PNB vs. LUZON SURETY CO., INC.

and CA

FACTS: Defendant Augusto Villarosa, applied for a crop loan with the
PNB; this application was approved in the amount of P32,400. Villarosa
executed a Chattel Mortgage on standing crops to guarantee the crop
loan, Villarosa executed these promissory notes with the amount of
P32,400 and afterwards increased to P63k when the complaint was
filed, because of the interest accrued, that was why due to its non-
payment, PNB filed this complaint.

The complaint sought relief not only against the Villarosa but also
against the three (3) bondsmen, Luzon Surety, Central Surety and
Associated Surety because Luzon Surety had filed the bond in the sum
of P10k; Central Surety in the sum of P20k and Associated Surety the
bond, in the sum of P15k, the obligation of each of the bondsmen being
to guarantee the performance of the obligation.

ISSUE: Is the surety liable for interest accrued (eto nmn ung nasa
outline)

RULING: YES. Defendant contends, that it would increase its liability to

more than P10K which is the maximum of its bond but in Tagawa vs.
Aldanese SC held that:

If a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, the liability becomes more than that in the
principal obligation. The increased liability is not because of the contract
but because of the default and the necessity of judicial collection. It
should be noted that the interest runs from the time the complaint is
filed, not from the time the debt becomes due and demandable.

SALVADOR P. ESCAÑO vs. RAFAEL ORTIGAS, JR.

FACTS: PDCP entered into a loan agreement with Falcon Minerals, Inc.
amounting to $320k.

Officers of Falcon: Ortigas Jr., and 2 others executed an Assumption of

Solidary Liability to assume in their individual capacity, solidary liability
with Falcon for payment of the loan contracted by Falcon with PDCP.
An Undertaking was executed by the parties: with Escaño, Silos and
Matti as “sureties” and Ortigas, Inductivo and Scholey as “obligors”
Falcon eventually availed $178k from the credit line extended by PDCP.
However, Falcon defaulted.

Escaño, Ortigas and Silos each sought to seek a settlement with PDCP.
Escaño, entered into a compromise agreement where he agreed to pay
P1M. PDCP then waived1/3 of its claim in favour of Escano.

Ortigas entered into his own compromise agreement with PDCP. Ortigas
agreed to pay PDCP P1.3M.

Silos and PDCP entered into a Partial Compromise Agreement. He paid

P500k in exchange for PDCP’s waiver of its claims against him.

After having settled with PDCP, Ortigas pursued his claims against
Escaño, Silos and Matti, on the basis of the Undertaking. RTC ordered
Escaño, Silos and Matti to pay Ortigas, jointly and severally, the amount
of P1.3M.

ISSUE: Whether the obligation is solidary or merely joint

RULING: The Undertaking does not contain any express stipulation that
the petitioners agreed “to bind themselves jointly and severally” in their
obligations to the Ortigas group, or any such terms to that effect. Thus,
the obligation in the Undertaking is presumed to be joint.

Article 2047 calls for the application of the provisions on joint and
solidary obligations to suretyship contracts. Article 1217 of the Civil
Code recognizes the right of reimbursement from a co-debtor infavor of
the one who paid.

Accordingly, the rights to indemnification and subrogation as granted to

the guarantor by Arts. 2066 and 2067 extend as well to sureties as
defined under Article 2047. These rights granted to the surety who pays
materially differ from those granted under Article 1217 to the solidary
debtor who pays, since the “indemnification” that pertains to the latter
extends “only [to] the share which corresponds to each [co-debtor].” It is
for this reason that the Court cannot accord the conclusion that because
petitioners are identified in the Undertaking as “SURETIES,” they are
consequently joint and severally liable to Ortigas.
If the term “SURETIES” is used as conclusive indication of the existence
of a surety agreement that in turn gives rise to a solidary obligation to
pay Ortigas, the implication would be to lay down set of rights and
obligations as between the “SURETIES” which petitioners and Matti did
not clearly intend.

JOSEPH COCHINGYAN, JR. vs. R & B SURETY

FACTS: PAGRICO applied for an increase in its line of credit from P400k
to P800k with PNB. PAGRICO submitted Surety Bond amounting to
P400k issued by R & B Surety.

2 indemnity agreements were entered into with R & B Surety, one by

Cochingyan, Jr. The indemnitors bound themselves jointly and severally
to R & B Surety to pay an annual premium of P5k and for the faithful
compliance of surety bond until the same is cancelled and/or
discharged. Said agreements included:

(b) INDEMNITY: —To indemnify the SURETY for any damage and
expenses of whatever kind, which the CORPORATION may become
liable for as consequence of having executed the Bond, xxx, the same to
be due and demandable, irrespective of whether the case is settled
judicially or extrajudicially and whether the amount has been actually
paid or not.

PAGRICO failed to comply with its Principal Obligation to the PNB. PNB
demanded payment from R & B. The Surety made payments totalling
P70k. R & B demanded from Cochingyan, Jr. for reimbursement and for
a discharge of its liability under the Surety Bond. Petitioners failed to
heed its demands.

CFI ordered Cochingyan, et al. to pay jointly and severally P400k.

Petitioners claimed that the filing of the complaint was premature,
because R & B filed the case against him as indemnitor although PNB
had not yet proceeded against R & B to enforce the latter's liability.

ISSUE: Whether the filing of the complaint was premature since the PNB
had not yet filed a suit against R & B for the forfeiture of its Surety Bond.

RULING: No. Clause (b) of the Indemnity Agreements allow R & B

Surety to recover from petitioners even before R & B Surety shall have
paid PNB. SC had previously held similar indemnity clauses to be
enforceable and not violative of any public policy.

The Indemnity Agreements are contracts of indemnification not only

against actual loss but against liability as well. While in a contract of
indemnity against loss as indemnitor will not be liable until the person to
be indemnified makes payment or sustains loss, in a contract of
indemnity against liability, as in this case, the indemnitor's liability arises
as soon as the liability of the person to be indemnified has arisen without
regard to whether or not he has suffered actual loss. R & B Surety was
entitled to proceed against petitioners not only for the partial payments
already made but for the full amount owed by PAGRICO to the PNB.

THE ASIATIC PETROLEUM vs. FRANCISCO HIZON

FACTS: Justico David, was a selling agent of the plaintiff in several

municipalities in Pampanga. The relation was extinguished, and it was
found that David was indebted to the plaintiff in the amount of P40k.

Hizon, has an obligation to answer jointly and severally with David for all
the obligation contracted or to be contracted by the latter in accordance
with the contract of agency and Hizon agrees to answer for the balance
that should be due to the plaintiff from said agent upon liquidation of the
accounts.

However, Hizon insisted that he had obligated himself to answer for

indebtedness to be incurred by David for the town of San Fernando.
During trial, it was found out that David inserted names of different
municipalities after Hizon signed the contract of suretyship but without
his consent.

ISSUE: Whether appellant is still liable

RULING: No, 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. It
is clear that the increase of liability incident to the extension of the
agency to other places than San Fernando was prejudical to the
appellant, and the change could not be lawfully made without his
consent.
 SECURITY BANK AND TRUST COMPANY Inc. vs. CUENCA

FACTS: SBTC granted Sta. Inesa credit line in the amount of P8M for its
logging operations. Its President Rodolfo Cuenca, executed an
Indemnity agreement in favor of Security Bank whereby he binds himself
jointly and severally with Sta. Ines.

In 1985 Cuenca resigned as President. Sta Ines had difficulty in paying

its loans and requested SBTC for a restructuring of its indebtedness.
SBTC granted SIMC’s request without notice to Cuenca. SBTC and Sta.
Ines executed a Loan Agreement and Sta Ines made payments up to
P1.7M. They defaulted in the payment of its restructured loan obligations
to SBTC despite demands.

ISSUE: Whether the Loan Agreement novated the original credit

accommodation and Cuenca’s liability under the Indemnity Agreement

RULING: YES. An obligation may be extinguished by novation, under

Article 1292 of the Civil Code, Novation of a contract is never presumed.
Indeed, the following requisites must be established: (1) there is a
previous valid obligation; (2) the parties concerned agree to a new
contract; (3) the old contract is extinguished; and (4) there is a valid new
contract.

The requisites of novation are present in this case. The Loan Agreement
extinguished the obligation obtained under the credit accommodation.
This is evident from its explicit provision to “liquidate" the principal and
the interest of the earlier indebtedness, as the following shows:

“1.02. Purpose. The First Loan shall be applied to liquidate the principal
portion of the Borrower’s present total outstanding Indebtedness to the
Lender (the "Indebtedness") while the Second Loan shall be applied to
liquidate the past due interest and penalty portion of the Indebtedness.