CREDIT: Set 3

Navoa v. NavoaE. Zobel v. CARCBC v. ArroDino v. CAWillex Plastic v. CAOng v. PCIBIFC v. ITMLuzon v. SiaCochingyan v. R&B SuretyPeoples Bank v. TambuntingPNB v. Manila SuretyToh v. Solid BankTupaz v. CAGarcia v. CAGovt of the PH v. TizonSecurity Bank v. CuencaColinares v. CANg v. People

December 29, 1995OLIVIA M. NAVOA and ERNESTO NAVOA,petitioners,vs.COURT OF APPEALS, TERESITA DOMDOMA and EDUARDO DOMDOMA,respondents.Bellosillo, J.

SUMMARY: Navoa loaned from Domdoma, for the purpose of investing the same in the purchase of jewelries. All these loans were secured by separate checks intended for each amount of loan obtained and dated 1 month after the contracts of loan were executed. When these checks were deposited on their due dates, they were all dishonored by the bank. Domdoma filed a case to recover the amounts from Navoa. The SC ruled in favor of Domdoma. The Navoas failed to make good the checks on their due dates for the payment of their obligations, hence Domdoma is entitled to the satisfaction of the debt.DOCTRINE: 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.

FACTS:(First cause of action) Sometine in Feb 1977: Teresita Domdoma got acquainted with Olivia Navoa in the jewelry business. Domdoma was to sell jewelry for Navoa. Domdoma sold the jewelry of Navoa to Reycard Duet, worth about P120,000 in no less than 20 transactions. Even when Reycard Duet already left, Domdoma and Navoa continued their association. Domdoma sold for Navoa jewelries worth no less than P20,000 in 10 transactions. June and July 1977: Navoa asked a loan from Domdoma, for the purpose of investing the same in the purchase of jewelries. The loan was secured by personal checks of Navoa. In connection with these loans, Navoa promised Domdoma a participation in an amount equivalent to of the profit to be realized. Aug 15 1977: Navoa got from Domdoma one diamond ring: 1 and karats, heart shaped, valued at P15,000. As a security for the said ring, Navoa issued a PCIB check. The condition of the issuance of the check was: if the ring was not returned within 15 days from Aug 15, the ring is considered sold. After 15 days, Domdoma asked Navoa if she could deposit the check, and Navoas answer was hold it for some time, until I tell you to deposit the same, The check was held by Domdoma until November, but when deposited, it was dishonored for lack of funds.

(Second to sixth causes of action) Domdoma granted loans to Navoa in different amounts on different dates. All these loans were secured by separate checks intended for each amount of loan obtained and dated 1 month after the contracts of loan were executed. When these checks were deposited on their due dates, they were all dishonored by the bank. As a consequence, Domdoma prayed that Navoa be ordered to pay the amounts of the loans granted to them + 1% interest monthly from the dates the checks were dishonored until fully paid.

RTC DISMISSED the case filed by Domdoma for lack of cause of action. CA modified; returned the records of this case for trial on the merits, upon filing of an answer subject to the provisions of Art 1182 and 1197.

ISSUE: WON private respondents Domdoma can recover the amounts loaned to petitioners Navoa. (YES)

RATIO: 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. Quite obviously, the trial court erred in dismissing the case on the ground of lack of cause of action. Respondent Court of Appeals 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.DISPOSITION: Petition is DENIED.

May 6, 1998E. ZOBEL, INC. vs.THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIAMARTINEZ,J.

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 banks failure to register the chattel mortgage pursuant to Art. 2080. Court held that despite the contracts 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.

Doctrine: A contract of surety is anaccessory 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.

FACTS: 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 Guarantywere 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: 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' 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. 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.WON E. Zobel under the "Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a surety. SURETY.

1. A contract of surety is anaccessory 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. 2. A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original 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. 3. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal.4. 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 isunable to paywhile a surety is the insurer of the debt, and he obligates himself to pay if the principaldoes not pay. 5. 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.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 creditthe 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 Borrower6. 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:'If default be made in the payment of any of the instruments, indebtedness or other obligation hereby guaranteedby 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 notice7. The use of the term "guarantee" does notipso factomean 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. 1. Having thus established that petitioner is a surety, Article 2080 finds no application to the case at bar. InBicol 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.2. But even assuming that Article 2080 is applicable, SOLIDBANK'sfailure 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:the undersigned (petitioner)who hereby agrees to be and remain bound upon this guaranty, irrespective of the existence, value or condition of any collateralNo act or omission of any kind on your part in the premises shall in any event affect or impair this guarantyDISPOSITIVE: WHEREFORE,the decision of the respondent Court of Appeals is hereby AFFIRMED. Costs against the petitioner.

RIZAL COMMERCIAL BANKING CORPORATION petitioner, vs. HON. JOSE P. ARRO, Judge of the Court of First Instance of Davao, and RESIDORO CHUA, respondents.De Castro, J.NATURE: Petition for review on certiorari under Rule 45 [Originally Special Civil Action but party requested to convert it to petition for review]

SUMMARY: Residoro Chua and Enrique Go executed a comprehensive surety agreement to guaranty any existing indebtedness of Davao Agricultural Industries Corporation, and/or induce the bank at any time to make loans or advances or to extend credit to Daicor. The contract provided that the liability shall not exceed an aggregate of P100,000. A promissory note was issued to RCBC, signed by Go, without Chua. The note was not paid so RCBC sued for collection. Chua, in its defense, says that it cannot bind him since he was not a signatory to the promissory note. The SC held that Chua should be liable because the only condition for the surety to be valid was that the aggregate should not exceed P100,000 and there was no indication that the continuing surety agreement had already been terminated.DOCTRINE: Article 2053.A guaranty may also be given as security 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.FACTS: October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreement to guaranty among others, any existing indebtedness of Davao Agricultural Industries Corporation (referred to therein as Borrower, and as Daicor in this decision), and/or induce the bank at any time or from time to time thereafter, to make loans or advances or to extend credit in other manner to, or at the request, or for the account of the Borrower On April 29, 1977 a promissory note in the amount of P100,000.00 was issued in favor of RCBC payable on June 13, 1977. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was not fully paid despite repeated demands RCBC filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and Residoro Chua. A motion to dismiss dated September 23, 1978 was filed by respondent Residoro Chua on the ground that the complaint states no cause of action as against him. Chua: it was only Enrique Go, Sr. who signed the same in behalf of Daicor and in his own personal capacity. RTC: Motion to dismiss granted. Chua not liableISSUE # 1: Whether or not Chua is liable despite the fact that he did not sign the promissory note (YES)RATIO # 1: The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as future obligations which Daicor may incur with the RCBC bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00. The agreement was executed obviously to induce RCBC to grant any application for a loan Daicor may desire to obtain from RCBC bank. The guaranty is a continuing one which shall remain in full force and effect until the bank is notified of its termination. The only condition that would make him liable thereunder is that the Borrower is or may become liable as maker, endorser, acceptor or otherwise. There is no doubt that Daicor is liable on the promissory note evidencing the indebtedness. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced RCBC bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarity to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with RCBC Article 2053.A guaranty may also be given as security 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.DISPOSITION: Reversed and Set Aside CFI decision.

JACINTO UY DIO and NORBERTO UY, petitioners, vs.HON. COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents. (1992)DAVIDE, JR., J

SUMMARY: UTEFS applied for and obtained credit accommodations Metropolitan Bank and Trust Company in the sum of P700,000.00. To secure the aforementioned credit accommodations Norberto Uy and Jacinto Uy Dio executed separate Continuing Suretyships dated 25 February 1977, in favor of the latter. Having paid the obligation under the above letter of credit in 1977, UTEFS, through Uy Tiam, obtained another credit accommodation from METROBANK in 1978. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties. The petitioners argued that they are o longer liable since they are only guarantors on the 1977 obligation and not on latter ones. SC ruled that petitioners are liable since what they signed was a continuing suretyship/guaranty.

DOCTRINE: A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable The limit of the petitioners respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits.

FACTS: Uy Tiam Enterprises and Freight Services (hereinafter referred to as UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company (hereinafter referred to as METROBANK) in the sum of P700,000.00 To secure the aforementioned credit accommodations Norberto Uy and Jacinto Uy Dio executed separate Continuing Suretyships dated 25 February 1977, in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Jacinto Uy Dio 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 The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of P815, 600.00, covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0 It was applied for and obtained by UTEFS without the participation of Norberto Uy and Jacinto Uy Dio 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 Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK Trust Receipt dated 4 June 1979, whereby the former acknowledged receipt in trust from the latter of the aforementioned goods from Planters Products which amounted to P815, 600.00. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Dio, demanding payment of the amount due. Dio, thru counsel, denied his liability for the amount demanded and requested METROBANK to send him copies of documents showing the source of his liability. In its reply, the bank informed him that the source of his liability is the Continuing Suretyship which he executed on February 25, 1977. Dio 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. METROBANK then filed a complaint for collection of a sum of money with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of UTEFS and impleaded Dio and Uy as parties-defendants. The court issued an order, dated 29 July 1983, granting the attachment writ, which writ was returned unserved and unsatisfied as defendant Uy Tiam was nowhere to be found 1984, Norberto Uy and Jacinto Uy Dio (sureties-defendant herein) filed a motion to dismiss the complaint on the ground of lack of cause of action. They maintained that the obligation which they guaranteed in 1977 has been extinguished since it has already been paid in the same year. Accordingly, the 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. It was further argued that they can not be held liable for the obligation contracted in 1979 because they are not privies thereto as it was contracted without their participation METROBANK filed its opposition to the motion to dismiss. Invoking the terms and conditions embodied in the comprehensive suretyships separately executed by sureties-defendants, the bank argued that sureties-movants bound themselves as solidary obligors of defendant Uy Tiam to both existing obligations and future ones. RTC: dismissed complaint against Dino and Uy and ordered Metrobakn to pay Dino and Uy CA: RTC decision reversed Held that the 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 MR filed by petitioners DENIED Hence, instant petitionISSUE # 1: W/N the petitioners (Dino and Uy) may be held liable as sureties for the obligation contracted by Uy Tiam with METROBANK on 30 May 1979 under and by virtue of the Continuing Suretyship Agreements signed on 25 February 1977. (YES)RATIO # 1: Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not known at the time the guaranty isexecuted A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable A continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made "from time to time" the guaranty will be construed to be a continuing one In other jurisdictions, it has been held that the use of particular words and expressions such as 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, have been construed to indicate a continuing guaranty In the case at bar, the pertinent portion of paragraph I of the suretyship agreement executed by petitioner Uy provides thus: I. 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 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 evidence 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 SURETY agrees to guarantee, and does hereby guarantee, the punctual payment at maturity to the loans, advances credits and/or other obligations hereinbefore referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to the BANK by the Borrower, together with any and all expenses which may be incurred by the BANK in collecting all or any such instruments or other indebtedness or obligations herein before referred to, and/or in enforcing any rights hereunder Paragraph I of the Continuing Suretyship Agreement executed by petitioner Dio contains identical provisions except with respect to the guaranteed aggregate principal amount which is (P800,000.00). Paragraph IV of both agreements stipulate that: VI. 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, from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by the BANK, or in which the BANK may have any interest at the time of the receipt (sic) of such notice. No act or omission of any kind on the BANK'S part in the premises shall in any event affect or impair this guaranty, nor shall same (sic) be affected by any change which may arise by reason of the death of the SURETY, or of any partner(s) of the SURETY, or of the Borrower, or of the accession to any such partnership of any one or more new partners. The foregoing stipulations unequivocally reveal that the suretyship agreement in the case at bar are continuing in nature. 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.ISSUE 2: What is the extent of their liability.RATIO 2: Petitioners contend that the public respondent gravely erred in finding them liable for more than the amount specified in their respective agreements, to wit: (a) P800,000.00 for petitioner Dio and (b) P300,000.00 for petitioner Uy. The limit of the petitioners respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. Indeed, the Continuing Suretyship Agreements signed by petitioner Dio and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bond himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. In the case at bar, both agreements provide for liability for interest and expenses Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interest, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code Interest and damages are included in the term accessories. However, such interest should run only from the date when the complaint was filed in court. Even attorney's fees may be imposed whenever appropriate, pursuant to Article 2208 of the Civil CodeDISPOSITION: partly granted WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged decision has to be modified with respect to the extend of petitioners' liability. As modified, petitioners JACINTO UY DIO and NORBERTO UY are hereby declared liable for and are ordered to pay, up to the maximum limit only of their respective Continuing Suretyship Agreement, the remaining unpaid balance of the principal obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979, together with the interest due thereon at the legal rate commencing from the date of the filing of the complaint in Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court of Manila, as well as the adjudged attorney's fees and costs.

Willex Plastic Industries Corporation v CA

SUMMARY: Inter-Resin Industrial Corporation opened a letter of credit with with Manilabank. Inter-Resin and IUCP (Now Interbank) secured the letter of credit by two Continuing Surety Agreements, where they undertook solidary liability to Manilabank. In turn, Inter-Resin and Willex Plastic executed a Continuing Guaranty where for and in consideration of the sum obtained and/or to be obtained by Inter-Resin from IUCP, they jointly and severally guaranteed the prompt and punctual payment upon maturity of the notes. In accordance with the Continuing Surety Agreement, IUCP paid Manilabank. However, Inter-Resin and Willex failed to pay Atrium (formerly IUCP, now Interbank) upon demand, hence this case. 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.

HELD: 1) Willex is solidarily liable to Interbank. Based on the evidence presented, both lower courts found that the Continuing Guaranty was executed for purposes of securing payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank. 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) The Continuing Guaranty may be given retrospective effect to cover the sums obtained by Inter-Resin from Manilabank as this is clear from the intention of the parties. 3) Willex cannot avail of the benefit if excussion since he expressly renounced this in the contract.

DOCTRINE: 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.

FACTS: Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two Continuing Surety Agreements dated December 1, 1978, 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. Subsequently, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a Continuing Guaranty in favor of IUCP whereby For and in consideration of the sum or sums obtained and/or to be obtained by Inter-Resin Industrial Corporation from IUCP, Inter-Resin 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) xxx In 1981, upon demand, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrials outstanding obligation. In turn, Atrium Capital Corp., which had succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. Neither one of the sureties paid, thus Atrium filed this case against Inter-Resin Industrial and Willex Plastic. In 1982, Inter-Resin Industrial paid Interbank (successor of Atrium), the sum of P687,500.00 representing the proceeds of its fire insurance policy for the destruction of its properties in a fire. In their answers Inter-Resin Industrial admitted that the Continuing Guaranty was intended to secure payment to Atrium 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 Atrium Capital. Willex contended, as an affirmative defense, that it was only a guarantor of the principal obligor, and thus, its liability is only secondary to that of the principal; Trial Court: declared Inter-Resin and Willex Plastic as solidarily liable to Interbank for P3,646,780.61, representing their indebtedness to the plaintiff, with interest until full payment of the said amount, liquidated damages, attys fees and expenses. Court of Appeals: Affirmed the RTC decision. From this decision, Willex appealed.

ISSUE + RATIO:Whether under the Continuing Guaranty signed on April 2, 1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to Manilabank. 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. SC: The contention is untenable. Based on the evidence presented, both lower courts found that the Continuing Guaranty was executed for purposes of securing payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank: Atrium Capital alleged in its complaint: 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 [Willex Plastic]. Inter-Resin Industrial, in its answer, admitted this allegation although it claimed that it had already paid its obligation in its entirety. During hearing, Willex 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. Willex Plastic cannot now claim that its liability is limited to any amount whichInterbank, 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. 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.

WON the suretyship or guaranty may be applied retrospectively. YES, this was the intention of the parties.

Willex Plastic invokes the ruling in ElVencedor v. Canlas andDio v. Court of Appealsin support of its contention that a contract of suretyship or guaranty should be applied prospectively. These cases cannot support Willex contention. InEl Vencedor v. Canlas, it was held that a contract of suretyship is not retrospective and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated. The Court found 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 obtainedand/or to be obtained by Inter-Resin Industrial from Interbank. In Dio v. Court of Appealsthe issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. It is prospective in its operation and isgenerallyintended 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. In the case of Bank of the Philippine Islands v. Foerster,the Court held that 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.

WON Willex Plastic can claim the benefit of excussion.NO.

Art. 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;x x xx x xx x x

The pertinent portion of the Continuing Guaranty executed by Willex Plastic and Inter-Resin Industrial in favor of IUCP (now Interbank) reads:

If default be made in the payment of the NOTE/s herein guaranteed you and/or your principal/s may directly proceed against Me/Uswithout first proceeding against and exhausting DEBTOR/s propertiesin the same manner as if all such liabilities constituted My/Our direct and primary obligations.

This stipulation embodies an express renunciation of the right of excussion.

In addition, Willex Plastic bound itself solidarily liable with Inter-Resin Industrial under the same agreement:

xxx I/We hereby jointly and severally and unconditionally guarantee unto youand/ 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 xxx.

DISPOSITION: Affirmed.

SPOUSES ALFREDO AND SUSANA ONG, PETITIONERS,petitioners vs.PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondents (2005)

Puno, J

NATURE: Petitions for Review on Certiorari

SUMMARY:

The sps. Ong had obligated themselves as sureties of loans extended by PCIB to BMC, a corporation where the sps. Ong occupied the positions of President and Treasurer. Under the agreement, PCIB could consider BMC in default and demand payment of the balance upon the levy, attachment, or garnishment of any of BMCs properties, or upon BMCs insolvency, or if BMC was declared to be in a state of suspension of payment. That same year, BMC filed a petition for rehabilitation and suspension of payments with the SEC after its properties were attached by creditors. Thus, PCIB considered BMC in default PCIB then sought to collect the debt from the sps. Ong, as sureties. PCIB filed an action for the collection of a sum of money against the sps. While the action was pending, BMC entered into a MOA with its creditor banks not only had the SEC declared a suspension of payments, under the MOA, the creditor-banks agreed to suspend the filing of any civil actions against BMC. In view of the MOA, the sps. Ong filed a MtD, arguing that the defenses available to the bank (suspension of payments; suspension of filing of civil actions) should also be available to them as sureties; the sps. argued that Arts. 2063 and 2081 (which applied to Guarantors) should also be applicable to sureties. The TC denied the MtD. The CA affirmed the TCs ruling. Thus, this petition for review.The SC dismissed the petition. Citing differences between the obligations of guarantors and sureties, the SC clarified that Arts. 2063 and 2081 were NA to sureties. Since the right to collect against sureties was independent from the right to proceed against the principal debtors, and since the MOA had no provisions regarding sureties (and their properties) PCIB had a right of action against the sps. Ong, notwithstanding the MOA.DOCTRINE:

Differences in rights and liabilities of a guarantor and a surety: Guarantor: insures the solvency of a debtor; Surety: insurer of the DEBT ITSELF. Contract of Guaranty: gives rise to a subsidiary obligation on the part of the guarantor a creditor can only hold a guarantor liable for the balance of the debt AFTER he has proceeded against the properties of the principal debtor and the debt remains unsatisfied. (Principle of EXCUSSION) The principle of excussion is NOT available to the surety since the surety is principally liable for the payment of the debt the surety obligates himself to pay the debt if the principal debtor will not pay, REGARDLESS of whether or not the principal debtor is financially capable of fulfilling is obligation. A creditor can go directly against the surety although the principal debtor is solvent and is able to pay, or no prior demand is made on the principal debtor. A surety is deemed as an original promissory and debtor from the beginning. (A surety is directly, equally, and absolutely bound with the principal debtor for the payment of the debt.)

FACTS:

Antecedents

Baliwag Mahogany Corporation (BMC): domestic corp.; engaged in manufacture/export of finished wood products.Sps. Ong, Alfredo and Susana: President and Treasurer of BMC.Philippine Commercial International Bank (PCIB; now, Equitable-Philippine Commercial International Bank [E-PCIB]): lender-bank.BMC needed additional capital in 1991, thus it applied for various loans totaling P5M with PCIB. The sps. Ong obliged themselves as sureties and issued 3 Promissory Notes (PN) to secure BMCs loan; Stipulations: PCIB may consider BMC in default and demand payment of the balance upon the levy, attachment, or garnishent of any of BMCs properties; or, Upon BMCs insolvency; or, If BMC is declared to be in a state of suspension of payments.

November of that same year, BMC filed a petition for rehabilitation and suspension of payments w/ the SEC, after its properties were attached by creditors. Thus, PCIB considered BMC in default. PCIB sought to collect payment of the loan from the sps. Ong, as sureties.The Case

In April 1992, PCIB filed an action for collection of sum of money against the Sps. Ong seeking to hold the sps. liable as sureties on the 3 PNs.October 1992, a Memorandum of Agreement (MOA) was executed by BMC, the sps. Ong, and the consortium of creditor banks of BMC (including PCIB) this MOA took effect on 27 November 1992, upon its approval by the SEC.Afterwards, the sps. Ong moved to dismiss the complaint. Argument: since the SEC had declared BMC in a state of suspension of payments; and, since under the MOA the creditor-banks agreed to temporarily suspend any pending civil action against the against BMC The benefits of the MOA should be extended to the sps. Ong who acted as sureties. Thus, PCIB is bared from pursuing the collection case against the sps.

The TC DENIED the MtD.The CA affirmed the TCs ruling.Thus, this petition for review. Sps. Ong (reiterated the arguments stated in its MtD, and stated in addition): Art. 2064, NCC: a compromise between the creditor and the principal debtor benefits the GUARANTOR and should not prejudice the latter. Art. 2081, NCC: the GUARANTOR may set up against the creditor all the defenses which pertain to the principal debtor and are inherent in the debt, but not those which are purely pesonal to the debtor. Sps. Ong argued that as sureties they should be allowed to avail of the defense of suspension of payment of debts and filing of collection suits which BMC can set up against PCIB.

ISSUE # 1: Does Arts. 2063 and 2081 apply to suretyship contracts? (NO.)

RATIO # 1: Arts. 2063 and 2081 only refer to contracts of guaranty they do NOT apply to suretyship contracts.

Differences in rights and liabilities of a guarantor and a surety: Guarantor: insures the solvency of a debtor; Surety: insurer of the DEBT ITSELF. Contract of Guaranty: gives rise to a subsidiary obligation on the part of the guarantor a creditor can only hold a guarantor liable for the balance of the debt AFTER he has proceeded against the properties of the principal debtor and the debt remains unsatisfied. (Principle of EXCUSSION) The principle of excussion is NOT available to the surety since the surety is principally liable for the payment of the debt the surety obligates himself to pay the debt if the principal debtor will not pay, REGARDLESS of whether or not the principal debtor is financially capable of fulfilling is obligation. A creditor can go directly against the surety although the principal debtor is solvent and is able to pay, or no prior demand is made on the principal debtor. A surety is deemed as an original promissory and debtor from the beginning. (A surety is directly, equally, and absolutely bound with the principal debtor for the payment of the debt.)

Case at bar: the sps. Ong obliged themselves to be solidarily bound with BMC for the payment of the P5M loan, under the suretyship contract. Under Art. 1216, NCC: PCIB may proceed against the sps. Ong despite the execution of the MOA. PCIBs right to collect payment from the surety exists independently of its right to proceed directly against the principal debtor. PCIB can even go against the surety alone, w/o prior demand for payment on BMC.

Note: MOA The suspension of payments an non-filing of collection suits pertain ONLY to the property of BMC. In the rehabilitation receivership filed by BMC only the properties of BMC were mentioned. Nothing in the MOA that involves the liabilities of the sureties whose properties are separate and distinct from that of BMC. MOA was approved by SEC SECs jurisdiction is limited only corporations and corporate assets. SEC has no jurisdiction over the properties of BMCs officers or sureties.

DISPOSITION: The petition is DISMISSED for lack of merit. No pronouncement as to costs.

IFC v. ITM | KatNovember 15, 2005INTERNATIONAL FINANCECORPORATION, Petitioner,vs.IMPERIAL TEXTILE MILLS, INC, Respondent. PANGANIBAN,J.SUMMARY: IFC extended a loan agreement to Philippine Polyamide Industrial Corporation (PPIC) for $7M. A guarantee agreement was executed by IFC with ITM where the latter agreed to guarantee PPICs obligation to pay the loan. PPIC failed to pay the loan and its interests. Due to non-payment, the mortgages on the real properties were foreclosed. Even after the foreclosure, a balance of $2.8M remained. IFC demanded defendant as guarantors of PPIC to pay the outstanding balance. The balance was not paid. Plaintiff filed a complaint with the RTC against PPIC and defendant for the payment of the balance. Held: ITM liable as surety. Although denominated as a Guarantee Agreement, the Contract was actually a surety. Notwithstanding the use of the words guarantee and guarantor, the subject Contract was indeed a surety, because its terms were clear and left no doubt as to the intention of the parties.DOCTRINE (not repeated below): 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. FACTS: December 17, 1974: 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, payable in 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. December 17, 1974: a Guarantee Agreement was executed with Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee PPICs obligations under the loan agreement. PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1, 1978. The payments due on December 1, 1978, June 1, 1979 and December 1, 1979 were rescheduled as requested by PPIC. Despite the rescheduling of the installment payments, however, PPIC defaulted. April 1, 1985: 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. By virtue of PPICs 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, with the regional sheriff of Calamba, Laguna. July 30, 1985: The deputy sheriff of Calamba, Laguna issued a notice of extrajudicial sale. IFC and DBP were the only bidders during the auction sale.IFCs bid was forP99,269,100.00 which was equivalent to US$5,250,000.00 (at the prevailing exchange rate ofP18.9084 = 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. IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the outstanding balance. However, despite the demand made by IFC, the outstanding balance remained unpaid. May 20, 1988: IFC filed a complaint with the RTC of Manila against PPIC and ITM for the payment of the outstanding balance plus interests and attorneys fees. TC: held PPIC liable for the payment of the outstanding loan plus interests and attorneys fees. However, the trial court relieved ITM of its obligation as guarantor. Hence, the trial court dismissed IFCs complaint against ITM. CA reversed the Decision of the trial court, insofar as the latter exonerated ITM from any obligation to IFC. (The guarantor ITM together with Grandtex is HELD secondarily liable to pay the amount herein adjudged to IFC ITM bound itself under the Guarantee Agreement to pay PPICs obligation upon default. ITM was not discharged from its obligation as guarantor when PPIC mortgaged the latters properties to IFC. ITMs liability as a guarantor would arise only if and when PPIC could not pay. Since PPICs inability to comply with its obligation was not sufficiently established, ITM could not immediately be made to assume the liability. MR denied Hence, this PetitionISSUE: W/N ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan? YESRATIO:Liability of ITM Under the Guarantee Agreement The present controversy arose from the following Contracts: (1) the Loan Agreement dated December 17, 1974, between IFC and PPIC;and (2) the Guarantee Agreement dated December 17, 1974, between ITM and Grandtex, on the one hand, and IFC on the other. IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPICs obligations proceeding from the Loan Agreement. 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.Language of the Contract The premise of the Guarantee Agreement is found in its preambular clause, which reads: Whereas, (A) By an Agreement of even date herewith between IFC and PHILIPPINE POLYAMIDE INDUSTRIALCORPORATION (herein called the Company), which agreement is herein called the Loan Agreement, IFC agrees to extend to the Company a loan (herein called the Loan) of seven million dollars ($7,000,000) on the terms therein set forth, including a provision that all or part of the Loan may be disbursed in a currency other than dollars, but only on condition that the Guarantors agree to guarantee the obligations of the Company in respect of the Loan as hereinafter provided. (B) The Guarantors, in order to induce IFC to enter into the Loan Agreement, and in consideration of IFC entering into said Agreement, have agreed so to guaranteesuch obligations of the Company. Theobligationsof the guarantors are meticulously expressed in the following provision: Section 2.01. The Guarantorsjointly and severally, irrevocably, absolutely and unconditionally guarantee, asprimary 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. The Agreement uses guarantee and guarantors, prompting ITM to base its argument on those words. This Court is not convinced that the use of the two words limits the Contract to a mere guaranty. The specific stipulations in the Contract show otherwise.Solidary Liability Agreed to by ITM 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 ameresurety. Those stipulations meant only one thing: thatat bottom, and to all legal intents and purposes, it was a surety. Indubitably therefore, ITM bound itself to be solidarilyliable with PPIC for the latters obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable. Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITMs liability commenced only when it guaranteed PPICs obligation. It became a surety when it bound itself solidarily with the principal obligor. 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. 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: 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.No Ambiguity in the Undertaking The Court does not find any ambiguity in the provisions of the Guarantee Agreement. When qualified by the term jointly and severally, the use of the word guarantor to refer to a surety does not violate the law. As Article 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the Agreement -- as primary obligor and not merely as surety -- stresses that ITM is being placed on the same level as PPIC. Those words emphasize the nature of their liability, which the law characterizes as a suretyship. The use of the word guarantee does notipso factomake 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 obligors liability. Thus, this Court has ruled in favor of suretyship, even though contracts were denominated as a Guarantors Undertaking or a Continuing Guaranty. Contracts have the force of law between the parties,who are free to stipulate any matter not contrary to law, morals, good customs, public order or public policy. None of these circumstances are present, much less alleged by ITM. Hence, this Court cannot give a different meaning to the plain language of the Guarantee Agreement. Indeed, the finding of solidary liability is in line with the premise provided in the Whereas clause of the Guarantee Agreement. The execution of the Agreement was a condition precedent for the approval of PPICs loan from IFC. Consistent with the position of IFC as creditor was its requirement of a higher degree of liability from ITM in case PPIC committed a breach. ITM agreed with the stipulation in Section 2.01 and is now estopped from feigning ignorance of its solidary liability. The literal meaning of the stipulations control when the terms of the contract are clear and there is no doubt as to the intention of the parties. We note 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 appellate court opined that ITMs undertaking was collateral to and distinct from the Loan Agreement. 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. ITMs Liability as Surety 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.DISPOSITIVE: Petition GRANTED. The assailed Decision and ResolutionMODIFIEDin the sense that TM is declared a surety to PPIC. ITM isORDEREDto pay IFC the same amounts adjudged against PPIC in the assailed Decision.

15 May 1969LUZON STEEL CORPORATION, represented by Tomas Aquino Cu vs. JOSE SIA, defendant, TIMES SURETY & INSURANCE CO., surety-appelleeActing CJ, J.B.L. Reyes

NATURE:Direct appeal from to CFI Orders (19 May and 5 June 1965) quashing a Writ of Execution against Times Surety and cancelling the undertaking of said surety company

SUMMARY:Luzon Steel Corp. (LSC) sued Metal Manufacturing of the Philippines (MMP) and Respondent Jose Sia, as manager, for breach of contract and damages. LSC obtained a Writ of Preliminary Attachment, which was later lifted upon the filing of a P 25 000 counter-bond by Sia and Respondent Times Surety and Insurance Co. (TSIC). The parties later entered into a compromise agreement, without the intervention of TSIC. Sia failed to comply with the compromise agreement so LSC moved for and obtained a Writ of Execution against the counter-bond. TSIC moved to quash said Writ. The CFI granted the Motion and cancelled the counter-bond. LSCs MR was denied; hence, the instant appeal to the SC.

DOCTRINE: Since the counter-bond merely stands in the place of such property, there is no reason why the judgment should not be made effective against the counter-bond regardless of the manner how the judgment was obtained. The liability of the sureties was fixed and conditioned on the finality of the judgment rendered regardless of whether the decision was based on the consent of the parties or on the merits. A judgment entered on a stipulation is nonetheless a judgment of the court because consented to by the parties. Under NCC 2059(2), excussion (previous exhaustion of debtors property) shall not take place if [the guarantor] has bound himself solidarily with the debtor. Even if the surety's undertaking were not solidary with that of the principal debtor, still he may not demand exhaustion of the property of the latter, unless he can point out sufficient leviable property of the debtor within Philippine territory.FACTS: Petitioner Luzon Steel Corporation (LSC) sued Metal Manufacturing of the Philippines (MMP) and Respondent Jose Sia, as manager, for breach of contract and damages. LSC obtained a Writ of Preliminary Attachment of MMPs properties, but the attachment was lifted upon a P 25 000 counter-bond[footnoteRef:1] executed by Sia, as principal, and Respondent Times Surety and Insurance Co., Inc. (TSIC), as solidary guarantor. [1: WHEREFORE, we JOSE O. SIA, as principal, and the TIMES SURETY & INSURANCE CO., INC., as Surety, in consideration of the dissolution of attachment, hereby jointly and severally bind ourselves in the sum of Twenty Five Thousand Pesos (P25, 000.00), Philippine Currency, to answer for the payment to the plaintiff of any judgment it may recover in the action in accordance with Section 12, Rule 59, of the Rules of Court.]

After issues were joined, LSC and MMP entered into a compromise agreement, without TSICs intervention, whereby Sia agreed to settle LSCs claim: 1.That the Defendant shall settle with the Plaintiff the amount of TWENTY FIVE THOUSAND (P25, 000.00) PESOS, in the following manner:FIVE HUNDRED (P500.00) PESOS, monthly for the first six (6) months to be paid at the end of every month and to commence in January, 1965, and within one month after paying the last installment of P500.00, the balance of P22, 000.00 shall be paid in lump sum, without interest.It is understood that failure of the Defendant to pay one or any installment will make the whole obligation immediately due and demandable and that a writ of execution will be issued immediately against Defendants bond. The compromise was approved by CFI. Sia failed to comply with the compromise agreement so LSC moved for and obtained a Writ of Execution against the counter-bond. TSIC moved to quash the Writ of Execution, averring that 1) it was not a party to the compromise, and 2) the writ was issued without giving the surety notice and hearing. The CFI set aside the Writ of Execution and later cancelled the counter-bond. CFI denied LSCs MR; hence, the instant appeal to the SC.

ISSUES:1. Whether the judgment upon the compromise discharged the surety from its obligation under its attachment counter-bond (NO)2. Whether the writ of execution could be issued against the surety without previous exhaustion of the debtor's properties (YES)

RATIO: Both questions can be solved by bearing in mind that we are dealing with a counter-bond filed to discharge a levy on attachment. Rule 57, Sec. 12: an attachment may be discharged upon the making of a cash deposit or filing a counterbond "in an amount equal to the value of the property attached as determined by the judge"; that upon the filing of the counterbond "the property attached ----- shall be delivered to the party making the deposit or giving the counter-bond, or the person appearing on his behalf, the deposit or counterbond aforesaid standing in place of the property so released". (emphasis supplied by the SC) The SC held that [w]hether the judgment be rendered after trial on the merits or upon compromise, such judgment undoubtedly may be made effective upon the property released; and since the counterbond merely stands in the place of such property, there is no reason why the judgment should not be made effective against the counterbond regardless of the manner how the judgment was obtained. TSIC alleges that the compromise could be the result of a collusion between the parties to injure the surety. In Anzures v. Alto Surety & Insurance, Co.: Under section 12, Rule 59, of the Rules of Court, the bond filed, as in this case, for the discharge of an attachment is 'to secure the payment to the plaintiff of any judgment he may recover in the action,' and stands 'in place of the property so released'. It follows that the order of cancellation issued by the respondent judge is erroneous. Indeed, judgment had already been rendered by the Court of First Instance of Manila in civil case No. 11748, sentencing Benjamin Aguilar to pay the sum of P3, 500.00 to the petitioner; and it is not pretended that said judgment is a nullity. There is no point in the contention of the respondent Surety Company that the compromise was entered into without its knowledge and consent, thus becoming as to it essentially fraudulent. The Surety is not a party to civil case No. 11748 and, therefore, need not be served with notice of the petition for judgment. As against the conjecture of said respondent that the parties may easily connive by means of a compromise to prejudice it, there is also the likelihood that the same end may be attained by parties acting in bad faith through a simulated trial. At any rate, it is within the power of the Surety Company to protect itself against a risk of the kind. In the case at bar, the SC found that the CFI and TSIC appear to have relied on SC doctrines concerning the liability of sureties in bonds filed by a plaintiff for the issuance of writs of attachment, without discriminating between such bonds and those filed by a defendant for the lifting of writs of attachment already issued and levied. This confusion is hardly excusable considering that this Court has already called attention to the difference between these kinds of bonds in Cajefe v. Judge Fernandez: The diverse rule in section 17 of Rule 59 forcounterbondsposted to obtain the lifting of a writ of attachment is due to these bonds being security for the payment of any judgment that the attaching party may obtain; they are thus mere replacements of the property formerly attached, and just as the latter may be levied upon after final judgment in the case in order to realize the amount adjudged, so is the liability of thecountersuretiesascertainable after the judgment has become final.This situation does not obtain in the case of injunctioncounterbonds, since the sureties in the latter case merely undertake to pay all damages that the plaintiff may suffer by reason of the continuance ----- of the acts complained of (Rule 60, section 6) and not to secure payment of the judgment recovered. The SC held that CFI erred in cancelling TSICs surety bond on the theory that the parties compromise discharged the obligation of the surety. Mercado v. Macapayag: [T]he liability of the sureties was fixed and conditioned on the finality of the judgment rendered regardless of whether the decision was based on the consent of the parties or on the merits. A judgment entered on a stipulation is nonetheless a judgment of the court because consented to by the parties. As regards TSICs contention that the execution issued against it was invalid because the writ issued against Sia had not been returned unsatisfied as contemplated by Rule 57, Sec. 17[footnoteRef:2], the SC held that the counter-bondcontemplated in the rule is evidently an ordinary guaranty where the sureties assume a subsidiary liability. [2: SEC. 17. When execution returned unsatisfied, recovery had upon bond. - If the execution be returned unsatisfied in whole or in part, the surety or sureties on any counterbond given pursuant to the provisions of this rule to secure the payment of the judgment shall become charged on such counter-bond, and bound to pay to the judgment creditor upon demand, the amount due under the judgment, which amount may be recovered from such surety or sureties after notice and summary hearing in the same action.]

In the case at bar, TSIC was solidarily liable with SIA. Under NCC 2059(2), excussion (previous exhaustion of debtors property) shall not take place if [the guarantor] has bound himself solidarily with the debtor. The rule heretofore quoted cannot be construed as requiring that an execution against the debtor be first returned unsatisfied even if the bond were a solidary one; for a procedural rule may not amend the substantive law expressed in the Civil Code, and further would nullify the express stipulation of the parties that the surety's obligation should be solidary with that of the defendant. Moreover, even if the surety's undertaking were not solidary with that of the principal debtor, still he may not demand exhaustion of the property of the latter, unless he can point out sufficient leviable property of the debtor within Philippine territory. The SC found no record that TSIC has done so. NCC 2060: Inorder that the guarantor may make use of the benefit ofexcussion, he must set it up against the creditor upon the latter's demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt. Finally, under the rule and TSICs own terms, the counter-bond is only conditioned upon the rendition of the judgment. Payment under the bond is not made to depend upon the redelivery or availability of the property previously attached, as it was under Sec. 440 of the old Code of Civil Procedure. Anzures: Where under the rule and the bond the undertaking is to pay the judgment, the liability of the surety or sureties attaches upon the rendition of the judgment, and the issue of an execution and its returnnullabonais not, and should not be, a condition to the right to resort to the bond. While it is true that under Sec. 17 of Rule 57 recovery from the surety or sureties should be after notice and summary hearing in the same action, the SC found that this requirement has been substantially complied with from the time the surety was allowed to move for thequashalof the writ of execution and for the cancellation of their obligation.

DISPOSITIVE:Petition granted.

JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners, vs. R & B SURETY AND INSURANCE COMPANY, INC., respondent (1987)FELICIANO, J.: NATURE: petition for review on certiorari under Rule 45

SUMMARY: In 1963, PAGRICO obtained a P400,000 increase in its credit line from PNB. The increased amount was secured by a surety bond executed by R&B. In turn, Cochingyan, Villanueva, and Liu, in both their personal and business capacities, executed separate Indemnity Agreements to answer for R&Bs obligation should it become liable under the surety bond. PAGRICO defaulted and R&B made partial payments to PNB as PAGRICOs surety. R&B then demanded indemnification from Cochingyan and Villanueva. When its demand went unheeded, R&B sued the two indemnitors. In 1965, Cochingyan entered into a trust agreement with a PNB official, where PNB agreed inter alia to refrain from suing PAGRICOs sureties. The CFI rendered a decision holding Cochingyan and Villanueva liable to R&B for the P400,000 plus the stipulated payments under the indemnity agreement. Cochingyan and Villanueva appealed the decision, claiming that: the Trust Agreement novated the original surety agreement; the Trust Agreement was entered into without Villanuevas consent and that the agreement to refrain from enforcing the bond was an extension under NCC 2079, thus such an extension should have released Villanueva from his obligation; and that the case was premature. SC dismissed all 3 arguments as untenable, holding that: the requisites of novation were not met; that NCC 2079 does not apply because Villanueva and Cochingyan did not become sureties and the agreement for non-enforcement was not an extension since the principal obligation had long matured; and that the suit was not premature since it was a contract for indemnity against liability, thus the obligation arose once R&B became liable.DOCTRINE: The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety's consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor's remedies against the principal debtor upon the original maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. If subjective novation by a change in the person of the debtor is to occur, it is not enough that the juridical relation between the parties to the original contract is extended to a third person. It is essential that the old debtor be released from the obligation, and the third person or new debtor take his place in the new relation. If the old debtor is not released, no novation occurs and the third person who has assumed the obligation of the debtor becomes merely a co-debtor or surety or a co-surety. Where the parties to the new obligation expressly recognize the continuing existence and validity of the old one, where in other words, the parties expressly negated the lapsing of the old obligation, there can be no novation. While in a contract of indemnity against loss an indemnitor will not be liable until the person to be indemnified makes payment or sustains loss, in a contract of indemnity against liability, as in this case, the indemnitor's liability arises as soon as the liability of the person to be indemnified has arisen without regard to whether or not he has suffered actual lossFACTS: November 1963 Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted a P400,000 increase in its credit line with the Philippine National Bank (PNB). This increased its total credit line to P800,000. To secure the increased amount, PAGRICO submitted a surety bond issued by R&B Surety and Insurance Co., Inc., for P400,000 in favor of PNB. Under the surety bond, PAGRICO and R&B bound themselves jointly and solidarily to comply with the terms and conditions of the credit line established by PNB. PNB was also granted the right to proceed directly against R&B without prior extinguishment of PAGRICOs assets. The Surety Bond also provided that R&B will be liable not only for the principal amount but also for the accrued interest plus all expenses, charges, or legal costs incident to the collection of the obligation. Dec. 23 & 24, 1963 - In consideration for the issuance of the surety bond, two identical Indemnity Agreements were entered into with R&B by Catholic Church Mart (CCM) and its president, Joseph COCHINGYAN, Jr.; and by PAGRICO, Pacific Copra Export, Inc. (PACOCO), Jose VILLANUEVA, and LIU Tua Beh, Cochingyan, Villanueva, and Liu signed the agreement in both their professional and personal capacities (as president and/or manager). Under the two indemnity agreements, the indemnitors bound themselves jointly and severally to R&B to pay an annual premium of P5,103.05 and to faithfully comply with the terms and conditions of the surety bond until such is cancelled and/or discharged; including the obligation to indemnify R&B for any loss or damage it may sustain as a consequence of its execution of the surety bond. PAGRICO defaulted in the payment of the credit line. R&B thus made a series of payments to PNB, totaling P70,000. R&B in turn sent formal demand letters to Cochingyan, Villanueva, and Liu for reimbursement of the payments it made to PNB. The 3 indemnitors did not heed the demand. R&B thus sued the 3 indemnitors before the Manila CFI Dec. 28, 1965 Cochingyan and PNB entered into a trust agreement. TRUSTOR - Jose Sr. and Susana Cochingyan, doing business as CCM, represented by Joseph Cochingyan TRUSTEE - Tomas BESA (a PNB official) BENEFICIARY PNB Under the agreement, Cochingyan appointed Besa as trustee for the purpose of paying the obligations of R&B and another surety (Consolacion Ins. & Surety Co.) to the PNB resulting from the default of PAGRICO in the principal obligation, i.e., the credit line. The agreement also provided that PNB would hold in abeyance any claims against the two surety companies, and to reinstate them to the PNBs list of accredited surety companies. In one of its whereas clauses, Cochingyan as trustor admitted his obligation under the indemnity agreements. CFI DECISION Cochingyan & Villanueva to pay the amount of the unpaid premiums, plus the amount of the credit line increase (P400,000) and interest. Complaint against Liu was dismissed for failure to serve summons. Cochingyan and Villanueva appealed to the CA, which certified the case to the SC on pure questions of law.ISSUE # 1: W/N the trust agreement extinguished R&Bs obligations under the Surety Bond, thus in turn extinguishing the obligations of Cochingyan and Villanueva (CV) under the Indemnity Agreements (NO)RATIO # 1: It is not disputed that the principal obligation has not yet been fully paid. Thus the surety bond (and consequently the indemnity agreements) subsists, unless it has been extinguished by some other means. CV: The Surety Bond and the Indemnity Agreements were novated by the Trust Agreement SC: Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation through a change of the object or principal conditions of an existing obligation is referred to as objective (or real) novation. Novation by the change of either the person of the debtor or of the creditor is described as subjective (or personal) novation. Novation may also be both objective and subjective (mixed) at the same time. In both objective and subjective novation, a dual purpose is achieved an obligation is extinguished and a new one is created in lieu thereof. Novation may either be objective (a new obligation expressly or impliedly, by incompatibility, extinguishing an older obligation) or subjective (by a change in the parties to the obligation, such that one or both parties to the original obligation are discharged). CASE AT BAR: The trust agreement did not expressly terminate R&Bs obligation under the Surety Bond. En contrario, the trust agreement expressly stated it did not in any manner release R&B from its obligation under the surety bond. There can be no implied novation because the trust agreement expressly recognized the subsistence of the obligation under the surety bond. What the trust agreement did was to bring in another party to assume R&Bs obligation under the surety bond. It is usual business practice for a person to come in and assume obligations under a contract to which he is a stranger. Classic example is surety. Magdalena Estate v. Rodrigues: "[t]he mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute a novation, and the creditor can still enforce the obligation against the original debtor." Cochingyan was already liable to R&B under the indemnity agreement. What the trust agreement did was to make him directl liable to the PNB as well. This had the effect of increasing the number of solidary debtors to three (PAGRICO, R&B, and Cochingyan). PNB could thus proceed against any of them, in any order. PNB did not intend to release R&B from its obligation; thus R&B could not have intended to release its own indemnitor simply because the indemnitor also became directly liable to PNB.ISSUE # 2: W/N the trust agreement extended the term of the surety bond so as to release Villanueva from his obligation as indemnitor as he did not consent to the execution of the trust agreement (NO)RATIO # 2: Villanueva: His obligation under the indemnity agreement was extinguished when PNB, in the trust agreement, agreed to hold in abeyance any action to enforce its claims against R&B SC: Untenable, for two reasons: FIRST REASON: While the indemnity agreements provided that the indemnitors shall become co-sureties of R&B with respect to PNB, there is no proof in the record that Cochingyan and Villanueva actually became co-sureties of R&B vis-a-vis PNB. They remained bound only to R&B as its indemnitors and PNB could not have demanded payment directly from them. NCC 2079 is thus inapplicable to this case. Villanueva remained a second-tier party as far as PNB was concerned; and any extension of time granted to the first-tier parties (PAGRICO, R&B, and Cochingyan) could not prejudice him. SECOND REASON: PNBs undertaking under the trust agreement to refrain from enforcing its claim against R&B did not extend the maturity of R&Bs surety obligation. The principal obligation (and likewise the surety bond) had already matured when the trust agreement was made. The obligation of Villanueva as indemnitor had also matured from the time R&B became liable to pay any sum under the surety bond, whether such sums was actually paid or not. The situation is the one contemplated in NCC 2079: "[t]he mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time referred to herein." The theory behind this provision is that an extension of time to pay given without the suretys consent would deprive the surety of his right to pay the creditor and become subrogated in the latters rights. The provision protects the surety against the possibility of the debtor or the indemnitors becoming insolvent during the extended period. This rationale is not present in the case at bar. BPI v. Albaladejo y Cia.: [M]ere delay or negligence in proceeding against the principal will not discharge a surety unless there is between the creditor and the principal debtor a valid and binding agreement therefor, one which tends to prejudice [the surety] or to deprive it of the power of obtaining indemnity by presenting a legal objection for the time to the prosecution of an action on the original security. There was nothing to prevent Cochingyan and Villanueva from tendering payment to PNB and become subrogated to such remedies R&B may have against PAGRICO. The undertaking of the PNB to "hold in abeyance any action to enforce its claim" against R & B did not amount to an "extension granted to the debtor" without Villanueva's consent so as to release CV from their undertaking as indemnitors of R & B Surety under the Indemnity AgreementsISSUE # 3: W/N the filing of the complaint was premature since PNB had not yet sued R&B for the forfeiture of the surety bond. (NO)RATIO # 3: The indemnity agreements allow R&B to recover from the indemnitors even before R&B shall have paid PNB. SC has held such indemnity clauses to be enforceable and not contrary to public policy. CV forget that indemnity agreements indemnify not only against loss but against liability as well. In such a contract for indemnity against liability, the indemnitors liability arises as soon as the liability of the person to be indemnified arises, regardless of whether the indemnitee has suffered actual loss. CASE AT BAR: R&B was entitled to proceed against Cochingyan and Villanueva not only for the partial payments already made but for the full amount owed by PAGRICO to PNB. The present suit is not premature despite the fact that PNB has not instituted any action against R&B for the enforcement of the surety bond.

DISPOSITION: Denied

October 29 1971PFOPLES BANK AND TRUST COMPANY,plaintiff-appellee,vs.JOSE MARIA TAMBUNTING, MARIA PAZ TAMBUNTING, and FRANCISCO D. SANTANA, defendants. FRANCISCO D. SANTANA,defendant-appellant.Fernando J.

SUMMARY: PBTC extended an overdraft line to the Sps Tambuntings for P200,000, with 135 shares of stock of Intl Stock & Devt Corp as collateral. Santana bound himself jointly and severally as guarantor. The Tambuntings asked for several extensions, and these were granted. The shares of stock were also eventually released back to them. However, they failed to pay for their obligation and defaulted. PBTC filed a complaint to collect from the Sps. Tambunting and Santana as guarantor. Santana contends that he has been released from his obligation as guarantor because the extensions and release of stocks were done without his consent, thus novating the contract. The SC ruled against him, saying that The contract of absolute guaranty expressly authorized the plaintiff bank to extend the time of payment and to release or surrender any security or part thereof held by it without notice to, the consent of, Santana. He had consented in advance the releas