Willex Plastic Industries, Corp, v.

CA and International Corporate Bank (1996)

Facts: On 1978 Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking
Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment
and Underwriting Corporation of the Philippines (IUCP later turned into Interbank) executed two
documents, both entitled "Continuing Surety Agreement", whereby they bound themselves solidarily to
pay Manila bank. Thereafter, Inter-Resin Industrial, together with Willex Plastic Industries Corp.,
executed a "Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or
sums obtained and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin
Industrial and Willex Plastic jointly and severally guarantee "the prompt and punctual payment at
maturity of the NOTE/S issued by the DEBTOR/S to the extent of the aggregate principal sum of FIVE
MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and penalties as
hereafter may be specified."

Following demand upon it, IUCP paid to Manila bank the sum of P4,334,280.61 representing Inter-Resin
Industrial's outstanding obligation. Atrium Capital Corp., which in the meantime had succeeded IUCP,
demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had paid to
Manila bank. As neither one of the sureties paid, Atrium filed this case in the court below against Inter-
Resin Industrial and Willex Plastic. Inter-Resin Industrial paid some of the amounts due. Willex Plastic
denied the material allegations of the complaint. It argues that under the "Continuing Guaranty," its
liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by the latter to
Manila bank for the account of Inter-Resin Industrial.

As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium Capital, to
Manila bank pursuant to the "Continuing Surety Agreements" made on December 1, 1978. In denying
liability to Interbank for the amount, Willex Plastic argues that under the "Continuing Guaranty," its
liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by the latter to
Manila bank for the account of Inter-Resin Industrial.

RTC: Rendered judgment, ordering Inter-Resin Industrial and Willex Plastic jointly and severally to pay to
Interbank

CA: Affirmed the decision of RTC

Issue: 1) WON under the "Continuing Guaranty" signed on April 2, 1979, Willex Plastic may be held
jointly and severally liable with Inter-Resin Industrial for the amount by Interbank to Manila bank.

2) WON Willex Plastic can claim the benefit of excussion

Held: 1) Yes, Willex Plastic has overlooked is the fact that evidence aliunde was introduced in the trial
court to explain that it was actually to secure payment to Interbank (formerly IUCP) of amounts paid by
the latter to Manila bank that the "Continuing Guaranty" was executed. Interbank adduced evidence to
show that the "Continuing Guaranty" had been made to guarantee payment of amounts made by it to
Manila bank and not of any sums given by it as loan to Inter-Resin Industrial. Accordingly, the trial court
found that it was "to secure the guarantee made by plaintiff of the credit accommodation granted to
defendant IRIC [Inter-Resin Industrial] by Manila bank, that the plaintiff required defendant IRIC to
execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by the defendant
Willex Plastic Industries Corporation." Similarly, the Court of Appeals found it to be an undisputed fact
that "to secure the guarantee undertaken by plaintiff-appellee [Interbank] of the credit accommodation
granted to Inter-Resin Industrial by Manila bank, plaintiff-appellee required defendant-appellants to sign
a Continuing Guaranty.

Willex Plastic admitted that it was "to secure the aforesaid guarantee, that INTERBANK required principal
debtor IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor, and so a 'Continuing
Guaranty' was executed on April 2, 1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for
brevity) in favor of INTERBANK for and in consideration of the loan obtained by IRIC [Inter-Resin
Industrial]." Put in another way the consideration necessary to support a surety obligation need not
pass directly to the surety, a consideration moving to the principal alone being sufficient. For a
"guarantor or surety is bound by the same consideration that makes the contract effective between the
principal parties thereto. . . . It is never necessary that a guarantor or surety should receive any part or
benefit, if such there be, accruing to his principal."

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

If default be made in the payment of the NOTE/s herein guaranteed you and/or your principal/s may
directly proceed against Me/Us without first proceeding against and exhausting DEBTOR/s properties in
the same manner as if all such liabilities constituted My/Our direct and primary obligations.

This stipulation embodies an express renunciation of the right of excussion. Petition is dismissed
Fortune Motors (Phils) v. CA (1997)

Facts: In 1981, Joseph Chua and Edgar Rodrigueza executed separate surety agreements whereunder
they absolutely, unconditionally and solidarily guarantee(d) to Respondent Filinvest Credit Corporation
(Respondent Filinvest) and its affiliated and subsidiary companies the full, faithful and prompt
performance, payment and discharge of any and all obligations and agreements of Fortune Motors
(Phils.) Corporation (Petitioner Fortune) under or with respect to any and all such contracts and any and
all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest and its
affiliated and subsidiary companies now in force or hereafter made.

In 1982, Fortune Motors secured cars from Canlubang Automotive Resources Corporation (CARCO) via
trust receipts and drafts made by CARCO. These were assigned to Filinvest Credit Corporation. Later
Filinvest, when the obligation matured, demanded payment from Fortune Motor as well as from Chua
and Rodrigueza. No payment was made. A case was filed. Rodrigueza averred that the surety agreement
was void because when it was signed in 1981, the principal obligation (1982) did not yet exist.

RTC: Ruled in favor of Filinvest

CA: Affirmed the decision

Issue: WON surety can exist even if there was no existing indebtedness at the time of its execution.

Held: No. Future obligations can be covered by a surety. Comprehensive or continuing surety
agreements are in fact quite commonplace in present day financial and commercial practice. A bank or
financing company which anticipates entering into a series of credit transactions with a particular
company, commonly requires the projected principal debtor to execute a continuing surety agreement
along with its sureties. By executing such an agreement, the principal places itself in a position to enter
into the projected series of transactions with its creditor; with such suretyship agreement, there would
be no need to execute a separate surety contract or bond for each financing or credit accommodation
extended to the principal debtor.
Southern Motors v. Barbossa (1956)

Facts: Plaintiff Southern Motors brought an action against defendant Barbosa to foreclose a real estate
mortgage constituted by the latter in favor of the former, as security for the payment of a sum extended
by plaintiff to one Alfredo Brillantes, because the latter failed to settle his obligation in accordance with
the terms and conditions corresponding with the deed of mortgage defendant led an answer admitting
the allegations of the complaint and alleging by way of special and affirmative defense that he executed
the deed of mortgage for the sole purpose of guaranteeing the above mentioned debt of Brillantes and
that therefore plaintiff cannot foreclose the mortgage property without a prior exhaustion of the
principals properties After the case transferred from one judge to another, the trial court rendered
judgment on the pleadings in favor of plaintiff that prompted respondent to appeal before the CA who
certified the case in view of the fact that the appeal raises purely questions of law.

Issue: WON Plaintiff is required to exhaust principal debtors property before he can proceed to
foreclose the mortgage.

Held: No, defendants invocation of article 2058 of the Civil Code is misplaced because the right of the
guarantors to demand exhaustion of the property of the principal debtor under said provision exists only
when a pledge or mortgage has not been given as special security for the payment of the principal
obligation under the given facts of the case, a mortgage was executed as security Brilliantes debt, hence,
defendants reliance upon the aforementioned provision cannot be sustained, for what governs in this
case are the provisions under title XVI of the Civil Code concerning pledge and mortgages.

ART. 2087. It is also of the essence of these contracts that when the principal obligation becomes due,
the things in which the pledge or mortgage consists may be alienated for the payment to the creditor.
ART. 2126. The mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted.
3. It has been held already (Saavedra vs. Price, 68 Phil., 688), that a mortgagor is not entitled to the
exhaustion of the property of the principal debtor.
4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the
aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor,
who shall be entitled, however, to a deferment of the execution of said judgment against him until after
the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the
case.
Judgment is affirmed.

Wise &Co. v. Tanglao (1936)

Facts: In the Court of First Instance of Manila, Wise & Co. instituted civil case No. 41129 against Cornelio
C. David for the recovery of a certain sum of money David was an agent of Wise & Co. and the amount
claimed from him was the result of a liquidation of accounts showing that he was indebted in said
amount. In said case Wise & Co. asked and obtained a preliminary attachment of David's property. To
avoid the execution of said attachment, David succeeded in having his Attorney Tanglao execute on
January 16, 1932, a power of attorney (Exhibit A) in his favor, with the following clause:

To sign for me as guarantor for himself in his indebtedness to Wise & Company of Manila, which
indebtedness appears in civil case No. 41129, of the Court of First Instance of Manila, and to mortgage
my lot (No. 517-F of the subdivision plan Psd-20, being a portion of lot No. 517 of the cadastral survey of
Angeles, G. L. R. O. Cad. Rec. No. 124), to guarantee the said obligations to the Wise & Company, Inc., of
Manila.

There after a parcel of land in Pampanga owned by Dionisio Tanglao was pledge by David via Special
Power of Attorney in favor of Wise &Co as a guarantee for payment of the claim. David paid the sum of
P343.47 to Wise & Co on account of the P640 which he bound himself to pay under Exhibit B, leaving an
unpaid balance of P296.53. Wise & Co. now institutes this case against Tanglao for the recovery of said
balance of P296.53.

Issue: WON there was a contract of surety between Wise&Co and Tanglao with regards to the debt of
David

Held: No, David used said power of attorney only to mortgage the property and did not enter into
contract of suretyship. Nothing is stated in Exhibit B to the effect that Tanglao became David's surety for
the payment of the sum in question. Neither is this inferable from any of the clauses thereof, and even if
this inference might be made, it would be insufficient to create an obligation of suretyship which, under
the law, must be express and cannot be presumed.

It appears from the foregoing that defendant, Tanglao could not have contracted any personal
responsibility for the payment of the sum of P640. The only obligation which Exhibit B, in connection
with Exhibit A, has created on the part of Tanglao, is that resulting from the mortgage of a property
belonging to him to secure the payment of said P640. However, a foreclosure suit is not instituted in this
case against Tanglao, but a purely personal action for the recovery of the amount still owed by David. At
any rate, even granting that defendant Tanglao may be considered as a surety under Exhibit B, the action
does not yet lie against him on the ground that all the legal remedies against the debtor have not
previously been exhausted (art. 1830 of the Civil Code, and decision of the Supreme Court of Spain of
March 2, 1891). The plaintiff has in its favor a judgment against debtor David for the payment of debt. It
does not appear that the execution of this judgment has been asked for and Exhibit B, on the other
hand, shows that David has two pieces of property the value of which is in excess of the balance of the
debt the payment of which is sought of Tanglao in his alleged capacity as surety.

Prudential Bank v. IACC (1992)

Facts: August 8, 1962 Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of
Japan for the importation of textile machineries under a 5-year deferred payment plan. To effect the
payment, PRMI applied for a commercial letter of credit with the Prudential Bank and Trust Company in
favor of Nissho. Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78 Against this
letter of credit, drafts were drawn and issued by Nissho, which were all paid by the Prudential Bank
through its correspondent in Japan, the Bank of Tokyo, Ltd. Two of the original drafts were accepted by
PRMI through its president, Anacleto R. Chi, while the others were not. Upon the arrival of the
machineries, the Prudential Bank indorsed the shipping documents to the PRMI which accepted delivery
of the same. To enable PRMI to take delivery of the machineries, it executed, by prior arrangement with
the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as President of
PRMI company

At the back of the trust receipt was printed a form to be accomplished by 2 sureties who, by the very
terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the
PRMI fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential
Bank. . PRMI was able to take delivery of the textile machineries and installed the same at its factory site.
Chi argued that presentment for acceptance was necessary to make PRMI liable. The trial court ruled
that that presentment for acceptance was an indispensable requisite for Philippine Rayons liability on
the drafts to attach.

Issue : WON presentment for acceptance was needed in order for PRMI to be liable under the draft.

WON Anacleto Chi is Guarantor

Held : 1) Presentment for acceptance is defined an the production of a bill of exchange to a drawee for
acceptance. Acceptance, however, was not even necessary in the first place because the drafts which
were eventually issued were sight drafts. Even if these were not sight drafts, thereby necessitating
acceptance, it would be the Bank (Bank of America) and not Philippine Rayon which had to accept
the same for the latter was not the drawee.

The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was
an indispensable requisite for Philippine Rayons liability on the drafts to attach. Contrary to both courts
pronouncements, Philippine Rayon immediately became liable upon Bank of Americas payment on the
letter of credit. Such is the essence of the letter of credit issued by the petitioner. A different conclusion
would violate the principle upon which commercial letters of credit are founded because in such a case,
both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would be
placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery
and the petitioner had fully paid for it.

In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for
acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable
Instruments Law (NIL). In the instant case then, the drawee was necessarily the herein the Bank of
America. It was to the latter that the drafts were presented for payment.
2) Anacleto Chi is only a guarantor, This is evident by the last sentence which speaks of waiver of
exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose
property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of
exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation.
Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly
distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the
guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and
severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to
the liability existing between themselves. It does not refer to the undertaking between either one or
both of them on the one hand and the petitioner on the other with respect to the liability described
under the trust receipt. Elsewise stated, their liability is not divisible as between them, i.e., it can be
enforced to its full extent against any one of them.

Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be
resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause,
is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limited to the
affixing of his signature thereon.

Petition is granted.
Imperial insurance v. De Los Reyes (1982)

Facts: Rosa V. Reyes is the plaintiff in Civil Case N. Q8213 of the Court of First Instance of Rizal, Branch IV,
Quezon City, entitled, Rosa V. Reyes vs. Felicisimo V. Reyes, etc., where she obtained a writ of
preliminary attachment and, accordingly, levied upon all the properties of the defendant, Felicisimo V.
Reyes, in said case. The other two herein private respondents, namely, Pedro V. Reyes and Consolacion
V., Reyes, are the plaintiffs in Civil Case No. Q5214 of the same court entitled. Pedro V. Reyes, etc., and
likewise, obtained a writ of preliminary attachment and, accordingly, levied upon all the properties of the
defendant, Felicisimo V. Reyes, in said case.

For the dissolution of the attachments referred to above, the herein petitioner. The Imperial Insurance,
Inc., as surety, and Felicisimo V. Reyes, as principal, posted a defendants bond for dissolution of
attachment in the amount of P60,000.00 in Civil Case No. Q5213 and another bond of the same nature
in the amount of P40,000.00 in Civil Case No. Q5214. Civil Cases Nos. Q5213 and 5214 were jointly tried
and the decision therein rendered was in favor of the plaintiffs. This decision was affirmed by this Court
on appeal in cases CAG.R. NOS. 33783R and 33784R. The decision of this Court, having become final, the
records of the cases were remanded to the Court of First Instance of Rizal, Quezon City Branch, for
execution of judgment. Accordingly, on June 24, 1966, the Court below, presided by the herein
respondent Judge, Hon. Walfrido de los Angeles, issued the writs of execution of judgment in said cases.
However, on August 20, 1966, the Provincial Sheriff of Bulacan returned the writs of execution
unsatisfied in whole or in part. On September 9, 1966, private respondents filed a motion for
recovery on the surety bonds. Thereafter, said private respondents, thru counsel, sent a letter of
demand upon petitioner asking the latter to pay them the accounts on the counterbonds. On September
24, 1966, petitioner filed its opposition to the private respondents Motion for recovery on the surety
bonds. Respondent Judge, in his order, dated November 10, 1966, rendered judgment against the
counterbonds. On November 15, 1966, private respondents filed an ex parte motion for writ of
execution without serving copy thereof on petitioner. In the meantime, on or about November 23
1966, petitioner filed a motion for reconsideration of the order, dated November 10, 1966. This motion
was, however, denied by the respondent Judge on January 9, 1967. On or about January 11, 1967,
petitioner filed its notice of intention to appeal from the final orders of the respondent Judge, dated
November 10, 1966 and January 9, 1967. On January 19, 1967, the respondent Judge issued an order
granting the issuance of the writ of execution against the bends filed by the petitioner. Felicisimo Reyes
died during the pendency of the case and was substituted by Emilia T. David administratix of his estate.

Issue: WON Imperial insurance is solidarily liable with Felicisimo Reyes in the counterbond.

Held: Yes, Sec. 17, Rule 57, of the Rules of Court is an ordinary guaranty where the sureties assume a
subsidiary liability, the rule cannot apply to a Counterbond where the surety bound itself "jointly and
severally" (in solidum) with the defendant as in the present case. The counterbond executed by the
deceased defendant Felicisimo V. Reyes, as principal, and the petitioner, The Imperial Insurance, Inc., as
solidary quarantor to lift the attachment in Civil Case No. Q-5213.

Clearly, the petitioner, the Imperial Insurance, Inc., had bound itself solidarily with the principal, the
deceased defendant Felicisimo V. Reyes. In accordance with Article 2059, par. 2 of the Civil Code of the
Philippines, 15 excussion (previous exhaustion of the property of the debtor) shall not take place "if he
(the guarantor) has bound himself solidarily with the debtor." Section 17, Rule 57 of the Rules of Court
cannot be construed that an "execution against the debtor be first returned unsatisfied even if the bond
were a solidary one, for a procedural rule may not amend the substantive law expressed in the Civil
Code, and further would nullify the express stipulation of the parties that the surety's obligation should
be solidary with that of the defendant."

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