ALLIED BANKING CORPORATION V COURT OF APPEAL, ET. AL.
FACTS: On January 6, 1981, Allied Bank (Allied) purchased Export Bill of $20,085 from G.G. Sportswear Mfg. Corporation (GGS). The bill, drawn under a letter of credit, covered Men's Valvoline Training Suit that was in transit to West Germany. The export bill was issued by Chekiang First Bank Ltd., Hongkong. With the purchase of the bill, ALLIED credited GGS the peso equivalent of the bill amounting to P151,474.52
Nari Gidwani and Alcron International Ltd. (Alcron) executed their respective Letters of Guaranty, holding themselves liable on the export bill if it should be dishonored or retired by the drawee for any reason.
Spouses Leon and Leticia de Villa and Nari Gidwani also executed a Continuing Guaranty/Comprehensive Surety (surety), guaranteeing payment of any and all such credit accommodations which ALLIED may extend to GGS.
When ALLIED negotiated the export bill to Chekiang, payment was refused due to some material discrepancies in the documents submitted by GGS relative to the exportation covered by the letter of credit. ALLIED demanded payment.
GGS and Nari Gidwani contend they signed blank forms of the Letters of Guaranty and the Surety, and the blanks were only filled up by ALLIED after they had affixed their signatures. They also added that the documents did not cover the transaction involving the subject export bill.
Spouses de Villa alleged they are not aware of the existence of the export bill. They signed blank forms of the surety; and averred that the guaranty was not meant to secure the export bill.
Alcron defended itself by alleging that it is a foreign corporation doing business in the Philippines, its branch in the Philippines is merely a liaison office; neither its liaison office in the Philippines nor its then representative, Hans-Joachim Schloer, had the authority to issue Letters of Guaranty for and in behalf of local entities and persons
The RTC ruled in favor of Allied. The Court of Appeals modified the ruling of the RTC holding GGS liable to reimburse Allied, but it exonerated the guarantors from their liabilities under the Letters of Guaranty
ISSUE: Whether or not Gidwani, Alcron and Spouses Villa can be held jointly and severally liable becuase of their capacity as guarantors and surety.
HELD: YES. Nari Gidwani, and Spouses Leon and Leticia de Villa are jointly and severally liable together with G.G. Sportswear. According to Art. 2047 of the New Civil Code: 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. Section 152 of the Negotiable Instruments Law pertaining to indorsers, relied on by respondents, is not pertinent to this case. There are well-defined distinctions between the contract of an indorser and that of a guarantor/surety of a commercial paper, which is what is involved in this case. The contract of indorsement is primarily that of transfer, while the contract of guaranty is that of personal security and the liability of a guarantor/surety is broader than that of an indorser.
Unless the bill is promptly presented for payment at maturity and due notice of dishonor given to the indorser within a reasonable time, he will be discharged from liability thereon. On the other hand, except where required by the provisions of the contract of suretyship, a demand or notice of default is not required to fix the surety's liability.
Therefore, no protest on the export bill is necessary to charge all the respondents jointly and severally liable having affixed their consenting signatures in several documents executed at different times, it is safe to presume that they had full knowledge of its terms and conditions, hence, they are precluded from asserting ignorance of the legal effects of the undertaking they assumed thereunder.
E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA, respondents. FACTS: Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2, 875,000.00) to finance the purchase of two (2) maritime barges and one tugboat [3] which would be used in their molasses business. The loan was granted subject to the condition that respondent spouses execute a chattel mortgage over the three (3) vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc. in favor of SOLIDBANK. The respondent spouses agreed to the arrangement. Consequently, a chattel mortgage and a Continuing Guaranty [4] were executed. Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, on January 31,1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment, against respondents spouses and petitioner. The case was docketed as Civil Case No. 91-55909 in the Regional Trial Court of Manila. Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency. SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a surety. The Lower court said it was a contract of suretyship and was affirmed by the CA. ISSUE: WON THE CA IS CORRECT IN SAYING THAT THE CONTARACT WAS SURETYSHIP.
HELD: YES. A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. [7] A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter does not pay the debt. [8]
Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. [9]
Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay. [10]
Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. This can be seen in the following stipulations.