Triple-V Food Services v. Filipino Merchants Insurance Co.

Resolution penned by Asuncion, J. February 21, 2005 G.R. Nos. 160544

In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and
returning the same. A deposit may be constituted even without any consideration. It is not necessary that the
Doctrine
depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it
later to the depositor.

De Asis availed of the valet parking services of petitioner's Kamayan Restaurant. However, the car (owned by her
company, Crispa) was stolen and was never recovered. Crispa filed a claim against respondent, its insurer, which was
then subrogated to her rights. The latter, as a subrogee, then filed an action for damages against petitioner. The
Summary
Court ruled that when De Asis entrusted the car in question to petitioner's valet attendant while eating, the former
expected the car's safe return at the end of her meal. Thus, petitioner was constituted as a depositary of the same
car. It is not essential that said service is for free.

 March 2, 1997, 2.15PM: Mary Jo-Anne De Asis dined at petitioner's Kamayan Restaurant at West Avenue, QC.
 She entrusted her Mitsubishi Galant Super Saloon Model 1995 car, owned by her company Crispa Textile, Inc., to
petitioner's free valet parking services.
 However, it was later on discovered by the parking attendant, Madridano, that the key was no longer in their box
and the car was stolen. Despite efforts, it was never recovered.
 SUBROGATION: Crispa filed a claim against its insurer, FMIC. The latter indemnified Crispa for P669,500, and was
then subrogated to the rights of Crispa based on Article 2207 of the Civil Code1.
 RTC Makati: FMIC filed an action for damages against petitioner. Court ruled for FMIC and ordered petitioner to
pay actual damages (P669,500), attorney's fees and exemplary damages.
 CA: Affirmed decision of RTC
o petitioner was a depositary of the subject vehicle
o petitioner was negligent in its duties as a depositary thereof and as an employer of the valet attendant
o valid subrogation of rights between Crispa and respondent FMICI
Facts
Petitioner's defense:
(1) Complaint failed to aver facts to support the allegations of recklessness and negligence committed in the
safekeeping and custody of the subject vehicle, claiming that it and its employees wasted no time in
ascertaining the loss of the car and in informing De Asis of the discovery of the loss.
(2) In accepting the complimentary valet parking service, De Asis received a parking ticket where it is so provided
that "Management and staff will not be responsible for any loss of or damage incurred on the vehicle nor of
valuables contained therein", a provision which is an explicit waiver of any right to claim indemnity for the
loss of the car. De Asis knowingly assumed the risk of loss when she allowed petitioner to park her vehicle,
adding that its valet parking service did not include extending a contract of insurance or warranty for the
loss of the vehicle.
(3) It was not a depositary of the subject car and that it exercised due diligence and prudence in the safe keeping
of the vehicle, in handling the car-napping incident and in the supervision of its employees
(4) Theft is not a risk insured against under FMIC policy to Crispa. Hence, no valid subrogation of rights

I. WON petitioner is considered a depositary of the car in question. (YES)

Ratio/Issues When De Asis entrusted the car in question to petitioner's valet attendant while eating, the former expected the
car's safe return at the end of her meal. It is not essential that service was for free.

1Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or
breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the
contract. xxx
 Thus, petitioner was constituted as a depositary of the same car. Petitioner cannot evade liability by arguing that
neither a contract of deposit nor that of insurance, guaranty or surety for the loss of the car was constituted when
De Asis availed of its free valet parking service.

In a contract of deposit, a person receives an object belonging to another with the obligation of safely keeping it and
returning the same.aw A deposit may be constituted even without any consideration. It is not necessary that the
depositary receives a fee before it becomes obligated to keep the item entrusted for safekeeping and to return it
later to the depositor.

II. WON petitioner can escape liability due to provision in claim stub stating that "Management is not liable for any
loss or damage to the car." (NO)
The said provision is a contract of adhesion, drafted and prepared as it is by the petitioner alone with no
participation whatsoever on the part of the customers, like De Asis, who merely adheres to the printed stipulations
therein appearing. Although not void in itself, the Court proved that it is one-sided under the attendant facts and
circumstances.

It is evident that petitioner's free valet service and parking space is provided to entice customers to dine in their
restaurant. It thus somehow assure customers like De Asis that her car will be safely kept, secured, while at
petitioner's premises/designated parking areas, instead of risking of parking it elsewhere at her own risk.

III. WON theft is a risk insured against in the policy. (YES)

Insurance Policy contains the item, " Insured's Estimate of Value of Scheduled Vehicle- P800.000," which the trial
court concluded to be a full comprehensive insurance of vehicle in case of loss or damage. Also, Crispa paid a premium
of P10,304 to cover theft as shown in breakdown of premiums of the policy.

IV. WON petitioner was negligent. (Yes, this finding of fact has already been ruled upon by trial court and affirmed by
CA, thus there is no reason to deviate from said finding.)

Held Petition DENIED.

DURBAN APARTMENTS CORPORATION, doing business under the name and style of City Garden Hotel v. PIONEER INSURANCE AND
SURETY CORPORATION

SUMMARY: Jeffrey See's car was stolen while he was staying in at City Garden Hotel (owned by Durban Apartments Corp.) in Makati
City. His insurance company, Pioneer Insurance, settled his claim of P1.6M. As such, Pioneer was subrogated to the rights of See.
Subsequently, Pioneer Insurance filed a complaint for recovery of damages against Durban Apartments and Vicente Justimbaste, the
hotel's parking attendant who parked See's car. Both Durban Apartments and Justimbaste denied any wrongdoing. During the pre-trial
conference, the counsel for Durban Apartmentss and Justimbaste was absent and consequently failed to submit their pre-trial briefs.
As a result, they were held in default and Pioneer Insurance was allowed to present evidence ex-parte. The Court held that even
though Durban Apartments and Justimbaste were precluded from presenting evidence, Pioneer was nonetheless able to prove that a
contract of deposit existed between See and Durban Apartments at the time the former's car was carnapped. Given this, Durban
Apartments was adjudged by the Court to be liable for the loss of See's vehicle.

DOCTRINE: The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns
shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by
the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative
to the care and vigilance of their effects.

FACTS:

 On April 30, 2002, Jeffrey See arrived and checked in at the City Garden Hotel in Makati corner Kalayaan Avenues, Makati City
before midnight.
 The hotel's parking attendant, Vicente Justimbaste, got the key to See's Suzuki Grand Vitara and parked the said vehicle at the
parking area of Equitable PCI Bank along Makati Avenue, right across the hotel.
 At about 1 a.m. the next day, See was awakened in his room by a telephone call from the Hotel Chief Security Officer who informed
him that his Vitara was carnapped while it was parked unattended.
 See went to see the Hotel Chief Security Officer and later reported the incident to the Operations Division of the Makati City
Police Anti-Carnapping Unit.
 Subsequently, See filed a complaint with the PNP Traffic Management Group in Camp Crame, Quezon City.
 In the meantime, Pioneer Insurance paid See the sum of P1,163,250.00 representing the cost of the stolen car. Theareafter, by
right of subrogation, Pioneer Insurance filed a complaint for recovery of damages against Durban Apartments and Justimbaste
before the Makati RTC.
o (a) no necessary precautions were taken to prevent the carnapping incident from happening;
 it was discovered during the investigation that this was the second time that a similar incident of carnapping happened
in the valet parking service of [petitioner] Durban Apartments
o (b) that Durban Apartments was wanting in due diligence in the selection and supervision of its employees particularly
Justimbaste; and
o (c) Justimbaste and Durban Apartments failed and refused to pay his valid, just, and lawful claim despite written demands.
 Durban Apartment and Justimbaste denied the allegations.
o See did not check in at its hotel. He was a guest of a certain Ching Montero
o Defendant Justimbaste did not get the ignition key of See’s Vitara. It was See who requested a parking attendant to park the
Vitara at any available parking space, and it was parked at the Equitable Bank parking area, which was within See’s view,
while he and Montero were waiting in front of the hotel
o Valet parking services are provided by the hotel for the convenience of its customers. It is a special privilege that it gave to
Montero and See, it does not include responsibility for any losses or damages to motor vehicles and its accessories in the
parking area
o The same holds true even if it was See himself who parked his Vitara within the premises of the hotel as evidenced by the
valet parking customer’s claim stub issued to him
o The carnapper was able to open the Vitara without using the key given earlier to the parking attendant and subsequently
turned over to See after the Vitara was stolen
o Defendant Justimbaste saw the Vitara speeding away. He tried to run after it, and blocked its possible path but to no avail
o See was duly and immediately informed of the carnapping. The matter was reported to the nearest police precinct; and
defendant Justimbaste, and Horlador submitted themselves to police investigation.
 During the pre-trial conference on November 28, 2003, counsel for Pioneer Insurance was present.
 The counsel of Durban Apartments and Justimbaste was absent, instead, a certain Atty. Nestor Mejia appeared for Durban
Apartments and Justimbaste, but did NOT file their pre-trial brief.
 As a result, the RTC allowed Pioneer Insurance to present its evidence ex parte before the Branch Clerk of Court.
o Witnesses: See, Ricardo F. Red (claims evaluator of Pioneer Insurance), Ferdinand Cacnio (adjuster of Vesper; Pioneer
Insurance assigned to Vesper the investigation of See’s case)
 RTC: Durban Apartments is ordered to pay the sum of P1,163,250.00 with legal interest thereon from July 22, 2003 until the
obligation is fully paid and attorneys fees and litigation expenses amounting to P120,000.00.
 CA: RTC affirmed in toto.
 Hence, the instant petition.

RULING: Petition denied. CA ruling affirmed.

Whether the RTC erred in allowing Pioneer Insurance to present evidence ex-parte on account of the failure of the counsel of Durban
Apartments and Justimbaste to file a pre-trial brief. – NO.

 Durban Apartments was in default for failure to appear at the pre-trial conference and to file a pre-trial brief. Therefore, the RTC
correctly allowed Pioner Insurance to present evidence ex-parte.
 Appearance of parties and their counsel at the pre-trial conference, along with the filing of a corresponding pre-trial brief, is
mandatory, nay, their duty pursuant to Sections 4 and 6 of Rule 18 of the ROC.
 In the present case, the absence of the counsel of Durban Apartments is inexcusable because it does not fall within the two
exceptions for a valid non-appearance; there was neither (a) a valid excuse nor (b) appearance of a representative on behalf of a
party who is fully authorized in writing to enter into an amicable settlement, to submit to alternative modes of dispute resolution,
and to enter into stipulations or admissions of facts and documents..

Whether the RTC and CA erred in holding Durban Apartments liable for the loss of See's vehicle. – NO.

 Despite the fact that Durban Apartments was not able to present evidence during the trial, this did NOT automatically result in a
judgment in favor of Pioneer Insurance.
 In fact, Pioneer was still obliged to substantiate the allegations in its complaint.
 In this case, Pioneer Insurance substantiated the allegations in its complaint that a contract of necessary deposit existed between
the insured See and Durban Apartments.
 From the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with Durban Apartments,
through the latter's employee, Justimbaste. In turn, Justimbaste issued a claim stub to See.
 Thus, the contract of deposit was perfected from See's delivery, when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it.
 Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons
in hotels or inns.
o 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 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.
o Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels
or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the
effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their
substitutes advised relative to the care and vigilance of their effects.
 Given the facts established in court, Durban Apartments is liable for the loss of See’s vehicle.
Ramon GONZALES vs. GO TIONG and Luzon Surety Co. Inc.
J. Montemayor August 30, 1958 G.R. No. L-11776
Doctrine Any deposit made with a bonded warehouseman must necessarily be governed by the provisions of Act No. 3893 (Bonded
Warehouse Act). Though it is desirable that receipts issued by the bonded warehouseman should conform to the
provisions of the Warehouseman Receipts Law, said provisions are not mandatory, and indispensible in the sense that if
they fell short of the requirement, then the commodities delivered for storage become ordinary deposits and will not be
covered by the provisions of the Bonded Warehouse Act.
Summary Go Tiong was a licensed bonded warehouseman whose performance was guaranteed by Luzon Surety. Gonzales was one
of his depositors of 490 sacks of palay for which he issued ordinary receipts. Upon demand, Go Tiong failed to pay
Gonzales and later the warehouse burned to the ground. Gonzales sued on the bond but Luzon Surety claimed that
because only ordinary receipts were issued, it was not covered by Act No. 3893. The SC ruled that form was not material
and does not serve to absolve the surety of its liability, having made itself responsible through the bond it paid in acting as
surety for Go Tiong’s faithful performance of his obligation. Naturally, when Go Tiong defaulted, the surety became liable.
Facts  Respondent Go Tiong owned a rice mill and warehouse in Pangasinan. He was a licensed bonded warehouseman
whose obligations were secured by a Guaranty Bond by the Luzon Surety Co. for P18,334.
 The surety was conditioned on Go Tiong delivering to the depositors in his storage warehouse the palay he
received on demand or to pay its market value if in case he would not be able to return it.
 The warehouse and palay were insured with Alliance Surety and Insurance Co.
 Before he was licensed, Go Tiong already served as a bonded warehouseman for 368 sacks owned by Petitioner
Gonzales. After he was licensed, he received a total 492 sacks from petitioner all of which were valued at P8,600.
He issued ordinary receipts, not the "warehouse receipts" defined by the Warehouse Receipts Act, for these
deposits.
 When Gonzales demanded for the value of his deposits, Go Tiong told him to come back. Unfortunately, the
warehouse containing 5,847 sacks of palay at that time (in excess of only 5,000 sacks he was licensed to carry)
burned to the ground.
 After the burning of the warehouse, the depositors of palay filed their claims with the Bureau of Commerce, and it
would appear that with the proceeds of the insurance policy, the Bureau of Commerce paid off some of the claim.
 Gonzales' counsel later withdrew his claim with the Bureau of Commerce
o according to Go Tiong: because his claim was denied by the Bureau
o according to the trial court: nothing came from Gonzales' efforts to have his claim paid.
 Gonzales filed a complaint against Go Tiong and Luzon Surety for P8,600. The parties initially entered into a
contract of amicable settlement that would have had all actions against Go Tiong dismissed but he failed to comply
with its terms.
 CFI ruled in favor of Gonzales.
o Go Tiong and Luzon Surety Co., jointly and severally, to pay plaintiff the sum of P4,920 with legal interest from
the date of the filing of the complaint until fully paid; judgment is also rendered against Go Tiong to pay the
sum of P3,680 unto plaintiff, also with legal interest from the date of the filing of the complaint until fully paid.
Go Tiong is also condemned to pay the sum of P1,000 as attorney's fees, plus costs.
 CA endorsed to SC. Hence, this petition.
Ratio/ Whether the ordinary receipts issued by Go Tiong are covered under the General Bonded Warehouse Act (Act No. 3893) or
Issues the Civil Code (Act No. 3893)
 Act No. 3893 is a special law regulating the business of receiving commodities for storage, defining the rights and
obligations of the parties in the transaction. Consequently, any deposit made with him as a bonded warehouseman
must necessarily be governed by the provisions of Act No. 3893
 The kind or nature of the receipts issued is not material. Although the receipts issued by a bonded warehouseman
should conform to the provisions of law, it is 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
 Under Section 1 of the Warehouse Receipts Act, one would gather the impression that the issuance of a
warehouse receipt in the form provided by it is merely permissive and directory and not obligatory and the Bonded
Warebouse Act as amended permits the warehouseman to issue any receipt
o Section 1 Warehouse Receipts Act: Persons who may issue receipts. – Warehouse receipts may be issued by
any warehouseman;
o Bonded Warebouse Act: Receipt – any receipt issued by a warehouseman for commodity delivered to him.
 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, 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 to his depositors.

Whether the deposit of Gonzales in the warehouse for free and subsequent burning down of the warehouse absolves Go
Tiong from any liability (NO)
 Go Tiong induced Gonzales to deposit his palay for free in order to promote his business and convince other palay
owners to deposit with him.
 As to the fire, the exemption from responsibility must be conditioned on proof of force majeure and without his
fault. In this case, the presumption of negligence was applied.
 Go Tiong went beyond the limit of his license in keeping more than 5,000 sacks in his warehouse, thereby
increasing the risk of hazards such as fire.
 When Gonzales demanded payment, Go Tiong put him off without reason, again applying the presumption of
negligence in the bailment for failure to account for the goods upon demand.

Whether the amicable settlement absolves Luzon Surety of any liability (NO)
 The attempt to settle was never consummated because Go Tiong failed to settle Gonzales’ accounts.
 Luzon Surety claims that the failure of Go Tiong to issue the proper receipts precludes Gonzales from suing on the
bond filed is erroneous since as previously discussed, the issuance of an actual warehouse receipt is not
indispensible.
 Section 7, Act No. 3893: As long as the depositor is injured by a breach by the warehouseman of an obligation
secured by a bond, the depositor may sue on the bond.
 The surety cannot avoid liability by mere failure of the warehouseman to issue the proper receipts.
 When Go Tiong failed to perform his obligation, the surety became responsible and liable therefor.
 Andreson vs. Krueger:
o The surety company concedes that the bond which it gave contains the statutory conditions. The statute . . .
requires that the bond — shall be conditioned upon the faithful performance of the public local grain
warehouseman of all the provisions of law relating to the storage of grain by such warehouseman.
o The surety company thereby made itself responsible for the performance by the warehouseman of all the
duties and obligations imposed upon him by the statute; and, if he failed to perform any such duty to the loss
or detriment of those who delivered grain for storage, the surety company became liable therefor. Where the
warehouseman receives grain for storage and refuses to return or pay it, the fact that he failed to issue the
receipt, when the statute required him to issue on receiving it, is not available to the surety as a defense
against an action on the bond. The obligation of the surety covers the duty of the warehouseman to issue the
prescribed receipt, as well as the other duties imposed upon him by the statute.
Held The appealed decision is hereby affirmed.
 PHILIPPINE NATIONAL BANK V. NOAH’S ARK SUGAR REFINERY, ALBERTO T. LOOYUKO, JIMMY T. GO, WILSON T. GO
C.J. Narvasa September 1, 1993 G.R. No. 107243
Doctrine Non-payment of quedans should not prejudice a third party who acquired the same and paid for its value in good faith.
Summary Noah’s Ark issued several quedans covering sugar deposited by different persons. Later, these quedans were indorsed
to Ramos and Zoleta, who later used the quedans as security for loans they contracted with PNB. When they defaulted
in their payment, PNB demanded the delivery of the sugar stocks covered by the quedans, which the respondents
refused to do, claiming that since the quedans were not validly paid for, PNB had no right over them. The Court held
that PNB, having paid for its value in good faith, had the right to the quedans.
Facts  In accordance with Act No. 2137 (Warehouse Receipts Law), Noah’s Ark issued warehouse receipts (quedans) on
several dates which covered sugar deposited by different persons. 2 The receipts were substantially in form and
contained the terms prescribed for negotiable warehouse receipts by Section 2 of the law.
 Later, warehouse receipts 18081 and 18081 were negotiated and indorsed to Luis Ramos, and the rest were
negotiated and indorsed to Cresencia K. Zoleta. Ramos and Zoleta used the quedans as security for loans obtained by
them from the PNB in the amounts of P23.5 million and P15.6 million respectively. The quedans were indorsed to
the bank.
 Both Ramos and Zoleta failed to pay their loans upon maturity, so PNB wrote to Noah’s Ark demanding delivery of
the sugar covered by the quedans. Noah’s Ark refused to comply with the demand, so PNB filed with the RTC a
complaint for specific performance and application for writ of attachment. The RTC denied the application for the
writ, and also denied the MR filed by Noah’s Ark.
 Noah’s Ark and its co-defendants filed their responsive pleading where they claimed that they are still the legal
owners of the subject quedans and the quantity of sugar represented thereon. They said that they agreed to sell to
Rosa Ng Ty the total volume of sugar indicated in the quedans but they were subsequently dishonored by reason of
stoppage of payment. Thus, considering that the vendees did not acquire ownership over the quedans, then the
subsequent indorsers also did not acquire ownership.
 PNB filed a motion for summary judgment, where it prayed for (a) the delivery of the sugar stocks covered by the
quedans which were now in its possession as holder for value and in due course; or alternatively, to be paid P39.1
million exclusive of interest, penalties, and charges; and (b) pay other fees and other such reliefs just and equitable
under the premises.
 The RTC denied the motion on the ground, among others, that there was a question as to whether or no the subject
quedans fall squarely within the coverage of the Warehouse Receipts Law. The MR was also denied.
 The CA reversed the decision and ordered a summary judgment to be rendered. In favour of the PNB against Noah’s
Ark. Noah’s Ark moved for an MR, but this was denied. Thereafter, the case was remanded to the Court of origin.
 The RTC rendered judgment, but not in accordance with the decision of the CA. Instead, it dismissed the complaint
against Noah’s Ark and its co-defendants for lack of cause of action. It also dismissed the counterclaims and the third
party complaints. Later, it denied PNB’s MR.
o if "the only material facts established on the basis of the pleadings, documentary evidence on record, admissions
and stipulations during the hearing on PNB's application for a writ of preliminary attachment, are the facts as
alleged by plaintiff and accepted as established by the CA, this Court will have no difficulty in finding for plaintiff as
prayed for in its motion for summary judgment. But are the facts alleged by plaintiff the only material facts
established on the basis of the pleadings, documentary evidence on record, stipulations and admissions during
the proceedings on the application for a writ of preliminary attachment?" To this question the Trial Court gave a
negative answer, it being its view that other facts, "as alleged by defendants . . . (and) not disputed by PNB, have
been likewise established."

2March 1, 1989, receipt No. 18062, covering sugar deposits by Rosa Sy

March 7, 1989, receipt No. 18080, covering sugar deposited by RNS Merchandising (Rosa Ng Sy)
March 21, 1989, receipt No. 18081, covering sugar deposited by RNS Merchandising
March 31, 1989, receipt No. 18086, covering sugar deposited by St. Therese Merchandising
April 1, 1989, receipt No. 18087, covering sugar deposited by RNS Merchandising
Ratio/Issues
I. W/N the non-payment of the purchase price for the sugar stock evidenced by the quedans rendered invalid the
negotiation of said quedans by vendees (RNS/St. Therese Merchandising) to indorsers (Ramos/Zoleta) and the
subsequent negotiation of Ramos/Zoleta to the PNB. (NO)
II. W/N PNB as pledgee of quedans was entitled to delivery of sugar stock from the warehouseman, Noah’s Ark.
(YES)

 The Court considers CA’s conclusions of fact and law to be correct.:

o The validity of the negotiation by RNS Merchandising and St. Therese Merchandising to Ramos and Zoleta,
and by the latter to PNB to secure a loan cannot be impaired by the fact that the negotiation between
Noah's Ark and RNS Merchandising and St. Therese Merchandising was in breach of faith on the part of
the merchandising firms or by the fact that the owner (Noah's Ark) was deprived of the possession of the
same by fraud, mistake or conversion of the person to whom the warehouse receipt/quedan was
subsequently negotiated if (PNB) paid value therefor in good faith without notice of such breach of duty,
fraud, mistake or conversion. (See Article 1518, New Civil Code). And the creditor (PNB) whose debtor was
the owner of the negotiable document of title (warehouse receipt) shall be entitled to such aid from the
court of appropriate jurisdiction attaching such document or in satisfying the claim by means as is allowed
by law or in equity in regard to property which cannot be readily attached or levied upon by ordinary
process. (See Art. 1520, New Civil Code). If the quedans were negotiable in form and duly indorsed to PNB
(the creditor), the delivery of the quedans to PNB makes the PNB the owner of the property covered by
said quedans and on deposit with Noah's Ark, the warehouseman. (See Sy Cong Bieng & Co. vs. Hongkong
& Shanghai Bank Corp., 56 Phil. 598).
o In the case at bar, factual bases underlying the defendant's affirmative defenses (upon which PNB has
moved for summary judgment) are not disputed and have been stipulated by the parties and therefore do
not require presentation of evidence. PNB's right to enforce the obligation of Noah's Ark as a
warehouseman, to deliver the sugar stock to PNB as holder of the quedans, does not depend on the
outcome of the third-party complaint because the validity of the negotiation transferring title to the goods
to PNB as holder of the quedans is not affected by an act of RNS Merchandising and St. Therese
Merchandising, in breach of trust, fraud or conversion against Noah's Ark.
 The Trial Judge's argument that the Appellate Court's decision failed to take account of other "material facts
established on the basis of the pleadings, documentary evidence on record, stipulations and admissions
during the proceedings on the application for a writ of preliminary attachment," is quite transparently
specious.
o the matters cited by TC, as allegedly not examined by CA, were in fact duly considered by the latter — i.e.,
that "the various postdated checks issued by the buyers (RNS Merchandising and St. Therese
Merchandising) in favor of Noah's Ark were dishonored when presented for payment . . (and hence) the
buyers never acquired title to the sugar evidenced by the quedans," 3 and that PNB "did not follow the
procedure stated in Article 2112 of the Civil Code."
o CA explicitly ruled that the "validity of the negotiation" of the quedans to PNB" cannot be impaired by the
fact that the negotiation between Noah's Ark and RNS Merchandising and St. Therese Merchandising was
made in breach of faith on the part of the merchandising firms or by the fact that the owner (Noah's Ark)
was deprived of the possession of the same by fraud, mistake or conversion
o CA also ruled that the quedans were negotiable documents and had been duly negotiated to the PNB
which thereby acquired the rights set out in Article 1513 of the Civil Code
 In any event, the conclusions of fact and law set out in the CA's decision are undeniably binding on all the
parties to the case, RTC included. Having been rendered by a competent court within its jurisdiction, and
having become final and executory, the decision now operates as the immutable law among the parties
 RTC may not evade compliance with the final judgment of CA on the theory that the latter had acted only on a
mere interlocutory order (the order denying PNB's motion for summary judgment), while he had subsequently
adjudged the action for specific performance on the merits. CA had decided that a summary judgment was
proper in said action of specific performance, that this was in truth a determination of the merits of the suit,
that that decision had become final and executory, and that the decision expressly commanded His Honor to
render such a judgment. Under the circumstances, the latter's duty was clear and inescapable.
Held RTC Judge’s decision reversed and set aside. Respondents are ordered to (a) deliver to PNB the sugar stocks covered by
the quedans, and (b) pay the other fees that PNB requires.
 PNB v. Judge Se and Noah’s Ark Sugar Refinery
Hermosisima, Jr., J. April 18, 1996 G.R. No. 119231
Warehouse receipts law and general bonded warehouse act. A warehouseman who has a valid lien against the person
Doctrine demanding the goods may refuse to deliver the goods until the lien is satisfied. Imperative is the right of the
warehouseman to demand payment of his lien because, in accordance with Sec. 29 3 of the Warehouse Receipts Law,
the warehouseman loses his lien upon goods by surrendering possession. The lien may be lost when the warehouseman
surrenders the possession of the goods without demanding payment of his lien, because a warehouseman’s lien is
possessory in nature.
Respondent Noah’s Ark Sugar Refinery issued five quedans endorsed to Luis Ramos and Cresencia Zoleta. Ramos and
Summary Zoleta endorsed the five quedans to petitioner PNB as security for two loans (15.6Mphp and 23.5Mphp). Ramos and
Zoleta failed to pay the loans so PNB demanded the delivery of the sugar stocks from Noah’s Ark, the latter refused.
This prompted PNG to file with the RTC a complaint for specific performance with damages which the RTC dismissed.
Upon appeal via rule 45 to the SC, the SC ruled in favor of PNB and ordered Noah’s Ark to deliver the sugar stocks. Noah’s
Ark filed with the RTC an omnibus motion exercising their right to demand the warehouseman’s lien. The RTC granted
the omnibus motion and held that there was a valid warehouseman’s lien, so PNB brought the case to the SC. The SC
dismissed the petition and held that pursuant to a stipulation in the quedans, and sections 27 and 31 of the Warehouse
Receipts Law, Noah’s Ark has a valid warehouseman’s lien and that it is obliged to deliver the sugar stocks only until PNB
pays the lien.
 In accordance with Act 2137, the Warehouse Receipts Law, respondent Noah’s Ark Sugar Refinery issued five
Facts warehouse receipts (quedans)4. Two quedans were endorsed to Luis Ramos and three were endorsed to Cresencia
Zoleta. Ramos and Zoleta used the quedans as security for two loans, 15.6Mphp and 23.5Mphp, from PNB. They
endorsed the five quedans to petitioner PNB.
 Ramos and Zoleta failed to pay the loans, so PNB demanded the delivery of the sugar stocks from Noah’s Ark. Noah’s
Ark refused to comply.
 PNB filed with the RTC a complaint for specific performance with damages and application for writ of attachment
against Noah’s Ark, Albert Looyuko (proprietor), Jimmy Go (managing partner), and Wilson Go (executive VP).
 Judge Benito Se of the RTC denied the application for the writ of attachment.
 Respondents filed an answer in which they claimed that they owned the quedans and the sugar.
o In an agreement dated April 1, 1989, defendants agreed to sell to Rosa Ng Sy of RNS Merchandising and Teresita
Ng of St. Therese Merchandising the total volume of sugar indicated in the quedans stored at Noahs Ark Sugar
Refinery for a total consideration of P63,000,000.00,
o The corresponding payments in the form of checks issued by the vendees in favor of defendants were subsequently
dishonored by the drawee banks by reason of payment stopped and drawn against insufficient funds,
o Upon proper notification to said vendees and plaintiff in due course, defendants refused to deliver to vendees
therein the quantity of sugar covered by the subject quedans.
o Considering that the vendees and first endorsers of subject quedans did not acquire ownership thereof, the
subsequent endorsers and plaintiff itself did not acquire a better right of ownership than the original vendees/first
endorsers
 PNB filed a motion for summary judgment which the RTC denied. So PNB filed a petition for certiorari with the CA.
The CA ordered the RTC to render summary judgment in favor of PNB.
o What is determinative of the propriety of summary judgment is not the existence of conflicting claims from prior
parties but whether from an examination of the pleadings, depositions, admissions and documents on file, the
defenses as to the main issue do not tender material questions of fact (see Garcia vs. CA, 167 SCRA 815) or the issues
thus tendered are in fact sham, fictitious, contrived, set up in bad faith or so unsubstantial as not to constitute
genuine issues for trial. (See Vergara vs. Suelto, et al., 156 SCRA 753; Mercado, et al. vs. CA, 162 SCRA 75). The
questioned Orders themselves do not specify what material facts are in issue. (See Sec. 4, Rule 34, Rules of Court).
 Meanwhile, the RTC dismissed the complaint for specific performance for lack of a cause of action.
 PNB appealed from the RTC to the SC, the SC ruled in favor of PNB and ordered respondents to deliver the sugar stocks
covered by the quedans as PNB is a holder for value and in due course, or to pay PNB actual damages worth 39Mphp,
with interest from filing of complaint until satisfaction.

3
SEC. 29. How the lien may be lost. – A warehouseman loses his lien upon goods: (a) by surrendering possession thereof; (b) by refusing to deliver the goods when a
demand is made with which he is bound to comply under the provisions of this Act.

4March 1, 1989 – Receipt no. 18062 – covered sugar deposited by Rosa Sy.
March 7, 1989 – Receipt no. 18080 – covered sugar deposited by RNS Merchandising.
March 21, 1989 – Receipt no. 18081 – covered sugar deposited by St. Therese Merchandising.
March 31, 1989 – Receipt no. 18086 – covered sugar deposited by St. Therese Merchandising.
April 1, 1989 – Receipt no. 18087 – covered sugar deposited by RNS Merchandising.
  Respondents filed a motion seeking clarification of the decision which the SC denied.
 Respondents then filed with the RTC an omnibus motion seeking deferment of the proceedings until the issue of the
warehouseman’s lien is resolved. RTC granted this motion, received evidence, and ruled that respondents have a valid
warehouseman’s lien under RA 2137 Sec. 275, thus execution of judgment is stayed until PNB pays the lien on the five
quedans, in accordance with RA 2137 Sec. 316.
 PNB brought the case before the SC assailing the validity of the warehouseman’s lien.
W/N PNB can be compelled to pay the warehouseman’s lien before the warehouseman delivers the sugar stocks (YES)
Ratio/Issues  Petitioners submission is on a technicality, that is, that private respondents have lost their right to recover
warehousemans lien on the sugar stocks covered by the five (5) Warehouse Receipts for the reason that they failed to
set up said claim in their Answer before the trial court and that private respondents did not appeal from the decision
in this regard, dated June 18, 1992. Petitioner asseverates that the denial by this Court on March 9, 1994 of the motion
seeking clarification of our decision, dated September 1, 1993, has foreclosed private respondents right to enforce
their warehousemans lien for storage fees and preservation expenses under the Warehouse Receipts Act.
 Private respondents maintain that they could not have claimed the right to a warehouseman s lien in their Answer to
the complaint before the trial court as it would have been inconsistent with their stand that they claim ownership of
the stocks covered by the quedans since the checks issued for payment thereof were dishonored. If they were still the
owners, it would have been absurd for them to ask payment for storage fees and preservation expenses. They further
contend that our resolution, dated March 9, 1994, denying their motion for clarification did not preclude their right to
claim their warehousemans lien under Sections 27 and 31 of RA 2137, as our resolution merely affirmed and adopted
the earlier decision, dated December 13, 1991, of the CA (6th Division) in CA-G.R. SP. No. 25938 and did not make any
finding on the matter of the warehouseman s lien
 We have carefully examined our resolution, dated March 9, 1994, which denied Noahs Arks motion for clarification of
our decision, dated September 1, 1993, wherein we affirmed in full and adopted the CA earlier decision,
dated December 13, 1991, in CA-G.R. SP. No. 25938. We are not persuaded by the petitioners argument that our said
resolution carried with it the denial of the warehousemans lien over the sugar stocks covered by the subject Warehouse
Receipts. We have simply resolved and upheld in our decision, dated September 1, 1993, the propriety of summary
judgment which was then assailed by private respondents. In effect, we ruled therein that, considering the
circumstances obtaining before the trial court, the issuance of the Warehouse Receipts not being disputed by the
private respondents, a summary judgment in favor of PNB was proper. We in effect further affirmed the finding that
Noahs Ark is a warehouseman which was obliged to deliver the sugar stocks covered by the Warehouse Receipts
pledged by Cresencia K. Zoleta and Luis T. Ramos to the petitioner pursuant to the pertinent provisions of RA 2137.
 In disposing of the private respondents motion for clarification, we could not contemplate the matter of
warehousemans lien because the issue to be finally resolved then was the claim of private respondents for retaining
ownership of the stocks of sugar covered by the endorsed quedans. Stated otherwise, there was no point in taking up
the issue of warehousemans lien since the matter of ownership was as yet being determined. Neither could storage
fees be due then while no one has been declared the owner of the sugar stocks in question.
 The stipulation in the quedans which provide Noah’s Ark’s right to collect warehouseman’s lien states that, “Storage
of the refined sugar quantities mentioned herein shall be free up to one week from the date of the quedans covering
said sugar and thereafter, storage fees shall be charged in accordance with the refining contract under which the
refined sugar covered by this quedan was produced.”
 The quedan itself provides that warehouseman’s lien may be charged. PNB is bound to comply with the terms in the
quedans. Even without such stipulation, warehouseman’s lien must be paid pursuant to Sec. 27 and 31 of the
Warehouse Receipts Law.
 CA declared Noah’s Ark as the warehouseman in its decision, Noah’s Ark cannot now be deprived of its warehouseman’s
lien and pursuant to RA 2137 Sec. 31, the goods may not be delivered until the warehouseman’s lien is satisfied.
 PNB does not deny the existence, validity, or authenticity of the quedans, thus it may not deny liability.
 PNB is estopped to deny liability because it already claimed that it was entitled to the sugar stocks covered by the
quedans. As it presented the quedans to respondent, it also admitted that the terms and stipulations were valid.
 While the PNB is entitled to the stocks of sugar, the sugar stocks shall be delivered only upon payment of the storage
fees. See Doctrine.
Held Petition is DISMISSED.

5 SEC. 27. What claims are included in the warehousemans lien. - Subject to the provisions of section thirty, a warehouseman shall have lien on goods deposited or on the
proceeds thereof in his hands, for all lawful charges for storage and preservation of the goods; also for all lawful claims for money advanced, interest, insurance,
transportation, labor, weighing coopering and other charges and expenses in relation to such goods; also for all reasonable charges and expenses for notice, and
advertisement of sale, and for sale of the goods where default has been made in satisfying the warehousemans lien.

6SEC. 31. Warehouseman need not deliver until lien is satisfied. - A warehouseman having a lien valid against the person demanding the goods may refuse to deliver the
goods to him until the lien is satisfied.
 SPOUSES VINTOLA v. INSULAR BANK OF ASIA AND AMERICA
J. Melencio-Herrera May 29, 1987 G.R No. L-73271
Doctrine A trust receipt, is a security arrangement, pursuant to which a bank acquires a “security interest” in the goods. It secures
an indebtedness, such that there is no security interest if there is no obligation
Facts NB: For some reason this is under the Suretyship Section, but this is really a Trust Receipt/Letter of Credit case
 On August 20, 1975, the Spouses Tirso and Loreta Vintola doing business as Dax Kin International, a company
engaged in the manufacture of various finished products from raw sea shells, applied for and was granted a
domestic letter of credit by the Insular Bank of Asia and America (IBAA) in Cebu City, in the amount of PhP
40,000.00
 Under the terms of the letter of credit, the spouses allowed IBAA to negotiate for their account drafts drawn by
their supplier, Stalin Tan, for the purchase of puka and olive seashells. In turn, the spouses bound themselves
solidarily to pay the bank the equivalent of the amount drawn plus charges at maturity, in Philippine currency.
 Having received the shells from Stalin Tan, worth PhP 40,000.00, the spouses executed a Trust Receipt
agreement with IBAA, under the terms of which they agreed to hold the goods in trust for IBAA “as the latter’s
property, with liberty to sell the same for its account” and that in case of sale, the spouses also agreed to turn
over the proceeds. The due date indicated was October 19, 1975.
 The spouses Vintola defaulted in their obligation, prompting IBAA to demand payment. The Vintolas, unable to
sell the shells, offered to return the shells to IBAA. IBAA refused and filed a criminal complaint for Estafa,
claiming that the spouses misappropriated, misapplied, and converted for their own benefit, the goods held in
trust.
 While the CFI heard the Estafa case, the shells were turned over its custody. On April 12, 1982, the CFI acquitted
the Spouses Vintola, finding that the element of misappropriation or conversion was non-existent, noting that
under the trust receipt, the bank was actually entitled to take possession of the goods to recover its value, thus
the remedy of IBAA was civil, not criminal.
 IBAA commenced a civil case to recover the value of the goods before the RTC of Cebu. The RTC held that the
complaint was barred by the prior judgment in the estafa case. Upon IBAA”s Motion for Reconsideration,
however, the RTC ordered the spouses to pay the amount due (PhP 72,982.27) plus interests, and Attorney’s
fees.
 The spouses appealed to the IAC, but the latter certified the case to the SC, the question involved being purely
legal.
Ratio/Issues Whether the Vintolas’ obligation has been extinguished by their deposit of the goods in Court (NO)
 The Vintolas argue in the main that their obligation to IBAA has been extinguished since they deposited the seashells
in court, after IBAA refused to accept them. The spouses contend that they should not be held liable for their
inability to dispose of the shells.
 The spouses’ contention overlooks the very nature of a Letter of Credit-Trust Receipt arrangement where the Letter
of Credit actually covers a loan extended by the bank, secured by the trust-receipt. P.D. 115 is instructive as to the
definition of a trust receipt transaction7. A trust receipt, therefore is a security arrangement, pursuant to which a
bank acquires a “security interest”8 in the goods. It secures an indebtedness, such that there is no security interest if
there is no obligation.
 A Trust receipt is intended to aid in the financing of importers and retail dealers who may not have enough funds to
finance their purchase of goods and may have no collateral other than the goods imported or purchased
themselves.
 IBAA never became the owner of the goods. It was merely the holder of a security title for the advances made to the
Vintolas. The Vintolas held the shells as their own property and at their own risk, the trust receipt did not convert
IBAA to an investor, it was still the spouses’ creditor.
 The fact that the Vintolas surrendered the goods to the court’s custody does not relieve them of their obligation to
pay their indebtedness to the bank. The fact that they were unable to sell the shells does not affect IBAA’s right to
recover the advances made under the Letter of Credit.

7Section 4... any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee,
whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the
possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself
to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instrument thereof to
the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the
following:

In the case of goods or documents, (a) to sell the goods or procure their sale
8 (h)"Security Interest"means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third

persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only.
 Whether the acquittal of the Vintolas in the Estafa case serves as a bar to the Civil Case (NO)
 The Vintolas argue that the resolution of the Estafa case also resolved any civil aspect, as IBAA failed to reserve its
right to enforce the spouses’ civil liability separately, and since the judgment in the criminal case also declared that
the facts from which the civil action might arise did not exist, the current civil case is barred.
 The Court dismissed the Vintolas’ claim and noted that the CFI expressly declared that the remedy of IBAA was not
criminal but civil. This amounts to a reservation in IBAA’s favor.
 The Vintolas are liable ex-contractu for breach of their agreement with IBAA. Their civil liability does not arise ex-
delicto, in which case the action for collection would have been deemed instituted with the estafa case. Since the
action is based on contract, it may proceed regardless of the result in the Estafa case.
Held Judgment AFFIRMED
 Navoa and Navoa vs CA, Domdoma, and Domdoma
Bellosillo, J. December 29, 1995 GR. 59255
Nangutang yung mga Navoa sa mga Domdoma. Nagbigay ng checks as security. Nung hinulog yung mga cheke, na-dishonor.
Domdomas now file a collection suit based on these unpaid loans against Navoas. Navoas file a Motion to Dismiss on the
Summary

ground that complaint did not state a cause of action. Ang theory ng mga Navoa hindi daw “act/omission” (na element ng isang
cause of action) yung dishonor ng check dahil “mere security” lang daw ang mga ito. RTC granted the Motion and dismissed the
case. CA ordered the remand and that the case be tried on the merits. SC affirms by finding that all elements of a cause of
action have been sufficiently alleged.
- [Regional Trial Court] Teresita Domdoma and Eduardo Domdoma (Domdomas) file a collection suit based on unpaid loans
against Olivia Navoa and Ernesto Navoa (Navoas); their complaint alleges nine causes of action
o sometime in . . . February, 1977, when the Reycard Duet was in Manila, plaintiff Teresita got acquainted with defendant
Olivia in the jewelry business, the former selling the jewelries of the latter(Teresita sold Olivia’s jewelries); that to the
Reycard Duet alone, plaintiff Teresita sold jewelries worth no less than P120,000.00 in no less than 20 transactions; that
even when the Reycards have already left, their association continued, and up to the month of August, 1977, plaintiff
Teresita sold for defendant Olivia jewelries worth no less than P20,000.00, in 10 transactions more or less
o sometime in the month of June and July of 1977, defendant Olivia, on two occasions, asked for a loan from plaintiff
Teresita, for the purpose of investing the same in the purchase of jewelries, which loan were secured by personal checks of
the former; that in connection with these loans, defendant promised plaintiff a participation in an amount equivalent to 1/2
of the profit to be realized; that on these loans, plaintiff was given a share in the amount of P1,200.00 in the first
transaction, and in the second transaction, the sum of P950.00
- Navoas file a Motion to Dismiss on the ground that the complaint does not state a cause of action and that plaintiffs had no
capacity to sue.
Facts

- Domdomas file an Opposition to Navoas’ Motion to Dismiss

- RTC dismissed the case. Reconsideration denied.
- [CA] The CA remanded the case to the court a quo for private respondents to file their responsive pleading and for trial on the
merits
- Hence, present petition. Petitioners allege that:
o CA erred
 (a) in not dismissing the appeal for lack of appellate jurisdiction over the case which involves merely a question of law;
 (b) in not affirming the order of dismissal for lack of cause of action; and,
 (c) in holding that private respondents have a cause of action under the second to the sixth causes of action of the
complaint
o The Domdomas
 (1) failed to specify in their complaint a fixed period within which petitioners should pay their obligations;
 (2) that instead of stating that petitioners failed to discharge their obligations upon maturity private respondents sought
to collect on the checks which were issued to them merely as security for the loans; and,
 (3) that private respondents failed to make a formal demand on petitioners to satisfy their obligations before filing the
action.
 Navoa and Navoa vs CA, Domdoma, and Domdoma
Whether or not the complaint fails to state a cause of action9. [NO]
- The Supreme Court ruled that all the elements of a cause of action are present in the complaint: (a) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created, (b) an obligation on the part of the defendant to
respect and not to violate such right; and, (c) an act or omission on the part of the defendant constituting a violation of the
plaintiff's right or breach of the obligation of the defendant to the plaintiff.
- In determining the existence of a cause of action, only the statements in the complaint may properly be considered. Lack of
cause of action must appear on the face of the complaint and its existence may be determined only by the allegations of the
complaint
- If a defendant moves to dismiss the complaint on the ground of lack of cause of action, such as what petitioners did in the case
at bar, he is regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of the facts found in
a complaint as constituting a cause of action is whether or not admitting the facts alleged the court can render a valid
judgment upon the same in accordance with the prayer thereof.

[As for the 1st (right) and 2nd (duty) elements, these have been sufficiently alleged]
In their first cause of action Domdomas alleged that petitioner Olivia Navoa obtained from the latter a ring valued at P15,000.00
and issued as security therefor a check for the same amount dated 15 August 1977 with the condition that if the ring was not
returned within fifteen (15) days the ring would be considered sold; and, after the lapse of the period, private respondent
Teresita Domdoma asked to deposit the check but petitioner Olivia Navoa requested the former not to deposit it in the
meantime; that when Teresita Domdoma deposited the check after holding it for sometime the same was dishonored for lack of
funds. Domdoma sought to collect the amount of P15,000.00 plus interest from 15 August 1977 until fully paid.
- From these facts the ring was considered sold to petitioner Olivia Navoa 15 days from 15 August 1977 and despite the sale
the latter failed to pay the price therefor even as the former was given ample time to pay the agreed amount covered by a
check. Clearly, respondent Teresita Domdoma's right under the agreement with petitioner Olivia Navoa was violated by
Issue(s)/ Holding
Issue(s)/ Holding

the latter.
In the second to the sixth causes of action it was alleged that private respondents granted loans to petitioners in different
amounts on different dates. (10K, 5K, 5K, 10K, 10K) All these loans were secured by separate checks intended for each amount of
loan obtained and dated one month after the contracts of loan were executed. That when these checks were deposited on their
due dates they were all dishonored by the bank. As a consequence, private respondents prayed that petitioners be ordered to
pay the amounts of the loans granted to them plus one percent interest monthly from the dates the checks were dishonored
until fully paid.
- The right of private respondents to recover the amounts loaned to petitioners is clear. Moreover, the corresponding duty of
petitioners to pay private respondents is undisputed.
- 7-9th were for damages

[As for the 3rd element (act/omission violating plaintiff’s right), also sufficiently alleged]
- All the loans granted to petitioners are secured by corresponding checks dated a month after each loan was obtained.
- In this regard, the term security is defined as a means of ensuring the enforcement of an obligation or of protecting some
interest in property. It may be personal, as when an individual becomes a surety or a guarantor; or a property security, as
when a mortgage, pledge, charge, lien, or other device is used to have property held, out of which the person to be made
secure can be compensated for loss. Security is something to answer for as a promissory note. That is why a secured creditor
is one who holds a security from his debtor for payment of a debt. From the allegations in the complaint there is no other
fair inference than that the loans were payable one month after they were contracted and the checks issued by petitioners
were drawn to answer for their debts to private respondents.
- Petitioners failed to make good the checks on their due dates for the payment of their obligations. Hence, private
respondents filed the action with the trial court precisely to compel petitioners to pay their due and demandable
obligations. Art. 1169 of the Civil Code is explicit - those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. The continuing refusal of
petitioners to heed the demand of private respondents stated in their complaint unmistakably shows the existence of a
cause of action on the part of the latter against the former.
- Hence, TC erred in dismissing the case on the ground of lack of cause of action. Respondent CA therefore is correct in
remanding the case to the trial court for the filing of an answer by petitioners and to try the case on the merits.

petition is DENIED. The judgment of the CA AFFIRMED

9 This is a civpro case, particularly on cause of action. There is only one paragraph which directly touches upon the topic under surety/guarantor.
E. ZOBEL, INC. vs. THE CA, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA
Martinez, J. 06 May 1998 G.R. No. 113931
Doctrine A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with
the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a collateral
undertaking to pay the debt of another in case the latter does not pay the debt.
Summary Spouses obtained a loan from SOLIDBANK. It was subject to the conditions that: 1. Spouses execute a chattel mortgage
and 2. Continuing Guarantee by E. Zobel. Spouses defaulted. SOLIDBANK filed a complaint for sum of money. E. Zobel
contends that it is no longer liable since its obligations as guarantor had already been extinguished by the bank’s failure
to register the chattel mortgage pursuant to Art. 2080. Court held that despite the contract’s title, E. Zobel is actually a
surety and thus, Art. 2080 is not applicable. Even assuming that it is, failure to register does not excuse E. Zobel from its
obligation.
Facts  Respondent spouses, doing business under the name "Agro Brokers," applied for a loan with Consolidated Bank and
Trust Corporation (now SOLIDBANK) in the amount of P2, 875,000.00 to finance the purchase of two maritime barges
and one tugboat which would be used in their molasses business.
 The loan was granted subject to the condition that spouses execute a chattel mortgage over the three vessels to be
acquired and that a continuing guarantee be executed by E. Zobel, Inc. in favor of SOLIDBANK. The Spouses agreed to
the arrangement. Consequently, a chattel mortgage and a Continuing Guaranty were executed.
 Spouses defaulted. Hence, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary
attachment, against spouses and petitioner.
 Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished
pursuant to Art 2080, NCC. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of
SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency.
 SOLIDBANK opposed contending that Art.2080 is not applicable because petitioner is not a guarantor but a surety.
 TC: denied MTD. MR denied
o The 'Continuing Guaranty' states as follows: 'For and in consideration of any existing indebtedness to you of Agro
Brokers, a single proprietorship owned by Mr. Raul Claveria for the payment of which the undersigned is now
obligated to you as surety and in order to induce you, in your discretion, at any other manner, to, or at the request
or for the account of the borrower'
o The provisions are plain. Clearly, E. Zobel, Inc. signed as surety. Even though the title of the document is 'Continuing
Guaranty', interpretation is not limited to the title but to the contents and intention of the parties. The obligation of
the E. Zobel being that of a surety, Art. 2080 will not apply as it is only for those acting as guarantor. In fact, in a letter
by spouses and E. Zobel, it is requesting that the chattel mortgage on the vessels and tugboat be waived and/or
rescinded by the bank inasmuch as the said loan is covered by the Continuing Guaranty by Zobel thus thwarting its
claim now that the chattel mortgage is an essential condition of the guaranty. In its letter, it said that because of
the Continuing Guaranty the chattel mortgage is rendered unnecessary and redundant.
o With regard to the claim that the failure to register the chattel mortgage with the proper government agency, i.e.
with the Office of the Collector of Customs or with the Register of Deeds makes the obligation a guaranty, the same
could not be taken as the basis of the extinguishment of the obligation of the E. Zobel to the plaintiff as surety. The
chattel mortgage is an additional security and should not be considered as payment of the debt in case of failure of
payment. The same is true with the failure to register; extinction of the liability would not lie.
 CA affirmed RTC. MR denied.
 Hence, present petition
 Petitioner: CA erred in its finding:
o (1) that Article 2080 of the New Civil Code which provides: "The guarantors, even though they be solidary, are
released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights,
mortgages, and preferences of the latter," is not applicable to petitioner;
o (2) that petitioner's obligation to respondent SOLIDBANK under the continuing guaranty is that of a surety;
and
o (3) that the failure of respondent SOLIDBANK to register the chattel mortgage did not extinguish petitioner's
liability to respondent SOLIDBANK.
Issues/Ratio
WON E. Zobel under the "Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a surety. SURETY.

 A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees
with the creditor to satisfy the obligation if the debtor does not. A contract of guaranty, on the other hand, is a
collateral undertaking to pay the debt of another in case the latter does not pay the debt.
 Guaranty and surety are nearly related. However, they may be distinguished:
 o surety is usually bound with his principal by the same instrument, executed at the same time, and on the same
consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every
default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the
principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby.
o contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually
entered into before or after that of the principal, and is often supported on a separate consideration from that
supporting the contract of the principal. The original contract of his principal is not his contract, and he is not
bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to
the principal, and is usually not liable unless notified of the default of the principal.
 Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor
and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates
himself to pay if the principal does not pay.
 Based on the definitions, it appears that the contract, albeit denominated as a "Continuing Guaranty," is a contract of
surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit
to spouses. This can be seen in the following stipulations.
o “undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any time or from
time to time hereafter, to make loans or advances or to extend credit”
o “the undersigned agrees to guarantee, and does hereby guarantee, the punctual payment, at maturity or upon
demand, to you of any and all such instruments, loans, advances, credits and/or other obligations herein before
referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or
owing to you by the Borrower”
 The contract clearly disclosed that E. Zobel assumed liability to SOLIDBANK, as a regular party to the undertaking and
obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the spouses. In fact,
SOLIDBANK need not resort to all other legal remedies or exhaust spouses' properties before it can hold E. Zobel liable
for the obligation. This can be gleaned from a reading of the stipulations in the contract, to wit:
o 'If default be made in the payment of any of the instruments, indebtedness or other obligation hereby
guaranteed by the undersigned, or if the Borrower, or the undersigned should die, dissolve, fail in business, or
become insolvent, or if any funds or other property of the Borrower, or of the undersigned which may be or come
into your possession or control or that of any third party acting in your behalf as aforesaid should be attached of
distrained, or should be or become subject to any mandatory order of court or other legal process, then, or any
time after the happening of any such event any or all of the instruments of indebtedness or other obligations hereby
guaranteed shall, at your option become (for the purpose of this guaranty) due and payable by the undersigned
forthwith without demand of notice… Should the Borrower at this or at any future time furnish, or should be
heretofore have furnished, another surety or sureties to guarantee the payment of his obligations to you, the
undersigned hereby expressly waives all benefits to which the undersigned might be entitled under the provisions
of Article 1837 of the Civil Code (beneficio division), the liability of the undersigned under any and all
circumstances being joint and several”
 The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize
that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but
an intention to be bound by a primary or independent obligation. As aptly observed by the trial court, the
interpretation of a contract is not limited to the title alone but to the contents and intention of the parties.

WON Art. 2080 is applicable to the case at bar. NO.

 Having thus established that petitioner is a surety, Article 2080 finds no application to the case at bar. In Bicol Savings
and Loan Association vs. Guinhawa, we have ruled that Article 2080 of the New Civil Code does not apply where the
liability is as a surety, not as a guarantor.
 But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not
release E. Zobel from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, E. Zobel bound itself
to the contract irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or negligence
that may impair the contract. The pertinent portions of the contract so provides:
o “the undersigned (petitioner) who hereby agrees to be and remain bound upon this guaranty, irrespective of the
existence, value or condition of any collateral”
o No act or omission of any kind on your part in the premises shall in any event affect or impair this guaranty”
Held CA decision is AFFIRMED. Costs against the petitioner.
RIZAL COMMERCIAL BANKING CORPORATION v. HON. JOSE P. ARRO and RESIDORO CHUA
J. De Castro July 30, 1982 L-49401
Doctrine(s) Continuing guaranty agreements have their basis in the Article 2053 of the Civil Code, which states that “A guaranty
may also be given for future debts, the amount of which is not yet known; there can be no claim against the guarantor
until the debt is liquidated. A conditional obligation may also be secured.”
Summary Chua and Go signed as guarantors in a continuing comprehensive surety agreement for any liabilities which the
Davao Agricultural Industries Corporation may contract with RCBC. Daicor borrowed P100,000 from RCBC evidenced
by a promissory note signed solely by Go, without Chua’s signature. When the promissory note could not be paid,
RCBC filed a complaint against Go and Chua, and the latter moved to dismiss because RCBC had no cause of action
against him as he did not sign the note. The Court ruled in favor of RCBC because Chua was still bound by the
comprehensive surety agreement, which was continuing in nature.
Facts SURETY AGREEMENT - Private respondent Chua and Enrique Go., Sr., executed a comprehensive surety agreement to
guaranty any existing indebtedness of Davao Agricultural Industries Corporation (DAICOR) and to any other loans or
advances Daicor may make with RCBC.

RCBC loaned P100,000 to Daicor (for purposes of having additional capital for buying and selling coco-charcoal and
importation of activated carbon) and a promissory note was issued to that effect, signed by Go and on behalf of
Daicor but without Chua’s signature. (ONLY GO SIGNED)

The promissory note was not paid despite repeated demands and RCBC filed a complaint for a sum of money against
Daicor, Go, and Chua.

Chua filed a Motion to Dismiss on the ground that there was no cause of action against him, not having signed the
promissory note.
In its opposition to the MTD, RCBC relied on the strength of the comprehensive surety agreement which Chua and Go
earlier signed for Daicor. RCBC averred the surety agreement was a continuing surety agreement and covers not only
previous indebtedness but other debts which Daicor may incur.

Judge Arro granted the Motion to Dismiss on the basis that Chua had not signed the promissory note pertaining to
the P100,000 loan, said promissory note being the only basis for RCBC’s cause of action.

Contesting the aforecited decision and order of respondent judge, the present petition was filed before this Court
assigning the following as errors committed by respondent court:
1. That the respondent court erred in dismissing the complaint against Chua simply on the reasons that 'Chua is not
a signatory to the promissory note" of April 29, 1977, or that Chua could not be held liable on the note under the
provisions of the comprehensive surety agreement of October 29, 1976; and/or
2. That the respondent court erred in interpreting the provisions of the Comprehensive Surety Agreement towards
the conclusion that respondent Chua is not liable on the promissory note because said note is not conformable to
the Comprehensive Surety Agreement; and/or
3. That the respondent court erred in ordering that there is no cause of action against respondent Chua in the
petitioner's complaint.

Ratio/Issue(s) Whether or not Chua is responsible to pay the obligation evidenced by the promissory note which he did not sign (YES,
because the comprehensive surety agreement is continuing in nature and provides only that liability shall not exceed
P100,000; it did not state that both guarantors must sign)

(1) The comprehensive surety agreement was executed to cover existing as well as future obligations Daicor may
incur with RCBC and the tenor of the agreement provides only one condition: that any liability shall not exceed at
any one time the aggregate principal sum of P100,000.
a. Par 1: “For and in consideration of any existing indebtedness to you of Davao Agricultural Industries
Corporation with principal place of business and postal address at 530 J. P. Cabaguio Ave., Davao City
(hereinafter called the "Borrower), and/or in order to induce, you in your discretion, at any time or from
time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the
request or for the account of the Borrower, either with or without security, and/or to purchase or discount
or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances,
checks or other instruments or evidences of indebtedness (all hereinafter called "instruments") upon which
the Borrower is or may become liable as maker, endorser, acceptor, or otherwise) the undersigned agrees to
guarantee, and does hereby guarantee in joint and several capacity, the punctual payment at maturity to you
 of any and all such instruments, loans, advances, credits and/or other obligations herein before referred to,
and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to
you by the Borrower, together with any and all expenses which may be incurred by you in collecting an such
instruments or other indebtedness or obligations hereinbefore referred to ..., provided, however, that the
liability of the undersigned shall not exceed at any one time the aggregate principal sum of P100,000.00 ...”
(2) The agreement was executed obviously to induce petitioner to grant any application for a loan Daicor may
desire to obtain from petitioner bank.
(3) The tenor of the agreement also provides the guaranty is a continuing one.
a. Par 9: This is a continuing guaranty and shall remain in fun force and effect until written notice shall
have been received by you that it has been revoked by the undersigned
(4) At the time the loan was obtained, the comprehensive surety agreement was still in effect. The loan was covered
by the agreement, and even if Chua did not sign he is liable by virtue of the surety agreement.
(5) The surety agreement which Chua and Go earlier signed is an accessory obligation dependent upon a principal
one, in this case the loan obligation Daicor obtained from the bank. The surety agreement induced the bank to
enter the loan obligation with Daicor, whereby Chua and Go bound themselves solidarily to guaranty the payment
of the loan upon maturity.
(6) Such continuing guaranty agreements have their basis in the Article 2053 of the Civil Code, which states that “A
guaranty may also be given for future debts, the amount of which is not yet known; there can be no claim
against the guarantor until the debt is liquidated. A conditional obligation may also be secured.”
Held Decision dismissing the complaint is REVERSED and SET ASIDE. Case is REMANDED to the court of origin to set aside
the MTD and to require Residoro Chua to answer the complaint against him.
JACINTO UY DIÑO and NORBERTO UY vs CA and METROPOLITAN BANK AND TRUST COMPANY | G.R. No. 89775 | November 26, 1992 |
J. Davide Jr.
 In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit
accommodations (letter of credit and trust receipt accommodations) from METROBANK in the sum of P700,000.00
o To secure the aforementioned credit accommodations Uy and Diño executed separate Continuing Suretyships
 Uy agreed to pay METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Diño agreed to be
bound up to the aggregate sum of P800,000.00.
 Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam, obtained another credit
accommodation from METROBANK in 1978, which credit accommodation was fully settled before an irrevocable letter of credit was
applied for and obtained by the abovementioned business entity in 1979
o The Irrevocable Letter of Credit in the sum of P815,600.00, covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags
Planters 21-0-0."
o It was applied for and obtain by UTEFS without the participation of Uy and Diño as they did not sign the document denominated
as "Commercial Letter of Credit and Application." Also, they were not asked to execute any suretyship to guarantee its payment.
Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been opened and the Continuing Suretyships
separately executed in February, 1977 shall guarantee its payment
 The 1979 letter of credit was negotiated. METROBANK paid Planters Products the amount of P815,600.00 which payment was
covered by a Bill of Exchange in favor of the former, drawn on and accepted by UTEFS
 UTEFS executed and delivered to METROBANK a Trust Receipt whereby the former acknowledged receipt in trust from the latter of
the aforementioned goods from Planters Products which amounted to P815,600.00. Being the entrustee, the former agreed to
deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale thereof, on or before
September 2, 1979.
 UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. METROBANK sent letters to the said principal obligor and
its sureties, Norberto Uy and Jacinto Uy Diño, demanding payment of the amount due. UTEFS made partial payments to the Bank
 Diño denied his liability for the amount demanded and requested METROBANK to send him copies of documents. The bank
informed him that the source of his liability is the Continuing Suretyship which he executed on February 25, 1977.
 Diño maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without
his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid
 When extrajudicial remedies remained to be futile, METROBANK filed before RTC a complaint for collection of a sum of money
(P613,339.32, as of January 31, 1982) with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam,
representative of UTEFS and impleaded Diño and Uy as parties-defendants.
 RTC granted the attachment writ, which writ was returned unserved and unsatisfied as defendant Uy Tiam was nowhere to be
found at his given address and his commercial enterprise was already non-operational
 Uy and Diño filed MTD: lack of cause of action
o obligation which they guaranteed in 1977 has been extinguished since it has already been paid in the same year
o Continuing Suretyships executed in 1977 cannot be availed of to secure Uy Tiam's Letter of Credit obtained in 1979 because a
guaranty cannot exist without a valid obligation
o can not be held liable for the obligation contracted in 1979 because they are not privies thereto
 As to Uy Tiam, complaint was dismissed on the ground that it has no information as to the heirs or legal representatives of the latter
who died sometime in December, 1986
 As to Uy and Dino: complaint was dismissed
o When Uy and Diño executed the continuing suretyships, Uy Tiam was obligated to the plaintiff in the amount of P700,000.00 --
and this was the obligation which both defendants guaranteed to pay. Uy Tiam paid this 1977 obligation -- and such payment
extinguished the obligation they assumed as guarantors/sureties.
o 1979 Letter of Credit is different from the 1977 Letter of Credit which covered the 1977 account of Uy Tiam. And Diño and Uy,
being strangers thereto, cannot be answerable thereunder
o plaintiff did not serve notice to Diño and Uy when it extended to Uy Tiam the 1979 Letter of Credit
o no sufficient and credible showing that Diño and Uy were fully informed of the import of the Continuing Suretyships when they
affixed their signatures thereon
 CA reversed RTC. MR denied
 o Continuing Suretyship Agreements separately executed by the petitioners in 1977 were intended to guarantee payment of Uy
Tiam's outstanding as well as future obligations
o each suretyship arrangement was intended to remain in full force and effect until METROBANK would have been notified of its
revocation
o Since no such notice was given by the petitioners, the suretyships are deemed outstanding and hence, cover even the 1979 letter
of credit
 Hence, present petition.

W/N Uy and Dino can be held liable. YES

 Under CC 2053, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the
guaranty is executed.
 A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing,
covering a series of transactions, generally for an indefinite time or until revoked. It is generally intended to provide security with
respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the
guarantor becomes liable.
o A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to
the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the
guaranty is expressly reserved
 Ex. where the contract of guaranty states that the same is to secure advances to be made "from time to time"
 Ex. payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money
to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may require
 CAB, stipulations unequivocally reveal that the suretyship agreements are continuing in nature
o Par I of the suretyship agreement: For and in consideration of any existing indebtedness to the BANK of UY TIAM (hereinafter
called the 'Borrower'), for the payment of which the SURETY is now obligated to the BANK, either as guarantor or
otherwise, and/or in order to induce the BANK,in its discretion, at any time or from time to time hereafter, to make loans or advanc
es or to extend credit in any other manner to, orat the request, or for the account of the Borrower,… the SURETY agrees to guarant
ee, and does hereby guarantee, the punctual payment at maturity to the BANK of any andall such instruments, loans, advances credi
ts and/or other obligations hereinbefore referred to, and also any and all otherindebtedness of every kind which is now or may here
after become due or owing to the BANK by the Borrower
o Par I of the Continuing Suretyship Agreement executed by Diño contains identical provisions except with respect to the
guaranteed aggregate principal amount which is P800,000
o Par IV of both agreements:
This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received by the BANK
that it has been revoked by the SURETY, but any such notice shall not release the SURETY
 Petitioners do not deny this; in fact, they candidly admitted it. Neither have they denied the fact that they had not revoked the
suretyship agreements.
 CA: Undoubtedly, the purpose of the execution of the Continuing Suretyships was to induce appellant to grant any application for
credit accommodation (letter of credit/trust receipt) UTEFS may desire to obtain from appellant bank. By its terms, each suretyship
is a continuing one which shall remain in full force and effect until the bank is notified of its revocation.
 When the Irrevocable Letter of Credit was obtained from appellant bank, the continuing suretyships were in full force and effect.
Hence, even if sureties-appellees did not sign the 'Commercial Letter of Credit and Application, they are still liable as the credit
accommodation (letter of credit/trust receipt) was covered by the said suretyships.
o condition provides that the Borrower 'is or may become liable as maker, endorser, acceptor or otherwise.' And since UTEFS which
(sic) was liable as principal obligor for having failed to fulfill the obligatory stipulations in the trust receipt, they as insurers of its
obligation, are liable thereunder.
 Petitioners: Continuing Suretyship Agreements cannot be made applicable to the 1979 obligation because the latter was not yet in
existence when the agreements were executed in 1977; under CC 2052, a guaranty "cannot exist without a valid obligation."
 SC: NO.
o CC 2053 provides that "[a] guaranty may also be given as security for future debts, the amount of which is not yet known."
o CC 2052 speaks about a valid obligation, as distinguished from a void obligation, and not an existing or current obligation.
  CC 2052(2): Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable
contract. It may also guarantee a natural obligation
 Petitioners: CA gravely erred in finding them liable for more than the amount specified in their respective agreements, to wit: (a)
P800,000.00 for petitioner Diño and (b) P300,000.00 for petitioner Uy.
 SC: The limit of the petitioners' respective liabilities must be determined from the suretyship agreement each had signed. Indeed,
the Continuing Suretyship Agreements signed by Diño and Uy fix the aggregate amount of their liability at P800,000.00 and
P300,000.00, respectively. The law is clear that a guarantor may bind himself for less, but not for more than the principal debtor,
both as regards the amount and the onerous nature of the conditions.
o By express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to
pay interests, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount
due.
 such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as may be incurred by
the BANK referred to above
 in the event of judicial proceedings being instituted by the BANK against the SURETY to enforce any of the terms and conditions
of this undertaking, the SURETY further agrees to pay the BANK a reasonable compensation for and as attorney's fees and costs
of collection, which shall not in any event be less than ten per cent (10%) of the amount due
o Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs under CC 2055.
Interests and damages are included in the term accessories. However, such interest should run only from the date when the
complaint was filed in court.
o Even attorney's fees may be imposed whenever appropriate, pursuant to CC 2208
 The records do not reveal the exact amount of the unpaid portion of the principal obligation of Uy Tiam to MERTOBANK under
Irrevocable Letter of Credit. In referring to the last demand letter to Mr. Uy Tiam and the complaint filed, the CA mentions the
amount of "P613,339.32, as of January 31, 1982, inclusive of interest commission penalty and bank charges." This is the same
amount stated by METROBANK in its Memorandum. However, in summarizing Uy Tiam's outstanding obligation as of 17 July 1987,
public respondent states: Hence, they are jointly and severally liable to appellant METROBANK of UTEFS' outstanding obligation in
the sum of P2,397,883.68 (as of July 17, 1987) — P651,092.82 representing the principal amount, P825,133.54, for past due
interest (5-31-82 to 7-17-87) and P921,657.32, for penalty charges at 12% per annum
o Since the complaint was filed on 18 May 1982, it is obvious that on that date, the outstanding principal obligation of Uy Tiam,
secured by the petitioners' Continuing Suretyship Agreements, was less than P613,339.32. Such amount may be fully covered by
the Continuing Suretyship Agreement executed by petitioner Diño which stipulates an aggregate principal sum of not exceeding
P800,000.00, and partly covered by that of petitioner Uy which pegs his maximum liability at P300,000.00.

Petition PARTLY GRANTED only insofar as the challenged decision has to be modified with respect to the extend of petitioners' liability
WILLEX PLASTIC INDUSTRIES, CORPORATION v CA and INTERNATIONAL CORPORATE BANK
Mendoza, J. April 25, 1996 G.R. No. 151953
Doctrine 1. A guarantor or surety is bound by the same consideration that makes the contract effective between the principal
parties thereto. It is never necessary that a guarantor or surety should receive any part or benefit, if such there be,
accruing to his principal.
2. Contracts of suretyship are ordinarily not to be construed as retrospective, but that rule must yield to the intention
of the contracting parties as revealed by the evidence

Summary Inter-Resin and Willex executed a Continuing Guaranty in favor of IUCP for amounts which the latter may have paid
Manilabank on behalf of Inter-Resin Industrial. When Interbank paid Manilabank a sum representing Inter-Resin’s
outstanding obligation, it then demanded from Inter-Resin and Willex the payment of what it (IUCP) had paid to
Manilabank. Willex was held to be solidarily liable with Inter-Resin, it being a guarantor of the latter. IRIC admitted
that the “Continuing Guaranty” was intended to secure payment to IUCP of the amount which the latter had paid to
Manilabank. It claimed, however, that it had already fully paid its obligation. On the other hand, Willex Plastic denied
the material allegations of the complaint and contended that it is only a guarantor of the principal obligor, and thus,
its liability is only secondary to that of the principal. Trial court ordered IRIC and Willex Plastic jointly and severally to
pay to Interbank (subsitituted Manilabank). CA affirmed. Only Willex appealed. SC decided in favor of the respondents
and held WIllex to be jointly and severally liable with Inter-Resin under the “Continuing Guaranty
Facts  Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation
o To secure payment of the credit accomodation, Inter-Resin Industrial and the Investment and Underwriting
Corporation of the Philippines (IUCP) executed 2 documents, both entitled "Continuing Surety Agreement"
whereby they bound themselves solidarily to pay Manilabank "obligations of every kind, on which the [Inter-
Resin Industrial] may now be indebted or hereafter become indebted to the [Manilabank]."
o The two agreements are the same in all respects, except as to the limit of liability of the surety, the first surety
agreement being limited to US$333,830.00,(333K) while the second one is limited to US$334,087.00. (334K)

 Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a “Continuing Guaranty” in favor of IUCP
which stipulated: “For and in consideration of the sum or sums obtained and/or to be obtained by Inter­Resin
Industrial Corporation” from IUCP, Inter­Resin Industrial and Willex Plastic jointly and severally guaranteed “the
prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate
principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and penalties
as hereafter may be specified.”
 Upon demand, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter­Resin’s outstanding obligation.
 Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and
Willex Plastic the payment of what IUCP had paid to Manilabank. As neither one of the sureties paid, Atrium
filed this case in RTC against Inter-Resin Industrial and Willex Plastic. (Interbank = plaintiff, Inter-Resin =
defendant)

 Inter-Resin Industrial paid Interbank, which had in turn succeeded Atrium, the sum of P687,600.00 representing
the proceeds of its fire insurance policy for the destruction of its properties.

 ANSWER: Inter­Resin admitted that the “Continuing Guaranty” was intended to secure payment to INTERBANK of
the amount of P4,334,280.61 which the latter had paid to Manilabank. It claimed, however, that it had already fully
paid its obligation to INTERBANK.
 On the other hand, Willex denied the material allegations of the complaint
o Assuming arguendo that main defendant is indebted to plaintiff, the former's liability is extinguished due to
the accidental fire that destroyed its premises, which liability is covered by sufficient insurance assigned to
plaintiff;
o Again, assuming arguendo, that the main defendant is indebted to plaintiff, its account is now very much
lesser than those stated in the complaint because of some payments made by the former;
o The complaint states no cause of action against WILLEX;
o Willex is only a guarantor of the principal obligor and so its liability is only secondary to that of the principal. (for
Inter-Resin lang daw siya, go after principal first)
o Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against the principal obligor
o Plaintiff has no personality to sue.
 RTC: ordered Inter-Resin and WIllex jointly and severally to pay Interbank
  CA: affirmed the RTC

Ratio Whether or not Continuing Guaranty, being an accessory contract, can legally exist because of the absence of a valid
principal obligation.—YES
Willex Plastic argues that under the “Continuing Guaranty,” its liability is for sums obtained by Inter-Resin Industrial from
Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial.
“For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN INDUSTRIAL
CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or your principal/s as may be
evidenced by promissory note/s, checks, bills receivable/s and/or other evidence/s of indebtedness
(hereinafter referred to as the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto
you and/or your principal/s, successor/s and assigns the prompt and punctual payment at maturity of the
NOTE/S issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to the extent
of the aggregate principal sum of P5,000,000 and such interests, charges and penalties as may hereinafter be
specified.”

SC: Evidence was introduced in the lower courts to explain that the Continuing Guaranty was actually to secure
payment to Interbank of amounts paid by the latter to Manilabank; reason that the “Continuing Guaranty” was
executed.

 Interbank's predecessor-in-interest, Atrium Capital, alleged:

 “5. to secure the guarantee made by plaintiff of the credit accommodation granted to
defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff required defendant
IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor and a Continuing
Guaranty which was signed by the other defendant WPIC”
 Inter-Resin Industrial admitted this allegation although it claimed that it had already paid its obligation in its
entirety.
 Willex Plastic, while denying the allegation in question, merely did so "for lack of knowledge or information
of the same."
o At the hearing of the case, when asked by RTC whether Willex Plastic had not filed a crossclaim against
Inter-Resin Industrial, Willex Plastic's counsel replied in the negative and manifested that "the plaintiff in
this case [Interbank] is the guarantor and my client [Willex Plastic] only signed as a guarantor to the
guarantee."
 Interbank adduced evidence to show that the "Continuing Guaranty" had been made to guarantee payment of
amounts made by it to Manilabank and not of any sums given by it as loan to Inter-Resin Industrial. Interbank's
witness testified under cross examination by counsel for Willex Plastic that Willex "guaranteed the
exposure/of whatever exposure of ACP [Atrium Capital] will later be made because of the guarantee to Manila
Banking Corporation.
 It has been held that explanatory evidence may be received to show the circumstances under which a document
has been made and what debt it relates. At all events, Willex Plastic cannot now claim that its liability is limited
to any amount which Interbank, as creditor, might give directly to Inter-Resin Industrial as debtor because,
by failing to object to the parol evidence presented, Willex Plastic waived the protection of the parol evidence
rule
 TC: it was to secure the guarantee made by Interbank of the credit accommodation granted to Inter-Resin by
Manilabank, that the Interbank required Inter-Resin to execute a chattel mortgage in its favor and a Continuing
Guaranty which was signed by Willex.
 CA: to secure the guarantee undertaken by Interbank of the credit accommodation granted to Inter-Resin by
Manilabank, Interbank required Inter-Resin and Willex to sign a Continuing Guaranty.
o BOTH LOWER COURTS SAID SAME THING
 Additionally, no record showing any other transaction under which Inter-Resin may have obtained sums of money
from Interbank. It can reasonably be assumed that Inter-Resin and Willex intended to indemnify Interbank for
amounts which it may have paid Manilabank on behalf of Inter-Resin.
 Willex admitted that it was “to secure the aforesaid guarantee, that INTERBANK required principal Inter-Resin to
execute a chattel mortgage in its favor, and so a ‘Continuing Guaranty’ was executed on April 2, 1979 by WILLEX
in favor of INTERBANK for and in consideration of the loan obtained by Inter-Resin
 Whether or not “Continuing Guaranty” cannot be retroactively applied.—NO
Willex Plastic argues that the “Continuing Guaranty,” being an accessory contract, cannot legally exist because of the
absence of a valid principal obligation. Its contention is based on the fact that it is not a party either to the “Continuing
Surety Agreement” or to the loan agreement between Manilabank and Inter-Resin Industrial.

The consideration necessary to support a surety obligation need not pass directly to the surety, a consideration
moving to the principal alone being sufficient. For a “guarantor or surety is bound by the same consideration that
makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor or surety
should receive any part or benefit, if such there be, accruing to his principal.

Whether or not Willex can claim the benefit of excussion.—NO (The process or proceedings whereby a creditor must
proceed against a principal debtor before proceeding against a surety or subsidiary debtor.)  ANSWERED IN NEXT
POINT
Willex Plastic contends that the “Continuing Guaranty” cannot be retroactively applied so as to secure the payments
made by Interbank under the two “Continuing Surety Agreements.” Willex Plastic invokes the ruling in El Vencedor v.
Canlas]and Diño v. CA] in support of its contention that a contract of suretyship or guaranty should be applied
prospectively.

SC: The cases cited are distinguishable from the present case
 In El Vencedor v. Canlas, there was nothing in the contract to show that the parties intended the surety bonds to
answer for the debts contracted previous to the execution of the bonds. In contrast, in this case, the parties to the
“Continuing Guaranty” clearly provided that the guaranty would cover “sums obtained and/or to be obtained” by
Inter-Resin Industrial from Interbank.
 In Diño v. CA, it was held that a continuing suretyship contemplates a future course of dealing. “It is prospective in
its operation and is generally intended to provide security with respect to future transactions.” By no means,
however, was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in
application.
 Although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the
parties as revealed by the evidence is controlling. [BPI v. Foerster]

Whether or not Inter-Resin Industrial had already paid its indebtedness to Interbank and that Willex Plastic should have
been allowed by the CA to adduce evidence to prove this. –NO
Willex Plastic says that in any event it cannot be proceeded against without first exhausting all property of Inter-Resin
Industrial. Willex Plastic thus claims the benefit of excussion10.

SC: It was stipulated in the agreement: If default be made in the payment of the NOTE/s herein guaranteed you and/or
your principal/s may directly proceed against Me/Us without first proceeding against and exhausting DEBTOR/s
properties in the same manner as if all such liabilities constituted My/Our direct and primary obligations.

 The stipulation embodies an express renunciation of the right of excussion. In addition, Willex bound itself
solidarily liable with Inter-Resin under the same agreement

Inter-Resin Industrial had been given generous opportunity to present its evidence but it failed to make use of the
same. On the other hand, Willex Plastic rested its case without presenting evidence.

Held WHEREFORE, the decision of the CA is AFFIRMED, with costs against the petitioner.

10Art. 2059. This excussion shall not take place:

(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
 SPOUSES ALFREDO and SUSANA ONG vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK
Puno, J. 17 January 2005 G.R. No. 160466
Doctrine Differences between a guarantor and a surety—please see ratio in bold.

Summary BMC obtained a loan from PCIB for additional capitalization for its business. The petitioner spouses are the President
and Treasurer of BMC. They acted as sureties for the said loans. When BMC was declared in default, and subsequently
applied for rehabilitation and suspension of payments, PCIB proceeded against the spouses in their capacaities as
sureties of BMC. The sureties invoked the MOA entered into by BMC and its creditors. Such MOA provides for the
temporary suspension of collection suits against BMC. The Court held that the provisions of the MOA apply only to
BMC as principal debtor. Its application does not extend to them as sureties. It may have applied to them had they
been guarantors, but not as sureties.
Facts  Baliwag Mahogany Corporation (BMC) is engaged in the manufacture and export of finished wood products.
Petitioner spouses Ong (Alfredo and Susana) are its President and Treasurer, respectively.
 In 1992, PCIB filed a case for collection of sum of money against the spouses as sureties on the 3 promissory notes
(PNs), which were issued as securities for some of BMC’s loans totaling P5M. The complaint alleged that:
o BMC applied for various loans as additional capital for its business.
o The spouses acted as sureties for these loans. They issued 3 PNs, which stipulate that:
 The bank may already consider BMC in default, and demand payment of the remaining balance of the loan
upon: (a) levy, attachment or garnishment of any of its properties, or (b) upon BMC’s insolvency, or if it is
declared to be in a state of suspension of payments.
o Subsequently, BMC filed a petition for rehabilitation and suspension of payments before the SEC, after its
properties were attached by creditors.
o The bank then declared BMC in default and demanded payment from the spouses as sureties.
 A MOA was executed by BMC, the spouses (as President and Treasurer), and the consortium of creditor banks
(including PCIB). The SEC approved the MOA, and subsequently took effect. SO BMC NOT REQUIRED TO PAY YET)
 The spouses then moved to dismiss the complaint. Grounds:
o BMC is in a state of suspension of payments
o Under the MOA, the creditor banks agreed to temporarily suspend any pending civil action against BMC.
o The MOA should extend to them (spouses) as sureties in the loan.
 RTC denied their motion to dismiss.
 CA affirmed the RTC ruling. It declared that a creditor can proceed against the spouses as surety, independently of
its right to proceed against the principal debtor BMC.
 Hence, this appeal.
Issues/Ratio W/N the temporary suspension of any demand for payment of BMC’s loan under the MOA extends to the spouses as
sureties (NO)

Spouses’ arguments:
 MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of collection
cases against the BMC and this provision should benefit petitioners as sureties
 It would prejudice them if the principal debtor BMC would enjoy the suspension of payment of its debts while
petitioners, who acted only as sureties, would be compelled to pay.
 Compelling them to pay is contrary to Art. 206311. (should benefit guarantor)
 Art. 2081 also says that “the guarantor may set up against the creditor all the defenses which pertain to the
principal debtor and are inherent in the debt…” Hence, if BMC can set up the defense of suspension of payment of
debts, the spouses as sureties must likewise be allowed to avail of such defenses.

SC Ruling:
 Arts. 2063 and 2081 refer to contracts of guaranty. They do not apply to suretyship contracts.
 The spouses are not guarantors but sureties of BMC’s debts

Differences on the rights and liabilities of a guarantor and a surety

 A guarantor insures the solvency of the creditor while a surety is an insurer of the debt itself.

11Article 2063. A compromise between the creditor and the principal debtor benefits the guarantor but does not prejudice him. That which is entered into between the
guarantor and the creditor benefits but does not prejudice the principal debtor. (1835a)
  Principle of excussion applies to guaranty: 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 with the debt
remaining unsatisfied that a guarantor can be held liable for the unpaid amount.
 Excussion is not available to the surety, as he is principally liable for the payment of the debt. The surety is obligated
to pay the debt if the principal debtor will not pay, regardless of the latter’s financial capacity to fulfill his obligation.
A creditor can therefore go directly against the surety although the principal debtor is solvent, and even without
prior demand on the principal debtor.
 Hence, a surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt. He is
an original promissor and debtor from the beginning.

As applied in this case

 By entering into the suretyship contract, the spouses obligated themselves to be solidarily bound with the principal
debtor BMC, for the payment of the P5M-loan.
 Art. 121612 (proceed against any of the solidary debtors) is therefore applicable: the bank may proceed against the
spouses as sureties despite the execution of the MOA. The MOA pertains only to the property of BMC as principal
debtor, because:
o Only BMC’s properties were mentioned in the petition before the SEC
o Nothing in the MOA involves the liabilities of sureties
o The SEC only has jurisdiction over corporations and corporate assets, not on properties of BMC
officers and sureties.
Held Petition DISMISSED.

12 Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. xxx
 INTERNATIONAL FINANCE CORPORATION, petitioner, vs. IMPERIAL TEXTILE MILLS, INC., respondent.
J. Panganiban 15 November 2005 G.R. No. 160324
Doctrine Guaranty and Suretyship: General Provisions – The terms of a contract govern the rights and obligations of the contracting
parties. When the obligor undertakes to be "jointly and severally" liable, it means that the obligation is solidary. If solidary
liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of suretyship.
Summary IFC entered into a loan agreement with PPIC for $7M. A “Guarantee Agreement” was then executed by IFC, ITM and
Grandtex, where ITM and Grandtex agreed to guarantee PPIC’s obligations under the loan agreement. PPIC defaulted and
was unable to pay the balance even after the extrajudicial sale of its mortgaged properties. IFC demanded payment from
ITM and Grandtex as guarantors but it was unsuccessful, forcing IFC to file a complaint with the RTC. RTC held PPIC liable
and relieved ITM of its obligation as guarantor. CA reversed that decision insofar as it held that ITM was still liable but only
if PPIC could not pay. The SC held that IFC, as creditor, was able to show that although denominated as a “Guarantee
Agreement,” the contract was actually a suretyship because its terms specifically stated that ITM was “jointly and
severally” liable.
Facts  Loan Agreement – International Finance Corporation (IFC) and Philippine Polyamide Industrial Corporation (PPIC)
entered into a loan agreement wherein IFC extended to PPIC a loan of US$7,000,000.00.13
 Guarantee Agreement – A 'Guarantee Agreement' was executed with Imperial Textile Mills, Inc. (ITM), Grand Textile
Manufacturing Corporation (Grandtex) and IFC as parties wherein ITM and Grandtex agreed to guarantee PPIC's
obligations under the loan agreement.
 Default – PPIC was initially able to pay but later asked for the due dates to be rescheduled. Despite the rescheduling,
PPIC defaulted. Hence, IFC served a written notice of default to PPIC demanding the latter to pay the outstanding
principal loan and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its interests.
 Extrajudicial foreclosure – 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, located at Calamba, Laguna. The deputy sheriff issued a notice of extrajudicial sale. IFC and DBP were the only
bidders. IFC's bid was for P99,269,100.00 which was equivalent to US$5,250,000.00 (at the prevailing exchange rate
of P18.9084 = US$1.00). The outstanding loan, however, amounted to US$8,083,967.00 thus leaving a balance of
US$2,833,967.00. PPIC failed to pay the remaining balance.
 Demand from ITM and Grandtex – Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
outstanding balance. Despite the demand made by IFC, the outstanding balance remained unpaid.
 Complaint – Thereafter, IFC filed a complaint with the RTC of Manila against PPIC and ITM for the payment of the
outstanding balance plus interests and attorney's fees.
 RTC – PPIC liable for the payment of the outstanding loan plus interests. Ordered PPIC to pay IFC its claimed attorney's
fees. However, the trial court relieved ITM of its obligation as guarantor. Hence, the trial court dismissed IFC's
complaint against ITM.
 CA – Reversed the Decision insofar as it exonerated ITM from any obligation to IFC. According to the CA, ITM bound
itself under the "Guarantee Agreement" to pay PPIC's obligation upon default. ITM was not discharged from its
obligation as guarantor when PPIC mortgaged the latter's properties to IFC. 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. (so liable as guarantor BUT not
yet coz still go after PPIC first daw) MR denied. Hence, this Petition.
 Present petition – IFC: claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC's obligations
proceeding from the Loan Agreement.
o ITM: 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.

Ratio/Issues III. Whether ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan (YES)
The obligations of the guarantors are meticulously expressed in the following provision:
Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and unconditionally guarantee, as
primary obligors and not as sureties merely, the due and punctual payment of the principal of, and interest
and commitment charge on, the Loan, and the principal of, and interest on, the Notes, whether at stated
maturity or upon prematuring, all as set forth in the Loan Agreement and in the Notes.

13Payable in sixteen (16) semi-annual installments of US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with interest at the rate of 10% per annum on
the principal amount of the loan advanced and outstanding from time to time. The interest shall be paid in US dollars semi-annually on June 1 and December 1 in each
year and interest for any period less than a year shall accrue and be pro-rated on the basis of a 360-day year of twelve 30-day months.
 (1) 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 Contract further 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.
(2) Thus, the applicable law is as follows:
Article 2047. By guaranty, a person, called the guarantor binds himself to the creditor to fulfill the obligation
of the principal 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
shall be called suretyship.
(3) The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on "Joint and Solidary Obligations."
Relevant to this case is Article 1216, which states:
Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected.
Pursuant to this provision, petitioner (as creditor) was justified in taking action directly against respondent.
(4) 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."
(5) The Court notes that 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 CA opined that ITM's
undertaking was collateral to and distinct from the Loan Agreement.
a. 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.
b. 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.

IV. Whether IFC changed its theory on appeal (NO)

(1) Petitioner's arguments before the trial court (that ITM was a "primary obligor") and before the CA (that ITM was
a "surety") were related and intertwined in the action to enforce the solidary liability of ITM under the Guarantee
Agreement.
(2) The terms "primary obligor" and "surety" were premised on the same stipulations in Section 2.01 of the Agreement.
Besides, both terms had the same legal consequences. There was therefore effectively no change of theory on
appeal. At any rate, ITM failed to show to the Court a disparity between IFC's allegations in the trial court and
those in the CA. Bare allegations without proof deserve no credence.

V. Whether the main issue in the present case is a question of fact that is not cognizable under Rule 45 (YES, but exception
applies)
(7) Only questions of law may be raised in a Petition for Review but the Court has recognized exceptions, one of which
applies to the present case. The assailed Decision was based on a misapprehension of facts, which particularly
related to certain stipulations in the Guarantee Agreement -- stipulations that had not been disputed by the
parties. This circumstance compelled the Court to review the Contract firsthand and to make its own findings and
conclusions accordingly.

Held Petition GRANTED, assailed Decision and Resolution MODIFIED in the sense that ITM is declared a surety to PPIC. ITM is
ORDERED to pay IFC the same amounts adjudged against PPIC in the assailed Decision.