Baylon vs.
Court of Appeals
G.R. No. 109941
DOCTRINE:
A guarantor's liability is subsidiary; creditor must exhaust remedies against the
principal debtor first. Failure to serve summons on the debtor nullifies guarantor's
liability. Loan terms prevail over extrinsic claims.
FACTS:
In 1986, Pacionaria C. Baylon introduced Tomacruz to Luanzon. According to
her, Luanzon has been engaged in business as a contractor for twenty years and
she invited private respondent to lend Luanzon money at a monthly interest rate of
five percent (5%), to be used as capital for the latter's business.
Tomacruz persuaded by the assurances of Baylon lend her money in the
amount of 150,000. Luanzon issued and signed a promissory note acknowledging
receipt of the P150,000 from private respondent and obliging herself to pay the
former the said amount. Baylon signed the promissory note, affixing her signature
under the word "guarantor."
Thereafter, Luanzon issued several postdated checks in favor of Tomacruz,
when payment was not made.
Luanzon then made a written demand upon petitioner (Baylon) for payment,
which petitioner did not heed. Thus, on May 8, 1989, private respondent filed a case
for the collection of a sum of money with the Regional Trial Court (RTC) of QC.
In the answer of Baylon, she denied having guaranteed the payment of the
promissory note issued by Luanzon. She claimed that private respondent gave
Luanzon the money, not as a loan, but rather as an investment in Art Enterprises
and Construction, Inc. - the construction business of Luanzon.
Further, assuming arguendo that there was a loan and petitioner guaranteed
the same, private respondent has not exhausted the property of the principal debtor
nor has she resorted to all the legal remedies against the principal debtor as
required by law.
RTC ruled in favor of Tomacruz. As they all agreed in fact that there is no
stock certificate that was presented but only promissory notes similar to Exhibit "B"
wherein it was clearly stated that defendant Luanzon would pay the amount of
indebtedness on the date due. Postdated checks were issued simultaneously with
the promissory notes to enable the plaintiff and others to withdraw their money on a
certain fixed time. This shows that they were never participants in the business
transaction of defendant Luanzon but were creditors.
ISSUE:
WON RTC ERRED IN RULING THAT BAYLON IS LIABLE TO TOMACRUZ BECAUSE
THE LATTER HAS NOT TAKEN STEPS TO EXHAUST THE PROPERTY OF THE PRINCIPAL
DEBTOR.
RULING:
Yes.
The guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor, and has resorted to all the legal remedies
against the debtor.It is axiomatic that the liability of the guarantor is only
subsidiary. All the properties of the principal debtor must first be exhausted before
his own is levied upon. Thus, the creditor may hold the guarantor liable only after
judgment has been obtained against the principal debtor and the latter is unable to
pay, "for obviously the `exhaustion of the principal's property' - the benefit of which
the guarantor claims - cannot even begin to take place before judgment has been
obtained." This rule is embodied in article 2062 of the Civil Code which provides that
the action brought by the creditor must be filed against the principal debtor alone,
except in some instances when the action may be brought against both the debtor
and the principal debtor.
Under the circumstances availing in the present case, we hold that it is
premature for this Court to even determine whether or not petitioner is liable as a
guarantor and whether she is entitled to the concomitant rights as such, like the
benefit of excussion, since the most basic prerequisite is wanting - that is, no
judgment was first obtained against the principal debtor Rosita B. Luanzon. It is
useless to speak of a guarantor when no debtor has been held liable for the
obligation which is allegedly secured by such guarantee. Although the principal
debtor Luanzon was impleaded as defendant, there is nothing in the records to
show that summons was served upon her. Thus, the trial court never even acquired
jurisdiction over the principal debtor. We hold that private respondent must first
obtain a judgment against the principal debtor before assuming to run after the
alleged guarantor.
Arroyo v Jungsay, G.R. No. L-10168, July 22, 1916
DEFENDANT: The defendants are the absconding guardian and his bondsmen.
PLAINTIFF: Current guardian of Tito Jocsing
FACTS:
ISSUE:
whether the appellants should be credited with P4,400, the alleged value of
certain property attached as that of the absconding guardian, all of which is in the
exclusive possession of third parties under claim of ownership.
RULING:
Prudential Bank v Intermediate Appellate Court, et al., G.R. No. 74886,
December 8, 1992
Xxxxxxxxxxxxxxxx
Articles 2059 and 2060. When Excussion Not Required
Philippine Export and Foreign Loan Guarantee Corp v V.P. Eusebio
Construction Corp., et al., G.R. No. 140047, July 13, 2004
FACTS:
This case is an offshoot of a service contract entered into by a Filipino construction
firm with the Iraqi Government for the construction of the Institute of Physical
Therapy-Medical Center, Phase II, in Baghdad, Iraq, at a time when the Iran-Iraq war
was ongoing.
ISSUE:
whether the petitioner is entitled to reimbursement of what it paid under
Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the
deed of undertaking and surety bond from the respondents.
RULING:
NO.
DISUCCSSION:
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.
DISTINGUISHED SURETY AND GUARANTY
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 principal; the
original contract of his principal is not his contract.
2. 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.
3. The obligation of a surety is primary, while that of a guarantor is secondary.
4. A surety is an original promissor and debtor from the beginning, while a
guarantor is charged on his own undertaking.
5. A surety is, ordinarily, held to know every default of his principal; whereas a
guarantor is not bound to take notice of the non-performance of his principal.
6. 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
Cases on Suretyship
Statute of Frauds Applies to Suretyship
Paul Reiss, et al., v. Jose M. Memije, G.R. No. L-5447, March 1, 1910
Surety's Liability to the Creditor is Direct, Primary , and Absolute
Palmares v Court of Appeals, et al., G.R. No. 126490, March 31, 1998
Surety is Not an Active Party to the Principal Obligee-Obligor Relationship.
He is not a Solidary Debtor.
CCC Insurance Corporation v. Kawasaki Steel Corporation, G.R. No. 156162, June 22,
2015
Escano v. Ortigas, Jr., G.R. No. 151953, June 29, 2007
Extent of Liability of a Surety
Stronghold Insurance Company, Inc. v. Tokyu Construction Company, Ltd.
Surety is not Liable if there is no Default or Delay on the Part of the
Principal Debtor
Philippine Charter Insurance Corporation v. Central Colleges of the Philippines, G.R.
Nos 180631-33, February 22, 2012
Palmares v Court of Appeals, et al., G.R. No. 126490, March 31, 1998
Subic Bay Dsitribution, Inc. v, Western Guaranty Corp., G.R. No. 220613, November
11, 2021
Distinction between Guaranty and Suretyship
Philippine Export and Foreign Loan Guarantee Corp v V.P. Eusebio Construction
Corp., et al., G.R. No. 140047, July 13, 2004
