AGRO CONGLOMERATES V. CAFACTS:July 17, 1982: Agro Conglomerates, Inc. (Agro) sold 2 parcels of land to Wonderland Food Industries, Inc (Wonderland) for P 5M under terms and conditions:

P 1M Pesos shall be paid in cash upon the signing of the agreement

P 2M Pesos worth of common shares of stock of the Wonderland Food Industries, Inc.

balance of P2,000,000.00 shall be paid in 4 equal installments, the first installment falling due, 180 days after the signing of the agreement and every six months thereafter, with an interest rate of 18% per annum, to be advanced by the vendee upon the signing of the agreement

July 19, 1982: Agro, Wonderland and Regent Savings & Loan Bank (Regent) (formerly Summa Savings & Loan Association) amended the arrangement resulting to a revision - addedum was not notarized

Agro would secure a loan in the name of Agro Conglomerates Inc. for the total amount of the initial payments, while the settlement of loan would be assumed by Wonderland

Mario Soriano (of Agro) signed as maker several promissory notes, payable to Regent in favor of Wonderland subsidiary contract of suretyship had taken effect since Agro signed the promissory notes as maker and accommodation party for the benefit of Wonderland bank released the proceeds of the loan to Agro who failed to meet their obligations as they fell due bank, experiencing financial turmoil, gave Agro opportunity to settle their account by extending payment due dates. Mario Soriano manifested his intention to re-structure the loan, yet did not show up nor submit his formal written request. Regent filed 3 separate complaints before the RTC for Collection of sums of money

CA affirmed Trial court: held Agro liable

ISSUE: W/N Agro should be liable because there was no accommodation or surety

HELD:YES. CA affirmed.First, there was no contract of sale that materialized. The original agreement was that Wonderland would pay cash and Agro would deliver possession of the farmlands. But this was changed through an addendum, that Agro would instead secure a loan and the settlement of the same would be shouldered by Wonderland. contract of surety between Woodland and petitioner was extinguished by the rescission of the contract of sale of the farmland

With the rescission, there was confusion in the persons of the principal debtor and surety. The addendum thereon likewise lost its efficacy accommodation party - NOT in this case because of recission

person who has signed the instrument as:

a. maker

b. acceptor

c. indorser

without receiving value therefor for the purpose of lending his name to some other person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking the instrument knew (the signatory) to be an accommodation party has the right, after paying the holder, to obtain reimbursement from the party accommodated, since the relation between them has in effect become one of principal and surety, the accommodation party being the surety.

Suretyship relation which exists where:

One person has undertaken an obligation

another person is also under the obligation or other duty to the obligee, who is entitled to but one performance. The surety’s liability to the creditor or promisee is directly and equally bound with the principal and the creditor may proceed against any one of the solidary debtors

Novation - NOT in this case

extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor never presumed and it must be clearly and unequivocally shown

requisites:

There must be a previous valid obligation – lacking. There must be an agreement of the parties concerned to a new contract. There must be the extinguishment of the old contract; and there must be the validity of the new contract

Sec. 22 of the Civil Code provides:Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

Agro had no legal or just ground to retain the proceeds of the loan at the expense of Wonderland. Neither could Agro excuse themselves and hold Wonderland still liable to pay the loan upon the rescission of their sales contract - surety no effect because of the rescission. If Agro sustained damages as a result of the rescission, they should have impleaded Wonderland and asked damages. The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party

But respondent appellate court did not err in holding that Agro are duty-bound under the law to pay the claims of Regent from whom they had obtained the loan proceeds.

EMPIRE INSURANCE COMPANY V. NLRCFacts: Andal applied with G&M Phils. for an overseas employment as a domestic helper in Saudi Arabia. She was hired for a term of 2 years. Upon working for 2 years, she was repatriated. Upon her repatriation, she brought a complaint before the POEA for illegal dismissal, non-payment and underpayment of salaries. Impleaded in the complaint was Empire Insurance as surety of G&M.Empire Insurance Company theorized that Andal was without any cause of action against it for the alleged reason that the liability of its principal, G&M had not been established. Further, it argued that its liability, if any, for the money claims sued upon was merely subsidiary.G&M contends that Andal was not illegally dismissed, but that she abandoned her job.POEA adjudged in favor of Andal ordering G&M to pay the salaries due Andal. Empire appealed the case to the NLRC. NLRC affirmed in toto the decision of the POEA. Hence, this petition with the SC.

Issue: Whether or not NLRC erred in adjudging Empire jointly liable with G&M for the payment of Andal’s monetary claims.

Held: NO. Empire is solidarily liable with its principal, G&M. Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. Where the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal debtor such that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. The surety’s liability is solidary but the nature of its undertaking is such that unless and until the

principal debtor is held liable it does not incur liability.

CASTELVI V. SELLNERFacts: Sellner (defendant) wrote a letter to Mcleod (Castellvi’s agent) saying that he would bound himself to pay the promissory note of Mining, Clarke and Maye amounting 10K + % if not fully paid at maturity, upon the surrender 8k worth of MCM’s stock which is held by Castellvi.

Issue: WON Sellner is a guarantor or surety?

Held: Sellner is a GUARANTOR. Sellner was not bound with Castellvi by the same instrument executed at the time and the same consideration, but his responsibility was secondary, one founded on an independent collateral agreement. Neither was he jointly and severally liable with Castellvi.

MACHETTI V. HOSPICIOFacts: By a written agreement, Machetti undertook to construct a building for Hospicio de San Jose. One of the conditions was that Machetti obtain the guarantee of Fidelity & Surety Co. to the amount of 12K. It was subsequently found out that the work had not been carried out in accordance with the specifications. Hospicio refused to pay therefore Machetti brought an action to recover the amount.

Issue: WON the undertaking assumed by FSC that of guarantor or surety?

Held: Circumstances may be shown which convert the contract into one of suretyship but that does not exist. It appears that the contract is the guarantor’s separate undertaking in which the principal doesnot join, that it 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 collateral undertaking separate and distinct from the

latter. All these are features of a contract of guaranty.

PLARIDEL SURETY V. ARTEXFacts: Artex withdrew from the Bureau of Customs shipments of imported goods which were subject to customs duties and other taxes after posting surety bonds pursuant to RA 4086 because its applications for tax exemptions were not approved by the Board of Industries. In consideration of the obligation assumed by Plaridel, Artex agreed to pay the premiums and cost of documentary stamps in advance due on bonds for each period of 12 months until bonds and its renewals, extensions or substitutions be cancelled in full by the person or entity guaranteed or by court of competent jurisdiction. Artex stopped paying premiums and costs of documentary stamps after it was granted tax exemption. Plaridel maintains that it renewed the surety bonds more or less 8 months before the tax exemption. Plaridel seeks recovery of renewal of premiums on bonds which were already null and void upon grant of tax exemption to principal

Issue: WON Artex is liable for accrued premiums and costs of doc stamps on renewals of the surety bonds after grant of tax exemption to Plaridel?

Held: No. Suretyship cannot exist without valid obligation. The renewals were without consideration. Plaridel incurred no risk from Artex’ tax exemption application was approved. Any renewals were void from the beginning because the cause or object of said renewals did not exist at the time of the transtaction. Express stipulation by parties, surety bonds became null and void upon grant of tax exemption.PACIFIC TOBACCO V. LORENZANAFacts: The Pacific Tobacco Corp. is engaged in the business of manufacturing and distributingcigarettes cigars and other tobacco products. Lorenzana and PTC entered into an agreement whereby Lorenzana will act as Distributor of

PTC. Lorenzana put up a bond in the amount of 3K with Visayan Surety & Insurance Corporation, as surety, to guarantee the faithful fulfillment of Lorenzana’s part in the contract to sell and distribute PTC’s cigarettes.

Issue: WON the delivery of merchandise to Lorenzana at a place other than that appearing in the contract constitutes a material alteration of the same that would release Lorenzana from liability?

Held: No. The mention of Manila and Rizal in said agreement was designed more as a declaration or identification of the places wherein Lorenzana was expressly authorized and assigned to sell PTC’s products which is no obstacle to his acceptance of additional territories in order to fulfill his obligation. A departure from the terms of contract will not have the effect of discharging a compensated surety unless it appears that such departure has resulted in injury, loss or prejudice to the surety.

RCBC V. ARROFacts:Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive surety agreement to guaranty, above all, any existing or future indebtedness of Davao Agricultural Industries Corporation (Daicor), and/or induce the bank at anytime or from time to time to make loans or advances or to extend credit to said Daicor, provided that the liability shall not exceed ay any time Php100,000.00.A promissory note for Php100,000.00 (for additional capital to the charcoal buy and sell and the activated carbon importation business) was issued in favor of petitioner RCBC payable a month after execution. This was signed by Go in his personal capacity and in behalf of Daicor. Respondent Chua did not sign in said promissory note. As the note was not paid despite demands, RCBC filed a complaint for a sum of money against Daicor, Go and Chua. The complaint against Chua was dismissed upon his motion, alleging that the complaint states no

cause of action against him as he was not a signatory to the note and hence he cannot be held liable. This was so despite RCBC’sopposition, invoking the comprehensive surety agreement which it holds to cover not just the note in question but also every other indebtedness that Daicor may incur from petitioner bank. RCBC moved for reconsideration of the dismissal but to no avail. Hence, this petition.

Issue:WON respondent Chua may be held liable with Go and Daicor under the promissory note, even if he was not a signatory to it, in light of the provisions of the comprehensive surety agreement wherein he bound himself with Go and Daicor, as solidary debtors, to pay existing and future debts of said corporation.

Held:Yes, he may be held liable. Order dismissing the complaint against respondent Chua reversed and set aside. Case remanded to court of origin with instruction to set aside motion to dismiss and to require defendant Chua to answer the complaint.

Ratio:The comprehensive surety agreement executed by Chua and Go, as president and general manager, respectively, of Daicor, was to cover existing as well as future obligations which Daicor may incur with RCBC. This was only subject to the proviso that their liability shall not exceed at any one time the aggregate principal amount of Php100,000.00. (Par.1of said agreement). The agreement was executed to induce petitioner Bank to grant any application for a loan Daicor would request for. According to said agreement, the guaranty is continuing and shall remain in full force or effect until the bank is notified of its termination. During the time the loan under the promissory note was incurred, the agreement was still in full force and effect and is thus covered by the latter agreement.

Thus, even if Chua did not sign the promissory note, he is still liable by virtue of the surety agreement. The only condition necessary for him to be liable under the agreement was that Daicor “is or may become liable as maker, endorser, acceptor or otherwise.” The comprehensive surety agreement signed by Go and Chua was as an accessory obligation dependent upon the principal obligation, i.e., the loan obtained by Daicoras evidenced by the promissory note. The surety agreement unequivocally shows that it was executed to guarantee future debts that may be incurred by Daicor with petitioner, as allowed under NCC Art.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.”

DINO V. CAIn 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company. To secure the aforementioned credit accommodations, Norberto Uy and Jacinto Uy Diño executed separate Continuing, dated 25 February 1977, in favor of the MBTC. This credit accommodation has been fully paid. Subsequent transactions flowed smoothly until UTEFS executed and delivered to METROBANK a Trust Receipt whereby the former acknowledged receipt in trust from the latter of the received goods from Planters Products which amounted to P815,600.00. Being the entrustee, the UTEFS agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As aconsequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto

Uyand Jacinto Uy Diño, demanding payment of the amount due. They denied liability on thetransaction. In its reply, the bank informed him that the source of his liability is the ContinuingSuretyship which he executed on February 25, 1977. On demand, UTEFS paid some of the outstanding amount. As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. Since it could no longer collect the balance of amount due, METROBANK thus filed a complaint for collection of a sum of money. Norberto Uy and Jacinto Uy Diño (sureties-defendants) 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 cannot 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. The RTC and the CA ruled in favor of MBTC and held the sureties solidarily liable.Issues1.Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to METROBANK by virtue of the Continuing Suretyship Agreements they separately signed in 1977; and2.On the assumption that they are, what is the extent of their liabilities for said 1979obligations.Held1.Yes, they are still liable. Under the Civil Code, a guaranty may be given

to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. 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. Its 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. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description orcontemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed asContinuing 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. 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 of such notice. x x x The foregoing stipulations unequivocally reveal that the suretyship agreements 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 suretyshipagreements.Petitioners maintain, ho

wever, that their Continuing Suretyship Agreements cannot be madeapplicable to the 1979 obligation because the latter was not yet in existence when the agreements were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree.First of all, the succeeding article provides that"[a]guaranty may also be given as security for future debts, the amount of which is not yet known." Secondly. Article 2052 speaks about a valid obligations, as distinguished from a void obligation, and not an existing or current obligation.

This distinction is made clearer in the second paragraph of Article 2052 which reads: "Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation."

2. By express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interests, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: "ARTICLE 2055.A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. The limit of the petitioners' respective liabilities must be determined from the suretyshipagreement 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 Diño — and petitioner Uy fixthe 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 bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions.

ATOK FINANCE V. CAAtok and Sanyu Chemical entered into a Continuing Suretyship Agreement in favor of Atok Finance with the latter being the creditor and Sanyu Chemical and several stockholdersas sureties. Sanyu Chemical, in consideration of receipt from Atok Finance of the amount of P105,000.00, assigned several receivables in favor of Atok. Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total face value of P100,378.45.Atok Finance commenced action against Sanyu Chemical, and the sureties before the RTC to collect the sum of P120,240.00. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables. Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.It is the contention of respondents that the suretyship agreement is null and void because it is not in consonance with the laws on guaranty and security. The said agreement was entered into by the parties two years before the Deed of Assignment was executed. Thus, allegedly, it ran counter tothe provision that guaranty cannot exist independently because by nature it is merely anaccessory contract: first, because this contract, just like guaranty, cannot exist without a valid obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt(Art. 2053, C.C.), the obligation contemplated in the case at bar cannot be

considered 'future debt as envisioned by this law.

Issue1.May a surety agreement, being an accessory contract, be effected to secure future (non-existing) debts? May the continuing suretyship agreement be declared null and void for alleged lack of consideration since there was still no pre-existing obligation for the surety to attach to?

2.Whether private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby assigned.

Held1. Surety agreements may secure future debts. It is true that a guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. The argument of respondents has been debunked in the cases of National Rice and CornCorporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc. and in Rizal Commercial Banking Corporation v. Arro.

In NARIC v Fojas: This defense is untenable, because in its complaint the NARIC averred, and the appellant did not deny that these bonds were posted to secure the additionalcredit that Fojas has applied for, and the credit increase over his original contract was sufficient consideration for the bonds. That the latter were signed and filed before the additional credit was extended by the NARIC is no ground for complaint. Article 1825 of the Civil Code of 1889, in force in 1948, expressly recognized that

'a guaranty may also be given as security for future debts the amount of which is not yet known.

In RCBC v Arro: 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 petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily 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 petitioner, as is legally allowable under the Civil Code.

These cases rejected the distinction which the Court of Appeals in the case at bar sought to make with respect to Article 2053, that is, that the "future debts" referred to in that Article relate to "debts already existing at the time of the constitution of the agreement but the amount [of which]is unknown," and not to debts not yet incurred and existing at that time. Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or a financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected Principal debtor to execute a continuing surety agreement along with its sureties. By executing

such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand it, this is precisely what happened in the case at bar2.They are liable. The contention of Sanyu Chemical was that Atok Finance had no cause of action under the Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had ceased based on article 1629: In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired. Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of Appeals is not, in the case at bar, material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of solvency; the liability of Sanyu Chemical was not ex lege (e xArticle 1629) but rather ex contractu. Under the Deed of Assignment, the effect of non-payment by the original trade debtors was a breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignorunder the receivables assigned. In other words,the assign or Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became, under the terms of the Deed of Assignment, solidary obligor under each of the assigned receivables, the other private respondents (the Arrieta spouses,Pablito Bermundo and Leopoldo Halili), ALSO became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement. Put a little differently,

the obligations of individual private respondet officers andstockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article1629 of the Civil Code.

PNB V. CAFacts: Estanislao Depusoy, and the Republic of the Philippines, represented by the Director of Public Works, entered into a building contract, for the construction of the GSTS building at ArrocerosStreet,Manila, Depusoy to furnish all materials, labor, plans, and supplies needed in the construction.Depusoy applied for credit accommodation with the plaintiff. This was approved by the Board of Directors in various resolutions subject to the conditions that he would assign all payments to be received from the Bureau of Public Works of the GSIS to the bank, furnish a surety bond, and the surety to deposit P10,000.00 to the plaintiff. The total accommodation granted to Depusoy wasP100,000.00. This was later extended by another P10,000.00 and P25,000.00, but in no case should the loan exceed P100,000.00. In compliance with these conditions, Depusoy executed a Deed of Assignment of all money to be received by him from the GSIS to PNB. Depusoy defaulted in his building contract with the Bureau of Public Works, and sometime in September, 1957, the Bureau of Public Works rescinded its contract with Dernisoy. No furher amounts were thereafter paid by the GSISto lie plaintiff bank. The amount of the loan of Depusoy which remains unpaid, including interest, is over P100,000.00. Demands for payment were made upon Depusoy and Luzon, and as no payment was made, therefore herein petitioner filed with the trial court a complaint against Estanislao Depusoy and private respondent Luzon Surety Co. Inc. (LSCI).

Issue: WON Luzon Surety is liable

Held: the bonds executed by private respondent LSCI were to guarantee the faithful performance of Depusoy of his obligation under the Deed of Assignment and not to guarantee payment of the loans or the debt of Depusoy to petitioner to the extent of P100,000.00. Besides, even if there had been any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety. As concretely put in Article 2056 of the Civil Code, "A guaranty is not presumed, it must be expressed and cannot extend to more than what is stipulated therein." LSCI is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms."

SECURITY BANK V. CUENCAI. Facts* Creditor: Sccurity Bank and Trust Co.Debtor: Sta. Ines Melale Corp. Surety: Rodolfo CuencaA.Sta. Ines is a corporation engaged in logging operations. In 1980, it was granted by Security Bank a credit line in the amount of Php 8M. To secure payment, it executed a chattel mortgage over some of its machineries and equipments. And as an additional security, its President and Chairman of the Board of Directors Rodolfo Cuenca, executed anIndemnity agreement in favor of Security Bank whereby he bound himself jointly and severally with Sta. Ines. After Cuenca resigned, Sta. Ines obtained a Php 6M loan. Because of its difficulty in making the amortization payments, in 1989 it requestedSecurity Bank a complete restructure of its indebtedness, which wasapproved without prior notice to, or prior consent of Cuenca. Still it was unable to pay.

B. Contention of the PetitionerSecurity Bank insists that the 1989 Loan Agreement was a mere renewal or extension of the Php 8M original accommodation, that Cuenca waived his right to be notified of and

to give consent to any substitution, renewal, extension, increase, amendment, conversion or revival of the same, and that it was a continuing surety.

C. Contention of the RespondentCuenca argues that the 1989 agreement extinguished the obligation under the 1980 credit accommodation by novation.

II. IssuesWON the 1989 Loan Agreement novated the original credit accommodationand Cuenca’s liability under the Indemnity Agreement.

III. Ruling The 1989 Loan Agreement extinguished by novation the obligation under the1980 P8 million credit accommodation. It is essential in the law of suretyship that any agreement between the creditor and the principal debtor that essentiallyvaries the terms of the principal contract without the consent of the surety, will release the surety from liability. The 1989 Loan Agreement expressly stipulatedthat its purpose was to liquidate, not to renew or extend, the outstanding indebtedness.Moreover, respondent did not sign or consent to the 1989 LoanAgreement, which had allegedly extended the original P8 million credit facility. Indeed, the stipulation in the 1989 Loan Agreement providing for the surety of respondent, without even informing him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that Loan Agreement constituted a new indebtedness, the old loan having been already liquidated, the spirit of fair play should have impelled Sta. Ines to ask somebody else to act as a surety for the new loan.

DURAN V. IACDoctrine: The fraudulent and forged document of sale may become the root of a valid title if the certificate has already been transferred from

the name of the true owner to the name indicated by the forger.Facts:Circe Duran owned 2 parcels of land in Caloocan City which she had purchased form the Moja Estate. She left the Philippines in June 1854. A Deed of Sale of the 2 lots was made in favor of Circe’s mother, Fe. In December 1965, Fe mortgaged the same property to Erlinda Marcelo-Tiangco. When Circe came to know about the mortgage, she wrote to the Register of Deeds (RD) of Caloocan informing that she had not given her mother any authority to sell or mortgage any of her properties. She failed to get an answer from the RD. So she returned to the Philippines in May 1966.Meanwhile, Fe failed to redeem the mortgaged properties and foreclosure proceedings were initiated by Marcelo- Tiangco. Circe claims that the sale in favor of her mother is a forgery saying that at the time of its execution in 1963, she was in the US. Fe alleges that the signatures of Circe in the Deed are genuine and the mortgage made by Fe is valid.Issue:1. Whether or not the mortgage is valid2. Whether or not Marcelo-Tiangco was a buyer in good faith and for valueHeld:1. Yes, the mortgage is valid with respect to the mortgagees. There is a presumption of regularity in the case of a public document. The fraudulent and forged document of sale may become the root of a valid title if the certificate has already been transferred from the name of the true owner to the name indicated by the forger. Insofar as innocent 3rd persons are concerned, the owner was already Fe inasmuch as she had become the registered owner (caused by the sale of Circe to Fe). The mortgagee had the right to rely upon what appeared in the cert. of title and did not have to inquire further.2. Good faith consists of the possessor’s belief that the person from whom he received the thing was the owner of the same and could convey his title. In the case, Marcelo-Tiangco in

good faith relied on the cert. of title in the name of Fe.*Circe was also guilty of estoppels by laches. Antero (husband of Circe) was in the Philippines in 1964 to construct an apartment on the disputed lots. He could have discovered the deed of sale sought to be set aside. They could also have intervened in the foreclosure suit but they did not.

UY TONG V. CAFacts: Spouses Uy Tong purchased from BAYANIHAN 7 units of motor vehicles forP47,700.00 payable in 3 installments. The transaction was evidenced by a Written Agreement which provided that if VENDEE should fail to pay the latter shall become automatically the owner of the former’s apartment in Binondo, Manila, with the only obligation on its part to pay unto the VENDDE P3,535.00 and that VENDEE shall execute the corresponding Deed of Absolute Sale in favor of the Vendor and/or Assignment of Leasehold Rights. This agreement, according to the petitioners is in the nature of a pactum commissorium which is null and void.

Issue: WON the agreement is in the nature of pactum commisorium

Held: No. A perusal of the terms of the questioned agreement evinces no basis for the application of the pactum commissorium provision. First, there is no identification of any contract of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks. Second, there is no case of automatic appropriation of property because it took the intervention of the trial courts to exact fulfillment of the obligation.

BUSTAMANTE V. ROSELFacts: Respondent ROSEL (lender) entered into a loan agreement with petitioner BUSTAMANTE (borrower) and her late husband, under, among others, the condition that the Rosel is given the option to buy at a certain price the property given as collateral in the event the borrower

fails to pay. When the loan was about to mature, Rosel proposed to buy at the pre-set price of 200K the collateral given to guarantee the payment of the loan, but Bustamante refused to sell. When Bustamante tendered payment of the loan to Rosel which it refused to accept, insisting on petitioner’s signing a prepared deed of absolute sale of the collateral. Rosel consigned the amount of 47,500 with the trial court with which Rosel filed a complaint for specific performance.

Issue: WON the stipulation in the loan contract was valid and enforceable.

Held:1.Stipulation embraced in concept of pactum commisorium – Bustamante did not fail to pay the loan when Rosel refused to accept payment, Bustamante consigned the amount with the trial court. A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the property given as security for the loan. This is embraced in the concept of pactumcommissorium.2.Intent to appropriate property as collateral appears to be evident – the debtor is obliged to dispose of the collateral at the pre-agreed consideration amounting to practically the same amount of the loan. In effect, the creditor acquires collateral in event of non-payment of the loan. This is within the concept of PC, thus stipulation is void. ELEMENTS OF PACTUM COMMISSORIUMa. There should be a property mortgaged by way of security for the payment of the principal obligation; b. There should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in the case of non-payment of the principal obligation within the stipulated period.

DBP V. CAFacts: CUBA, a guarantee of a Fishpond Lease Agreement from the Government, obtained from DBP 3 separate loans, each of which was covered by a promissory note. Simultaneous with the execution of the notes was the execution of the “Assignment of Leasehold

Rights” by CUBA, as borrower of the mortgaged properties by way of security in the payment of the loans. Condition no. 12 provides for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights in case of default by CUBA and to apply the proceeds to the payment of the loan.Issue:1.WON the condition in question constitute pactum commissorium2.WON the act of DBP in appropriating to itself CUBA’s leasehold rights with foreclosure proceedings was contrary to Article 2088 and, therefore, invalid.Held:1.The elements of pactum commissorium are not present – Condition 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA’s failure to pay the loan on time2.DPB exceeded authority vested by condition - DBP cannot take refuge in condition 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated, condition 12 did not provided that CUBA’s default would operate to vest DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee

SERRANO V. CAFACTS:Serrano bought some jewelry from Ribaya. Due to need of finances, she decided to have the jewelry pawned. She instructed her secretary to do so for her, which the secretary did but absconded after receiving the proceeds. It is to be noted that the pawnshop ticket indicated that the jewelry was redeemable “by presentation by the bearer.” Afterwards, there was a lead on where the jewelry was pawned. An investigation was done to verify the suspicion. The jewelry was to be sold in a public auction then. The petitioner and police authorities informed the pawnshop owner not to sell the jewelry as she was the rightful owner thereof. Despite of this however, the jewelry was redeemed by a Tomasa de Leon who presented the

pawnshop ticket. HELD:Having been informed by the petitioner and the police that jewelry pawned to it was either stolen or involved in an embezzlement of the proceeds of the pledge, pawnbroker became duty bound to hold the things pledged and to give notice to the petitioner and authorities of any effort to redeem them. Such a duty was imposed by Article 21 of the CC. The circumstance that the pawn ticket stated that the pawn was redeemable by the bearer, didn’t dissolve this duty. The pawn ticket wasn’t a negotiable instrument under the NIL, nor was it a negotiable document of title under Article 1507of the CC.

YULIONGSI V. PNBFacts: Plaintiff Yuliongsi was the owner of 3 vessels. In 1947, plaintiff obtained a loan from defendant PNB for P50,000 guaranteed by a pledge of the 3 vessels to PNB, which pledge contract was duly registered with the office of the Customs Collector of Cebu. Plaintiff effected partial payment of said loan and delivered 2 promissory notes for the balance. In 1948, the defendant filed criminal charges against plaintiff for estafa thru falsification of documents. With the institution of the criminal action, defendant took physical possession of the 3 pledged vessels. After the first note fell due, without the plaintiff effecting payment, the defendant, pursuant to the terms of the contract, executed a document of sale transferring the vessels to itself. 2 of the vessels were later sold to a 3rdparty. Plaintiff filed an action to recover the vessels or their value plus damages. Trial court decided for defendant PNB.

Issue: WON the contention of PNB is tenable

Held: The pledgee can temporarily entrust the physical possession of the chattels (in this case, the vessels) to the pledgor without invalidation the pledge. The pledgor is regarded as holding the property pledged merely as trustee for the

pledgee. Since the defendant was, pursuant to the terms of the contract, in full contract of the vessels thru the plaintiff, the former could take actual possession at any time during the life of the pledge to make more effective its security. Its taking of the vessels. Therefore, was not unlawful, nor was it unjustified considering that plaintiff had just defrauded the defendant.

PNB V. SAYO Facts: Noah’s Ark Sugar Refinery issued several warehouse receipts covering sugar deposited by RNS Merchandising and St. Therese Merchandising. Subsequently, these same receipts were endorsed to Ramos and Zoleta. The latter then used the receipts as security for two loan agreements with PNB, thus endorsing them with said bank. When Ramos and Zoleta could not pay their loan to the bank, PNB demanded delivery of the sugar stocks covered by the receipts from Noah’’ Ark Sugar Refinery.Noah refused to comply with the demand alleging ownership of the sugar. It alleged that the owner of Noah, Looyuko, entered into an agreement with RNS and St. Therese Merchandising to sell the sugar indicated in the warehouse receipts stored in Noah for an amount of P63,000,000. Checks were issued but they were dishonored for being drawn against insufficient funds.Hence, PNB filed a complaint with the RTC. RTC dismissed said complaint. On appeal to the SC by way of petition for review on certiorari, SC ordered Noah and its owner, Looyuko, to deliver to PNB the sugar stocks covered by the warehouse receipts in controversy.However, Noah filed an Omnibus Motion seeking deferment of the judgment until it was heard on its warehouseman’s lien. RTC granted the order and evidence was received in support thereof. RTC adjudged that there existed a valid lien in favor of Noah, and accordingly, execution of the judgment against Noah should be stayed until the full amount of Noah’s lien shall have been satisfied. PNB then filed certiorari proceedings before the SC. SC held that while PNB was entitled to the sugar stocks as endorsee of the receipts, delivery to it shall only

be effected upon payment of the storage fees. SC further ruled that imperative is the right of the warehouseman to demand payment of his lien because he loses his lien upon goods by surrendering possession thereof.RTC Judge Sayo, Jr. allowed a writ of execution in favor of Noah to collect on its warehouseman’s lien against PNB. Hence, this certiorari proceeding before the SC.

Issues: (1) Whether or not PNB is liable for storage fees.(2) If yes, what is the duration of time the right of PNB over the goods may be subject to the lien?

Held: (1) YES. PNB contends that it was a mere pledgee as the receipts were used to secure two loans it granted. SC agreed with this and held that the indorsement and delivery of the receipts by Ramos and Zoleta to PNB was not to convey title to or ownership of the goods but to secure the loans by way of pledge. The indorsement of the receipts to perfect the pledge merely constituted a symbolical or constructive delivery of the possession of the thing thus encumbered. The creditor, in a contract of real security, like pledge, cannot appropriate without foreclosure the things given by way of pledge. Any stipulation to the contrary is null and void for being pactum commissorio. The law requires foreclosure in order to allow a transfer of title of the goods given by way of security from its pledgor, and before any such foreclosure, the pledgor, not the pledgee, is the owner of the goods.However, SC held that the warehouseman nevertheless is entitled to his lien that attaches to the goods invokable against anyone who claims a right of possession thereon.

(2) SC held that where a valid demand by the lawful holder of the receipts for the delivery of the goods is refused by the warehouseman, despite the absence of a lawful excuse provided by the law itself, the warehouseman’s lien is

thereafter concomitantly lost. As to what the law deems a valid demand, Section 8 of the Warehouse Receipts Law enumerates what must accompany a demand. SC held that regrettably, the factual settings do not sufficiently indicate whether the demand to obtain possession of the goods complied with Sec. 8. The presumption, nevertheless, would be that the law was complied with. On the other hand, it would appear that the refusal of Noah to deliver the goods was not anchored on a valid excuse, i.e., non-satisfaction of the lien over the goods, but on an adverse claim of ownership. Under the circumstances, this hardly qualified as a valid, legal excuse. The loss of the lien, however, does not necessarily mean the extinguishment of the obligation to pay the warehousing fees and charges which continues to be a personal liability of the owners, i.e., the pledgors, not the pledgee, in this case. But even as to the owners-pledgors, the warehouseman fees and charges have ceased to accrue from the date of the rejection by Noah to heed the lawful demand by PNB for the release of the goods. Hence, the time from which the fees and charges should be made payable is from the time Noah refused to heed PNB’s demand for delivery of the sugar stocks and in no event beyond the value of the credit in favor of the pledgee since it is basic that, in foreclosures, the buyer does not assume the obligations of the pledgor to his other creditors even while such buyer acquires title over the goods less any existing preferred lien there over.