CARMEN CASTELLVI DE HIGGINS and HORACE L. HIGGINS,plaintiffs-appellants,vs.GEORGE C. SELLNER,defendant-appellee.MALCOLM,J.:This is an action brought by plaintiffs to recover from defendant the sum of P10,000. The brief decision of the trial court held that the suit was premature, and absolved the defendant from the complaint, with the costs against the plaintiffs.The basis of plaintiff's action is a letter written by defendant George C. Sellner to John T. Macleod, agent for Mrs. Horace L. Higgins, on May 31, 1915, of the following tenor:lawph!l.netDEAR SIR: I hereby obligate and bind myself, my heirs, successors and assigns that if the promissory note executed the 29th day of May, 1915 by the Keystone Mining Co., W.H. Clarke, and John Maye, jointly and severally, in your favor and due six months after date for Pesos 10,000 is not fully paid at maturity with interest, I will, within fifteen days after notice of such default, pay you in cash the sum of P10,000 and interest upon your surrendering to me the three thousand shares of stock of the Keystone Mining Co. held by you as security for the payment of said note.Respectfully,(Sgd.) GEO. C. SELLNER. Counsel for both parties agree that the only point at issue is the determination of defendant's status in the transaction referred to. Plaintiffs contend that he is a surety; defendant contends that he is a guarantor. Plaintiffs also admit that if defendant is a guarantor, articles 1830, 1831, and 1834 of the Civil Code govern.In the original Spanish of the Civil Code now in force in the Philippine Islands, Title XIV of Book IV is entitled "De la Fianza." The Spanish word"fianza"is translated in the Washington and Walton editions of the Civil Code as "security.""Fianza"appears in the Fisher translation as "suretyship." The Spanish world"fiador"is found in all of the English translations of the Civil Code as "surety." The law of guaranty is not related of by that name in the Civil Code, although indirect reference to the same is made in the Code of Commerce. In terminology at least, no distinction is made in the Civil Code between the obligation of a surety and that of a guarantor.As has been done in the State of Louisiana, where, like in the Philippines, the substantive law has a civil law origin, we feel free to supplement the statutory law by a reference to the precepts of the law merchant.The points of difference between a surety and a guarantor are familiar to American authorities. A surety and a guarantor are alike in that each promises to answer for the debt or default of another. A surety and a guarantor are unlike in that the surety assumes liability as a regular party to the undertaking, while the liability as a regular party to upon an independent agreement to pay the obligation if the primary pay or fails to do so. A surety is charged as an original promissory; the engagement of the guarantor is a collateral undertaking. The obligation of the surety is primary; the obligation of the guarantor is secondary. (See U.S.vs.Varadero de la Quinta [1919], 40 Phil., 48; Lachmanvs.Block [1894], 46 La. Ann., 649; Bedfordvs.Kelley [1913], 173 Mich., 492; Brandt, on Suretyship and Guaranty, sec. 1, cited approvingly by many authorities.)Turning back again to our Civil Code, we first note that according to article 1822 "Byfianza(security or suretyship) one person binds himself to pay or perform for a third person in case the latter should fail to do so." But "If the surety binds himselfin solidumwith the principal debtor, the provisions of Section fourth, Chapter third, Title first, shall be applicable." What the first portion of the cited article provides is, consequently, seen to be somewhat akin to the contract of guaranty, while what is last provided is practically equivalent to the contract of suretyship. When in subsequent articles found in section 1 of Chapter II of the title concerningfianza, the Code speaks of the effects of suretyship between surety and creditor, it has, in comparison with the common law, the effect of guaranty between guarantor and creditor. The civil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil law relationship existing between codebtors liablein solidumis similar to the common law suretyship.It is perfectly clear that the obligation assumed by defendant was simply that of a guarantor, or, to be more precise, of thefiadorwhose responsibility is fixed in the Civil Code. The letter of Mr. Sellner recites that if the promissory note is not paid at maturity, then, within fifteen days after notice of such default and upon surrender to him of the three thousand shares of Keystone Mining Company stock, he will assume responsibility. Sellner is not bound with the principals by the same instrument executed at the same time and on the same consideration, but his responsibility is a secondary one found in an independent collateral agreement, Neither is Sellner jointly and severally liable with the principal debtors.With particular reference, therefore, to appellants assignments of error, we hold that defendant Sellner is a guarantor within the meaning of the provisions of the Civil Code.There is also an equitable aspect to the case which reenforces this conclusion. The note executed by the Keystone Mining Company matured on November 29, 1915. Interest on the note was not accepted by the makers until September 30, 1916. When the note became due, it is admitted that the shares of stock used as collateral security were selling at par; that is, they were worth pesos 30,000. Notice that the note had not been paid was not given to and when the Keyston Mining Company stock was worthless. Defendant, consequently, through the laches of plaintiff, has lost possible chance to recoup, through the sale of the stock, any amount which he might be compelled to pay as a surety or guarantor. The "indulgence," as this word is used in the law of guaranty, of the creditors of the principal, as evidenced by the acceptance of interest, and by failure promptly to notify the guarantor, may thus have served to discharge the guarantor.For quite different reasons, which, nevertheless, arrive at the same result, judgment is affirmed, with costs of this instance against the appellants. So ordered.

Rizal Commercial Banking Corporation, petitioner, vs. Hon. Jose P. Arro, Judge of the Court of First Instance of Davao, and Residoro Chua, respondents.

Date:31 July 1982 Ponente: De Castro,J

Facts:Private respondent Residoro Chua, with Enrique Go, Sr., executed a comprehensive surety agreement to guaranty, above all, any existing or future indebtedness of Davao Agricultural Industries Corporation (Daicor), and/or induce the bank at anytime or from time to time to make loans or advances or to extend credit to said Daicor, provided that the liability shall not exceed ay any time Php100,000.00.

A promissory note for Php100,000.00 (for additional capital to the charcoal buy and sell and the activated carbon importation business) was issued in favor of petitioner RCBC payable a month after execution. This was signed by Go in his personal capacity and in behalf of Daicor. Respondent Chua did not sign in said promissory note. As the note was not paid despite demands, RCBC filed a complaint for a sum of money against Daicor, Go and Chua.

The complaint against Chua was dismissed upon his motion, alleging that the complaint states no cause of action against him as he was not a signatory to the note and hence he cannot be held liable. This was so despite RCBCs opposition, invoking the comprehensive surety agreement which it holds to cover not just the note in question but also every other indebtedness that Daicor may incur from petitioner bank. RCBC moved for reconsideration of the dismissal but to no avail. Hence, this petition.

Issue:WON respondent Chua may be held liable with Go and Daicor under the promissory note, even if he was not a signatory to it, in light of the provisions of the comprehensive surety agreement wherein he bound himself with Go and Daicor, a ssolidary debtors, to pay existing and future debts of said corporation.

Held:Yes, he may be held liable. Order dismissing the complaint against respondent Chua reversed and set aside. Case remanded to court of origin with instruction to set aside motion to dismiss and to require defendant Chua to answer the complaint.

Ratio:The comprehensive surety agreement executed by Chua and Go, as president and general manager, respectively, of Daicor, was to cover existing as well as future obligations which Daicor may incur with RCBC. This was only subject to the proviso that their liability shall not exceed at any one time the aggregate principal amount of Php100,000.00. (Par.1of said agreement). The agreement was executed to induce petitioner Bank to grant any application for a loan Daicor would request for. According to said agreement, the guaranty is continuing and shall remain in full force or effect until the bank is notified of its termination. During the time the loan under the promissory note was incurred, the agreement was still in full force and effect and is thus covered by the latter agreement. Thus, even if Chua did not sign the promissory note, he is still liable by virtue of the surety agreement. The only condition necessary for him to beliable under the agreement was that Daicor is or may become liable as maker, endorser, acceptor or otherwise.

The comprehensive surety agreement signed by Go and Chua was as an accessory obligation dependent upon the principal obligation, i.e., the loan obtained by Daicoras evidenced by the promissory note. The surety agreement unequivocally shows that it was executed to guarantee future debts that may be incurred by Daicor with petitioner, as allowed under NCC Art.2053.A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claimagainst the guarantor until the debt is liquidated. A conditional obligation may also be secured.

G.R. No. L-26473 February 29, 1972REPUBLIC OF THE PHILIPPINES,plaintiff-appellee,vs.PAL-FOX LUMBER CO., INC. AND FAR EASTERN SURETY & INSURANCE COMPANY, INC., defendants, FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellant; FAR EASTERN SURETY & INSURANCE CO., INC., third-party plaintiff-appellant, vs. GASPAR PALANCA & JOSEPH LEE,third-party defendants.MAKALINTAL,J.:pClaiming that the Pal-Fox Lumber Co., Inc. was indebted to the Bureau of Internal Revenue for forest charges and surcharges amounting to P11,851.56, and that the Far Eastern Surety & Insurance Co., Inc. was jointly and severally liable with the lumber company for the payment of said forest charges up to P5,000.00 on account of a forestry bond which the surety company executed in favor of the plaintiff on November 27, 1946, guaranteeing faithful compliance by the principal with all the provisions of the Forest Law and National Internal Revenue Code, as well as the "prompt and complete payment of all charges lawfully accruing on the forest products cut or gathered by (Pal-Fox Lumber Co., Inc.), and of all fines and penalties imposed in accordance with the provisions of law," the plaintiff commenced suit before the Court of First Instance of Manila (Civil Case No. 32386) seeking to recover, jointly and severally, from Pal-Fox Lumber Co., Inc. and the Far Eastern Surety & Insurance Co., Inc. the sum of P5,000.00 plus interest from the filing of the complaint, and from the Pal-Fox Lumber Co., Inc. alone the balance of P6,841.56 plus legal interest.The Far Eastern Surety & Insurance Co., Inc. filed its answer with a cross-claim against its co-defendant Pal-Fox Lumber Co., Inc. which, due to the latter's failure to file an answer despite valid service of summons, was subsequently declared in default. With leave of court, the surety company later filed a third-party complaint against certain persons based on a separate indemnity agreement wherein said third-party defendants appear to have bound themselves to indemnify the surety company for all damages it may suffer by reason of the execution of the forestry bond. In time, these third-party defendants were similarly declared in default.After trial, the courta quorendered a decision the dispositive portion of which reads: .WHEREFORE, judgment is hereby rendered ordering defendants to pay to plaintiff, jointly and severally, the sum of P5,000.00, with legal interest thereon from the filing of the complaint until fully paid, and defendant Pal-Fox Lumber Co., Inc. to pay to plaintiff the further sum of P6,841.56, with legal interest thereon from the filing of the complaint until fully paid, plus costs; and likewise ordering cross-defendant Pal-Fox Lumber Co., Inc. and third-party defendants Gaspar G. Palanca and Joseph Lee to pay to defendant Far Eastern Surety & Insurance Co., Inc., jointly and severally, any amount which the latter may pay to plaintiff under his judgment, plus premium in the amount of P3,750.00 and stipulated attorney's fees and interest at the rate of 15% and 12% per annum, respectively, on the total amount due, the said interest to be compounded quarterly from November 22, 1946, until fully paid.Unable to secure, in a motion for reconsideration, a judgment absolving it from any and all liability under Forestry Bond No. 7004, the surety company appealed to the Court of Appeals (CA-G.R. No. 31338-R) which Court subsequently certified the case here on a finding that the appeal involves only questions of law, to wit: .The first legal point which arises in connection with said exhibits is: What is the probative value of documents which were admitted only as part of the testimony of the witness who identified them? Do they constitute evidence of the truth of their contents or not? In other words, are they evidence of demands for payment considering that Mr. Zalita merely testified that said exhibits are certified copies of records and documents now in the possession of the Record Control Section of the Bureau of Internal Revenue?The next issue to resolve is who has the burden of proving that the claim of the plaintiff is not yet paid?xxx xxx xxxIn the third assigned error, appellant raises the question of prescription of action. ..." (Court of Appeals resolution prom. on August 15, 1966 in CA-G.R. No. 31338-R, pp. 6-7).During the pendency of this case before this Court, certain pertinent developments have come about which practically render the resolution of appellant's assigned errors unnecessary. Thus in a manifestation filed on February 10, 1967 the surety company expressed its willingness to pay the sum of P5,000.00 under its forestry bond anytime "that an order is issued (by this Court) directing the defendant surety to so pay according to this manifestation." In a resolution dated February 22, 1967 this Court granted appellant surety company's plea, thereby allowing it to pay the Republic of the Philippines the sum of P5,000.00, in full payment of its liability under Forestry Bond No. 7004, and dismissing the case insofar as said appellant was concerned.On March 27, 1967 the plaintiff moved for reconsideration, pointing out that the surety company's correct liability under the appealed decision was P5,000.00 plus legal interest from the filing of the complaint. In other words, the plaintiff would want the surety company to pay the legal interest adjudged by the trial court before the case may finally be considered dismissed insofar as appellant surety was concerned. Despite the opposition registered by the surety company this Court resolved on May 10, 1967 "... to MODIFY the resolution of February 22, 1967 in that the appellant Far Eastern Surety and Insurance Co., Inc. is further ordered to pay the Republic of the Philippines interest on the P5,000.00 at the rate of 6% per annum computed from April 24, 1957 when the complaint was filed until October 3, 1966 when the appellant offered to pay the appellee the sum of P5,000.00 in settlement of its obligation but which offer was ignored by the appellee; PROVIDED, that in case the appellant fails or refuses to pay the interest herein stated the case against him would not be considered dismissed, thereby leaving the matter on the liability of said appellant to pay interest subject to future orders by this Court along with the other matters that may be resolved in this case." .As things stand now, the contending parties are one in conceding that the decisive issue for determination, in view of the surety company's willingness to pay the amount of P5,000.00 under its forestry bond, is its liability for the payment of legal interest thereon.1The said company's denial of liability for such interest is based on the stipulation in the bond that it was bound to the plaintiff "in the sum of P5,000.00." .Judgment must go to the plaintiff. In the case ofNational Marketing Corporation vs. Marquez, et al.,L-25553, January 31, 1969, (26 SCRA 722, 726), this Court resolved a similar question as follows: .On the third and last issue (on whether the surety's liability can exceed the amount of its bond), it is enough to remark that while the guarantee was for the original amount of the debt of Gabino Marquez, the amount of the judgment by the trial court in no way violates the rights of the surety. The judgment on the principal was only for P10,000.00, while the remaining P9,990.91 represent themoratoryinterest due on account of the failure to pay the principal obligation from and after the same had fallen due, and default had taken place. Appellant surety was fully aware that the obligation earned interest, since the note was annexed to its contract, Exhibit "C". The contract of guaranty executed by the appellant Company nowhere excludes this interest, and Article 2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable.If it (the guaranty) be simple or indefinite, it shall comprise not only the principal obligationbut also all its accessories, including judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay." (Emphasis supplied)" .WHEREFORE, the decision appealed from is affirmed, with the modification that the appellant should pay the interest adjudged in said decision up to the date of payment of the principal sum of P5,000.00. No pronouncement as to costs.