G.R. No. L-29139 November 15, 1974 CONSUELO P. PICZON, RUBEN O. PICZON and AIDA P. ALCANTARA, plaintiffs-appellants, vs.

ESTEBAN PICZON and SOSING-LOBOS & CO., INC Annex "A", AGREEMENT OF LOAN KNOW YE ALL MEN BY THESE PRESENTS: chanrobles virtual law library That I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of and with postal address in the municipality of Catbalogan, Province of Samar, Philippines, in my capacity as the President of the corporation known as the "SOSING-LOBOS and CO., INC.," as controlling stockholder, and at the same time as guarantor for the same, do by these presents contract a loan of Twelve Thousand Five Hundred Pesos (P12,500.00), Philippine Currency, the receipt of which is hereby acknowledged, from the "Piczon and Co., Inc." another corporation, the main offices of the two corporations being in Catbalogan, Samar, for which I undertake, bind and agree to use the loan as surety cash deposit for registration with the Securities and Exchange Commission of the incorporation papers relative to the "Sosing-Lobos and Co., Inc.," and to return or pay the same amount with Twelve Per Cent (12%) interest per annum, commencing from the date of execution hereof, to the "Piczon and Co., Inc., as soon as the said incorporation papers are duly registered and the Certificate of Incorporation issued by the aforesaid Commission.chanroblesvirtualawlibrary chanrobles virtual law library IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan, Samar, Philippines, this 28th day of September, 1956. (Sgd.) ESTEBAN PICZON "When this case was called for pre-trial, plaintiffs and defendants through their lawyers, appeared and entered into the following agreement That consequently defendant Sosing-Lobos and Co., Inc. binds itself to the plaintiffs for P12,500.00, the same to be paid on or before October 31, 1967 together with the interest that this court may determine. ISSUES (a) Will the payment of twelve per cent interest of P12,500.00 commence to run from August 6, 1964 when plaintiffs made the first demand or from August 29, 1956 when the obligation becomes due and demandable? chanrobles virtual law library (b) Is defendant Esteban Piczon liable as a guarantor or a surety? RULING: Under Article 2209 of the Civil Code "(i)f the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum." In the case at bar, the "interest agreed upon" by the parties in Annex A was to commence from the execution of said document. Appellees' contention that the reference in Article 2209 to delay incurred by the debtor which can serve as the basis for liability for interest is to that defined in Article 1169 of the Civil Code reading thus: - - is untenable. 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.chanroblesvirtualawlibrary chanrobles virtual law library

However, the demand by the creditor shall not be necessary in order that delay may exist: chanrobles virtual law library (1) When the obligation or the law expressly so declares; or chanrobles virtual law library (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or chanrobles virtual law library (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.chanroblesvirtualawlibrary chanrobles virtual law library In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. This is applicable only when the obligation is to do something other than the payment of money. if the contract stipulates from what time interest will be counted, said stipulated time controls, and, therefore interest is payable from such time, and not from the date of the filing of the complaint. Were that not the law, there would be no basis for the provision of Article 2212 of the Civil Code providing that "(I)nterest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point." Incidentally, appellants would have been entitled to the benefit of this article, had they not failed to plead the same in their complaint. Their prayer for it in their brief is much too late. Appellees had no opportunity to meet the issue squarely at the pre-trial. Under the terms of the contract, Annex A, Esteban Piczon expressly bound himself only as guarantor, and there are no circumstances in the record from which it can be deduced that his liability could be that of a surety. A guaranty must be express, (Article 2055, Civil Code) and it would be violative of the law to consider a party to be bound as a surety when the very word used in the agreement is "guarantor." Appellants accepted the express assumption of liability by SosingLobos & Co., Inc. for the payment of the obligation in question, thereby modifying their original posture that inasmuch as that corporation did not exist yet at the time of the agreement, Piczon necessarily must have bound himself as insurer.chanroblesvirtualawlibrary chanrobles virtual law library Appellants' prayer for payment of legal interest upon interest due from the filing of the complaint can no longer be entertained, the same not having been made an issue in the pleadings in the court below. The judgment of the trial court is modified so as to make appellees liable for the stipulated interest of 12% per annum from September 28, 1956, instead of August 6, 1964. In all other respects, said judgment is affirmed. ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M.B. LENDING CORPORATION Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. 1 On four occasions after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26, 1991

respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter. As counterclaim, petitioner contend, she offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it; that there has already been a partial payment in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of the loan. RTC dismissed complaint. This was based on the findings of the court a quo that the filing of the complaint against herein petitioner Estrella Palmares, to the exclusion of the Azarraga spouses, amounted to a discharge of a prior party; that the offer made by petitioner to pay the obligation is considered a valid tender of payment sufficient to discharge a person's secondary liability on the instrument; as comaker, is only secondarily liable on the instrument; and that the promissory note is a contract of adhesion. Upon appeal CA reversed the decision. ISSUE; Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan, is such undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a guarantor who warrants the solvency of the debtor? RULING: After a judicious evaluation of the arguments of the parties, we are constrained to dismiss the petition for lack of merit, but to except therefrom the issue anent the propriety of the monetary award adjudged to herein respondent corporation. At the outset, let it here be stressed that even assuming arguendo that the promissory note executed between the parties is a contract of adhesion, it has been the consistent holding of the Court that contracts of adhesion are not invalid per se and that on numerous occasions the binding effects thereof have been upheld. The peculiar nature of such contracts necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply. Hence, just as consistently and unhesitatingly, but without categorically invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative facts and surrounding circumstances. 12 The factual scenario obtaining in the case before us warrants a liberal application of the rule in favor of respondent corporation. It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. 13 In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety. Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. 17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. 18 Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the

guarantor if the principal is unable to pay. 19 A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. 20 In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. The second and third paragraphs of the aforequoted portion of the promissory note do not contain any other condition for the enforcement of respondent corporation's right against petitioner. It has not been shown, either in the contract or the pleadings, that respondent corporation agreed to proceed against herein petitioner only if and when the defaulting principal has become insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's obligation, so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal. there can be no doubt that the stipulation contained in the third paragraph of the controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the second paragraph thereof. Resultantly, the theory advanced by petitioner, that she is merely a guarantor because her liability attaches only upon default of the principal debtor, must necessarily fail for being incongruent with the judicial pronouncements adverted to above. In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, 26 and as such is deemed an original promisor and debtor from the beginning. 27 This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. 28 In essence, the contract of a surety starts with the agreement, 29 which is precisely the situation obtaining in this case before the Court. Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the principal debtors who allegedly were the only ones who benefited from the proceeds of the loan. What petitioner is trying to imply is that the creditor, herein respondent corporation, should have proceeded first against the principal before suing on her obligation as surety. We disagree. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. 39 Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. 40 Since, generally, it is not necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. 41 Perforce, in accordance with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound. 42 We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. Where a creditor refrains from proceeding against the principal, the surety is not exonerated. In other words, mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request or without

it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal, or is only the result of passiveness. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay continues until the principal becomes insolvent. 43 And, in the absence of proof of resultant injury, a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, 44 or that he need not trouble himself. 45 The consequences of the delay, such as the subsequent insolvency of the principal, 46 or the fact that the remedies against the principal may be lost by lapse of time, are immaterial Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because the moment the latter accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, then the obligation shall be deemed fully complied with. 58 Precisely, this is what respondent corporation wanted to avoid when it continually refused to settle with petitioner at less than what was actually due under their contract. the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award of attorney's fees is reduced to P10,000.00. G.R. No. L-158025 November 5, 1920

supplement the statutory law by a reference to the precepts of the law merchant. The points of difference between a surety and a guarantor are familiar to American authorities. A surety and a guarantor are alike in that each promises to answer for the debt or default of another. A surety and a guarantor are unlike in that the surety assumes liability as a regular party to the undertaking, while the liability as a regular party to upon an independent agreement to pay the obligation if the primary pay or fails to do so. A surety is charged as an original promissory; the engagement of the guarantor is a collateral undertaking. The obligation of the surety is primary; the obligation of the guarantor is secondary. (See U.S. vs. Varadero de la Quinta [1919], 40 Phil., 48; Lachman vs. Block [1894], 46 La. Ann., 649; Bedford vs. Kelley [1913], 173 Mich., 492; Brandt, on Suretyship and Guaranty, sec. 1, cited approvingly by many authorities.) Turning back again to our Civil Code, we first note that according to article 1822 "By fianza (security or suretyship) one person binds himself to pay or perform for a third person in case the latter should fail to do so." But "If the surety binds himself in solidum with the principal debtor, the provisions of Section fourth, Chapter third, Title first, shall be applicable." What the first portion of the cited article provides is, consequently, seen to be somewhat akin to the contract of guaranty, while what is last provided is practically equivalent to the contract of suretyship. When in subsequent articles found in section 1 of Chapter II of the title concerning fianza, the Code speaks of the effects of suretyship between surety and creditor, it has, in comparison with the common law, the effect of guaranty between guarantor and creditor. The civil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil law relationship existing between codebtors liable in solidum is similar to the common law suretyship. It is perfectly clear that the obligation assumed by defendant was simply that of a guarantor, or, to be more precise, of the fiador whose responsibility is fixed in the Civil Code. The letter of Mr. Sellner recites that if the promissory note is not paid at maturity, then, within fifteen days after notice of such default and upon surrender to him of the three thousand shares of Keystone Mining Company stock, he will assume responsibility. Sellner is not bound with the principals by the same instrument executed at the same time and on the same consideration, but his responsibility is a secondary one found in an independent collateral agreement, Neither is Sellner jointly and severally liable with the principal debtors. With particular reference, therefore, to appellants assignments of error, we hold that defendant Sellner is a guarantor within the meaning of the provisions of the Civil Code. There is also an equitable aspect to the case which reenforces this conclusion. The note executed by the Keystone Mining Company matured on November 29, 1915. Interest on the note was not accepted by the makers until September 30, 1916. When the note became due, it is admitted that the shares of stock used as collateral security were selling at par; that is, they were worth pesos 30,000. Notice that the note had not been paid was not given to and when the Keyston Mining Company stock was worthless. Defendant, consequently, through the laches of plaintiff, has lost possible chance to recoup, through the sale of the stock, any amount which he might be compelled to pay as a surety or guarantor. The "indulgence," as this word is used in the law of guaranty, of the creditors of the principal, as evidenced by the acceptance of interest, and by failure promptly to notify the guarantor, may thus have served to discharge the guarantor. For quite different reasons, which, nevertheless, arrive at the same result, judgment is affirmed, with costs of this instance against the appellants. So ordered. G.R. No. L-5447 PAUL REISS, ET AL., plaintiffs-appellees, vs. JOSE M. MEMIJE, defendant-appellant

CARMEN CASTELLVI DE HIGGINS and HORACE L. HIGGINS, plaintiffs-appellants, vs. GEORGE C. SELLNER, defendant-appellee. This is an action brought by plaintiffs to recover from defendant the sum of P10,000. The brief decision of the trial court held that the suit was premature, and absolved the defendant from the complaint, with the costs against the plaintiffs. The basis of plaintiff's action is a letter written by defendant George C. Sellner to John T. Macleod, agent for Mrs. Horace L. Higgins, on May 31, 1915, of the following tenor:lawph!l.net DEAR SIR: I hereby obligate and bind myself, my heirs, successors and assigns that if the promissory note executed the 29th day of May, 1915 by the Keystone Mining Co., W.H. Clarke, and John Maye, jointly and severally, in your favor and due six months after date for Pesos 10,000 is not fully paid at maturity with interest, I will, within fifteen days after notice of such default, pay you in cash the sum of P10,000 and interest upon your surrendering to me the three thousand shares of stock of the Keystone Mining Co. held by you as security for the payment of said note. Respectfully, (Sgd.) GEO. C. SELLNER. Counsel for both parties agree that the only point at issue is the determination of defendant's status in the transaction referred to. Plaintiffs contend that he is a surety; defendant contends that he is a guarantor. Plaintiffs also admit that if defendant is a guarantor, articles 1830, 1831, and 1834 of the Civil Code govern. In the original Spanish of the Civil Code now in force in the Philippine Islands, Title XIV of Book IV is entitled "De la Fianza." The Spanish word "fianza" is translated in the Washington and Walton editions of the Civil Code as "security." "Fianza" appears in the Fisher translation as "suretyship." The Spanish world "fiador" is found in all of the English translations of the Civil Code as "surety." The law of guaranty is not related of by that name in the Civil Code, although indirect reference to the same is made in the Code of Commerce. In terminology at least, no distinction is made in the Civil Code between the obligation of a surety and that of a guarantor. As has been done in the State of Louisiana, where, like in the Philippines, the substantive law has a civil law origin, we feel free to

FACTS: Defendant appellant entered into a contract with one Buenaventura Kabalsa for the repair of a house in the city of Manila. The contractor undertook to furnish the necessary materials, including a considerable amount of lumber, to be used in the repairs. The contractor being a man of no commercial standing in the community was unable to secure credit therefor, and was compelled to pay cash for all purchases. Having no money and no credit he was unable to continue the purchase of the necessary lumber, plaintiffs, with whom he was dealing, absolutely refusing to allow any lumber to leave their yard without payment in advance. The work on the house being delayed for the lack of the necessary materials, defendant accompanied the contractor to plaintiffs' lumber yard, and after satisfying plaintiffs as to his own financial responsibility, and that as a property owner and an attorney in active practice in the city of Manila, he was good for the amount of lumber needed in the repair of his house, he entered into an agreement with them whereby they were to deliver the necessary lumber to the contractor for use in the repair of his house. In pursuance of and in accordance with the directions of the defendant, plaintiffs delivered to Kabalsa a considerable amount of lumber which was used in the repairs upon defendant's house, and judgment in this action was rendered in favor of the plaintiffs for the proven amount of the unpaid balance of the purchase price of this lumber. ISSUE; is defendant's contention that his alleged guaranty of payment of the purchase price of the lumber furnished at his request to his contractor Kabalsa not being in writing, it is unenforceable in this action. RULING; the evidence of record establishes the existence of defendant's promise to pay for the lumber, and discloses the existence of a balance due on account of the lumber delivered to defendant's contractor. Without considering whether, under the pleadings, the defendant's evidence should have been stricken out of the record and his motion to amend his answer denied, as appears to have been the opinion of the trial court, we agree with the trial court that even if the evidence be admitted and the complaint amended, the weight of all the evidence, including the evidence, thus admitted, supports the plaintiffs' allegation touching defendants' promise to pay for the lumber in question, and establishes his contention that this lumber was in fact delivered to the defendant's contractor, and by him used in the construction of the house under the direction of the defendant, and that the amount for which the judgment was given in the court below was the amount of the unpaid purchase price of the lumber thus delivered. If, therefore, it was error of the trial court to rule that defendant's evidence should be stricken from the record and that defendant's answer should not be amended in accordance with a motion for that purpose made three weeks after judgment was rendered, it was at most error without prejudice. The true test as to whether a promise is within the statute had been said to lie in the answer to the question whether the promise is an original or a collateral one. If the promise is an original or an independent one; that is, if the promisor becomes thereby primarily liable for the payment of the debt, the promise is not within the statute. But, on the other hand, if the promise is collateral to the agreement of another and the promisor becomes thereby merely a surety, the promise must be in writing. If goods are sold upon the sole credit and responsibility of the party who make the promise, then, even though they be delivered to a third person, there is no liability of the third person to which that of the party promising can be collateral, and consequently such a promise to pay does not require a memorandum in writing; and on the same principle it has been held that when one advances money at the request of another (on his promise to repay it) to pay the debt of a third party, as the payment creates no debt against such third party, not being made at all upon his credit, the liability of the party on whose request and promise it was made is original and not collateral, and not with the Statute of Frauds. if the person for whose benefit the promise is made was himself liable at all, the promise of the defendant must be in writing

In these cases, the question is whether the services for which the action is brought against the owner of the building were performed solely upon the credit of his promise, to be himself responsible and to pay for the materials and labor furnished, or whether the subcontractors and laborers continued to furnish labor and materials to the principal contractor relying upon his obligation guaranteed by the promise of the owner. we are satisfied that the credit for the lumber delivered by the plaintiffs to defendant's contractor was extended solely and exclusively to the defendant under the verbal agreement had with him, and therefore, that the provisions of the statue did not require that it should be made in writing. From the testimony of the contractor himself, it seems clear that when the agreement for the delivery of lumber was made, the credit was extended not to the contractor but to the defendant. It appears that both plaintiffs and defendant exercised especial precautions to see that all the lumber was delivered on defendant's lot, and that before each bill of lumber was delivered, defendant carefully examined the invoice, which the agreement was submitted to him, and that no lumber was delivered without his approval. The precise language in which the verbal agreement was made does not appear from the evidence, and while it is true that one of the plaintiffs in his disposition, made in the United States, refers to the agreement as one whereby defendant "guaranteed" payment for the lumber, we are satisfied from all the evidence that the word was not used by this witness in its technical sense, and that he did not mean thereby to say that defendant guaranteed payment by the contractor, but rather that after satisfying plaintiffs as to his own financial responsibility, he obligated himself to pay for the lumber delivered to his contractor for use in his house. The only evidence in the whole record which tends to put our conclusion in this regard in doubt, is the testimony of plaintiffs' acting manager during plaintiffs' absence in the United States who stated that he sent a statement of account and a bill for the lumber to the contractor; judgment appealed from should be affirmed ROMULO MACHETTI, plaintiff-appelle, vs.HOSPICIO DE SAN JOSE, defendant-appellee, and FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS, defendant-appellant It appears from the evidence that on July 17, 1916, one Romulo Machetti, by a written agreement undertook to construct a building on Calle Rosario in the city of Manila for the Hospicio de San Jose, the contract price being P64,000. One of the conditions of the agreement was that the contractor should obtain the "guarantee" of the Fidelity and Surety Company of the Philippine Islands to the amount of P128,800 and the following endorsement in the English language appears upon the contract: MANILA, July 15, 1916. For value received we hereby guarantee compliance with the terms and conditions as outlined in the above contract. FIDELITY AND SURETY COMPANY OF THE PHILIPPINE ISLANDS. (Sgd) OTTO VORSTER, Vice-President. Machetti constructed the building under the supervision of architects representing the Hospicio de San Jose and, as the work progressed, payments were made to him from time to time upon the recommendation of the architects, until the entire contract price, with the exception of the sum of the P4,978.08, was paid. Subsequently it was found that the work had not been carried out in accordance with the specifications which formed part of the contract and that the workmanship was not of the standard required, and the Hospicio de

San Jose therefore answered the complaint and presented a counterclaim for damages for the partial noncompliance with the terms of the agreement abovementioned, in the total sum of P71,350. After issue was thus joined, Machetti, on petition of his creditors, was, on February 27, 1918, declared insolvent and on March 4, 1918, an order was entered suspending the proceeding in the present case in accordance with section 60 of the Insolvency Law, Act No. 1956. The Hospicio de San Jose on January 29, 1919, filed a motion asking that the Fidelity and Surety Company be made cross-defendant to the exclusion of Machetti and that the proceedings be continued as to said company, but still remain suspended as to Machetti. This motion was granted and on February 7, 1920, the Hospicio filed a complaint against the Fidelity and Surety Company asking for a judgement for P12,800 against the company upon its guaranty. After trial, the Court of First Instance rendered judgment against the Fidelity and Surety Company for P12,800 in accordance with the complaint. The case is now before this court upon appeal by the Fidelity and Surety Company form said judgment. As will be seen, the original action which Machetti was the plaintiff and the Hospicio de San Jose defendant, has been converted into an action in which the Hospicio de San Jose is plaintiff and the Fidelity and Surety Company, the original plaintiff's guarantor, is the defendant, Machetti having been practically eliminated from the case. But in this instance the guarantor's case is even stronger than that of an ordinary surety. The contract of guaranty is written in the English language and the terms employed must of course be given the signification which ordinarily attaches to them in that language. In English the term "guarantor" implies an undertaking of guaranty, as distinguished from suretyship. It is very true that notwithstanding the use of the words "guarantee" or "guaranty" circumstances may be shown which convert the contract into one of suretyship but such circumstances do not exist in the present case; on the contrary it appear affirmatively that the contract is the guarantor's separate undertaking in which the principal does not join, that its rests on a separate consideration moving from the principal and that although it is written in continuation of the contract for the construction of the building, it is a collateral undertaking separate and distinct from the latter. All of these circumstances are distinguishing features of contracts of guaranty. Now, while a surety undertakes to pay if the principal does not pay, the guarantor only binds himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer of the solvency of the debtor. (Saint vs. Wheeler & Wilson Mfg. Co., 95 Ala., 362; Campbell, vs. Sherman, 151 Pa. St., 70; Castellvi de Higgins and Higgins vs. Sellner, 41 Phil., 142; ;U.S. vs. Varadero de la Quinta, 40 Phil., 48.) This latter liability is what the Fidelity and Surety Company assumed in the present case. The undertaking is perhaps not exactly that of a fianza under the Civil Code, but is a perfectly valid contract and must be given the legal effect if ordinarily carries. The Fidelity and Surety Company having bound itself to pay only the event its principal, Machetti, cannot pay it follows that it cannot be compelled to pay until it is shown that Machetti is unable to pay. Such ability may be proven by the return of a writ of execution unsatisfied or by other means, but is not sufficiently established by the mere fact that he has been declared insolvent in insolvency proceedings under our statutes, in which the extent of the insolvent's inability to pay is not determined until the final liquidation of his estate. The judgment appealed from is therefore reversed without costs and without prejudice to such right of action as the cross-complainant, the Hospicio de San Jose, may have after exhausting its remedy against the plaintiff Machetti. So ordered. G.R. No. 34642 September 24, 1931

R. Nepomuceno for appellant. Jacinto E. Evidente for appellees. This action was instituted in the Court of First Instance of the Province of Iloilo by Fabiola Severino, with whom is joined her husband Ricardo Vergara, for the purpose of recovering the sum of P20,000 from Guillermo Severino and Enrique Echaus, the latter in the character of guarantor for the former. Upon hearing he cause the trial court gave judgment in favor of the plaintiffs to recover the sum of P20,000 with lawful from November 15, 1929, the date of the filing of the complaint, with costs. But it was declared that execution of this judgment should issue first against the property of Guillermo Severino, and if no property should be found belonging to said defendant sufficient to satisfy the judgment in whole or in part, execution for the remainder should be issued against the property of Enrique Echaus as guarantor. From this judgment the defendant Echaus appealed, but his principal, Guillermo Severino, did not. The plaintiff Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, former resident of Occidental Negros. Upon the death of Melecio Severino a number of years ago, he left considerable property and litigation ensued between his widow, Felicitas Villanueva, and Fabiola Severino, on the one part, and other heirs of the deceased on the other part. In order to make an end of this litigation a compromise was effected by which Guillermo Severino, a son of Melecio Severino, took over the property pertaining to the estate of his father at the same time agreeing to pay P100,000 to Felicitas Villanueva and Fabiola Severino. This sum of money was made payable, first, P40,000 in cash upon the execution of the document of compromise, and the balance in three several payments of P20,000 at the end of one year; two years, and three years respectively. To this contract the appellant Enrique Echaus affixed his name as guarantor. The first payment of P40,000 was made on July 11, 1924, the date when the contract of compromise was executed; and of this amount the plaintiff Fabiola Severino received the sum of P10,000. Of the remaining P60,000, all as yet unpaid, Fabiola Severino is entitled to the sum of P20,000. It appears that at the time of the compromise agreement abovementioned was executed Fabiola Severino had not yet been judicially recognized as the natural daughter of Melecio Severino, and it was stipulated that the last P20,000 corresponding to Fabiola and the last P5,000 corresponding to Felicitas Villanueva should retained on deposit until the definite status of Fabiola Severino as natural daughter of Melecio Severino should be established. The judicial decree to this effect was entered in the Court of First Instance of Occidental Negros on June 16, 1925, and as the money which was contemplated to be held in suspense has never in fact been paid to the parties entitled thereto, it results that the point respecting the deposit referred to has ceased to be of moment. The proof shows that the money claimed in this action has never been paid and is still owing to the plaintiff; and the only defense worth noting in this decision is the assertion on the part of Enrique Echaus that he received nothing for affixing his signature as guarantor to the contract which is the subject of suit and that in effect the contract was lacking in consideration as to him. The point is not well taken. A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. (Pyle vs. Johnson, 9 Phil., 249.) The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration; and the dismissal of the action which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino was an adequate consideration to support the promise on the part of Guillermo Severino to pay the sum of money stipulated in the contract which is the subject of this action. The promise of the appellant Echaus as guarantor therefore binding. It is never necessary that the guarantor or surety should receive any part of the benefit, if such there be, accruing to his principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in the former action in dismissing that proceeding, and it is immaterial that no benefit may have accrued either to the principal or his guarantor.

FABIOLA SEVERINO, accompanied by her husband RICARDO VERGARA, plaintiffs-appellees, vs. GUILLERMO SEVERINO, ET AL., defendants. ENRIQUE ECHAUS, appellant.

The judgment appealed from is in all respects correct, and the same will be affirmed, with costs against the appellant. So ordered. G.R. No. 43486 September 30, 1936

THE MUNICIPALITY OF GASAN, plaintiff-appellee, vs. MIGUEL MARASIGAN, ANGEL R. SEVILLA and GONZALO L. LUNA, defendants-appellants. The plaintiff-appellee municipality, on December 9, 1930, put up at auction the privilege of gathering whitefish spawn in its jurisdictional waters for the period of one year from January 1, 1931. Two bidders, Graciano Napa and Miguel Marasigan, appeared at the auction. Both attached to their respective bids the certificate of not being behind in the payment of any tax, issued by the municipal treasurer of Gasan, Marinduque, as required by the provisions of resolution No. 42, series of 1930, of the council of said municipality. Graciano Napa proposed to accept the privilege by paying P5,000 therefor, Miguel Marasigan proposed to do likewise, but by paying only P4,200. The council of the plaintiff-appellee municipality, in its resolution No. 161 (Exhibit 1) of December 11, 1930 rejected Graciano Napa's bid and accepted that of the appellant Miguel Marasigan, granting and selling to the latter the privilege put up at auction for the sum of P4,200, payable quarterly in advance at the rate of P1,050 a quarter (Exhibit A). To secure his compliance with the terms of the contract which was immediately formalized by him and the plaintiff, and pursuant to the provisions of section 8 of resolution No. 128, series of 1925, of the council of said plaintiff, Miguel Marasigan filed the bond, Exhibit B, subscribed on December 15, 1930, by the defendantsappellants Angel R. Sevilla and Gonzalo L. Luna, who bound themselves in said document to pay to the plaintiff the sum of P8,400, if Miguel Marasigan failed to deposit one-fourth of P4,200 quarterly in advance in the municipal treasury of Gasan, in violation of the terms of the contract executed and entered into by him and the plaintiff on December 11, 1930 (Exhibit A), for the compliance with which they became sureties Graciano Napa, whose bid was rejected forwarded a protest which was indorsed by provincial board to the Chief of the Executive Bureau, alleging that the plaintiff municipality violated the provisions of section 2323 of the Administrative Code in rejecting his bid. It ruled that the concession made to Marasigan was illegal in view of the fact that Graciano Napa was the highest bidder ISSUE: whether the contract and bond, in view of resolution No. 161, in question are valid RULING; This court believes that there is no necessity of even discussing the first error because the plaintiff itself accepted the conclusions and decision of the provincial board and of the Executive Bureau, so much so that in its resolution No. 11, series of 1931, it thereafter considered Graciano Napa as the highest bidder, going to the extent of requiring him, as it in fact required him, to make the deposit of P500 prescribed by the conditions of the auction sale in which he had intervened, and granting him a period of seven days to comply with said requirement (Exhibits 19 and 19-A). Furthermore, when the plaintiff received Graciano Napa's notice informing it that he ceded the privilege just granted him to appellant Miguel Marasigan or to any other person that it might choose, said plaintiff, through its municipal president, required Miguel Marasigan to appear before its municipal council to present his formerly prepared contract as well as his bond in order that both documents might be ratified (Exhibit 21). It should be added to the foregoing that on December 18, 1930, the plaintiff, also through its municipal president notified appellant Marasigan that his contract should, in the meantime, be considered ineffectual and that he should do nothing to put it in execution because the case was still undecided by the provincial board and by the Executive Bureau (Exhibit 8). It is clear that it may be logically inferred from these facts that the contract regarding fishing privilege entered into between the plaintiff and appellant Marasigan on December 11, 1930 (Exhibit A), not only was not consummated but was cancelled. Consequently, it now appears useless and futile to discuss whether or not resolution No. 161 (Exhibit 1) is valid and legal. In either case, it is

a fact that, said contract ceased to have life or force to bind each of the contracting parties. It ceased to be valid from the time it was cancelled and this being so, neither the appellant Marasigan nor his sureties or the appellants were bound to comply with the terms of their respective contracts of fishing privilege and suretyship. This is so, particularly with respect to the sureties-appellants, because suretyship cannot exist without a valid obligation (art. 1824 of the Civil Code). The obligation whose compliance by the appellant Marasigan was guaranteed by the sureties-appellants, was exclusively that appearing in Exhibit A, which should begin on January 1, 1931, not on the 14th of said month and year, and end on December 31st next. They intervened in no other subsequent contract which the plaintiff and Miguel Marasigan might have entered into on or after January 14, 1931. Guaranty is not, presume; it must be expressed and cannot be extended beyond its specified limits (art. 1827 of the Civil Code). Therefore, after eliminating the obligation for which said sureties-appellants desired to answer with their bond, the bond necessarily ceased and it ceases to have effects. Consequently, said errors I and III are true and well founded. the appellant Miguel Marasigan practically enjoyed the privilege of gathering whitefish spawn in the jurisdictional waters of the municipality of Gasan, under the terms of the contract executed by him on December 11, 1930, but which was cancelled later by virtue of Graciano Napa's protest, at least from the month of April to the month of July, 1931, inclusive the only conclusion possible is that said appellant made all such payments on account of the-tacit contract entered into by him and the plaintiff after he had received the letter of January 15, 1931 (Exhibit 21), sent to him by said plaintiff through its municipal president. This conclusion is all the more logical because appellant Marasigan insisted in his answer, and still continues to insist in his brief, that the plaintiff is obliged to refund to him the amount of P1,260 which he claims to have paid to it, and which is no other than the amount of the two sums of P420 and P840 stated in the last two paragraphs of the abovestated stipulation of facts. If it were really true, as said appellant contends, that the sum of P840 was paid by him on account of his contract for privilege of gathering whitefish spawn, executed in his favor by the municipality of Boac, he would not have insisted in his answer, nor would he now insist in his brief, that said sum be refunded to him, because in the absence of evidence to the contrary, it must be presumed that it was transmitted by the municipal treasurer of Gasan to that of Boac, inasmuch as accepting his contention, he was obliged to pay something to the latter municipality by virtue of his alleged contract with it. The truth is that between him and the plaintiff, there was a tacit contract for the privilege of gathering whitefish spawn in he jurisdictional waters of the municipality of Gasan, based upon Exhibit A but without the intervention of the sureties-appellants, for the abovestated period, or from April to July, 1931, inclusive, which is equivalent to one and one-third quarter. Said contract was one which, by its nature, need not be in writing (sec. 335 of Act No. 190); but it is binding because it has all the essential requisites of a valid contract (art. 1278 of the Civil Code). appellant Marasigan really deposited the sum of P420 on account of his cancelled original contract (Exhibit A), and that said deposit has not yet been returned to him. Therefore, he is entitled to be credited with said sum Summarizing all that has been stated heretofore, this court holds that appellant Miguel Marasigan owes and is bound to pay to the plaintiff municipality the proceeds of one and one-third quarter, for the privilege of gathering whitefish spawn enjoyed by him in 1931, at the rate of P4,200 a year or P1,400 (P1,050 for one quarter and P350 for onethird of a quarter); but he is, in turn, entitled to be credited with the sum of P420 deposited by him on December 9, 1930, and P840 paid by him on June 29, 1931, or the total amount of P1,260. In other words, appellant Marasigan is bound to pay the sum of P140 to the plaintiff. this court absolves the defendants-appellants Angel R. Sevilla and Gonzalo L. Luna from the complaint and orders the defendant-

appellant Miguel Marasigan to pay the sum of P140 to the plaintiff municipality. G.R. No. L-30554 February 28, 1983 PLARIDEL SURETY & INSURANCE COMPANY, petitioner, -vARTEX DEVELOPMENT COMPANY, INC., and HON. JESUS P. MORFE, Presiding Judge, Branch XIII, Court of First Instance of Manila, The action was brought by the petitioner to recover from the respondent company P20,570.24 worth of renewal premiums and costs of documentary stamps on various surety bonds posted by petitioner Plaridel Surety and Insurance Co., in behalf of respondent Artex Development Co. Inc., as principal in favor of the Republic of the Philippines through the Bureau of Customs and the Board of Industries. These surety bonds were posted pursuant to Republic Act No. 4086 and its implementing Rules and Regulations No. 1-64 particularly paragraph 9, which provides: Par. 9. Withdrawal Under Bond. Persons or firms who or which have pending applications for tax exemption privileges under the Act and whose imported raw materials, chemicals, dyestuffs and spare parts are actually within the Bureau of Customs jurisdiction, may withdraw such raw materials chemicals, dyestuffs and spare parts from the customs house upon the posting of a bond equivalent to the customs duties and taxes due thereon in accordance with the rules and regulations of the Department of Finance and the Bureau of Customs. Consequently, the respondent withdrew from the Bureau of Customs' custody shipments of imported raw materials, chemicals, dyestuffs and spare parts which were then subject to customs duties, special import taxes, sales and/or compensating taxes because the respondent's applications for tax exemption of these items were not then approved by the Board of Industries. On December 19, 1966, respondent Artex Development Co. Inc., was granted tax exemption by the Board of Industries (BOI Certificate No. 22). Thereafter, the respondent stopped paying premiums and costs of documentary stamps to the petitioner. On September 11, 1968, the private respondent filed its motion to dismiss petitioner's complaint on the ground that it states no cause of action and/or that the claim or demand setforth therein has been extinguished. Granted. ISSUE: WON grant of tax exemption by the Board of Industries on December 19, 1966 rendered null and void and extinguished the surety bonds and agreement of counter guaranty RULING: grant of tax exemption by the Board of Industries on December 19, 1966 rendered null and void and extinguished the surety bonds and agreement of counter guaranty The petitioner could not possibly be liable for any violation under the original surety bonds which were already void and of no force and effect. Suretyship cannot exist without a valid obligation, Insofar as the complaint seeks recovery of the payment for one year renewed premiums and costs of documentary stamps from March 1966 to March 1967, petitioner cannot recover for the simple reason that private respondent had already paid them in advance. Petitioner never disputed the payment made by private respondent. Consequently, whatever obligation of private respondent to remit premiums and costs of documentary stamps from March 1966 to March 1967 had already been extinguished.

Any renewals were void from the beginning because the cause or object of said renewals did not exist at the time of the purported transaction The lower court correctly ruled that "upon approval of defendant's (respondent's) application for tax exemption on December 19, 1966, any purported renewal of the original bond after that was, therefore, without consideration and will not warrant the collection of premiums and the payment of cost of documentary stamps." By express stipulation of the parties themselves, the surety bonds became null and void upon the grant of tax exemption. The complaint was correctly dismissed by the respondent judge.