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E. ZOBEL v. CA

FACTS:

The case involves a petition for review on certiorari seeking the reversal of the decision of the Court of Appeals. The petitioner, E. Zobel, Inc., argues that the trial court committed grave abuse of discretion in denying its motion to dismiss the complaint filed by SOLIDBANK.

Respondent spouses Raul and Elea Claveria applied for a loan with SOLIDBANK to finance the purchase of two maritime barges and one tugboat for their molasses business. SOLIDBANK granted the loan subject to the condition that the spouses execute a chattel mortgage over the three vessels and that petitioner, E. Zobel, Inc., execute a continuing guarantee in favor of SOLIDBANK.

However, the spouses defaulted on the loan, resulting in SOLIDBANK filing a complaint for sum of money against them and petitioner. Petitioner moved to dismiss the complaint, arguing that its liability as a guarantor was extinguished due to SOLIDBANK's failure to register the chattel mortgage. The trial court denied the motion to dismiss, stating that petitioner's obligation was that of a surety, not a guarantor. Petitioner's motion for reconsideration was also denied by the trial court.

The Court of Appeals upheld the trial court's decision, leading to the filing of the petition for review on certiorari by petitioner.

ISSUES:

  1. Whether the contract executed by the petitioner in favor of SOLIDBANK is a contract of surety or a contract of guaranty.

  2. Whether the contract between the petitioner and SOLIDBANK is one of guaranty or suretyship.

  3. Whether Article 2080 of the Civil Code applies to the case at bar.

  4. Whether SOLIDBANK's failure to register the chattel mortgage releases the petitioner from the obligation.

RULING:

  1. The contract executed by the petitioner in favor of SOLIDBANK is a contract of surety. The terms of the contract categorically obligate the petitioner as a "surety" to induce SOLIDBANK to extend credit to the respondent spouses. The contract discloses that the petitioner is an original promissor and debtor from the beginning, jointly and severally bound to the obligation with the respondent spouses. The petitioner is held liable without SOLIDBANK having to resort to other legal remedies or exhaust the respondent spouses' properties first. Therefore, the petitioner is considered a surety in this case.

  2. The contract between the petitioner and SOLIDBANK is a suretyship. The use of the term "guarantee" does not automatically make the contract one of guaranty. The interpretation of a contract is not limited to its title but also considers its contents and the intention of the parties.

  3. Article 2080 of the Civil Code does not apply in this case as it only applies to guarantors, not sureties.

  4. SOLIDBANK's failure to register the chattel mortgage does not release the petitioner from the obligation. The Continuing Guaranty executed by the petitioner states that it is bound to the contract regardless of the existence of any collateral. The petitioner even released SOLIDBANK from any fault or negligence that may impair the contract.

PRINCIPLES:

  • A surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and obligates himself to pay if the principal is unable to pay, while a surety is the insurer of the debt and obligates himself to pay if the principal does not pay.

  • The contract of guaranty is the guarantor's own separate undertaking, often supported by a separate consideration from that supporting the principal's contract. The guarantor is usually discharged by the mere indulgence of the creditor to the principal and is not liable unless notified of the principal's default.

  • A surety is usually an original promissor and debtor, held to know every default of the principal. The surety is ordinarily not discharged by the mere indulgence of the creditor to the principal or by lack of notice of the principal's default.

  • The use of the term "guarantee" in a contract does not necessarily make the contract one of guaranty; it may describe the intention to be bound by a primary or independent obligation.

  • The interpretation of a contract is based on its contents and the intention of the parties, not solely on its title.

  • Article 2080 of the Civil Code applies to guarantors, not sureties.

  • The failure to register a chattel mortgage does not release a surety from their obligation if the contract states that the surety is bound irrespective of the existence of any collateral.