CREDIT TRANSACTIONS

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

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

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

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

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

ISSUE: W/N the contract between the parties is one of loan or lease.

RULING:

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

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

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

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

Issue: Was there a perfected contract of loan?

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

3. Republic vs Bagtas 6 SCRA 262

FACTS:

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

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

RULING:

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

Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book
value, to with: the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that
in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability.
Book: A contract of commodatum is essentially gratuitous. If the breeding fee be considered compensation, then the
contract would be a lease of the bull. Under Article 1671 of the Civil Code, the lessee would be subject to the
responsibilities of a possessor in bad faith because she had continued possession of the bull after the expiration of the
contract. And even if the contract be commodatum, still B is liable under Article 1942(2,
4. Mina v. Pascual, 25 Phil 540
Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that lot. Both Francisco and
Andres died and their children became their respective heirs: Mina for Francisco and Pascual for Andres. Pascual sold his
share of the warehouse and lot. Mina opposed because the lot is hers because her predecessor (Francisco) never parted
with its ownership when he let Andres construct a warehouse, hence, it was a contract of commodatum.
What is the nature of the contract between Francisco and Andres?

The Supreme Court held that it was not a commodatum. It is an essential feature of commodatum that the use of the thing
belonging to another shall be for a certain period. The parties never fixed a definite period during which Andres could use
the lot and afterwards return it.
NOTA BENE: It would seem that the Supreme Court failed to consider the possibility of a contract of precardium between
Francisco and Andres. Precardium is a kind of commodatum wherein the bailor may demand the object at will if the
contract does not stipulate a period or use to which the thing is devoted.

5. Catholic Vicar Vs. CA

Facts:
- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the court an application for the
registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet, said lots being used as sites of the
Catholic Church, building, convents, high school building, school gymnasium, dormitories, social hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership over lots 1, 2 and 3. (2
separate civil cases)
- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4. Upon appeal by the private
respondents (heirs), the decision of the lower court was reversed. Title for lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of Appeals dismissing
his application for registration of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership of the land in
question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his written demand to Vicar for the return of the land
to them; and the reasonable rentals for the use of the land at P10,000 per month. On the other hand, Vicar presented the
Register of Deeds for the Province of Benguet, Atty. Sison, who testified that the land in question is not covered by any
title in the name of Egmidio Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons. Brasseur when the
heirs admitted that the witness if called to the witness stand, would testify that Vicar has been in possession of Lot 3, for
75 years continuously and peacefully and has constructed permanent structures thereon.
Issue: WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum, a gratuitous loan for
use.
Held: YES. Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar after
the church and the convent were destroyed. They never asked for the return of the house, but when they allowed its free
use, they became bailors in commodatum and the petitioner the bailee.
The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the part
of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse claim of petitioner came
only in 1951 when it declared the lots for taxation purposes. The action of petitioner Vicar by such adverse claim could not
ripen into title by way of ordinary acquisitive prescription because of the absence of just title.
The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years possession for acquisitive
prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. The appellate court did not believe the findings of the trial court that Lot 2
was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase from Egmidio Octaviano by
petitioner Vicar because there was absolutely no documentary evidence to support the same and the alleged purchases
were never mentioned in the application for registration.
6. Pajuyo v. CA, G.R. No. 146364, June 3, 2004
Pajuyo purchased the rights over a property from Pedro Perez. Thereafter, he constructed a house and he and his family
lived there. Later, Pajuyo agreed to let Guevarra live in the house for free provided that Guevarra maintain cleanliness
and orderliness of the house. They also agreed that Guevarra should leave upon demand. But when Pajuyo later told
Guevarra that he needed the house, Guevarra refused, hence an ejectment case was filed.
Supreme Court held that the contract is not a commodatum. “In a contract of commodatum, one of the parties delivers to
another something not consumable so that the latter may use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to
another is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the
period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the bailor should have
urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium. Under the
Civil Code, precarium is a kind of commodatum.”
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While
the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition.
SIMPLE LOAN
1.Citibank vs Sabeniano
FACTS: Modesta Sabeniano is a client of Citibank and FNCB Finance. On February 1978, Sabeniano obtained a loan of
Php 200,000 from Citibank. This loan was followed with several other loans – some were paid, while some were not.
Those that were not paid upon maturity were rolled over, reflecting a total unpaid loan of Php 1,069,847.40 as of
September 1979.
These loans were secured by Sabeniano’s money market placements with FNCB Finance through a Deed of Assignment
plus a Declaration of Pledge which states that all present and future fiduciary placements held in her personal and/or joint
name with Citibank Switzerland, will secure all claims that Citibank may have or, in the future, acquire against her.The
Deeds of Assignment were duly notarized, while the Declaration of Pledge was not notarized and Citibank’s copy was
undated, while that of Sabeniano bore the date, September 24, 1979.
Since Sabeniano failed to pay her obligations to Citibank, the latter sent demand letters to request payment. Her total
unpaid loan initially amounted to Php 2,123,843.20 (inclusive of interests).
Still failing to pay, Citibank executed the Deeds of Assignment and used the proceeds of Sabeniano’s money market
placement from FNCB Finance which totaled Php 1,022,916.66 and her deposits with Citibank which totaled Php
31,079.14 to set-off her loan. This reduced the unpaid balance to Php 1,069,847.40 as previously mentioned. Since the
loan remains unpaid, Citibank proceeded to execute the Declaration of Pledge and remitted a total of $149,632.99 from
Sabeniano’s Citibank-Geneva accounts to off-set the loan. Sabeniano then filed a complaint against Citibank for damages
and specific performance (for proper accounting and return of the remitted proceeds from her personal accounts). She
also contended that the proceeds of 2 promissory notes (PN) from her money market placements with Citibank were
rolled over or reinvested into the petitioner bank, and these should also be returned to her.
Regarding the execution of the pledge, the RTC declared this illegal, null and void. Citibank was ordered to return the
$149,632.99 to Sabeniano’s Citibank-Geneva account with a legal interest of 12% per annum. The RTC also ordered
Sabeniano to pay her outstanding loan to Citibank without interests and penalty charges. Both parties appealed to the CA
which affirmed the RTC’s decision, but further ruled entirely in favor of Sabeniano – holding that Citibank failed to
establish her indebtedness and that all the executed deeds should be returned to her account. The case has now reached
the Supreme Court.
ISSUE: Whether or not Citibank’s execution of deeds and pledge to off-set Sabeniano’s loan was valid and legal.
HELD: The Supreme Court reversed the CA’s findings regarding Sabeniano’s Citibank loan as this was properly
documented and sufficient in evidence. Thus, the execution of deeds was valid, especially that the agreement was duly
notarized, signed and prepared in accordance with the law. The court also ordered Citibank to return the amount of
P318,897.34 and P203,150.00 plus 14.5% per annum to Sabeniano. This is the total amount from the 2 PNs which were
executed despite being reinvested in said bank. The bank was also ordered to pay moral damages of P300,000,
exemplary damages for P250,000, attorney’s fees of P200,000.
The SC however affirmed the RTC’s decision regarding the pledge. Being a separate entity, Citibank cannot exercise
automatic remittance from Sabeniano’s Citibank Geneva account to off-set her outstanding loan. The court also noted that
the pledge was filled out irregularly – it was not notarized and Citibank’s copy bore no date. The original copy was not also
produced in court. Regarding Sabeniano’s obligation, the Supreme Court affirmed RTC’s decision and ordered her to pay
the remaining balance of her loan which amounts to P1,069,847.40 as of 5 September 1979. These loans continue to
earn interest based on the maturity date that were agreed and stipulated upon by the parties.
Republic vs Grijaldo

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

By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the
Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the
United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in
question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under
Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the
administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in
accordance with Republic Acts Nos. 8 and 477 and other pertinent laws. On September 29, 1954 the appellee, Republic
of the Philippines, represented by the Chairman of the Board of Liquidators, made a written extrajudicial demand upon the
appellant for the payment of the account in question. The record shows that the appellant had actually received the written
demand for payment, but he failed to pay.

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

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

ISSUE: Whether or not the obligation to pay is extinguished.

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

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

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

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

3. Tan vs Valehueza
Facts: Defendants herein, Arador, Rediculo, Pacita, Concepcion and Rosario, all surnamed Valdehueza, are brothers and
sisters; the parcel of land described in the first cause of action was the subject matter of the public auction sale wherein
the plaintiff was the highest bidder and as such a Certificate of Sale was executed in favor of LUCIA TAN the herein
plaintiff. Due to the failure of defendant Arador Valdehueza to redeem the said land within the period of one year as being
provided by law, an ABSOLUTE DEED OF SALE in favor of the plaintiff LUCIA; that defendants ARADOR VALDEHUEZA
and REDICULO VALDEHUEZA have executed two documents of DEED OF
PACTO DE RETRO SALE in favor of the plaintiff herein, LUCIA TAN of two portions of a parcel of land which is described
in the second cause of action with the total amount of P1,500; that from the execution of the Deed of Sale with right to
repurchase mentioned in the second cause of action, defendants Arador Valdehueza and Rediculo Valdehueza remained
in the possession of the land.A complaint for injunction filed by Tan to enjoin the Valdehuezas "from entering the parcel of
land and gathering the nuts therein ...." This complaint and the counterclaim were subsequently dismissed for failure of
the parties"to seek for the immediate trial thereof, thus evincing lack of interest on their part to proceed with the The Deed
of Pacto de Retro referred to was not registered in the Registry of Deeds, while the 2nd Deed of Pacto de Retro was
registered.
Issue:Whether the transactions between the parties were simple loan?
Held: NO. Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the validity of a
mortgage even as between the parties, but under article 2125 of the new Civil Code (in effect since August 30,1950), this
is no longer so.The Valdehuezas having remained in possession of the land and the realty taxes having been paid by
them, the contracts which purported to be pacto de retro transactions are presumed to be equitable mortgages, 5
whether registered or not, there being no third parties involved.
(guys hinabaan ko na ang ruling para gets-able siya. *wink)
RADIOWEALTH FINANCE COMPANYvs. Spouses VICENTE and MA. SUMILANG DEL ROSARIO
FACTS: Spouses Vicente and Maria Sumilang del Rosario (herein respondents), jointly and severally executed, signed
and delivered in favor of Radiowealth Finance Company (herein petitioner), a Promissory Note [5] for P138,948.

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

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

It is hereby agreed that if default be made in the payment of any of the installments or late payment charges thereon as
and when the same becomes due and payable as specified above, the total principal sum then remaining unpaid, together
with the agreed late payment charges thereon, shall at once become due and payable without need of notice or
demand. If any amount due on this note is not paid at its maturity and this Note is placed in the hands of an attorney or
collection agency for collection, I/We jointly and severally agree to pay, in addition to the aggregate of the principal
amount and interest due, a sum equivalent to ten (10%) per cent thereof as attorneys and/or collection fees, in case no
legal action is filed, otherwise, the sum will be equivalent to twenty-five (25%) percent of the amount due which shall not in
any case be less than FIVE HUNDRED PESOS (P500.00) plus the cost of suit and other litigation expenses and, in
addition, a further sum of ten per cent (10%) of said amount which in no case shall be less than FIVE HUNDRED PESOS
(P500.00), as and for liquidated damages.[6]

Thereafter, respondents defaulted on the monthly installments. Despite repeated demands, they failed to pay their
obligations under their Promissory Note.
Petitioner filed a Complaint for the collection of a sum of money.
ISSUE: The petitioner raises this lone issue: (b) the date when the obligation became due and demandable.
RULING: Petitioner claims that respondents are liable for the whole amount of their debt and the interest thereon, after
they defaulted on the monthly installments.Respondents, counter that the installments were not yet due and
demandable. Petitioner had allegedly allowed them to apply their promotion services for its financing business as payment
of the Promissory Note. This was supposedly evidenced by the blank space left for the date on which the installments
should have commenced.[19] In other words, respondents theorize that the action for immediate enforcement of their
obligation is premature because its fulfillment is dependent on the sole will of the debtor. Hence, they consider that the
proper court should first fix a period for payment, pursuant to Articles 1180 and 1197 of the Civil Code.
This contention is untenable. The act of leaving blank the due date of the first installment did not necessarily mean that
the debtors were allowed to pay as and when they could. If this was the intention of the parties, they should have so
indicated in the Promissory Note. However, it did not reflect any such intention. The note expressly stipulated that the debt
should be amortized monthly in installments of P11,579 for twelve consecutive months. While the specific date on which
each installment would be due was left blank, the Note clearly provided that each installment should be payable each
month.
Furthermore, it also provided for an acceleration clause and a late payment penalty, both of which showed the
intention of the parties that the installments should be paid at a definite date. Had they intended that the debtors
could pay as and when they could, there would have been no need for these two clauses.
Verily, the acts of the parties manifest their intention and knowledge that the monthly installments would be due and
demandable each month.[20] In this case, the conclusion that the installments had already became due and
demandable is bolstered by the fact that respondents started paying installments on the Promissory Note, even if
the checks were dishonored by their drawee bank. We are convinced neither by their avowals that the obligation
had not yet matured nor by their claim that a period for payment should be fixed by a court.
Convincingly, petitioner has established not only a cause of action against the respondents, but also a due and
demandable obligation. The obligation of the respondents had matured and they clearly defaulted when their checks
bounced. Per the acceleration clause, the whole debt became due one month (April 2, 1991) after the date of the Note
because the check representing their first installment bounced.
It should be stressed that respondents do not contest the amount of the principal obligation. Their liability as
expressly stated in the Promissory Note and found by the CA is P13[8],948.00[22] which is payable in twelve (12)
installments at P11,579.00 a month for twelve (12) consecutive months. As correctly found by the CA, the "ambiguity" in
the Promissory Note is clearly attributable to human error.[23]
Petitioner, in its Complaint, prayed for 14% interest per annum from May 6, 1993 until fully paid. We disagree. The
Note already stipulated a late payment penalty of 2.5 percent monthly to be added to each unpaid installment until fully
paid. Payment of interest was not expressly stipulated in the Note. Thus, it should be deemed included in such penalty.
In addition, the Note also provided that the debtors would be liable for attorneys fees equivalent to 25 percent of the
amount due in case a legal action was instituted and 10 percent of the same amount as liquidated damages. Liquidated
damages, however, should no longer be imposed for being unconscionable. [24] Such damages should also be deemed
included in the 2.5 percent monthly penalty. Furthermore, we hold that petitioner is entitled to attorneys fees, but only in a
sum equal to 10 percent of the amount due which we deem reasonable under the proven facts. [25]
The Court deems it improper to discuss respondents' claim for moral and other damages.
WHEREFORE, the Petition is GRANTED. The appealed Decision is MODIFIED in that the remand is SET
ASIDE and respondents are ordered TO PAY P138,948, plus 2.5 percent penalty charge per month beginning April 2,
1991 until fully paid, and 10 percent of the amount due as attorneys fees. No costs.
SO ORDERED.

REPUBLIC OF THE PHILIPPINES, v UNIMEX

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

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

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

The BOC Commissioner and respondent again filed their respective MRs of the above decision. The Commissioner
insisted that the BOC was not liable to respondent. On the other hand, respondent’s MR sought payment of the goods’
value in euros, not in US dollars.12 It also demanded that the 6% legal interest be reckoned from the date of its judicial
demand on June 15, 1987.

ISSUE: W/N CA’s imposition of the 12% p.a. legal interest upon the finality of the decision of this case until the
value of the goods is fully paid (as forbearance of credit) is likewise bereft of any legal anchor?
RULING: NO. We agree with petitioner. Petitioner likewise argues that the CA erred in imposing the 6% p.a. legal
interest. According to petitioner, the obligation to pay legal interest only arises by virtue of a contract or on account of
damages due to delay or failure to pay the principal on which the interest is exacted. It added that since the CTA decision
did not involve a monetary award but merely the release of the goods to respondent, there was no basis for the
computation and/or imposition of the 6% p.a. legal interest. Interest may be paid only either as compensation for the use
of money (monetary interest)24 or as damages (compensatory interest).25 We quote in agreement the CTA’s disquisition in
its decision dated September 19, 2002:

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

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

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

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

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

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

More importantly, interest is not chargeable against petitioner except when it has expressly stipulated to pay it or when
interest is allowed by the legislature or in eminent domain cases where damages sustained by the owner take the form of
interest at the legal rate.27 Consequently, the CA’s imposition of the 12% p.a. legal interest upon the finality of the
decision of this case until the value of the goods is fully paid (as forbearance of credit) is likewise bereft of any
legal anchor.

Garcia v Thio
FACTS: In Carolyn Garcia v. Rica Marie Thio, March 16, 2007, Rica received from Carolyn a crossed check in the
amount of $100,000.00 payable to the order of Marilou Santiago. Thereafter, Carolyn received from Rica payments.
Again, Rica received a check in the amount of P500,000.00 from Carolyn and payable to the order of Marilou and
payments were again made by her representing interests. There was failure to pay the principal amounts hence, a
complaint for sum of money with damages was filed. Rica contended that she had no obligation to her as it was Marilou
who was indebted as she was merely asked to deliver the checks to Marilou and that the check payments she issued
were merely intended to accommodate Marilou. The RTC ruled in favor of Carolyn but the CA reversed on the ground that
there was no contract between Rica and Carolyn. On appeal, the SC

Held: There was a contract of loan between Carolyn and Rica.A loan is a real contract, not consensual (this is different
from a consensual contract which only requires consent) and as such is perfected only upon the delivery of the object
of the contract. This is evident in Art. 1934 of the Civil Code which provides. An accepted promise to deliver
something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the object of the contract. Upon delivery of the object of the contract of
loan (in this case the money received by the debtor when the checks were encashed) the debtor acquired ownership of
such money or loan proceeds and is bound to pay the creditor an equal amount. It is undisputed that the checks were
delivered to Rica. However, these checks were crossed and payable not to the order of Rica but to the order of a certain
Marilou Santiago.The Court agree with petitioner. Delivery is the act by which the res or substance thereof is placed
within the actual or constructive possession or control of another.Although Rica did not physically receive the
proceeds of the checks, these instruments were placed in her control and possession under an arrangement whereby she
actually re-lent the amounts to Marilou.
Several factors support this conclusion.
(1) Carolyn did not know personally Marilou. This was admitted by Rica, hence, it is not possible for Carolyn to
grant loans in such big sum of money even without any acknowledgment of debt. It was Rica who had
transactions with Marilou. (2) It is unbelievable that Rica would put herself in a position where she would be
compelled to pay interest out of her own funds for loans she never contracted. (3) When Marilou filed a petition
for insolvency, it was Rica who was listed as a debtor.Hence, Rica is the debtor and not Marilou.
No interest if there is no written agreement to pay it; exception.
Whether the debtor is liable to pay interest since there was no written agreement to pay interest, the SC
Held: No, because no interest shall be due unless it has been expressly stipulated in writing. (Art. 1956, NCC). Be that as
it may, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209 of the Civil Code. It is
well-settled:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
(Eusebio-Calderon v. People, G.R. No. 158495, October 21, 2004, 441 SCRA 137; Eastern Shipping
Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994, 234 SCRA 78; Garcia v. Thio, G.R. No. 154878, March
16, 2007).

Hence, Rica is liable for the payment of legal interest per annum to be computed from the date when she received
the demand letter. From the finality of the decision until it is fully paid, the amount due shall earn interest at 12% per
annum, the interim period being deemed equivalent to a forbearance of credit. (Cabrera v. People, G.R. 150618, July 24,
2003, 407 SCRA 247).
 DEPOSITS (7-9)
CASES FOR CONTRACT OF DEPOSIT
1. BPI v IAC. 164 SCRA 630 (1988)
FACTS: A contract of depositum was entered into by Garcia, on behalf of COMTRUST (BPI), wherein he received US
$3,000 (foreign exchange) from Zshornack for safekeeping. Later on or over five months later, Zshornack demanded the
return of the money but the bank refused alleging that the amount was sold and transferred to her current account
COMTRUST (BPI) averred that the parties entered into a contract of depositum which banks do not enter into. Thus,
Garcia exceeded his powers when he entered into the contract on behalf of the bank, hence, the bank cannot be liable
under the contract.

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

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

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

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

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

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

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

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

ISSUE: Whether the estate of de la Pena is liable for the trust fund
RULING: No. Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the
diligence pertaining to a good father of a family" (art.1094), it also provides, following the principle of the Roman law,
major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not be
foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law
or those in which the obligation so declares."
By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an obligation
different from that under which he would have lain if such deposit had not been made, nor did he thereby make himself
liable to repay the money at all hazards. If it had been forcibly taken from his pocket or from his house by the military
forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil Code he would have
been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal account does not add to
his responsibility. Such deposit did not make him a debtor who must respond at all hazards.
The precise question in this case is not of negligence. There was no law prohibiting De la Pena from depositing it as he
did and there was no law which changed his responsibility be reason of the deposit. While it may be true that one who is
under obligation to do or give a thing is in duty bound, when he sees events approaching
the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if
unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two
means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the
other.
The court, therefore, finds and declares that the money which is the subject matter of this action was deposited by Father
De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken from the
bank by the armed forces of the United States during the war of the insurrection; and that said Father De la Peña was not
responsible for its loss.

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

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

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

ISSUE: Whether the Bank is liable for negligence

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

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

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

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

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

5. Javellana v Lim 11 Phil 141

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

6. People v Ong 204 SCRA 942

FACTS:
Accused Dick Ong, one of the depositors of the Home Savings Bank and Trust Company (HSBTC) opened a
savings account with HSBTC with an initial deposit of P22.14 in cash and P10,000.00 in check. Ong was allowed to
withdraw from his savings account with the Bank the sum of P5,000.00, without his check undergoing the usual and
reglementary clearance. The withdrawal slip was signed and approved by Lino Morfe, then the Branch Manager, and
accused Lucila Talabis, the Branch Cashier. Subsequently, Ong deposited eleven checks in his savings account with the
Bank and against which he made withdrawals against its amount. Again, the withdrawal of the amount by Ong was made
before said checks were cleared and the Bank had collected their amounts and with the approval of Talabis. However,
when the Bank presented the eleven checks issued, deposited and against which Ong made withdrawals against its
amounts, to their respective drawee banks for payment, they were all dishonored for lack or insufficiency of funds.
Because of this, the Bank filed a criminal action for Estafa against Ong, and the Bank’s officer in charge Villaran and
Talabis. Talabis testified that the approval of the withdrawals of Ong against his uncleared checks was in accordance with
the instruction of their then bank manager and that it is a kind of accommodation given to Ong and also a common
practice of the Bank. RTC ruled Ong as guilty for the crime of estafa but acquitted Villarin and Talabis as their guilt were
not proven beyond reasonable doubt. CA affirmed RTCs decisions.
ISSUE:
What is the nature of bank deposits?
Whether Ong is guilty of Estafa
RULING:
The Supreme Court held that bank deposits are in the nature of irregular deposits. Bank deposits are really loans
because they earn interest. Whether fixed, savings, or current, all bank deposits are to be treated as loans and are to be
covered by the law on loans. Current and savings deposits are loans to a bank because it can use the same.
NO. In this case, the fact was established that Ong either issued or indorsed the subject checks. However, it must
be remembered that the reason for the conviction of an accused of the crime of estafa is his guilty knowledge of the fact
that he had no funds in the bank when he negotiated the spurious check. In the present case, however, the prosecution
failed to prove that Ong had knowledge with respect to the checks he indorsed. Moreover, it has also been proven that it
was the Bank which granted him a drawn against uncollected deposit (DAUD) privilege without need of any pretensions
on his part. The privilege was not only for the subject checks, but for other past transactions. If ever, he, indeed acted
fraudulently, he could not have done so without the active cooperation of the Banks employees. Since Talabis and
Villaran were declared innocent of the crimes charged against them, the same should be said for the Ong. Thus, Ong
cannot be held criminally liable against the Bank. He can only be held civilly liable as the Bank incurred damages.

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

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

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

8. PAULINO GULLAS V. PNB 62 Phil 519

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

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

Ruling: NO. As a general rule, a bank has a right of set off of the deposits in its hands for the payment of
any indebtedness to it on the part of a depositor. The Civil Code contains provisions regarding
compensation (set off) and deposit. The portions of Philippine law provide that compensation shall take
place when two persons are reciprocally creditor and debtor of each other. In this connection, it has been
held that the relation existing between a depositor and a bank is that of creditor and debtor.
Starting, therefore, from the premise that the Philippine National Bank had with respect to the deposit of
Gullas a right of set off, we next consider if that remedy was enforced properly. The fact we believe is
undeniable that prior to the mailing of notice of dishonor, and without waiting for any action by Gullas,
the bank made use of the money standing in his account to make good for the treasury warrant.
Gullas was merely an indorser and had issued in good faith. As to an indorser, the situation is different
and notice should actually have been given him in order that he might protect his interests. We
accordingly are of the opinion that the action of the bank was prejudicial to Gullas.

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

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

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

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

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

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

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

Issue: Whether Central Bank should be liable?

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

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

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

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

Issue: Whether or not petitioner bank was negligent in its duties as to be liable for damages

Ruling: Yes. Citibank was negligent. First, the “depositor” didn’t present the Certificate of Deposit. Second, from the
internal memorandum issued by the Account Officer, he admitted to the fact that the specimen signature was different
from the one who misrepresented herself as Carmelita Cabamongan. Third, the bank kept in its records pictures of its
depositors. It is inconceivable how the bank was duped by an impostor.
The time deposit subject matter of herein petition is a simple loan. The provisions of the New Civil Code on simple loan
govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides that ". . .
savings . . . deposits of money in banks and similar institutions shall be governed by the provisions concerning simple
loan." Thus, the relationship between a bank and its depositor is that of a debtor-creditor, the depositor being the creditor
as it lends the bank money, and the bank is the debtor which agrees to pay the depositor on demand.

The applicable interest rate on the actual damages of $55,216.69, should be in accordance with the guidelines set forth in
Eastern Shipping Lines, Inc. v. Court of Appeals to wit:
Thus, in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof,
the rate shall be 12% per annum counted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per
annum shall apply for the 182-day contract period from August 16, 1993 to February 14, 1994. For the period from the
date of extra-judicial demand, September 16, 1994, until full payment, the rate of 12% shall apply. As for the intervening
period between February 15, 1994 to September 15, 1994, the rate of interest then prevailing granted by Citibank shall
apply since the time deposit provided for roll over upon maturity of the principal and interest.

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

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

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

Issue: Whether or not petitioner bank was negligent.

Ruling: Yes. The bank is engaged in business impressed with public interest, and it is its duty to protect in return its many
clients and depositors who transact business with it with the highest degree of care, more than that of a good father of the
family or of an ordinary business firm. It is its obligation to see to it that all funds invested with it are properly accounted for
and duly posted in its ledger. In every case, the depositor expects the bank to treat his account with utmost fidelity,
whether such account consists of only a few hundred pesos or of millions, always having in mind the fiduciary nature of
their relationship.

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

WAREHOUSE RECEIPTS LAW

1-3

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

Facts:

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

Issue: Whether the consignee should pay the demurrage charges.

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

BPI vs. Intermediate Appellate Court

Facts:

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

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

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

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

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

Ruling:

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

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

[The case only mentioned deposit]

Roman v. Asia Banking Corp.

Facts:

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

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

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

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

Issue: Whether the receipt is negotiable.

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

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

Por orden - by order

A la orden - to the order

Warehouse Receipts Law

4. Gonzales v Go Tiong and Luzon Surety Co., 104 Phil. 492 (1958)
De Leon Book: Contract converted to ordinary deposit. — The issuance of a warehouse receipt in the form
provided by the law is merely permissive and directory and not mandatory in the sense that if the requirements
are not observed, then the goods delivered for storage become ordinary deposits. (Gonzales vs. Go Tiong and
Luzon Surety Co., 104 Phil. 492 [1958].)
RAMON GONZALES,plaintiff-appellee, vs. GO TIONG and LUZON SURETY CO., INC.,defendants-appellants.
Facts: Go Tiong owned a rice mill and warehouse, located at Mabini, Urdaneta, Pangasinan. He obtained a license of a
bonded businessman with Luzon Surety Co., with conditions he failed to fulfill. The warehouse and palay deposited
therein were insured with the Alliance Surety and Insurance Company. Ramon Gonzales deposited palay to Go
Tiong even before he got the license who later demanded the value of his deposits. But GoTiong failed to give
him his value until fire burned down the warehouse, with sacks in excess of that was authorized under his license. The
receipts issued to Gonzales were ordinary receipts and not the warehouse receipts as defined by Warehouse receipts act.
Plaintiff filed their claims with the Bureau of Commerce and the proceeds of the insurance policy, BOC paid off some
claims. Plaintiff’s counsel withdrew the claims, because according to court nothing came from plaintiff's efforts to
have his claim paid, inconsistent with what Go Tiong claimed that it was denied Gonzales filed claims both
against Gonzales and Luzon Surety, and renewed his claim with BOC. Gonzales and Go Tiong entered into a
contract of amicable settlement to the effect that upon the settlement of all accounts, but upon failure to comply,
Gonzales prosecuted his court action. Court ruled in favor of Gonzales. Hence this appeal.
Issue:Is the plaintiff’s claim covered by the Civil Law, and not Bonded Warehouse Act for the reason that, GoTiong issued
to plaintiff were ordinary receipts, not the warehouse receipts contemplated by the Warehouse Receipts Law, and
because the deposits of palay of plaintiff were gratuitous?
Ruling: Consequently, any deposit made with him as a bonded warehouseman must necessarily be governed by
the provisions of Act No. 3893.Though it is desirable that receipts issued by a bonded warehouseman should conform to
the provisions of the Warehouse Receipts Law, said provisions are not mandatory and indispensable in the sense that if
they fell short of the requirements of the Warehouse Receipts Act, then the commodities delivered for storage become
ordinary deposits and will not be governed by the provisions of the Bonded Warehouse Act. As the trial courtwell
observed, as far as Go Tiong was concerned, the fact that the receipts issued by him were not "quedans" is no
valid ground for defense because he was the principal obligor. Furthermore, as found by the trial court, Go Tiong had
repeatedly promised plaintiff to issue to him "quedans" and had assured him that he should not worry; and that
Go Tiong was in the habit of issuing ordinary receipts (not"quedans") to his depositors. Considering the fact, as
already stated, that prior to the burning of the warehouse, plaintiff demanded the payment of the value of his
palay from Go Tiong on two occasions but was put off without any valid reason, it is illogical and unreasonable to
hold that the presumption of negligence in case of this kind is rebutted by the bailee by simply proving that the property
bailed was destroyed byan ordinary fire which broke out on the bailee's own premises, without regard to the care
exercised by the latter to prevent the fire, or to save the property after the commencement of the fire. Besides, as
observed by the trial court, the defendant violated the terms of his license by accepting for deposit palay in excess of
the limit authorized by his license, which fact must have increased the risk. Appealed decision affirmed.
5. Lu Kuan vs. Manila Railroad Co. and Manila Port Service, 19 Scra 5 (1967)
Arrastre operator who received into its custody shipment of cases of milk for two consignees delivered cases
more than as per markings but less as per bill of lading to one of them.
Facts: A (arrastre operator) received into its custody a shipment of 5,000 cases of milk, of which 3,171 cases were
marked for B, as consignee, and 1,829 cases were marked for C, but, according to the bills of lading in A’s possession, B
was entitled only to 3,000 cases and C to 2,000 cases. A actually delivered 1,913 cases to C which is only 87 cases short
of 2,000 cases as per bill of lading.
The present suit was filed by Lua Kian against the Manila Railroad Co. and Manila Port Service for the recovery of the
invoice value of imported evaporated "Carnation" milk alleged to have been undelivered. The following stipulation of facts
was made:
1. They admit each other's legal personality, and that during the time material to this action, defendant Manila Port
Service as a subsidiary of defendant Manila Railroad Company operated the arrastre service at the Port of Manila
under and pursuant to the Management Contract entered into by and between the Bureau of Customs and
defendant Manila Port Service on February 29, 1956;
2. On December 31, 1959, plaintiff Lua Kian imported 2,000 cases of Carnation Milk from the Carnation Company of
San Francisco, California, and shipped on Board SS "GOLDEN BEAR" per Bill of Lading No. 17;
3. Out of the aforesaid shipment of 2,000 cases of Carnation Milk per Bill of Lading No. 17, only 1,829 cases marked
`LUA KIAN 1458' were discharged from the vessel SS `GOLDEN BEAR' and received by defendant Manila Port
Service per pertinent tally sheets issued by the said carrying vessel, on January 24, 1960;
4. Discharged from the same vessel on the same date unto the custody of defendant Manila Port Service were
3,171 cases of Carnation Milk marked "CEBU UNITED 4860-PH-MANILA" consigned to Cebu United Enterprises,
per Bill of Lading No. 18, and on this shipment, Cebu United Enterprises has a pending claim for short-delivery
against defendant Manila Port Service;
5. Defendant Manila Port Service delivered to the plaintiff thru its broker, Ildefonso Tionloc, Inc. 1,913 cases of
Carnation Milk marked "LUA KIAN 1458" per pertinent gate passes and broker's delivery receipts;
6. A provisional claim was filed by the consignee's broker for and in behalf of the plaintiff on January 19, 1960, with
defendant Manila Port Service;
7. The invoice value of the 87 cases of Carnation Milk claimed by the plaintiff to have been short-delivered by
defendant Manila Port Service is P1,183.11 while the invoice value of the 87 cases of Carnation Milk claimed by
the defendant Manila Port Service to have been over-delivered by it to plaintiff is P1,130.65;
8. The 1,913 cases of Carnation mentioned in paragraph 5 hereof were taken by the broker at Pier 13, Shed 3,
sometime in February, 1960, where at the time, there were stored therein, aside from the shipment involved
herein, 1000 cases of Carnation Milk bearing the same marks and also consigned to plaintiff Lua Kian but had
been discharged from SS `STEEL ADVOCATE' and covered by Bill of Lading No. 11;
9. Of the shipment of 1000 cases of Carnation Milk which also came from the Carnation Company, San Francisco,
California, U.S.A. and bearing the same marks as the shipment herein but had been discharged from S/S "STEEL
ADVOCATE" and covered by Bill of Lading No. 11, Lua Kian as consignee thereof filed a claim for short-delivery
against defendant Manila Port Service, and said defendant Manila Port Service paid Lua Kian plaintiff herein,
P750.00 in settlement of its claim;
 10. They reserve the right to submit documentary evidence;
11. They submit the matter of attorney's fees and costs to the sound discretion of the Court.

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

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

It is true that Section 12 of the Management Contract exempts the arrastre operator from responsibility for misdelivery or
non-delivery due to improper or insufficient marking. We cannot however excuse the aforestated defendant from liability in
this case before Us now because the bill of lading showed that only 3,000 cases were consigned to Cebu United
Enterprises. The fact that the excess of 171 cases were marked for Cebu United Enterprises and that the consignment to
Lua Kian was 171 cases less than the 2,000 in the bill of lading, should have been sufficient reason for the defendant
Manila Port Service to withhold the goods pending determination of their rightful ownership.
We therefore find the defendants liable, without prejudice to their taking whatever proper legal steps they may consider
worthwhile to recover the excess delivered to Cebu United Enterprises.
With respect to the attorney's fees awarded below, this Court notices that the same is about 50 per cent of the litigated
amount of P1,183.11. We therefore deem it reasonable to decrease the attorney's fees to P300.00.
Wherefore, with the aforesaid reservation, and with the modification that the attorney's fee is reduced to P300.00, the
judgment appealed from is affirmed, with costs against appellants. So ordered.

GUARANTY AND SURETY

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

Characteristics of the contract.

The following are its characteristics:
(1) It is accessory because it is dependent for its existence upon the principal obligation guaranteed by it;
(2) It is subsidiary and conditional because it takes effect only when the principal debtor fails in his obligation subject
to limitation (see Arts. 2053, 2058, 2063, 2065.);
(3) It is unilateral because —
(a) it gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa
although after its fulfi llment, the principal debtor becomes liable to indemnify
2. the guarantor1 (Art. 2066.) but this is merely an incident of the contract; and also because
(b) it may be entered into even without the intervention of the principal debtor (Art. 2050.); and

(4) It is a contract which requires that the guarantor must be a person distinct from the debtor because a person
cannot be the personal guarantor of himself. A person cannot be both the primary debtor and the guarantor of
his own debt as this is inconsistent with the very purpose of a guarantee which is for the creditor to proceed
against a third person if the debtor defaults in his obligation. (Velasquez vs. Solidbank Corporation, 550 SCRA
119 [2008].) (book) However, in real guaranty, like pledge (Art. 2093.) and mortgage (Art. 2124.), a person may
guarantee his own obligation with his personal or real properties. (see 12 Manresa 155-156.)
Facts: The case is out of a business transaction for the sale of dried sea cucumber for export to South Korea between
Wilderness Trading (of Velasquez), as seller, and Goldwell Trading of Pusan, South Korea, as buyer. To facilitate
payment of the products, Goldwell Trading opened a letter of credit in favor of Wilderness Trading with the Bank of Seoul,
Pusan, Korea. Petitioner applied for credit accommodation with Solidbank for pre-shipment financing. The credit
accommodation was granted. Petitioner was successful in his first two export transactions both drawn on the letter of
credit. The third export shipment, however, yielded a different result. Petitioner submitted to Solidbank the necessary
documents for his third shipment. Wanting to be paid the value of the shipment in advance, petitioner negotiated for a
documentary sight draft to be drawn on the letter of credit, chargeable to the account of Bank of Seoul. The sight draft
represented the value of the shipment.
As a condition for the issuance of the sight draft, petitioner executed a letter of undertaking in favor of respondent. Under
the terms of the letter of undertaking, petitioner promised that the draft will be accepted and paid by Bank of Seoul
according to its tenor. Petitioner also held himself liable if the sight draft was not accepted.
Respondent failed to collect on the sight draft as it was dishonored by non-acceptance by the Bank of Seoul. The reasons
given for the dishonor were late shipment, forged inspection certificate, and absence of countersignature of the
negotiating bank on the inspection certificate.Goldwell Trading likewise issued a stop payment order on the sight draft
because most of the bags of dried sea cucumber exported by petitioner contained soil.
Due to the dishonor of the sight draft and the stop payment order, respondent demanded restitution of the sum advanced.
Petitioner failed to heed the demand.
Solidbank filed a complaint for recovery of sum of money with the RTC. In his answer, petitioner alleged that his liability
under the sight draft was extinguished when respondent failed to protest its non-acceptance, as required under the
Negotiable Instruments Law (NIL). He also alleged that the letter of undertaking is not binding because it is a superfluous
document, and that he did not violate any of the provisions of the letter of credit.
RTC rendered judgment in favor of respondent. The CA affirmed with modification. hence this petition.
Issue: WON not petitioner should be held liable to respondent under the sight draft or the letter of undertaking.
Ruling: petition denied. YES; letter of undertaking Admittedly, petitioner was discharged from liability under the sight draft
when respondent failed to protest it for non-acceptance by the Bank of Seoul. A sight draft made payable outside the
Philippines is a foreign bill of exchange. When a foreign bill is dishonored by non-acceptance or non-payment, protest is
necessary to hold the drawer and indorsers liable. Verily, respondent’s failure to protest the non-acceptance of the sight
draft resulted in the discharge of petitioner from liability under the instrument.
Petitioner, however, can still be made liable under the letter of undertaking. It bears stressing that it is a separate
contract from the sight draft. The liability of petitioner under the letter of undertaking is direct and primary. It is
independent from his liability under the sight draft. Liability subsists on it even if the sight draft was dishonored for non-
acceptance or non-payment.
Respondent agreed to purchase the draft and credit petitioner its value upon the undertaking that he will reimburse the
amount in case the sight draft is dishonored. The bank would certainly not have agreed to grant petitioner an advance
export payment were it not for the letter of undertaking. The consideration for the letter of undertaking was petitioner’s
promise to pay respondent the value of the sight draft if it was dishonored for any reason by the Bank of Seoul.
**GUARANTY**
We cannot accept petitioner’s thesis that he is only a mere guarantor under the letter of credit. Petitioner cannot be both
the primary debtor and the guarantor of his own debt. This is inconsistent with the very purpose of a guarantee which is
for the creditor to proceed against a third person if the debtor defaults in his obligation. Certainly, to accept such an
argument would make a mockery of commercial transactions.
2. Agro Conglomerates, Inc. vs. CA

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

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

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

3. Autocorp Group vs. Intra Strata Assurance Corp.

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

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

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

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

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

Ruling: Yes. The Indemnity Agreements give ISAC the right to recover from petitioners the face value of the subject
bonds plus attorney’s fees at the time ISAC becomes liable on the said bonds to the BOC regardless of whether the BOC
had actually forfeited the bonds, demanded payment thereof, and/or received such payment. It must be pointed out that
the Indemnity Agreements explicitly provide that petitioners shall be liable to indemnify ISAC “whether or not payment has
actually been made by the ISAC” and ISAC may proceed against petitioners by court action or otherwise “even prior to
making payment to the BOC which may hereafter be done by ISAC.”

Article 2071 of the Civil Code provides that the guarantor, even before having paid, may proceed against the
principal debtor when, among others, the debt has become demandable, by reason of the expiration of the period
for payment.

A demand is only necessary in order to put an obligor in a due and demandable obligation in delay, which in turn is for the
purpose of making the obligor liable for interests or damages for the period of delay. Thus, unless stipulated otherwise, an
extrajudicial demand is not required before a judicial demand, i.e., filing a civil case for collection, can be resorted to.

4. Palmares vs. CA

Facts: Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga,
together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with
compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. On 4 occasions
after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were
able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last
payment on September 26, 1991.

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

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

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

CORPORATION,Respondents.
Facts: the Western Minolco Corporation (WMC) obtained from the Philippine Investments Systems Organization (PISO)
two loans for P2,500,000.00 and P1,000,000.00 for which it issued the corresponding promissory notes payable on May
30, 1977. On the same date, Antonio Garcia and Ernest Kahn executed a surety agreement binding themselves jointly
and severally for the payment of the loan of P2,500,000.00 on due date. Upon failure of WMC to pay after repeated
demands, demand was made on Garcia pursuant to the surety agreement. Garcia also failed to pay. Hence, on April 5,
1983, Lasal Development Corporation (to which the credit had been assigned earlier by PISO) sued Garcia for recovery of
the debt in the Regional Trial Court of Makati. On May 18, 1983, Garcia moved to dismiss on the grounds that: (a) the
complaint stated no cause of action; (b) the suit would result in unjust enrichment of the plaintiff because he had not
received any consideration from PISO; (c) the surety agreement violated the doctrine of the limited liability of corporations;
and (d) the principal obligation had been novated. After considering the arguments and evidence of the parties, the trial
court granted the motion and dismissed the complaint on the ground that the surety agreement was invalid for absence of
consideration.
Issue:Whether the surety agreement is invalid for absence of consideration
Ruling: Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be
answerable for the debt, default or miscarriage of another, known as the principal. The surety’s obligation is not an original
and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to be direct, primary and absolute; 1 in other words, he is directly
and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another although he
possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.
The peculiar nature of a surety agreement is that it is regarded as valid despite the absence of any direct consideration
received by the surety either from the principal obligor or from the creditor. A contract of surety, like any other contract,
must generally be supported by a sufficient consideration. However, the consideration necessary to support a surety
obligation need not pass directly to the surety; a consideration moving to the principal alone will suffice.
PHILIPPINE NATIONAL BANK, petitioner,
vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch
XXI and TAYABAS CEMENT COMPANY, INC., respondents
Facts: Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00 from
petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest of private
respondent Tayabas Cement Company, Inc. (TCC).2 As security for said loan, the spouses Arroyo executed a real estate
mortgage over a parcel of land covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of Quezon City
known as the La Vista property.Thereafter, TCC filed with petitioner bank an application and agreement for the
establishment of an eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of
Tokyo, Japan, to cover the importation of a cement plant machinery and equipment. The imported cement plant
machinery and equipment arrived from Japan and were released to TCC under a trust receipt agreement. Subsequently,
Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C as scheduled. TCC, however, failed to remit
and/or pay the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt
agreement, PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for
failure of TCC to settle its obligations under the L/C. The foreclosure sale of the La Vista property was scheduled on
August 11, 1975. At the auction sale, PNB was the highest bidder with a bid price of P1,000,001.00.
Issue:Whether the PNB has the right to foreclose the mortgages executed by the spouses Arroyo?
Ruling: PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of TCC. A surety is
considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the
latter, and their liabilities are interwoven as to be inseparable.21 As sureties, the Arroyo spouses are primarily liable as
original promissors and are bound immediately to pay the creditor the amount outstanding.
JEANETTE D. MOLINO, petitioner, vs. SECURITY DINERS INTERNATIONAL CORPORATION, respondent
Facts: The Security Diners International Corporation ("SDIC') operates a credit card system under the name of Diners
Club through which it extends credit accommodation to its cardholders for the purchase of goods and payment of services
from its member establishments to be reimbursed later on by the cardholder upon proper billing. There are two types of
credit cards issued: one, the Regular (Local) Card which entitles the cardholder to purchase goods and pay services from
member establishments in an amount not exceeding P10,000.00; and two, the Diamond (Edition) Card which entitles the
cardholder to purchase goods and pay services from member establishments in unlimited amounts. One of the
requirements for the issuance of either of these cards is that an applicant should have a surety.On July 24, 1987, Danilo
A. Alto applied for a Regular (Local) Card with SDIC. He got as his surety his own sister-in-law Jeanette Molino Alto.
Thus, Danilo signed the printed application form (Exhibit 'A') and Jeanette signed the Surety Undertaking. On the basis of
the completed and signed Application Form and Surety Undertaking, the SDIC issued to Danilo Diners Card No.
36510293216-0006. The latter used this card and initially paid his obligations to SDIC. On February 8, 1988, Danilo wrote
SDIC a letter (Exhibit "B") requesting it to upgrade his Regular (Local) Diners Club Card to a Diamond (Edition) one. As a
requirement of SDIC, Danilo secured from Jeanette her approval. SDIC demanded of Danilo and Jeanette to pay said
obligation but they did not pay. So, on November 9, 1988, SDIC filed an action to collect said indebtedness against Danilo
and Jeanette. In the Answer with Compulsory Counterclaim that she filed with the RTC, petitioner claimed that her liability
under the Surety Undertaking was limited to P10,000.00 and that she did not expressly and categorically agree to act as
surety for Danilo in an amount higher than P10,000.00.
Issue:Whether petitioner is liable as surety under the Diamond card revolves around the effect of the upgrading by Danilo
Alto of his card
Ruling:Petitioner’s content is devoid of merit. The Surety Undertaking expressly provides that petitioner's liability is
solidary. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter, and their liabilities are interwoven as to be inseparable.14 Although the contract of a surety is in
essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he
becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations
nor does he receive any benefit therefrom.15 There being no question that Danilo Alto incurred debts of P166,408.31 in
credit card advances, an obligation shared solidarily by petitioner, respondent was certainly within its rights to proceed
singly against petitioner, as surety and solidary debtor, without prejudice to any action it may later file against Danilo Alto,
until the obligation is fully satisfied.
8. Tiu Hiong Guan vs. Metropolitan Bank 2006
Facts: Sometime in October 1990, petitioners applied for a continuing credit facility for and in behalf of themselves and
their corporation, Sunta Rubberized Industrial Corporation (Sunta), and executed in their personal and official capacities a
Continuing Surety Agreement. In the said Agreement, petitioners jointly and severally obligated themselves to pay all
loans and credit accommodations that they and Sunta may incur, supposedly not exceeding three million pesos. It was
further stipulated therein that, in case of default in the payment thereof, notwithstanding Sunta's dissolution, failure in
business, insolvency, and the filing of a petition for bankruptcy or suspension of payments in the proceeding related
thereto, the whole obligation shall become due and payable without benefit of demand or notice of payment. On July 9,
1990, petitioners opened an irrevocable Commercial Letter of Credit (LC) for the purchase of raw materials amounting
toP480,000 in favor of Sunta. These materials were delivered and custody thereof transferred to Sunta, after which a
Trust Receipt Agreement was jointly and severally executed by petitioners in their personal capacities.

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

In their Answer, petitioners admitted execution of the Continuing Surety Agreement not in their personal capacities
but as officers of Sunta. It was also asserted therein that none of them personally benefited from the loan transaction,
while two of them signed the LC as mere officers of Sunta. The failure of Sunta to
pay its obligation was attributed to both force majeure – when fire “gutted down” its factory buildings,
equipment, machinery, raw materials and finished products – and the Order dated April 20, 1993 by the Securities and
Exchange Commission (SEC) in SEC Case No. 4240 suspending all actions for claims against Sunta that are pending
before any court or tribunal.
 It was contended that the real party-in-interest as far as the actionable documents herein were concerned was
Sunta, not petitioners who merely acted as its agents and as guarantors of its obligation. Therefore, petitioners should not
be compelled to pay the obligations of Sunta, because Sunta is solvent and its assets have not yet been exhausted.

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

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

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

From these two documents, the liability of petitioners is joint and several in both their personal and official
capacities. They are not mere guarantors, but sureties. They do not insure the solvency of the debtor, but rather the debt
itself. They obligate themselves “to pay the debt if the principal debtor will not pay, regardless of whether or not the latter
is financially capable to fulfill his obligation.”[5]

“Suretyship arises upon the solidary binding of a person — deemed the surety — with the principal debtor, for the
purpose of fulfilling an obligation.”[9] “[A] suretyship is merely an accessory x x x to a principal obligation. Although a
surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute; or
equivalent to that of a regular party to the undertaking. A surety becomes liable to the debt and duty of the principal
obligor even without possessing a direct or personal interest in the obligations constituted by the latter.”[10] Petitioners are
considered “as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter,
and their liabilities are interwoven as to be inseparable.” [11]

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

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

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

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

Issues:
 a. THE RESPONDENT CA ERRED IN NOT HOLDING THAT THE REAL ESTATE MORTGAGE DATED
SEPTEMBER 5, 1991 SERVED AS THE COLLATERAL FOR ALL THE OBLIGATIONS OF THE
PETITIONERS.
b. THE RESPONDENT CA ERRED IN ORDERING THE PETITIONERS TO PAY SOLIDARILY THE
AMOUNT OF P16,585,286.27 REPRESENTING THE PRINCIPAL OBLIGATION AND INTEREST AS OF
OCTOBER 31, 1992 AND TO PAY AN INTEREST ON THE PRINCIPAL SUM OF P12,218,866,23 AT
THE RATE OF 26% PER ANNUM FROM NOVEMBER 1, 1992 UNTIL THE SAID AMOUNTS ARE
FULLY PAID
c. THE RESPONDENT CA ERRED IN HOLDING THAT PETITIONERS SUICO SPOUSES ARE
SOLIDARILY LIABLE WITH PETITIONER CORPORATION FOR PAYMENT OF INTEREST PRIOR TO
THE FILING OF THE COMPLAINT.
Ruling:

a. As to the first assigned error, the Court agrees with petitioners that all their obligations, including their
indebtedness arising from their purchase of export bills, are secured by the Real Estate Mortgage
contract.
b. With respect to the second assigned error, the petitioners’ contention that they are not liable to pay since
there is no showing that the principal debtor cannot pay, the time-honored rule is that the surety obligates
himself to pay the debt, if the principal debtor will not pay, regardless of whether or not the latter is
financially capable to fulfill his obligation. Thus, creditor Metrobank can go directly against the surety
although the principal debtor is solvent and is able to pay or no prior demand is made on the principal
debtor because the liability of the surety is direct, primary and absolute; or equivalent to that of a regular
party to the undertaking.
c. The same principle applies with respect to the payment of interest. Since the Suico spouses obligated
themselves to be solidarily bound with SRBII, it follows that they are also liable to pay the interest.

SECURITY PACIFIC ASSURANCE v. TRIA-INFANTE (2005)

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

ISSUES:

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

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

RULING:

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

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

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

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

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

J. Callejo Sr., ponente

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

Issue(s)/Ruling(s)
1. Whether or not SICI is liable to petitioner under its surety bond.

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

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

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

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

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

Consider the following provisions of the Tariff and Customs Code:

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

Consider the following select provisions of the General Warehousing Bond:

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

Considered in relation with the underlying laws that are deemed read into these bonds, it is at once clear that the
bonds shall subsist that is, shall remain in full force and effect unless the imported articles are regularly and lawfully
withdrawn. . .on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall be
subject. Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principal Grand
Textile; it was allowed to warehouse the imported articles without need for prior payment of the amounts due, conditioned
on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, and charges
due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties
liability, except to signal both the principals default and the elevation to a due and demandable status of the sureties
solidary obligation to pay. Under the bonds plain terms, this solidary obligation subsists for as long as the amounts due on
the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released
from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties,
and charges.

2. Is a surety entitled to notice of default? (This is in relation to Intra-Strata’s argument that they ought to be released
from liability since they have no involvement in the handling of the imported goods which substantially subjected
them to risks.)

No. the surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-debtor
relationship; its role becomes alive only upon the debtors default, at which time it can be directly held liable by the creditor
for payment as a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is
ensured by the solidary nature of the sureties undertaking.[20] Under these terms, the surety is not entitled as a rule to a
separate notice of default,[2?1] nor to the benefit of excussion,[22] and may be sued separately or together with the
principal debtor.

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

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

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

Yes. Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be
answerable for the debt, default or miscarriage of another, known as the principal.[5]
Where the surety bound itself solidarily with the principal obligor, the former is so dependent on the principal debtor such
that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as to be inseparable.[6] The surety’s liability is solidary but the
nature of its undertaking is such that unless and until the principal debtor is held liable it does not incur liability.

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

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

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

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

13. Finman General Insurance Corp v Salik, 188 SCRA 740 (1990)
FACTS: Abdulgani Salik et al., private respondents, allegedly applied with Pan Pacific Overseas Recruiting Services, Inc.
(hereinafter referred to as Pan Pacific) on April 22, 1987 and were assured employment abroad by a certain Mrs. Normita
Egil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite numerous assurances of
employment abroad given by Celia Arandia and Mrs. Egil, they were not employed (Ibid., p. 15). Accordingly, they filed a
joint complaint with the POEA against Pan Pacific for Violation of Articles 32 and 34(a) of the Labor Code, as amended,
with claims for refund of a total amount of P30,000.00 (Ibid.). The POEA motu proprio impleaded and summoned herein
petitioner surety Finman General Assurance Corporation (hereinafter referred to as Finman), in the latter's capacity as
Pan Pacific's bonding company. Summons were served upon both Pan Pacific and Finman, but they failed to answer. On
October 9, 1987, a hearing was called, but only the private respondents appeared. Despite being deemed in default for
failing to answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to appear.
Thus, ex-parte proceedings ensued. Herein petitioner, Finman, in an answer which was not timely filed, alleged, among
others, that herein private respondents do not have a valid cause of action against it; that Finman is not privy to any
transaction undertaken by Pan Pacific with herein private respondents; that herein private respondents claims are barred
by the statute of frauds and by the fact that they executed a waiver; that the receipts presented by herein private
respondents are mere scraps of paper; that it is not liable for the acts of Mrs. Egil that Finman has a cashbond of
P75,000.00 only which is less than the required amount of P100,000.00; and that herein private respondents should
proceed directly against the cash bond of Pan Pacific or against Mrs. Egil Decision of Secretary of Labor Both
respondents are hereby directed to pay jointly and severally the claims of complainants.
ISSUE: Whether the Secretary of Labor acted without or in excess of jurisdiction and with grave abuse of discretion in
directing Finman to pay jointly and severally with Pan Pacific and the POEA
RULING: No. In the case at bar, it remains uncontroverted that herein petitioner and Pan Pacific entered into a suretyship
agreement, with the former agreeing that the bond is conditioned upon the true and faithful performance and observance
of the bonded principal (Pan Pacific) of its duties and obligations. It was also understood that under the suretyship
agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from recruitment
violation of Pan Pacific (Ibid., p. 23), in keeping with Section 4, Rule V, Book I of the Implementing Rules of the Labor
Code, which provides: Section 4. Upon approval of the application, the applicant shall pay to the Ministry (now
Department) a license fee of P6,000.00, post a cash bond of P50,000.00 or negotiable bonds of equivalent amount
convertible to cash issued by banking or financial institution duly endorsed to the Ministry (now Department) as well as a
surety bond of P150,000.00 from an accredited bonding company to answer for valid and legal claims arising from
violations of the conditions of the license or the contracts of employment and guarantee compliance with the provisions of
the Code, its implementing rules and regulations and appropriate issuances of the Ministry (now Department). (Emphasis
supplied) Accordingly, the nature of Finman's obligation under the suretyship agreement makes it privy to the proceedings
against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment against its
principal even though it was not a party to the proceedings Leyson v. Rizal Surety and Insurance Co., 16 SCRA 551
(1966). Furthermore, in Government of the Philippines v. Tizon (20 SCRA 1182 [1967]), this Court ruled that where the
surety bound itself solidarily with the principal obligor the former is so dependent on the principal debtor "that the surety is
considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the
latter." Applying the foregoing principles to the case at bar, it can be very well said that even if herein Finman was not
impleaded in the instant case, still it (petitioner) can be held jointly and severally liable for all claims arising from
recruitment violation of Pan Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a
legal claim against Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order
to provide a complete relief to private respondents, petitioner had to be impleaded in the case.
14. Gateway Electronics Corp v Asianbank Corp, 574 SCRA 698 (2008)
FACTS: Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that used to be engaged in the
semi-conductor business. During the period material, petitioner Geronimo delos Reyes was its president and one Andrew
delos Reyes its executive vice-president. On July 23, 1996, Geronimo and Andrew executed separate but almost identical
deeds of suretyship for Gateway in favor of respondent Asianbank for Domestic Bills Purchased Line and the Omnibus
Credit Line. Later, developments saw Asianbank extending to Gateway several export packing loans .This loan package
was later consolidated with A Dollar Promissory Note (and secured by a chattel mortgage over Gateway’s equipment.
Gateway initially made payments on its loan obligations, but eventually defaulted. Upon Gateway’s request, Asianbank
extended the maturity dates of the loan several times. These extensions bore the conformity of three of Gateway’s
officers, among them Andrew. Gateway issued two Philippine Commercial International Bank checks as payment for its
arrearages and but both checks were dishonored for insufficiency of funds. Asianbank’s demands for payment made upon
Gateway and its sureties went unheeded. As of November 23, 1999, Gateway’s obligation to Asianbank, inclusive of
principal, interest, and penalties, totaled USD 2,235,452.17.
Thus Asianbank filed with the RTC in Makati City a complaint for a sum of money against Gateway, Geronimo, and
Andrew. In its answer to the amended complaint, Gateway traced the cause of its financial difficulties, described the steps
it had taken to address its mounting problem, and faulted Asianbank for trying to undermine its efforts toward recovery.
Andrew also filed an answer alleging, among other things, that the deed of suretyship he executed covering the Domestic
Bills Purchased Line and the Omnibus Credit Line did NOT include the Dollar Promissory Note, the payment of which was
extended several times without his consent. Geronimo, on the other hand, alleged that the subject deed of suretyship,
assuming the authenticity of his signature on it, was signed without his wife’s consent and should, thus, be considered as
a mere continuing offer. Like Andrew, Geronimo argued that he ought to be relieved of his liability under the surety
agreement inasmuch as he too never consented to the repeated loan maturity date extensions given by Asianbank to
Gateway. After due hearing, the RTC rendered judgment holding Gateway, Geronimo and Andrew jointly and severally
liable to pay Asianbank.
ISSUE: Is Geronimo discharged from liability because of the insolvency of Gateway, the principal?
RULING: No. Asianbank argues that the stay of the collection suit against Gateway (because its case is transferred to an
insolvency court) is without bearing on the liability of Geronimo as a surety. Pursuing the point, Asianbank avers that
Geronimo may not invoke the insolvency of Gateway as a defense to evade liability. Geronimo counters with the
argument that his liability as a surety cannot be separated from Gateway’s liability. As surety, he continues, he is entitled
to avail himself of all the defenses pertaining to Gateway, including its insolvency, suggesting that if Gateway is eventually
released from what it owes Asianbank, he, too, should also be so relieved. Geronimo’s contention is untenable.
Suretyship is covered by Article 2047 of the Civil Code, which states: “By guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.” If a person binds
himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In
such case the contract is called a suretyship.
The Court’s disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus:
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an
undertaking that the debt shall be paid x x x. Stated differently, a surety promises to pay the principal’s debt if the principal
will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the
guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his
ability to do so. x x x In other words, a surety undertakes directly for the payment and is so responsible at once if the
principal debtor makes default x x x.
A creditor’s right to proceed against the surety exists independently of his right to proceed against the
principal.Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to
proceed even against the surety alone. A Suretyship contract refers to an agreement whereunder one person, the surety,
engages to be answerable for the debt, default, or miscarriage of another known as the principal. Geronimo’s position that
a surety cannot be made to pay when the principal is unable to pay is clearly specious and must be rejected.
15. People v Maniego, 148 SCRA 30 (1987)
FACTS: A case was filed against Lt. Rizalino Ubay, Milagros Pamintuan and her sister Julia Maniego for the crime of
malversation of public funds. Ubay, an officer of the AFP, was then the duly appointed Disbursing Officer in the Office of
the Chief of Finance in the General Headquarters of Camp Murphy in QC. He conspired with Pamintuan and Maniego by
giving them P66,434.50 from the public funds entrusted and controlled by him as the consideration of the several personal
checks issued by Pamintuan, and indorsed by Maniego. Ubay received and accepted the personal checks despite
knowing that they are worthless and not covered by funds in both BPI and PNB. The checks were later presented and
subsequently dishonored and rejected by the said banks which were prejudicial and damaging to the Republic of the
Philippines. Ubay and Maniego were the only ones arraigned because Pamintuan already fled to the US. Ubay and
Maniego pleaded not guilty. The trial court rendered its decision convicting Ubay for the crime of Malversation of public
funds but acquitting Maniego because of absence of evidence against her. Nonetheless, they were both ordered to pay
jointly and severally the amount of P57, 434.50 to the government. Maniego sought reconsideration praying that she be
absolved from civil liability or at the very least reduce it to P46,934.50. The court did not absolve her from the liability but
approved the reduction thereof. On appeal she contended that the trial court committed errors which are the issues before
the Court.
ISSUES:

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

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

2. Based on the evidence before the trial court, it established that Maniego was an indorser of the subject checks.
Appellant contended that as mere indorser, she may not be made liable on account of the dishonor of the checks
indorsed by her. Under the law, the holder or last indorsee of a negotiable instrument has the right to
"enforce payment of the instrument for the full amount thereof against all parties liable thereon." Among
the "parties liable thereon" is an indorser of the instrument i.e., "a person placing his signature upon an instrument
otherwise than as maker, drawer, or acceptor ** unless he clearly indicates by appropriate words his intention to
be bound in some other capacity.
Such an indorser "who indorses without qualification," inter alia "engages that on due presentment, ** the
instrument shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be
dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder, or to any subsequent indorser who may be compelled to pay it." (Sec 66, NIL)
16. Ong vs. Philippine Commercial International Bank, 448 SCRA 705 [2005].
Facts: - In 1991, Baliwag Mahogany Corp needed additional capital for its business and applied for various loans,
amounting to a total of five million pesos, with the respondent bank. Alfredo (President) and Susana Ong (Treasurer)
acted as sureties for these loans and issued 3 promissory notes for the purpose. It was stipulated in the notes that the
bank may consider BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment
or garnishment of any of its properties, or upon BMC’s insolvency, or if it is declared to be in a state of suspension of
payments. Thereafter, BMC filed a petition for rehabilitation and suspension of payments with SEC after the creditors
attached its properties. The bank then sought the collection of the payment of the debt from the petitioners as sureties.
- On April 20, 1992, PCIB filed a case for collection of a sum of money against petitioners-spouses. On October
13, 1992, a MOA was executed by BMC, the petitioners, and the consortium of creditor banks of BMC (including PBIC).
Petitioners then moved to dismiss the complaint arguing that the MOA suspended any pending civil action against BMC.
Hence, the benefits of the MOA should also be extended to the petitioners as sureties. The trial court denied the motion to
dismiss. The CA affirmed the trial court’s ruling that a creditor can proceed against petitioners as surety independently of
its right to proceed against BMC.

Issue: WON the suit against the spouses should be dismissed

Held: No Reliance of petitioners on Articles 2063 and 2081 CC is misplaced as these provisions refer to contracts of
guaranty. They do not apply to suretyship contracts. Petitioners are not guarantors but sureties of BMC’s debts. There is
a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor
while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the
guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains
unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a
suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the
payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will
not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly
against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal
debtor. A surety is directly, equally and absolutely bound with the principal debtor for the payment of the debt and is
deemed as an original promissor and debtor from the beginning.
 - Under the suretyship contract entered into by petitioners with the bank, the former obligated themselves to be
solidarily bound with BMC for the payment of its debts to the bank. Under Article 1216 CC, the bank as creditor may
proceed against petitioners as sureties despite the execution of the MOA which provided for the suspension of payment
and filing of collection suits against BMC. The bank’s right to collect payment from the surety exists independently of its
right to proceed directly against the principal debtor. In fact, the bank may go against the surety alone without prior
demand for payment on the principal debtor.
- The provisions of the MOA regarding the suspension of payments by BMC and the non-filing of collection suits
by the creditor banks pertain only to the property of BMC. Firstly, in the rehabilitation receivership filed by BMC, only the
properties of BMC were mentioned in the petition with the SEC. Secondly, there is nothing in the MOA that involves the
liabilities of the sureties whose properties are separate and distinct from that of the debtor BMC. Lastly, it bears to stress
that the MOA executed by BMC and signed by the creditor-banks was approved by the SEC whose jurisdiction is limited
only to corporations and corporate assets. It has no jurisdiction over the properties of BMC’s officers or sureties.

Book: Guarantor not insurer of debt guaranteed.

It would then follow that while a surety undertakes to pay if the principal does not pay, without regard to his ability to do
so, the guarantor only binds himself to pay if the principal cannot or unable to pay. One is the insurer of the debt itself, the
other, an insurer of the solvency of the debtor.
17. International Finance vs Imperial Textile
Facts:-On December 17, 1974, IFC and Philippine Polyamide Industrial Corporation entered into a loan agreement
wherein IFC extended to PPIC a loan of US$7,000,000 payable in sixteen (16) semi-annual installments of
US$437,500.00 each, with 10% interest. The interest shall be paid in US dollars semi-annually. A „Guarantee
Agreement‟ was executed with ITM, Grand Textile Manufacturing Corporation and IFC as parties. ITM and Grandtex
agreed to guarantee PPIC‟s obligations under the loan agreement.PPIC defaulted payments. By virtue of PPIC‟s failure to
pay, IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings,
machinery, equipment plant and all improvements owned by PPIC. During the public sale, IFC‟s bid wasfor P99,269,100
which was equivalent to US$5,250,000. The outstanding loan, however, amounted to US$8,083,967, thus leaving a
balance of US$2,833,967 PPIC failed to pay the remaining balance. Consequently, IFC demanded ITM and Grandtex, as
guarantors ofPPIC, to pay the outstanding balance. However, the two failed to pay.-IFC filed a complaint against PPIC
and ITM for the payment of the outstanding balance plus interests and attorney‟s fees. The trial court dismissed the
complaint against ITM. The CA reversed and held that ITM bound itself under the Guarantee Agreement. The CA,
however, held that ITM‟s liability as a guarantor would arise only if and when PPIC could not pay. Since PPIC‟s inability
to comply with its obligation was not sufficiently established, ITM could not immediately be made to assume the liability.
Issue:WON ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC, for the payment of the
loan.
Ruling:Yes. -IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC‟s obligations
proceeding from the Loan Agreement. For its part, ITM asserts that, by the terms of the Guarantee Agreement, it was
merely a guarantor and not a surety. Moreover, any ambiguity in the Agreement should be construed against IFC --the
party that drafted it.-The Agreement uses “guarantee” and “guarantors,” prompting ITM to base its argument on those
words. This Court is not convinced that the use of the two words limits the Contract to a mere guaranty. The specific
stipulations in the Contract show otherwise. While referring to ITM as a guarantor, the Agreement specifically stated that
the corporation was “jointly and severally” liable. To put emphasis on the nature of that liability, the Contractfurther stated
that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing: that at bottom, and to all legal
intents and purposes, it was a surety.-Indubitably therefore, ITM bound itself to be solidarily liable with PPICfor the latter‟s
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed
merely secondarily liable.-Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM‟s liability
commenced only when it guaranteed PPIC‟s obligation. It became a surety when it bound itself solidarily with the
principal obligor. Thus, the applicable law is Art 2047 CC. Pursuant to this provision, petitioner (as creditor) was justified
in taking action directly against respondent.-The Court does not find any ambiguity in the provisions of the Guarantee
Agreement. When qualified by the term “jointly and severally,” the use of the word “guarantor” to refer to a “surety” does
not violate the law. As Art 2047 provides, a suretyship is created when a guarantor binds itself solidarily with the principal
obligor. Likewise, the phrase in the Agreement --“as primary obligor and not merely as surety” --stresses that ITM is being
placed on the same levelas PPIC. Those words emphasize the nature of their liability, which the law characterizes as a
suretyship.
-The use of the word “guarantee” does not ipso facto make the contract one of guaranty. This Court has recognized that
the word is frequently employed in business transactions to describe the intention to be bound by a primary or an
independent obligation. The very terms of a contract govern the obligations of the parties or the extent of the obligor‟s
liability. Thus, this Court has ruled in favor of suretyship, even though contracts were denominated as a “Guarantor‟s
Undertaking” or a “Continuing Guaranty.”-Indeed, the finding of solidary liability is in line with the premise provided in the
“Whereas” clause of the Guarantee Agreement. The execution of the Agreement was a condition precedent for the
approval of PPIC‟s loan from IFC. Consistent with the position of IFC as creditor was its requirement of a higher degree
of liability from ITM in case PPIC committed a breach. ITM agreed with the stipulation in Section 2.01 and is now
estopped from feigning ignorance of its solidary liability. The literal meaning of the stipulations control when the terms of
the contract are clear and there is no doubt as to the intention of the parties.-We notethat the CA denied solidary liability,
on the theory that the parties would not have executed a Guarantee Agreement if they had intended to name ITM as a
primary obligor. The appellate court opined that ITM‟s undertaking was collateral to and distinct from the Loan
Agreement. On this point, the Court stresses that a suretyship is merely an accessory or a collateral to a principal
obligation. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary
and absolute; or equivalent to that of a regular party to the undertaking. A surety becomes liable to the debt and duty of
the principal obligor even without possessing a direct or personal interest in the obligations constituted by the latter.-With
the present finding that ITM is a surety, it is clear that the CA erred in declaring the former secondarily liable. A surety is
considered in law to be on the same footing as the principal debtor in relation to whatever is adjudged against the latter.
Evidently, the dispositive portion of the assailed Decision should be modified to require ITM to pay the amount adjudged
in favor of IFC.
18. Delos Santos vs Vibar
FACTS: De Leon borrowed P100k from Vibar. De Leon issued a promissory note and bound himself to pay the loan three
months from date with a monthly interest rate. Delos Santos signed as a guarantor of de Leon’s loan. Later, de Leon
asked Vibar for another loan. Together with Delos Santos and Conte, de Leon went to Vibar’s house. After some
discussion, they all agreed that the outstanding P100k loan together with the accrued interest would be deducted from the
new loan of P500,000. De Leon signed a typewritten promissory note acknowledging the debt of P500k payable within 12
months. Then, Delos Santos signed as a witness under the phrase “signed in the presence of.” However, de Leon, in his
own handwriting, inserted the word “guarantor” besides Delos Santos’s name, as Delos Santos nodded her head to what
de Leon was doing. De Leon also added the phrase, “as security for this loan this TCT No. T-47375, Registry of Baguio
City, is being submitted by way of mortgage.” On maturity date, de Leon failed to pay any of the monthly installments.
Vibar made several verbal and written demands on de Leon for payment but to no avail asDe Leon failed to respond.
Vibar’s counsel again sent a demand letter not only to de Leon as principal debtor, but also to delos Santos.delos Santos
was being made to answer for de Leon’s debt as the latter’s guarantor. delos Santos then remitted to Vibar P15k to pay
one month’s interest on the loan. However, this was the only payment Delos Santos made to Vibar as Delos Santos
claimed she had no money to pay the full amount of the loan Vibar filed an action for recovery of money with the RTC,
which although ruled that De Leon is liable, Delos Santos is not a guarantor. The trial court ruled that there was no
express consent given by Delos Santos binding her as guarantor. However, Ca ruled that Delos santos is guarantor of De
Leon’s loan. Delos Santos filed an MR which was denied. Hence this petition for review on certiorari.
ISSUE: WON Delos Santos is liable as guarantor of de Leon’s loan from Vibar
HELD: petition denied YES,We are convinced that the insertion was made with the express consent of Delos Santos.
Delos Santos’s act of nodding her head showed her consent to be a guarantor. Also, Vibar would not have extended a
loan to de Leon without the representations of Delos Santos. Also, Delos Santos acknowledged her liability as guarantor
but simply claimed that she had no money to pay Vibar. In fact, Delos Santos made an initial payment of P15K as partial
compliance of her obligation as guarantor. This only shows that Delos Santos never denied her liability to Vibar as
guarantor until this case was filed in court. Lastly, Delos Santos wrote a letter to the RD of Baguio City inquiring on the
status of the property mentioned in the promissory note as a mortgage security for de Leon’s loan. Here, Delos Santos
clearly stated that she “appears to be a guarantor” in the promissory note. This serves as a written admission that Delos
Santos knew she was a guarantor. During the trial, Delos Santos did not impugn the letter or its contents.
Further, It is axiomatic that the written word “guarantor” prevails over the typewritten word “witness.” In case of conflict,
the written word prevails over the printed word. Section 15 of Rule 130 provides: Sec. 15. Written words control printed. –
When an instrument consists partly of written words and partly of a printed form, and the two are inconsistent, the former
controls the latter.
We agree with CA that estoppel in pais arose in this case. estoppel is a doctrine that prevents a person from adopting an
inconsistent position, attitude, or action if it will result in injury to anotherOne who, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces
another to believe certain facts to exist and such other rightfully relies and acts on such belief, can no longer deny the
existence of such fact as it will prejudice the latter