GUARANTEE EXTINGUISHMENT

ASIATIC CASE
It is fundamental in the law of suretyship that any agreement between the creditor
and the principal debtor which essentially varies the terms of the principal contract,
without the consent of the surety, will release the surety from liability. (21 R. C. L.,
1004) This principle is equally valid under the civil as under the common law; and
though not specifically expressed in the Civil Code, it may be deduced, so far as its
application to the facts of this case is relation with article 1143 of the same article 1822 in
relation with article 1143 of the same Code. It requires no argument to show that the
increase of liability incident to the extension of the agency to other places than San
Fernando was prejudical to the interest of the appellant, and the change could not be
lawfully made without his consent.
The trial judge was therefore not in error in holding that the appellant was in effect
discharged from liability under the contract of suretyship (Exhibit B-1); but his Honor
nevertheless gave judgment against the defendant for the sum of P5,000. In doing so he
proceeded upon the idea that the defendant admitted that he intended to obligate himself
to the extent of P5,000, and his Honor concluded that by entering into the contract of
suretyship the defendant had induced the plaintiff to make the contract of agency
which appears to have been signed by the representative of the plaintiff after it had been
signed and acknowledged by David; for which reason his Honor considered it just to hold
the defendant to the extent at least in which he had intended to bind himself. The validity
of this conclusion cannot be admitted. The only obligation which was created on the part
of the defendant was the contract of suretyship (Exhibit B-1), and when that obligation
was nullified was nullified by the subsequent alteration of the principal contract, the
appellant was discharged was discharged in toto.
RADIOCORP CASE
PhilippineLaw.info Jurisprudence 1935 September
PhilippineLaw.info Jurisprudence Phil. Rep. Vol. 62
G.R. No. 42829, Radio Corporation of the Philippines v. Roa et al., 62 Phil. 211
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
September 30, 1935
G.R. No. 42829
RADIO CORPORATION OF THE PHILIPPINES, plaintiff-appellee,
vs.
JESUS R. ROA, ET AL., defendants.

RAMON CHAVES, ANDRES ROA and MANUEL ROA, appellants.

M.H. de Joya and Juan de Borja for appellants.
Barrera and Reyes for appellee.
GODDARD, J.:
This is an appeal from decision of the Court of First Instance of the City of Manila the
dispositive part of which reads:
In view of all the foregoing, judgment is hereby rendered in favor of the plaintiff Radio
Corporation of the Philippines and against the defendants Jesus R. Roa, Ramon Chavez,
Andes Roa and Manuel Roa: (a) Ordering the defendant Jesus R. Roa to pay the plaintiff
the sum of P22,935, plus P99.64, with legal interest thereon from the date of the filing of
the complaint until fully paid: (b) that upon failure of the defendant Jesus Roa to pay the
said sum indicated, the chattel described in the second cause of action shall be sold at
public auction to be applied to the satisfaction of the amount of this judgment; (c) that the
defendants Jesus R. Roa, Ramon Chavez, Andres Roa and Manuel Roa pay jointly and
severally to the plaintiff the amount of P10,000; (d) and that Jesus R. Roa pay to the
plaintiff the amount equivalent to 10 per cent of P22,935, as attorney's fees, and that all
the defendants in this case pay the costs of this action.
The defendants Ramon Chavez, Andres Roa and Manuel Roa have appealed from the
judgment against them for P10,00 and costs. These appellants make the following
assignments of error:
1. The court below erred in not finding that the balance of the total indebtedness became
immediately due and demandable upon the failure of the defendant Jesus R. Roa to pay
any installment on his note.
2. The court below erred in not finding that defendant Jesus R. Roa defaulted in the
payment of the installment due on February 27,1932, and that plaintiff corporation gave
him an extension of time for the payment of said installment.
3. The court below erred in not finding that the extension of time given to defendant Jesus
R. Roa for the payment of an overdue installment served as a release of defendant
sureties from liability on all the subsequent installments.
4. The court below erred in not finding that the sureties were discharged from their bond
when the plaintiff authorized Jesus R. Roa to remove the photophone equipment from
Cagayan, Misamis Oriental, to Silay, Occidental Negros, without the knowledge or
consent of said sureties.
5. The court below erred in condemning Ramon Chavez, Andres Roa and Manuel Roa to
pay jointly and severally the sum of P10,000 to the Radio Corporation of the Philippines.

The defendant Jesus R. Roa became indebted to the Philippine Theatrical Enterprises,
Inc., in the sum of P28,400 payable in seventy-one equal monthly installments at the rate
of P400 a month commencing thirty days after December 11, 1931, with five days grace
monthly until complete payment of said sum. On that same date the Philippine Theatrical
Enterprises, Inc., assigned all its right and interest in that contract to the Radio
Corporation of the Philippines.
The paragraph of that contract in which the accelerating clause appears reads as follows:
In case the vendee-mortgagor fails to make any of the payments as hereinbefore
provided, the whole amount remaining unpaid under this mortgage shall immediately
become due and payable and this mortgage on the property herein mentioned as well as
the Luzon Surety Bond may be foreclosed by the vendor-mortgagee; and, in such case,
the vendee-mortgager further agrees to pay the vendor- mortgagee an additional sum
equivalent to 25 per cent of the principal due unpaid as costs, expenses and liquidated
damages, which said sum, shall be added to the principal sum for which this mortgage is
given as security, and shall become a part, thereof.
On March 15, 1932, Erlanger & Galinger, Inc., acting in its capacity as attorney-in-fact of
the Radio Corporation of the Philippines wrote the following letter (Exhibit 13) to the
principal debtor Jesus R. Roa:
Mr. JESUS R. ROA
Cagayan, Oriental Misamis
Attention of Mrs. Amparo Chavez de Roa
DEAR SIR: We acknowledge with thanks the receipt of your letter of March 9th together
with your remittance of P200 for which we enclose receipt No. 7558. We are applying
this amount to the balance of your January installment.
We have no objection to the extension requested by you to pay the February installment
by the first week of April. We would, however, urge you to make every efforts to bring
the account up-to date as we are given very little discretion by the RCP in giving
extension of payment.
Very truly yours,
RADIO CORP. OF THE PHIL.
By: ERLANGER & GALINGER, INC.
(Sgd.) H.N. SALET
Vice-President
Under the above assignments of error the principal question to be decided is whether or
not the extension granted in the above copied letter by the plaintiff, without the consent
of the guarantors, the herein appellants, extinguishes the latter's liability not only as to the
installments due at that time, as held by the trial court, but also as to the whole amount of

their obligation. Articles 1851 of the Civil Code reads as follows:

ART. 1851. An extension grated to the debtor by the creditor, without the consent of
the guarantor, extinguishes the latter's liability.
This court has held that mere delay in suing for the collection of the does not release
the sureties.
his court stated:
. . . The rule that an extension of time granted to the debtor by the creditor, without the
consent of the sureties, extinguishes the latter's liability is common both to Spanish
jurisprudence and the common law; and it is well settled in English and American
jurisprudence that where a surety is liable for different payments, such as installments
of rent, or upon a series of promissory notes, an extension of time as to one or more
will not affect the liability of the surety for the others. . . .
There is one stipulation in the contract (Exhibit A) which, at first blush, suggests a doubt
as to the propriety of applying the doctrine above stated to the case before us. We refer to
clause (f) which declares that the non-fulfillment on the part of the debtors of the
stipulation with respect to the payment of any installment of the indebtedness, with
interest, will give to the creditor the right to treat and declare all of said installments
as immediately due. If the stipulation had been to the effect that the failure to pay any
installment when due would ipso facto cause the other installments to fall due at once, it
might be plausibly contended that after default of the payment of one installment
the act of the creditor in extending the time as to such installment would interfere
with the right of the surety to exercise his legal rights against the debtor, and that
the surety would in such case be discharged by the extension of time, in conformity
with article 1851 and 1852 of the Civil Code. But it will be noted that in the contract
now under consideration the stipulation is not that the maturity of the latter
installments shall be ipso facto accelerated by default in the payment of a prior
installment, but only that it shall give the creditor a right treat the subsequent
installments as due; and in this case it does not appear that the creditor has
exercised this election. On the contrary, this action was not instituted until after all
of the installments had fallen due in conformity with original contract. It results that
the stipulation contained in paragraph (f) does not effect the application of the
doctrine above enunciated to the case before us.
The stipulation in the contract under consideration, copied above, is to the effect that
upon failure to pay any installment when due the other installments ipso facto become
due and payable. In view of of the fact that under the express provision of the contract,
quoted above, the whole unpaid balance automatically becomes due and payable upon
failure to pay one installment, the act of the plaintiff in extending the payment of the
installment corresponding to February, 1932, to April, 1932, without the consent of
the guarantors, constituted in fact an extension of the payment of the whole amount
of the indebtedness, as by that extension the plaintiff could not have filed an action

for the collection of the whole amount until after April, 1932. Therefore appellants'
contention that after default of the payment of one installment the act of the herein
creditor in extending the time of payment discharges them as guarantors in
conformity with articles 1851 and 1852 of the Civil Code is correct.
It is a familiar rule that if a creditor, by positive contract with the principal debtor, and
without the consent of the surety, extends the time of payment, he thereby
discharges the surety. . . . The time of payment may be quite as important a
consideration to the surety as the amount he has promised conditionally to pay. . ..
Again, a surety has the right, on payment of the debt, to be subrogated to all the
rights of the creditor, and to proceed at once to collect it from the principal; but if
the creditor has tied own hands from proceeding promptly, by extending the time of
collection, the hands of the surety will equally be bound;
and before they are loosed, by the expiration of the extended credit, the principal
debtor may have become insolvent and the right of subrogation rendered worthless.
It should be observed, however, that it is really unimportant whewther the extension
given has actually proved prejudicial to the surety or not. The rule stated is quite
independent of the event, and the fact that the principal is insolvent or that the
extension granted promised to be beneficial to the surety would give no right to the
creditor to change the terms of the contract without the knowledge or consent of the
surety. Nor does it matter for how short a period the time of payment may be
extended. The principle is the same whether the time is long or short. The creditor
must be in such a situation that when the surety comes to be substituted in his place
by paying the debt, he may have an immediate right of action against the principal.
The suspension of the right to sue for a month, or even a day, is as effectual to
release the surety as a year or two years. (21 R.C.L., 1018-1020.)
Plaintiff's contention that the enforcement of the accelerating clause is potestative on the
part of the obligee, and not self-executing, is clearly untenable from a simple reading of
the clause copied above. What is potestative on the part of the obligee is the foreclosure
of the mortgage and not the accelerating clause.
PEOPLES BANK AND TRUST CO
RULING:
"The contract of absolute guaranty, ..., expressly authorized the plaintiff bank to
extend the time of payment and to release or surrender any security or part thereof
held by it without notice to, the consent of, Santana. He had consented in advance
the release of the guaranty which the bank might make, Santana cannot now
complain that the release of the pledge was without his consent, and that it deprived
him of the right to be subrogated to the rights of the creditor. The waiver is not
contrary to law, nor is it contrary to public policy. The law does not prohibit the
debtor-guarantor from agreeing in advance and without notice to the release of any

security which had been given to assure payment of the obligation. The waiver is not
contrary to public policy, because the right is purely personal, and does not affect
public interest nor does it violate any public policy. Neither does the return of the
shares of stocks novate the original contract for the obligation remains the same; and if it
is a novation, it is a novation made with the consent of Santana. Moreover, the pledge is
merely an accessory obligation, and its release does not vary the terms of the principal
obligation.
It is thus obvious that the contract of absolute guaranty executed by appellant
Santana is the measure of rights and duties. As it is with him, so it is with the
plaintiff bank. What was therein stipulated had to be complied with by both parties.
Nor could appellant have any valid cause for complaint. He had given his word; he
must live up to it. Once the validity of its terms is conceded, he cannot be indulged
in his unilateral determination to disregard his commitment. A promise to which the
law accords binding force must be fulfilled. It is as simple as that. So the Civil Code
explicitly requires: "Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith." 5
2. It could have been different if there were no such contract of absolute guaranty to
which appellant was a party under the aforesaid Article 2080. He would have been freed
from the obligation as a result of plaintiff releasing to the Tambuntings without his
consent the 135 shares of the International Sports Development Corporation pledged to
plaintiff bank to secure the overdraft line. For thereby subrogation became meaningless.
Such a provision is intended for the benefit of a surety. That was a right he could avail of.
He is not precluded however from waiving it. That was what appellant did precisely when
he agreed to the contract of absolute guaranty. Again the law is clear. A right may be
waived unless it would be contrary to law, public order, public policy, morals or good
customs
PHIL NATIONAL BANK
RULING:
his argument of appellant Bank misses the point. The Court of Appeals did not hold the
Bank answerable for negligence in failing to collect from the principal debtor but for its
neglect in collecting the sums due to the debtor from the Bureau of Public Works,
contrary to its duty as holder of an exclusive and irrevocable power of attorney to make
such collections, since an agent is required to act with the care of a good father of a
family (Civ. Code, Art. 1887) and becomes liable for the damages which the principal
may suffer through his non-performance (Civ. Code, Art. 1884). Certainly, the Bank
could not expect that the Bank would diligently perform its duty under its power of
attorney, but because they could not have collected from the Bureau even if they had
attempted to do so. It must not be forgotten that the Bank's power to collect was expressly
made irrevocable, so that the Bureau of Public Works could very well refuse to make
payments to the principal debtor itself, and a fortiori reject any demands by the surety.
Even if the assignment with power of attorney from the principal debtor were

considered as mere additional security still, by allowing the assigned funds to be

exhausted without notifying the surety, the Bank deprived the former of any
possibility of recoursing against that security. The Bank thereby exonerated the
surety, pursuant to Article 2080 of the Civil Code:
ART. 2080. The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be subrogated to the
rights, mortgages and preferences of the latter. (Emphasis supplied.)
The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau of
Public Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the
debtor that as of its date, October 31, 1949, its outstanding balance was P156,374.83.
Said Exhibit "G" has no bearing on the issue whether the Bank has exercised due
diligence in collecting from the Bureau of Public Works, since the letter was addressed to
ATACO, and the funds were to come from elsewhere. As to the letter of demand on the
Public Works office, it does not appear that any reply thereto was made; nor that the
demand was pressed, nor that the debtor or the surety were ever apprised that payment
was not being made. The fact remains that because of the Bank's inactivity the other
creditors were enabled to collect P173,870.31, when the balance due to appellant Bank
was only P158,563.18. The finding of negligence made by the Court of Appeals is thus
not only conclusive on us but fully supported by the evidence.
Even if the Court of Appeals erred on the second reason it advanced in support of the
decision now under appeal, because the rules on application of payments, giving
preference to secured obligations are only operative in cases where there are several
distinct debts, and not where there is only one that is partially secured, the error is of no
importance, since the principal reason based on the Bank's negligence furnishes adequate
support to the decision of the Court of Appeals that the surety was thereby released.
RULING:
Evidently, they constitute illicit extensions prohibited under Art. 2079 of the Civil
Code, "[a]n extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty." This act of the Bank is not mere failure or
delay on its part to demand payment after the debt has become due, as was the case
in unpaid five (5) letters of credit which the Bank did not extend, defer or put off,54
but comprises conscious, separate and binding agreements to extend the due date, as
was admitted by the Bank itself As a result of these illicit extensions, petitionerspouses Luis Toh and Vicky Tan Toh are relieved of their obligations as sureties of
respondent FBPC under Art. 2079 of the Civil Code.. Finally, the foregoing omission or
negligence of respondent Bank in failing to safe-keep the security provided by the
marginal deposit and the twenty-five percent (25%) requirement results in the material
alteration of the principal contract, i.e., the "letter-advise," and consequently releases the
surety.61 This inference was admitted by the Bank through the testimony of its lone
witness that "[w]henever this obligation becomes due and demandable, except when you
roll it over, (so) there is novation there on the original obligations." As has been said, "if

the suretyship contract was made upon the condition that the principal shall furnish
the creditor additional security, and the security being furnished under these
conditions is afterwards released by the creditor, the surety is wholly discharged,
without regard to the value of the securities released, for such a transaction amounts
to an alteration of the main contract."
RULING:
It is worthy to note that petitioners did not impugn the validity of the stipulation in the
Indemnity Agreements allowing ISAC to proceed against petitioners the moment the
subject bonds become due and demandable, even prior to actual forfeiture or payment
thereof. Even if they did so, the Court would be constrained to uphold the validity of such
a stipulation for it is but a slightly expanded contractual expression of Article 2071
of the Civil Code which provides, inter alia, that the guarantor may proceed against
the principal debtor the moment the debt becomes due and demandable. Article
2071 of the Civil Code provides:
Art. 2071. The guarantor, even before having paid, may proceed against the
principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from the guaranty within a
specified period, and this period has expired;
(4) When the debt has become demandable, by reason of the expiration of the period
for payment;
(5) After the lapse of ten years, when the principal obligation has no fixed period for
its maturity, unless it be of such nature that it cannot be extinguished except within
a period longer than ten years;
(6) If there are reasonable grounds to fear that the principal debtor intends to
abscond;
(7) If the principal debtor is in imminent danger of becoming insolvent.
In all these cases, the action of the guarantor is to obtain release from the guaranty,
or to demand a security that shall protect him from any proceedings by the creditor
and from the danger of insolvency of the debtor. (Emphases ours.)
Petitioners also invoke the alleged lack of demand on the part of ISAC on petitioners as
regards Instrata Bond No. 5770 before it instituted Civil Case No. 95-1584. Even if
proven true, such a fact does not carry much weight considering that demand,
whether judicial or extrajudicial, is not required before an obligation becomes due

and demandable. A demand is only necessary in order to put an obligor in a due and
demandable obligation in delay,[14] which in turn is for the purpose of making the
obligor liable for interests or damages for the period of delay.[15] 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.
The Court of Appeals concluded that since petitioner Rodriguez was a surety,
Article 2079 of the Civil Code does not apply. The appellate court further noted that
both petitioners authorized ISAC to consent to the granting of an extension of the subject
bonds.
The Court of Appeals committed a slight error on this point. The provisions of the Civil
Code on Guarantee, other than the benefit of excussion, are applicable and available to
the surety.[22] The Court finds no reason why the provisions of Article 2079 would not
apply to a surety.
This, however, would not cause a reversal of the Decision of the Court of Appeals. The
Court of Appeals was correct that even granting arguendo that there was a modification as
to the effectivity of the bonds, petitioners would still not be absolved from liability since
they had authorized ISAC to consent to the granting of any extension, modification,
alteration and/or renewal of the subject bonds, as expressly set out in the Indemnity
Agreements There is nothing illegal in such a provision. In Philippine American General
Insurance Co., Inc. v. Mutuc,[24] the Court held that an agreement whereby the sureties
bound themselves to be liable in case of an extension or renewal of the bond, without the
necessity of executing another indemnity agreement for the purpose and without the
necessity of being notified of such extension or renewal, is valid; and that there is nothing
in it that militates against the law, good customs, good morals, public order or public
policy.
RULING:
As a general rule, the death of either the creditor or the debtor does not extinguish
the obligation.8 Obligations are transmissible to the heirs, except when the
transmission is prevented by the law, the stipulations of the parties, or the nature of
the obligation.9 Only obligations that are personal10 or are identified with the
persons themselves are extinguished by death.11
Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money
claims arising from a contract against the estate of a deceased debtor. Evidently, those
claims are not actually extinguished.13 What is extinguished is only the obligees action
or suit filed before the court, which is not then acting as a probate court.14
In the present case, whatever monetary liabilities or obligations Santos had under his
contracts with respondent were not intransmissible by their nature, by stipulation, or by
provision of law. Hence, his death did not result in the extinguishment of those
obligations or liabilities, which merely passed on to his estate.15 Death is not a defense

that he or his estate can set up to wipe out the obligations under the performance bond.
Consequently, petitioner as surety cannot use his death to escape its monetary obligation
under its performance bond. The right of any individual, firm, partnership, corporation or
association supplying the contractor with labor or materials for the prosecution of the
work hereinbefore stated, to institute action on the penal bond, pursuant to the provision
of Act No. 3688, is hereby acknowledge and confirmed."16
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil
Code, which provides as follows:
"Art. 2047. 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 4,17 Chapter 3, Title I of this Book shall be observed. In such case the
contract is called a suretyship."
xxxxxxxxx
"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or
all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as the
debt has not been fully collected."
Elucidating on these provisions, the Court in Garcia v. Court of Appeals18 stated thus:
"x x x. The suretys 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; in other words, he is directly
and equally bound with the principal. x x x."19
Under the law and jurisprudence, respondent may sue, separately or together, the
principal debtor and the petitioner herein, in view of the solidary nature of their
liability. The death of the principal debtor will not work to convert, decrease or
nullify the substantive right of the solidary creditor. Evidently, despite the death of the
principal debtor, respondent may still sue petition