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GUARANTY AND SURETYSHIP

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.

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