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CREDIT – MODULE 5 CASE DIGESTS2I CASE DIGESTS – SY 2020-2021 1MADRIGAL V. DEPARTMENT OF JUSTICEG. No. 168903, June 18,FACTS: Petitioner filed with the Office of the City Prosecutor of Manila a Complaint-Affidavit charging respondent Palma with the crime of estafa. Later on, respondent Chua was named...

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CREDIT – MODULE 5 CASE DIGESTS

MADRIGAL V. DEPARTMENT OF JUSTICE G.R. No. 168903, June 18,2014 FACTS: Petitioner filed with the Office of the City Prosecutor of Manila a Complaint-Affidavit charging respondent Palma with the crime of estafa. Later on, respondent Chua was named as additional respondent. According to petitioner, as president of MTI, she applied for a loan from FEBTC in the amount of 10.5 million USD to finance the acquisition of a feeder vessel. FEBTC sent her various loan documents. Petitioner was advised by respondent Palma that FEBTC could only grant MTI a loan in the amount of 10 million USD because of a lower valuation of the vessel. Hence, petitioner reapplied for a loan in the amount of 10 million USD for this reduced amount and signed a second set of loan documents. Petitioner noticed that respondent Palma was imposing additional obligations not originally contemplated. Respondent Palma insisted that petitioner was personally liable under the first Comprehensive Surety Agreement covering the 10.5 million USD despite the fact that all the documents were torn and abandoned. She was then compelled to disburse an amount of 5.9 million pesos to protect her reputation. On the other hand, respondent Palma averred that MTI had applied for a loan from FEBTC in the amount of 11 million USD. Respondent maintains that FEBTC considered the immediate release of the proceeds of the loan provided that the petitioner together with Lorenzo Jr. would execute personal undertakings as sureties for the loan of the MTI. To secure the immediate release of the proceeds of the loan, petitioner and Lorenzo Jr. agreed to this condition and consequently executed a Comprehensive Surety Agreement as security for the release of the loan to MTI. Respondent alleged that the institution of the criminal complaint was merely a ploy resorted to by petitioner to question the due execution of the Comprehensive Surety Agreement to evade her personal liability for MTI’s loan.

2I CASE DIGESTS – SY 2020-2021

ISSUE: W/N there exist two sets of loan documents that show respondents’ ruse to deceive petitioner, thereby ignoring unmistakable evidence which abrogate petitioner’s property rights. RULING: NO. Considering that the loan of 10 million USD was approved and released to petitioner prior to the execution of the second set of documents, it is more sensible to believe that the bank approved the loan upon her personal guarantee and execution of the first Comprehensive Surety Agreement. Any intent to deceive through concealment was also negated when FEBTC is willing to present the documents pertaining to the loan upon the request of petitioner. The existence of two (2) documents is irrelevant in this case as the original intention of the parties is evident that petitioner and Lorenzo Jr. in their personal capacities are co-sureties of MTI’s loan. Pursuant to Article 2047 of the Civil Code, a surety undertakes to be bound solidarily with the principal debtor to assure the fulfillment of the obligation. It would be absurd to conclude that petitioner signed the Comprehensive Surety Agreement in her capacity as president of MTI considered that the principle behind suretyship will be negated. The Supreme Court stated that the borrower cannot at the same time be a guarantor/ surety to assure the fulfillment of its own loan application. The Comprehensive Surety Agreement is a continuing guarantee that petitioner bound herself to the contract “until the full and due payment and performance of all the obligations of the borrower”. In conclusion, there was only one load transaction, and FEBTC does not intend to collect from both loan documents The type of this contract is called an unsecured transaction or contracts of personal security wherein the fulfillment of which by the principal debtor is secured or supported only by a promise to pay or the personal commitment of another such as a guarantor or surety.

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PHILIPPINE EXPORT v. EUSEBIO CONSTRUCTION 2004 FACTS: State Organization of Buildings (SOB) of Iraq awarded the construction of the Institute of physical Therapy-Medical Rehabilitation Center in Iraq to Ayjal Trading and Contracting Company. 3-Plex International, Inc., a local contractor engaged in the construction business, entered into a joint venture agreement with Ayjal where the former would undertook the execution of the entire project, while Ayjal would be entitled to 4% commission. Since 3-Plex was not accredited by the Phil. Overseas Construction Board (POCB), it assigned and transferred all its rights to V.P. Eusebio Const. Inc (VPECI). The SOB then required the submission of a performance bond. To comply with this requirement, 3Plex and VPECI applied for a guarantee with Philguarantee, a government financial institution empowered to issue guarantee for qualified Filipino contractors. VPECI and the Ayjal Trading and Contracting Co. (joint venture) entered into a service contract with the SOB for the construction of the Institute of Physical Therapy Medical Center Phase 2 to be completed within a period of 18 months. Under the contract, the joint venture would supply manpower and materials, and SOB would refund to the former 25% of the project cost in Iraqi Dinar. The construction delayed in commencing due to some setbacks and difficulties. Upon foreseeing the impossibility of meeting the deadline, the joint venture contractor worked for the renewal of the Performance Bond up to December 1986. As of March 1986, the status of the Project was 51% accomplished, meaning the structures were already finished. The remaining 47% consisted in electro-mechanical works and the 2%, sanitary works, which both required importation of equipment and materials.

On October 1986, Al Ahli Bank of Kuwait Sent a telex to Philguarantee demanding full payment of its performance counter-guarantee. Philguarantee received another telex from Al Ahli stating that it already paid to Rafidian Bank. The Central Bank then authorized the remittance to Al Ahli Bank representing the full payment of the performance counterguarantee for VPECI’s project. Philguarantee then sent letters to VPECI demanding the full payment of the amount it paid pursuant to Al Ahli pursuant to their joint and solidary obligation under the deed of undertaking and surety bond. VPECI failed to pay prompting Philguarantee to file the case. The petitioner asserts that since the guarantee it issued was absolute, unconditional, and irrevocable the nature and extent of its liability are analogous to those of suretyship. Its liability accrued upon the failure of the respondents to finish the construction of the Institute of Physical Therapy Buildings in Baghdad. ISSUE: WON the agreement of the parties is that of suretyship. HELD: No. 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 contract is called suretyship. Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. In both contracts, there is a promise to answer for the debt or default of another. However, in this jurisdiction, they may be distinguished thus: 1.

A surety is usually bound with his principal by the same instrument executed at the same time and on the same consideration. On the other hand, the contract of guaranty is the guarantor's own separate undertaking often supported by a consideration separate from that supporting the contract of the

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principal; the original contract of his principal is not his contract. A surety assumes liability as a regular party to the undertaking; while the liability of a guarantor is conditional depending on the failure of the primary debtor to pay the obligation. The obligation of a surety is primary, while that of a guarantor is secondary. A surety is an original promissor and debtor from the beginning, while a guarantor is charged on his own undertaking. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is not bound to take notice of the nonperformance of his principal. Usually, a surety 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. A guarantor 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.

Guided by the abovementioned distinctions between a surety and a guaranty, as well as the factual milieu of this case, the Court found that the Court of Appeals and the trial court were correct in ruling that the petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition, namely, that the principal obligor should fail in his obligation at the time and in the form he bound himself. In other words, an unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one which depends upon some extraneous event, beyond the mere default of the principal, and generally upon

notice of the principal's default and reasonable diligence in exhausting proper remedies against the principal. It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that petitioner's guaranty is unconditional does not make it a surety. Besides, surety is never presumed. A party should not be considered a surety where the contract itself stipulates that he is acting only as a guarantor. It is only when the guarantor binds himself solidarily with the principal debtor that the contract becomes one of suretyship.

DIAMOND BUILDERS CONGLOMERATION v COUNTRY BANKERS G.R. No. 171820; December 13, 2007 FACTS: Marceliano Borja filed a petition in RTC against Rogelio S. Acidre (Rogelio) for the latter’s breach of his obligation to construct a residential and commercial building. Rogelio is the sole proprietor of petitioner Diamond Builders Conglomeration (DBC). To end the litigation, the parties entered into a Compromise Agreement. The RTC Caloocan approved the Compromise Agreement and rendered a Decision in accordance with the terms and conditions contained therein. The Compromise Agreement provides that [Petitioner Rogelio] admits full payment of plaintiff to him the amount of P1,530,000.00 leaving the balance of P570,000.00 of the contractual price of P2,100,000.00 for the construction of the buildings. P370,000.00 shall be paid on the 5th day from approval of this compromise agreement by the Court and also the start of the 75 days for [petitioner Rogelio] to complete the construction of the building.

The remaining 200k shall be paid out when the building is fully constructed. However, in the event [petitioner Rogelio] shall fail to fully complete the construction of the building within 75 days he shall not be entitled to any further payments and the performance of a surety bond shall be fully implemented by way of penalizing [petitioner Rogelio] and/or as award for damages in favor of plaintiff. That any violation and/or avoidance of the terms and conditions of this Compromise Agreement by either of the parties herein shall forthwith entitle the aggrieved party to an immediate execution hereof. DBC obtained a Surety Bond from Country Bankers in favor of the spouses Borja. In this regard, Rogelio and his spouse, petitioner Teresita P. Acidre, together with DBC employees Grace C. Osias, Violeta S. Faiyaz and Emma S. Cutillar (the other petitioners herein), signed an Indemnity Agreement consenting to their joint and several liability to Country Bankers should the surety bond be executed upon. On April 23, 1992, Country Bankers received a Motion for Execution of the surety bond filed by Borja with the RTC Caloocan for Rogellio’s alleged violation of the Compromise Agreement. Rogelio then filed un Urgent Omnibus Motion to suspend the Writ of Execution, it was not immediately acted upon and so DBP was constrained to pay the amount of the surety bond. In the meantime, after Country Bankers was compelled to pay the amount of the surety bond, it demanded reimbursement from the petitioners under the Indemnity Agreement. However, petitioners refused to reimburse Country Bankers. In addition, upon the dismissal of their petition in CA, petitioners wrote Country Bankers and informed the latter that the voluntary payment of the bond effectively prevented them from contesting the validity of the issuance of the Writ of Execution. As a result, Country Bankers filed a complaint for sum of money against the petitioners which the RTC Manila dismissed. In reversing the trial court, the CA ruled that Country Bankers, as surety of Rogelio’s loan obligation, did not effect voluntary payment on the bond. The appellate

court found that what Country Bankers paid was an obligation legally due and demandable. It declared that Country Bankers acted upon compulsion of a writ of execution which is validly issued. Hence this appeal. ISSUE: Whether petitioners should indemnify Country Bankers for the payment of the surety bond. HELD: YES. The Compromise Agreement between Borja and Rogelio explicitly provided that the latter’s failure to complete construction of the building within the stipulated period shall cause the full implementation of the surety bond as a penalty for the default, and as an award of damages to Borja. Furthermore, the Compromise Agreement contained a default executory clause in case of a violation or avoidance of the terms and conditions thereof. Therefore, the payment made by Country Bankers to Borja was proper, as failure to pay would have amounted to contumacious disobedience of a valid court order. Article 2047 of the Civil Code specifically calls for the application of the provisions on solidary obligations to suretyship contracts. In particular, Article 1217 of the Civil Code recognizes the right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (i.e., the surety). In contrast, Article 1218 of the Civil Code is definitive on when reimbursement is unavailing, such that only those payments made after the obligation has prescribed or became illegal shall not entitle a solidary debtor to reimbursement. Nowhere in the invoked CA Decision does it declare that a surety who pays, by virtue of a writ of execution, is not entitled to reimbursement from the principal codebtor.

More importantly, the Indemnity Agreement signed by Rogelio and the other petitioners explicitly provided for an incontestability clause on payments made by Country Bankers. In case [Country Bankers] shall have paid, settled or compromised any liability, loss, costs, damages, attorney’s fees, expenses, claims, demands, suits, or judgments as above-stated, arising out of or in connection with said bond, an itemized statement thereof, signed by an officer of [Country Bankers] and other evidence to show said payment, settlement or compromise, shall be prima facie evidence of said payment, settlement or compromise, as well as the liability of [petitioners] in any and all suits and claims against [petitioners] arising out of said bond or this bond application. Ineluctably, petitioners are obligated to reimburse Country Bankers the amount of ₱370,000.00. Finally, petitioners desperately attempt to inveigle out of this burden, which is of their own making, by imputing a lack of initiative on Country Banker’s part to intervene in the execution proceedings before the RTC. This contention, as with the rest of petitioners’ arguments, deserves scant consideration. Suffice it to state that Country Bankers is a surety of the obligation with a penal clause, constituted in the compromise judgment; it is not a joint and solidary co-debtor of Rogelio. In the recent case of EscaNo v. Ortigas,39 we elucidated on the distinction between a surety as a co-debtor under a suretyship agreement and a joint and solidary codebtor, thus: (A)s indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does not bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of proceeding against the principal debtor for the same obligation. At the same time, there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. The moment the surety fully answers to

the creditor for the obligation created by the principal debtor, such obligation is extinguished. At the same time, the surety may seek reimbursement from the principal debtor for the amount paid, for the surety does in fact "become subrogated to all the rights and remedies of the creditor." Note: A compromise judgment is a decision rendered by a court sanctioning the agreement between the parties concerning the determination of the controversy at hand. Essentially, it is a contract, stamped with judicial imprimatur, between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which each of them prefers in the hope of gaining, balanced by the danger of losing. 22 Upon court approval of a compromise agreement, it transcends its identity as a mere contract binding only upon the parties thereto, as it becomes a judgment that is subject to execution in accordance with Rule 39 of the Rules of Court. Ordinarily, a judgment based on compromise is not appealable.

MARIANO LIM vs. SECURITY BANK CORPORATION G.R. No. 188539 | March 12, 2014 DOCTRINE: By executing a continuing suretyship, 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. FACTS: Petitioner executed a Continuing Suretyship in favor of respondent to secure "any and all types of credit accommodation that may be granted by the bank hereinto and hereinafter" in favor of Raul Arroyo for the amount of ₱2,000,000.00 which is covered by a Credit

Agreement/Promissory Note. Said promissory note stated that the interest on the loan shall be 19% per annum, compounded monthly, for the first 30 days from the date thereof, and if the note is not fully paid when due, an additional penalty of 2% per month of the total outstanding principal and interest due and unpaid, shall be imposed. In turn, the Continuing Suretyship executed by petitioner stipulated that: 3. Liability of the Surety. - The liability of the Surety is solidary and not contingent upon the pursuit of the Bank of whatever remedies it may have against the Debtor or the collaterals/liens it may possess. If any of the Guaranteed Obligations is not paid or performed on due date (at stated maturity or by acceleration), the Surety shall, without need for any notice, demand or any other act or deed, immediately become liable therefor and the Surety shall pay and perform the same. The debtor, Raul Arroyo, defaulted on his loan obligation. Thereafter, petitioner received a Notice of Final Demand dated August 2, 2001, informing him that he was liable to pay the loan obtained by Raul and Edwina Arroyo, including the i...