amount of US$189,418.75 at
17% per annum, to mature on December 31, 1998. Said loan was also covered by a promissory, secured
by an assignment of leasehold rights over another space of Monumento Plaza Commercial Complex,
and procured a surety bond from Stronghold Insurance Company, Inc. (SICI), subject to the following
conditions:
o That the bond is conditioned to guarantee the assignment of leasehold rights at the Monumento
Plaza Building in favor of the creditor;
o The liability of the surety shall not exceed P12,755,139.85.
o The liability of Surety of the bond shall expire on November 7, 1998 and said bond will be
cancelled five days after its expiration.
 When PMRDC defaulted, Garon required it to execute and deliver a unilateral Deed of Assignment of
its leasehold rights over the commercial spaces. Garon also sent a formal letter of demand dated
November 6, 1998 for SICI to comply with its obligation under the surety bond. SICI raised the defense
that its obligation had already extinguished, and that the obligation guaranteed by the bond had not yet
matured.

Issue(s)/Ruling(s)
1. Whether or not SICI is liable to petitioner under its surety bond.
NO. It must be stressed that the principal obligation guaranteed by the surety bond is the assignment of the
leasehold rights of PMRDC to petitioner over the subject spaces. The liability of respondent arose the moment
PMRDC failed to assign its leasehold rights; and the demand on respondent was made prior to the expiration of
the surety bond. However, an examination of the terms of the surety bond clearly shows that respondent
guaranteed the assignment of the leasehold rights, not the payment of a particular sum of money owed by
PMRDC to petitioner.The principal obligation therefore is the assignment of the leasehold right, and the
accessory obligation is the surety agreement. Since respondents undertaking under the surety bond was to
guarantee the assignment of leasehold rights, the security of the principal debt, its obligation cannot extend to
the payment of the principal obligation; to do so would mean going beyond the terms of the contract.

The records show that in her demand letters dated November 3 and 6, 1998, petitioner made formal demands on
both PMRDC and respondent for the assignment of PMRDCs leasehold right. In sum, respondents liability on
the bond arose from the time PMRDC failed to comply with its obligation to assign its leasehold rights over the
subject properties as security for the payment of her debt covered by the promissory notes, not on the maturity
of the loan.

Intra-Strata Assurance Corporation and Philippine Home Assurance Corporation vs. Republic of the
Philippines (represented by the Bureau of Customs)
G.R. No. 156571, July 9, 2008

J. Brion, ponente
 Grand Textile is a local manufacturing corporation. In 1974, it imported from different countries various
articles such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary
chemicals, trans open type reciprocating compressor, and trevira filament.
 Subsequent to the importation, these articles were transferred to Customs Bonded Warehouse No.
462. As computed by the Bureau of Customs, the customs duties, internal revenue taxes, and other
charges due on the importations amounted to P2,363,147.00.
 To secure the payment of these obligations pursuant to Section 1904 of the Tariff and Customs Code
(Code),[4] Intra-Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of
Customs. These bonds, the terms commonly provide that the goods shall be withdrawn from the bonded
warehouse on payment of the legal customs duties, internal revenue, and other charges to which they
shall then be subject.[5]
 Without payment of the taxes, customs duties, and charges due and for purposes of domestic
consumption, Grand Textile withdrew the imported goods from storage.[6]The Bureau of Customs
demanded payment of the amounts due from Grand Textile as importer, and from Intra-Strata and
PhilHome as sureties. All three failed to pay. The government responded on January 14, 1983 by filing a
collection suit against the parties with the RTC of Manila.
 Intra-Strata alleges the following:
o That they were released from their obligations under their bonds when Grand Textile withdrew
the imported goods without payment of taxes, duties, and other charges; and
o That their non-involvement in the active handling of the warehoused items from the time they
were stored up to their withdrawals substantially increased the risks they assumed under the
bonds they issued, thereby releasing them from liabilities under these bonds.

Issue(s)/Ruling(s)
1. Whether or not Intra-Strata should still be held liable as a surety.

Consider the following provisions of the Tariff and Customs Code:

 Sec 101. Imported Items Subject to Duty All articles when imported from any foreign country into the
Philippines shall be subject to duty upon such importation even though previously exported from the
Philippines, except as otherwise specifically provided for in this Code or in clear laws.
  Sec. 1204. Liability of Importer for Duties Unless relieved by laws or regulations, the liability for duties,
taxes, fees, and other charges attaching on importation constitutes a personal debt due from the importer
to the government which can be discharged only by payment in full of all duties, taxes, fees, and other
charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced
which such articles are in custody or subject to the control of the government.
 Section 1904. Irrevocable Domestic Letter of Credit or Bank Guarantee or Warehousing Bond After
articles declared in the entry of warehousing shall have been examined and the duties, taxes, and other
charges shall have been determined, the Collector shall require from the importer, an irrevocable
domestic letter of credit, bank guarantee, or bond equivalent to the amount of such duties, taxes, and
other charges conditioned upon the withdrawal of the articles within the period prescribed by Section
1908 of this Code and for payment of any duties, taxes, and other charges to which the articles shall then
be subject and upon compliance with all legal requirements regarding their importation.

Consider the following select provisions of the General Warehousing Bond:

 That I/we GRAND TEXTILE MANUFACTURING CORPORATION Km. 21, Marilao, Bulacan, as
Principal, and PHILIPPINE HOME ASSURANCE as the latter being a domestic corporation duly
organized and existing under and by virtue of the laws of the Philippines, as Surety, are held and firmly
bound unto the Republic of the Philippines, in the sum of PESOS TWO MILLION ONLY
(P2,000,000.00), Philippine Currency, to be paid to the Republic of the Philippines, for the payment
whereof, we bind ourselves, our heirs, executors, administrators and assigns, jointly and severally,
firmly by these presents:
 xxx. WHEREAS, the surety hereon agrees to accept all responsibility jointly and severally for the acts of
the principal done in accordance with the terms of this bond.
 xxx. NOW THEREFORE, the condition of this obligation is such that if within six (6) months from the
date of arrival of the importing vessel in any case, the goods, wares, and merchandise shall be regularly
and lawfully withdrawn from public stores or bonded warehouse on payment of the legal customs duties,
internal revenue taxes, and other charges to which they shall then be subject; or if at any time within six
(6) months from the said date of arrival, or within nine (9) months if the time is extended for a period of
three (3) months, as provided in Section 1903 of the Tariff and Customs Code of the Philippines, said
importation shall be so withdrawn for consumption, then the above obligation shall be void, otherwise,
to remain in full force and effect.

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 principals
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.

2. Is a surety entitled to notice of default? (This is in relation to Intra-Strata’s argument that they ought to
be released from liability since they have no involvement in the handling of the imported goods which
substantially subjected them to risks.)
No. the surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-
debtor relationship; its role becomes alive only upon the debtors default, at which time it can be directly held
liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of
the creditor-obligee and this is ensured by the solidary nature of the sureties undertaking.[20] Under these
terms, the surety is not entitled as a rule to a separate notice of default,[21] nor to the benefit of
excussion,[22] and may be sued separately or together with the principal debtor.

Empire Insurance Company vs. National Labor Relations Commission and Monera Andal
G.R. No. 121879, August 14, 1998

J. Purisima, ponente
 Monera Andal applied with G&M Phils., Inc. for an overseas employment as a domestic helper in
Riyadh, Kingdom of Saudi Arabia, where she worked for a certain Abdullah Al Basha. Less than year
later, she was repatriated. She complained before the Philippine Overseas Employment Agency (POEA)
for illegal dismissal, non-payment and underpayment of salaries. She impleaded Empire Insurance
Company as the surety of G&M Phils.
 Among Andal’s complaint was that she was forced to preterminate her contract due to unbearable
treatment in the hands of her employer; that she was constructively dismissed; and that she was unpaid
of 3 ½ months.
 Empire Insurance theorized that Andal was without any cause of action against it for the alleged reason
that the liability of G&M Phils had not been established. It further argued that its liability, if any, for the
money claims sued upon was merely subsidiary. G&M later stated that it had no knowledge of Andal’s
underpaid salaries and her working conditions. It denied the charge of illegal dismissal, contending that
Andal abandoned her job.
 The POEA ruled in Andal’s favor. The NLRC later affirmed the POEA’s decision.

Issue(s)/Ruling(s)
1. Whether or not Empire Insurance should be rendered solidarily liable with its principal, G&M Phils.

Yes. 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.[5]
Where the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal
debtor such that the surety is considered in law as being the same party as the debtor in relation to whatever is
adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.[6] The
surety’s liability is solidary but the nature of its undertaking is such that unless and until the principal debtor is
held liable it does not incur liability.

When the herein petitioner, Empire Insurance Company, entered into a suretyship agreement with G & M
Phils., Inc., it bound itself to answer for the debt or default of the latter. And, since the POEA and NLRC found
the said recruitment agency liable to private respondent, petitioner’s liability likewise proceeds from such a
finding. As a surety, petitioner is primarily liable to private respondent, as judgment creditor, for her monetary
claims against its principal, G & M Phils., Inc., and is immediately bound to pay and satisfy the same.

Time and again, this court has pronounced that claims of overseas workers should be acted upon with
sympathy, and allowed if warranted, conformably to the constitutional mandate for the protection of the
working class.[7] Private employment agencies are held to be jointly and severally liable with the foreign-based
employer for any violation of the recruitment agreement or contract of employment.[8]

POEA has thus promulgated a rule requiring private recruitment agencies to set up cash and surety bonds. The
purpose of the required surety bond is to insure that if the rights of overseas workers are violated by their
employer, recourse would still be available to them against the local companies that recruited them for the
foreign principal.[9]

It bears stressing that surety companies may be ordered impleaded by the Philippine Overseas Employment
Administration (POEA) in administrative complaints against recruitment agencies, on surety bonds posted, and
are bound by the judgment of POEA.[10] This Court discerns no reason why the said rule should not apply to
herein petitioner.

13. Finman General Insurance Corp v Salik, 188 SCRA 740 (1990)

FACTS:AbdulganiSalik et al., private respondents, allegedly applied with Pan Pacific Overseas Recruiting
Services, Inc. (hereinafter referred to as Pan Pacific) on April 22, 1987 and were assured employment abroad by
a certain Mrs.NormitaEgil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite
numerous assurances of employment abroad given by Celia Arandia and Mrs.Egil, they were not employed
(Ibid., p. 15). Accordingly, they filed a joint complaint with the POEA against Pan Pacific for Violation of
Articles 32 and 34(a) of the Labor Code, as amended, with claims for refund of a total amount of P30,000.00
(Ibid.). The POEA motuproprio impleaded and summoned herein petitioner surety Finman General Assurance
Corporation (hereinafter referred to as Finman), in the latter's capacity as Pan Pacific's bonding company.
Summons were served upon both Pan Pacific and Finman, but they failed to answer. On October 9, 1987, a
hearing was called, but only the private respondents appeared. Despite being deemed in default for failing to
answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to appear.
Thus, ex-parte proceedings ensued. Herein petitioner, Finman, in an answer which was not timely filed, alleged,
among others, that herein private respondents do not have a valid cause of action against it; that Finman is not
privy to any transaction undertaken by Pan Pacific with herein private respondents; that herein private
respondents claims are barred by the statute of frauds and by the fact that they executed a waiver; that the
receipts presented by herein private respondents are mere scraps of paper; that it is not liable for the acts of
Mrs.Egil that Finman has a cashbond of P75,000.00 only which is less than the required amount of
P100,000.00; and that herein private respondents should proceed directly against the cash bond of Pan Pacific or
against Mrs.Egil Decision of Secretary of Labor Both respondents are hereby directed to pay jointly and
severally the claims of complainants.

ISSUE:Whether the Secretary of Labor acted without or in excess of jurisdiction and with grave abuse of
discretion in directing Finman to pay jointly and severally with Pan Pacific and the POEA

RULING: No. In the case at bar, it remains uncontroverted that herein petitioner and Pan Pacific entered into a
suretyship agreement, with the former agreeing that the bond is conditioned upon the true and faithful
performance and observance of the bonded principal (Pan Pacific) of its duties and obligations. It was also
understood that under the suretyship agreement, herein petitioner undertook itself to be jointly and severally
liable for all claims arising from recruitment violation of Pan Pacific (Ibid., p. 23), in keeping with Section 4,
Rule V, Book I of the Implementing Rules of the Labor Code, which provides: Section 4. Upon approval of the
application, the applicant shall pay to the Ministry (now Department) a license fee of P6,000.00, post a cash
bond of P50,000.00 or negotiable bonds of equivalent amount convertible to cash issued by banking or financial
institution duly endorsed to the Ministry (now Department) as well as a surety bond of P150,000.00 from an
accredited bonding company to answer for valid and legal claims arising from violations of the conditions of the
license or the contracts of employment and guarantee compliance with the provisions of the Code, its
implementing rules and regulations and appropriate issuances of the Ministry (now Department). (Emphasis
supplied) Accordingly, the nature of Finman's obligation under the suretyship agreement makes it privy to the
proceedings against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a
judgment against its principal even though it was not a party to the proceedings Leyson v. Rizal Surety and
Insurance Co., 16 SCRA 551 (1966). Furthermore, in Government of the Philippines v. Tizon (20 SCRA 1182
[1967]), this Court ruled that where the surety bound itself solidarily with the principal obligor the former is so
dependent on the principal debtor "that the surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter." Applying the foregoing principles to the
case at bar, it can be very well said that even if herein Finman was not impleaded in the instant case, still it
(petitioner) can be held jointly and severally liable for all claims arising from recruitment violation of Pan
Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a legal claim against
Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to provide a
complete relief to private respondents, petitioner had to be impleaded in the case.

14. Gateway Electronics Corp v Asianbank Corp, 574 SCRA 698 (2008)

FACTS: Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that used to be
engaged in the semi-conductor business. During the period material, petitioner Geronimo delos Reyes was its
president and one Andrew delos Reyes its executive vice-president. On July 23, 1996, Geronimo and Andrew
executed separate but almost identical deeds of suretyship for Gateway in favor of respondent Asianbank for
Domestic Bills Purchased Line and the Omnibus Credit Line.Later, developments saw Asianbank extending to
Gateway several export packing loans .This loan package was later consolidated with A Dollar Promissory Note
(and secured by a chattel mortgage over Gateway’s equipment.Gateway initially made payments on its loan
obligations, but eventually defaulted. Upon Gateway’s request, Asianbank extended the maturity dates of the
loan several times. These extensions bore the conformity of three of Gateway’s officers, among them
Andrew.Gateway issued two Philippine Commercial International Bank checks as payment for its arrearages
and but both checks were dishonored for insufficiency of funds. Asianbank’s demands for payment made upon
Gateway and its sureties went unheeded. As of November 23, 1999, Gateway’s obligation to Asianbank,
inclusive of principal, interest, and penalties, totaled USD 2,235,452.17.

Thus Asianbank filed with the RTC in Makati City a complaint for a sum of money against Gateway,
Geronimo, and Andrew.In its answer to the amended complaint, Gateway traced the cause of its financial
difficulties, described the steps it had taken to address its mounting problem, and faulted Asianbank for trying
to undermine its efforts toward recovery.Andrew also filed an answer alleging, among other things, that the
deed of suretyship he executed covering the Domestic Bills Purchased Line and the Omnibus Credit Line did
NOT include the Dollar Promissory Note, the payment of which was extended several times without his
consent.Geronimo, on the other hand, alleged that the subject deed of suretyship, assuming the authenticity of
his signature on it, was signed without his wife’s consent and should, thus, be considered as a mere continuing
offer. Like Andrew, Geronimo argued that he ought to be relieved of his liability under the surety agreement
inasmuch as he too never consented to the repeated loan maturity date extensions given by Asianbank to
Gateway.After due hearing, the RTC rendered judgment holding Gateway, Geronimo and Andrew jointly and
severally liable to pay Asianbank.

ISSUE: Is Geronimo discharged from liability because of the insolvency of Gateway, the principal?

RULING: No. Asianbank argues that the stay of the collection suit against Gateway (because its case is
transferred to an insolvency court) is without bearing on the liability of Geronimo as a surety. Pursuing the
point, Asianbank avers that Geronimo may not invoke the insolvency of Gateway as a defense to evade
liability.Geronimo counters with the argument that his liability as a surety cannot be separated from Gateway’s
liability. As surety, he continues, he is entitled to avail himself of all the defenses pertaining to Gateway,
including its insolvency, suggesting that if Gateway is eventually released from what it owes Asianbank, he,
too, should also be so relieved. Geronimo’s contention is untenable.

Suretyship is covered by Article 2047 of the Civil Code, which states: “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 a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter
3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

The Court’s disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus:

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 x xx. Stated differently, a surety promises to pay the principal’s 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. x xxIn other words, a surety undertakes directly for the payment
and is so responsible at once if the principal debtor makes default x xx.

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.

A Suretyship contract refers to an agreement whereunder one person, the surety, engages to be
answerable for the debt, default, or miscarriage of another known as the principal. Geronimo’s position that a
surety cannot be made to pay when the principal is unable to pay is clearly specious and must be rejected.

15. People v Maniego, 148 SCRA 30 (1987)

FACTS: A case was filed against Lt. RizalinoUbay, Milagros Pamintuan and her sister Julia Maniego for the
crime of malversation of public funds. Ubay, an officer of the AFP, was then the duly appointed Disbursing
Officer in the Office of the Chief of Finance in the General Headquarters of Camp Murphy in QC. He conspired
with Pamintuan and Maniego by giving them P66,434.50 from the public funds entrusted and controlled by him
as the consideration of the several personal checks issued by Pamintuan, and indorsed by Maniego. Ubay
received and accepted the personal checks despite knowing that they are worthless and not covered by funds in
both BPI and PNB. The checks were later presented and subsequently dishonored and rejected by the said banks
which were prejudicial and damaging to the Republic of the Philippines. Ubay and Maniego were the only ones
arraigned because Pamintuan already fled to the US. Ubay and Maniego pleaded not guilty.The trial court
rendered its decision convicting Ubay for the crime of Malversation of public funds but acquitting Maniego
because of absence of evidence against her. Nonetheless, they were both ordered to pay jointly and severally the
amount of P57, 434.50 to the government. Maniego sought reconsideration praying that she be absolved from
civil liability or at the very least reduce it to P46,934.50. The court did not absolve her from the liability but
approved the reduction thereof.On appeal she contended that the trial court committed errors which are the
issues before the Court.

ISSUES:
 1. W/N the trial court erred in holding Maniego civilly liable to indemnify the Government for the value of
the checks after she had been found not guilty of the crime out of which the civil liability arises. –– NO.
2. W/N the trial court erred for adjudging her liable as an indorser to indemnify the government for the
amount of the checks. –– NO.

RULING:

1. Well known is the principle that “Any person criminally liable for felony is also civilly liable." But a
person adjudged not criminally responsible may still be held to be civilly liable. A person's acquittal of a
crime on the ground that his guilt has not been proven beyond reasonable doubt does not bar a civil
action for damages founded on the same acts involved in the offense. Extinction of the penal action does
not carry with it extinction of the civil unless the extinction proceeds from a declaration in a final
judgment that the fact from which the civil might arise did not exist.

2. Based on the evidence before the trial court, it established that Maniego was an indorser of the subject
checks. Appellant contended that as mere indorser, she may not be made liable on account of the
dishonor of the checks indorsed by her. Under the law, the holder or last indorsee of a negotiable
instrument has the right to "enforce payment of the instrument for the full amount thereof against
all parties liable thereon." Among the "parties liable thereon" is an indorser of the instrument i.e., "a
person placing his signature upon an instrument otherwise than as maker, drawer, or acceptor ** unless
he clearly indicates by appropriate words his intention to be bound in some other capacity.

Such an indorser "who indorses without qualification," inter alia "engages that on due
presentment, ** the instrument shall be accepted or paid, or both, as the case may be, according to
its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he
will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to
pay it." (Sec 66, NIL)

16. Ong vs. Philippine Commercial International Bank, 448 SCRA 705 [2005].

Facts: - In 1991, Baliwag Mahogany Corp needed additional capital for its business and applied for various
loans, amounting to a total of five million pesos, with the respondent bank. Alfredo (President) and Susana Ong
(Treasurer) acted as sureties for these loans and issued 3 promissory notes for the purpose. It was stipulated in
the notes that the bank may consider BMC in default and demand payment of the remaining balance of the loan
upon the levy, attachment or garnishment of any of its properties, or upon BMC’s insolvency, or if it is declared
to be in a state of suspension of payments. Thereafter, BMC filed a petition for rehabilitation and suspension of
payments with SEC after the creditors attached its properties. The bank then sought the collection of the
payment of the debt from the petitioners as sureties.
- On April 20, 1992, PCIB filed a case for collection of a sum of money against petitioners-spouses. On
October 13, 1992, a MOA was executed by BMC, the petitioners, and the consortium of creditor banks of BMC
(including PBIC). Petitioners then moved to dismiss the complaint arguing that the MOA suspended any
pending civil action against BMC. Hence, the benefits of the MOA should also be extended to the petitioners as
sureties. The trial court denied the motion to dismiss. The CA affirmed the trial court’s ruling that a creditor can
proceed against petitioners as surety independently of its right to proceed against BMC.

Issue: WON the suit against the spouses should be dismissed

Held: No
Ratio: - Reliance of petitioners on Articles 2063 and 2081 CC is misplaced as these provisions refer to
contracts of guaranty. They do not apply to suretyship contracts. Petitioners 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 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.
- Under the suretyship contract entered into by petitioners with the bank, the former obligated
themselves to be solidarily bound with BMC for the payment of its debts to the bank. Under Article 1216 CC,
the bank as creditor may proceed against petitioners as sureties despite the execution of the MOA which
provided for the suspension of payment and filing of collection suits against BMC. The bank’s right to collect
payment from the surety exists independently of its right to proceed directly against the principal debtor. In
fact, the bank may go against the surety alone without prior demand for payment on the principal debtor.
- The provisions of the MOA regarding the suspension of payments by BMC and the non-filing of
collection suits by the creditor banks pertain only to the property of BMC. Firstly, in the rehabilitation
receivership filed by BMC, only the properties of BMC were mentioned in the petition with the SEC. Secondly,
there is nothing in the MOA that involves the liabilities of the sureties whose properties are separate and distinct
from that of the debtor BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the
creditor-banks was approved by the SEC whose jurisdiction is limited only to corporations and corporate assets.
It has no jurisdiction over the properties of BMC’s officers or sureties.

Book: Guarantor not insurer of debt guaranteed.

It would then follow that while a surety undertakes to pay if the principal does not pay, without regard to his
ability to do so, the guarantor only binds himself to pay if the principal cannot or unable to pay. One is the
insurer of the debt itself, the other, an insurer of the solvency of the debtor.

17. International Finance vs Imperial Textile

Facts:-On December 17, 1974, IFC and Philippine Polyamide Industrial Corporation entered into a loan
agreement wherein IFC extended to PPIC a loan of US$7,000,000 payable in sixteen (16) semi-annual
installments of US$437,500.00 each, with 10% interest. The interest shall be paid in US dollars semi-annually.
A „Guarantee Agreement‟ was executed with ITM, Grand Textile Manufacturing Corporation and IFC as
parties. ITM and Grandtex agreed to guarantee PPIC‟s obligations under the loan agreement.PPIC defaulted
payments. By virtue of PPIC‟s failure to pay, IFC, together with DBP, applied for the extrajudicial foreclosure
of mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC.
During the public sale, IFC‟s bid wasfor P99,269,100 which was equivalent to US$5,250,000. The outstanding
loan, however, amounted to US$8,083,967, thus leaving a balance of US$2,833,967 PPIC failed to pay the
remaining balance. Consequently, IFC demanded ITM and Grandtex, as guarantorsofPPIC, to pay the
outstanding balance. However, the two failed to pay.-IFC filed a complaint against PPIC and ITM for the
payment of the outstanding balance plus interests and attorney‟s fees. The trial court dismissed the complaint
against ITM. The CA reversed and held that ITM bound itself under the Guarantee Agreement. The CA,
however, held that ITM‟s liability as a guarantor would arise only if and when PPIC could not pay. Since
PPIC‟s inability to comply with its obligation was not sufficiently established, ITM could not immediately be
made to assume the liability.

Issue:WON ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC, for the
payment of the loan.

Ruling:Yes. -IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC‟s
obligations proceeding from the Loan Agreement. For its part, ITM asserts that, by the terms of the Guarantee
Agreement, it was merely a guarantor and not a surety. Moreover, any ambiguity in the Agreement should be
construed against IFC --the party that drafted it.-The Agreement uses “guarantee” and “guarantors,” prompting
ITM to base its argument on those words. This Court is not convinced that the use of the two words limits the
Contract to a mere guaranty. The specific stipulations in the Contract show otherwise. While referring to ITM
as a guarantor, the Agreement specifically stated that the corporation was “jointly and severally” liable. To put
emphasis on the nature of that liability, the Contractfurther stated that ITM was a primary obligor, not a mere
surety. Those stipulations meant only one thing: that at bottom, and to all legal intents and purposes, it was a
surety.-Indubitably therefore, ITM bound itself to be solidarily liable with PPICfor the latter‟s obligations under
the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed merely
secondarily liable.-Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM‟s liability
commenced only when it guaranteed PPIC‟s obligation. It became a surety when it bound itself solidarily with
the principal obligor. Thus, the applicable law is Art 2047 CC. Pursuant to this provision, petitioner (as
creditor) was justified in taking action directly against respondent.-The Court does not find any ambiguity in the
provisions of the Guarantee Agreement. When qualified by the term “jointly and severally,” the use of the word
“guarantor” to refer to a “surety” does not violate the law. As Art 2047 provides, a suretyship is created when a
guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the Agreement --“as primary
obligor and not merely as surety” --stresses that ITM is being placed on the same levelas PPIC. Those words
emphasize the nature of their liability, which the law characterizes as a suretyship.

-The use of the word “guarantee” does not ipso facto make the contract one of guaranty. This Court has
recognized that the word is frequently employed in business transactions to describe the intention to be bound
by a primary or an independent obligation. The very terms of a contract govern the obligations of the parties or
the extent of the obligor‟s liability. Thus, this Court has ruled in favor of suretyship, even though contracts were
denominated as a “Guarantor‟s Undertaking” or a “Continuing Guaranty.”-Indeed, the finding of solidary
liability is in line with the premise provided in the “Whereas” clause of the Guarantee Agreement. The
execution of the Agreement was a condition precedent for the approval of PPIC‟s loan from IFC. Consistent
with the position of IFC as creditor was its requirement of a higher degree of liability from ITM in case PPIC
committed a breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning
ignorance of its solidary liability. The literal meaning of the stipulations control when the terms of the contract
are clear and there is no doubt as to the intention of the parties.-We notethat the CA denied solidary liability, on
the theory that the parties would not have executed a Guarantee Agreement if they had intended to name ITM as
a primary obligor. The appellate court opined that ITM‟s undertaking was collateral to and distinct from the
Loan Agreement. On this point, the Court stresses that a suretyship is merely an accessory or a collateral to a
principal obligation. Although a surety contract is secondary to the principal obligation, the liability of the
surety is direct, primary and absolute; or equivalent to that of a regular party to the undertaking. A surety
becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest
in the obligations constituted by the latter.-With the present finding that ITM is a surety, it is clear that the CA
erred in declaring the former secondarily liable. A surety is considered in law to be on the same footing as the
principal debtor in relation to whatever is adjudged against the latter. Evidently, the dispositive portion of the
assailed Decision should be modified to require ITM to pay the amount adjudged in favor of IFC.

18. Delos Santos vs Vibar

FACTS: De Leon borrowed P100k from Vibar. De Leon issued a promissory note and bound himself to pay the
loan three months from date with a monthly interest rate. Delos Santos signed as a guarantor of de Leon’s loan.

Later, de Leon asked Vibar for another loan. Together with Delos Santos and Conte, de Leon went to Vibar’s
house. After some discussion, they all agreed that the outstanding P100k loan together with the accrued interest
would be deducted from the new loan of P500,000

de Leon signed a typewritten promissory note acknowledging the debt of P500k payable within 12 months.
Then, Delos Santos signed as a witness under the phrase “signed in the presence of.” However, de Leon, in his
own handwriting, inserted the word “guarantor” besides Delos Santos’s name, as Delos Santos nodded her head
to what de Leon was doing. De Leon also added the phrase, “as security for this loan this TCT No. T-47375,
Registry of Baguio City, is being submitted by way of mortgage.”

On maturity date, de Leon failed to pay any of the monthly installments. Vibar made several verbal and written
demands on de Leon for payment but to no avail asDe Leon failed to respond. Vibar’s counsel again sent a
demand letter not only to de Leon as principal debtor, but also to delosSantos.delos Santos was being made to
answer for de Leon’s debt as the latter’s guarantor. delos Santos then remitted to Vibar P15k to pay one month’s
interest on the loan. However, this was the only payment Delos Santos made to Vibar as Delos Santos claimed
she had no money to pay the full amount of the loan

Vibar filed an action for recovery of money with the RTC, which although ruled that De Leon is liable, Delos
Santos is not a guarantor. The trial court ruled that there was no express consent given by Delos Santos binding
her as guarantor.

However, Ca ruled that Delos santos is guarantor of De Leon’s loan. Delos Santos filed an MR which was
denied. Hence this petition for review on certiorari.
ISSUE: WON Delos Santos is liable as guarantor of de Leon’s loan from Vibar

HELD: petition denied

YES,We are convinced that the insertion was made with the express consent of Delos Santos. Delos Santos’s
act of nodding her head showed her consent to be a guarantor. Also, Vibar would not have extended a loan to de
Leon without the representations of Delos Santos. Also, Delos Santos acknowledged her liability as guarantor
but simply claimed that she had no money to pay Vibar. In fact, Delos Santos made an initial payment of P15K
as partial compliance of her obligation as guarantor. This only shows that Delos Santos never denied her
liability to Vibar as guarantor until this case was filed in court. Lastly, Delos Santos wrote a letter to the RD of
Baguio City inquiring on the status of the property mentioned in the promissory note as a mortgage security for
de Leon’s loan. Here, Delos Santos clearly stated that she “appears to be a guarantor” in the promissory note.
This serves as a written admission that Delos Santos knew she was a guarantor. During the trial, Delos Santos
did not impugn the letter or its contents.

Further, It is axiomatic that the written word “guarantor” prevails over the typewritten word “witness.” In case
of conflict, the written word prevails over the printed word. Section 15 of Rule 130 provides:

Sec. 15. Written words control printed. – When an instrument consists partly of written words and partly of a
printed form, and the two are inconsistent, the former controls the latter.

We agree with CA that estoppel in pais arose in this case. estoppel is a doctrine that prevents a person from
adopting an inconsistent position, attitude, or action if it will result in injury to anotherOne who, by his acts,
representations or admissions, or by his own silence when he ought to speak out, intentionally or through
culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on
such belief, can no longer deny the existence of such fact as it will prejudice the latter