2. G.R. No.

L-16666 April 10, 1922

Facts:
Romulo Machetti, by a written agreement undertook to construct a building for the Hospicio
de San Jose. One of the conditions was that the contractor should obtain the "guarantee" of
the Fidelity and Surety Company.

The contract price was paid except for P4,978.08. Hospicio de San Jose answered in the
complaint that the work had not been carried out in accordance with the specifications and
the workmanship was not of the standard required, thus presenting a counterclaim.

Machetti, on petition of his creditors, was declared insolvent, suspending the proceeding.
Hospicio de San Jose filed a motion asking that the Fidelity and Surety Company be made
cross-defendant which was granted.

Hospicio filed a complaint against the Fidelity and Surety Company asking for a judgement for
P12,800 against the company upon its guaranty. CFI rendered judgment against the company.

Issue:
WON Fidelity and Surety Company can be compelled to pay under the terms of the
“guarantee”

Ruling:
NO. The Fidelity and Surety Company having bound itself to pay only the event its principal,
Machetti, cannot pay it, follows that it cannot be compelled to pay until it is shown that
Machetti is unable to pay.
Such ability may be proven by the return of a writ of execution unsatisfied or by other means,
but is not sufficiently established by the mere fact that he has been declared insolvent in
insolvency proceedings under our statutes, in which the extent of the insolvent's inability to
pay is not determined until the final liquidation of his estate.

The contract of guaranty is written in the English language and the terms employed must of
course be given the signification which ordinarily attaches to them in that language. In English
the term "guarantor" implies an undertaking of guaranty, as distinguished from suretyship. It
is very true that notwithstanding the use of the words "guarantee" or "guaranty"
circumstances may be shown which convert the contract into one of suretyship but such
circumstances do not exist in the present case

While a surety undertakes to pay if the principal does not pay, the guarantor only binds
himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an
insurer of the solvency of the debtor.
 3. G.R. No. L-158025 November 5, 1920

CARMEN CASTELLVI DE HIGGINS and HORACE L. HIGGINS

FACTS:
Plaintiffs sought to recover ₱10,000 from defendant George C. Sellner based on a letter dated
May 31, 1915, wherein Sellner undertook to pay the amount if the Keystone Mining Co., W.H.
Clarke, and John Maye defaulted on a promissory note due six months after execution. The
trial court dismissed the complaint, ruling that the action was premature. The primary issue
was whether Sellner’s obligation constituted that of a surety or a guarantor under the
applicable provisions of the Civil Code.

ISSUES:
1. Whether Sellner was a surety or a guarantor under the Civil Code.

RULING:
The Supreme Court affirmed the trial court’s ruling, holding that Sellner was a guarantor, not
a surety. The Court examined the distinctions between suretyship and guaranty under both
the Civil Code and common law principles. It noted that while the Civil Code uses the term
fianza to refer to security arrangements, it does not expressly distinguish between a surety
and a guarantor. However, under common law, a surety is bound as an original obligor with
primary liability, while a guarantor’s obligation is secondary and arises only after default and
proper notice.

Applying these principles, the Court found that Sellner’s obligation was collateral and
independent from that of the principal debtors, as it was expressed in a separate agreement
and required notice of default before any liability could attach. Furthermore, the Court
emphasized the equitable aspect of the case, highlighting that at the time of default, the
collateral (Keystone Mining Co. stock) had significant value, but due to plaintiffs' failure to
promptly notify Sellner, the stock later became worthless.Plaintiffs’ acceptance of interest
payments after maturity constituted indulgence, which could discharge the guarantor from
liability under applicable principles of guaranty.
Thus, because Sellner was merely a guarantor and plaintiffs failed to comply with the
requirements necessary to enforce his liability, the complaint was properly dismissed.
 4. Severino v. Severino, 56 Phil 187 (1931)

Facts:
Fabiola Severino filed an action to recover the sum of P20,000 from Guillermo Severino and
Enrique Echaus. Enrique is the guarantor of Guillermo. The trial court ruled in favor of the
plaintiffs and the judgment stated that Guillermo’s property should be used first for payment.
If his property is not enough, then Enrique Echaus, as the guarantor, will be responsible for
the remaining amount. Echaus then appealed.

Fabiola is the natural daughter of Melecio. Upon his death, he left considerable property which
caused a dispute over the estate. To settle the dispute, Guillermo Severino took the property
and agreed to pay P100,000—P40,000 upfront and the rest in three yearly payments of
P20,000. In this contract, Echaus affixed his name as guarantor. During the compromise
agreement, Fabiola had not been judicially recognized as the natural daughter of Melecio and
the last P20,000 for Fabiola and P5,000 for Felicitas were to be held until Fabiola's status as
Melecio’s natural daughter was confirmed. The court confirmed this on June 16, 1925.
However, since the money was never actually paid, the issue became irrelevant.

Issue:
whether or not Echaus shall not be held liable as he received nothing for affixing his signature
as guarantor

Held:
No. A guarantor or surety is bound by the same consideration that makes the contract
effective between the principal parties thereto. Settling a lawsuit is legally valuable. Since
Felicitas and Fabiola dropped their case against Guillermo, his promise to pay them was valid.
This also means Echaus, as guarantor, is legally bound to his promise.
It is never necessary that a guarantor or surety should receive any part of the benefit, if such
there be, accruing to his principal. But the true consideration of this contract was the
detriment suffered by the plaintiffs in the former action in dismissing that proceeding, and it is
immaterial that no benefit may have accrued either to the principal or his guarantor.
SC affirmed the findings of the trial court.
 5. WISE & CO v. TANGLAO G.R. No. 42518 | August 29, 1936

Facts:

Wise & Co. instituted a civil case against Cornelio David for the recovery of a certain sum of
money. David was an agent of Wise & Co. and the amount claimed from him was the result of
a liquidation of accounts showing that he was indebted in said amount. Wise & Co. asked &
obtained a preliminary attachment of David’s property. To avoid the execution of the
attachment, David had his Attorney, Tanglao, to execute a power of attorney (Exhibit A) in his
favor with the following clause:
“To sign for me as guarantor for himself in his indebtedness to Wise & Co. of Manila, which
indebtedness appears in Civil Case No. 41129, of the Court of First Instance of Manila, and to
mortgage my lot (No. 517-F of the subdivision plan Psd-20, being a portion of Lot No. 517 of
the cadastral survey of Angeles, G.L.R.O. Cad. Rec. No. 124), to guarantee the said obligations
to the Wise & Co. of Manila.”
David also subscribed and filed in court a Compromise (Exhibit B) wherein it states the
following:
I. That defendant (David) confesses judgment for the sum of P640, payable at the rate of P80
per month, the first payment to be made in February 15, 1932 and successively thereafter
until the full amount is paid; that plaintiff (Wise & Co.) accepts this stipulation.
II. That as a security for the payment of the said sum of P640, defendant (David) binds in
favor or, and pledges to the plaintiff (Wise & Co.) the following real properties:
1. House of light materials in the municipality of Angeles, Pampanga assessed at P320; 2.
Accesoria apartments with a ground floor with first story of cement & galvanized iron roofing
belonging to Mariano Tablante Geronimo in the municipality of Angeles Pampanga, assessed
at P800.
3. Parcel of land in the Province of Pampanga recorded in the name of Dionisio Tanglao of
which defendant (David) herein holds a special power of attorney to pledge the same in favor
of Wise & Co., as a guarantee for the payment of the claim against him assessed at P423.

David paid the sum of P343.47 to Wise & Co., on account of the P640 which he bound himself
to pay under Exhibit B, leaving an unpaid balance of P296.53. Wise & Co. now institutes this
case against Tanglao for the recovery of P296.53.

Issue:
Whether or not Tanglao was a surety and therefore liable to pay Wise & Co? (NO)

Ruling:
NO, Tanglao was not a surety and therefore not liable to pay Wise & Co. Even granting he was,
there must first be exhaustion of all the properties and exercise of all legal remedies against
the David, the debtor, before going after the properties of Tanglao, the alleged surety. Tanglao
could not have contracted any personal responsibility for the payment of P640. The only
obligation which Exhibit B (in connection with Exhibit A) has created on Tanglao’s part is that
resulting from the mortgage of a property belonging to him to secure the payment of said
P640. However, a foreclosure suit is not instituted against Tanglao, but a purely personal
action for the recovery of the amount. Although there is no doubt that under Exhibit A,
Tanglao empowered David to enter into a contract of suretyship and contract of mortgage of
the property with Wise & Co.; David only used said power of attorney to mortgage the
property & did not enter into a contract of suretyship.
There is nothing in Exhibit B to the effect that Tanglao became David’s surety for the payment
of the sum in question. Neither is it inferable from any of the clauses thereof; and even if it
was inferable, it would be insufficient to create an obligation of suretyship which, under the
law must be express & cannot be presumed.
Even granting that Tanglao was indeed a surety under Exhibit B, the action does not yet lie
against him on the ground that all the legal remedies against the debtor, David, have not
previously been exhausted. Wise & Co. has in its favor a judgment against David for the
payment of the debt. It does not appear that the execution of this judgment has been asked
for and Exhibit B also shows that David still has two (2) pieces of property —(1) house of light
materials; and (2) accesoria aparments—whose value is in excess of the balance of the debt
sought of Tangalo in his alleged capacity as a surety.

6. Manila Surety & Fidelity v. Almeda 34 SCRA 136

Facts:
On December 4, 1961, Noemi Almeda and Generoso Esquillo, doing business as Almeda
Trading, entered into a contract with the National Marketing Corporation (NAMARCO) to
purchase goods on credit. A bond for P5,000.00, issued by Manila Surety & Fidelity Co., Inc.,
was posted to ensure compliance with the contract terms. The contract was amended in
October 1962, and another bond for P5,000.00 was issued. In June 1965, NAMARCO
demanded payment of an outstanding debt of P16,335.09 from Almeda Trading, and the
surety company urged payment after receiving a copy of the demand. Meanwhile, Generoso
Esquillo filed for voluntary insolvency, and NAMARCO registered its claim as a creditor. In
September 1965, the surety company sued to be released from liability, but the court ruled in
favor of NAMARCO, affirming that the insolvency did not discharge the surety's liability, and
ordered the surety to pay the debt. The surety company appealed the decision, citing
protective remedies under Article 2071 of the Civil Code.

Issue:
Whether a surety can avail itself of the relief, specifically afforded in Article 2071 of the Civil
Code and be released from its liability under the bonds, notwithstanding a prior declaration of
the insolvency of the debtor-principal in an insolvency proceeding.

Ruling:
No. There is no question that under the bonds posted in favor of the NAMARCO in this case,
the surety company assumed to make immediate payment to said firm of any due and
unsettled accounts of the debtor-principal, even without demand and notice of the debtor's
non-payment, the surety, in fact, agreeing that its liability to the creditor shall be direct,
without benefit of exhaustion of the debtor's properties, and to remain valid and continuous
until the guaranteed obligation is fully satisfied.
In short, appellant secured to the creditor not just the payment by the debtor-principal of his
accounts, but the payment itself of such accounts. Clearly, a contract of suretyship was thus
created, the appellant becoming the insurer, not merely of the debtor's solvency or ability to
pay, but of the debt itself. Under the Civil Code, with the debtor's insolvency having been
judicially recognized, herein appellant's resort to the courts to be released from the
undertaking thus assumed would have been appropriate. Nevertheless, the guarantor's action
for release can only be exercised against the principal debtor and not against the creditor, as
is apparent from the precise terms of the legal provision. In the case at bar, it is true that the
guaranteed claim of NAMARCO was registered or filed in the insolvency proceeding. But
appellant cannot utilize this fact in support of its petition for release from the assumed
undertaking. For one thing, it is almost a certainty that creditor NAMARCO cannot secure full
satisfaction of its credit out of the debtor's properties brought into the insolvency proceeding.
Considering that under the contract of suretyship, which remains valid and subsisting, the
entire obligation may even be demanded directly against the surety itself, the creditor's act in
resorting first to the properties of the insolvent debtor is to the surety's advantage At least,
the latter would be answerable only for whatever amount may remain not covered or
unsatisfied by the go against debtor-principal after it has made the necessary payment to the
creditor. For another, the fact that the debtor- principal may be discharged from all his
outstanding obligations in the insolvency case would not benefit the surety, as to relieve it of
its liability under the surety agreement. That is so provided in Section 68 of the Insolvency Act
which shall be Finally, even supposing that the present is not blocked by the insolvency
proceedings because it does not aim at reducing the insolvent's assets, but only at having the
suretyship substituted by other equivalent security, still it is difficult to see how the principal
debtor, with his business, property and assets impounded by the insolvency court, can obtain
other securities with which to replace the guaranty given by the plaintiff-appellant. The action
at bar would seem, under the circumstances, destined to end in futility.

7. Republic v. Pal-Fox Lumber Co

A surety company's liability for forest charges under a bond includes legal interest,
affirmed by the Supreme Court, resolving claims and indemnity disputes.
FACTS
1. Debt and Liability:
 Pal-Fox Lumber Co., Inc. was indebted to the Bureau of Internal Revenue for forest
charges and surcharges amounting to P11,851.56.
 Far Eastern Surety & Insurance Co., Inc. was jointly and severally liable with Pal-Fox
Lumber Co., Inc. for the payment of forest charges up to P5,000.00 under a forestry
bond executed on November 27, 1946.
2. Legal Action:
 The Republic of the Philippines filed a suit (Civil Case No. 32386) in the Court of First
Instance of Manila to recover P5,000.00 jointly and severally from Pal-Fox Lumber Co.,
Inc. and Far Eastern Surety & Insurance Co., Inc., and P6,841.56 from Pal-Fox Lumber
Co., Inc. alone.
3. Default and Third-Party Complaint:
 Pal-Fox Lumber Co., Inc. failed to file an answer and was declared in default.
 Far Eastern Surety & Insurance Co., Inc. filed a cross-claim against Pal-Fox Lumber Co.,
Inc. and a third-party complaint against Gaspar Palanca and Joseph Lee based on an
indemnity agreement.
 The third-party defendants were also declared in default.
4. Trial Court Decision:
 The trial court ordered Pal-Fox Lumber Co., Inc. and Far Eastern Surety & Insurance Co.,
Inc. to pay P5,000.00 jointly and severally, with legal interest.
 Pal-Fox Lumber Co., Inc. was ordered to pay the balance of P6,841.56.
 The court also ordered Pal-Fox Lumber Co., Inc. and the third-party defendants to
indemnify Far Eastern Surety & Insurance Co., Inc. for any amount it paid to the
plaintiff, plus premiums, attorney’s fees, and interest.
5. Appeal and Manifestation:
 Far Eastern Surety & Insurance Co., Inc. appealed to the Court of Appeals, which
certified the case to the Supreme Court due to questions of law.
 During the pendency of the case, Far Eastern Surety & Insurance Co., Inc. manifested
its willingness to pay P5,000.00 under the forestry bond.
  The Supreme Court allowed the payment but later modified its resolution to include
legal interest on the P5,000.00 from the filing of the complaint until the date of
payment.
ISSUES:
1. Whether Far Eastern Surety & Insurance Co., Inc. is liable for legal interest on the P5,000.00
under the forestry bond.
2. Whether the surety's liability can exceed the amount of its bond.
RULING:
1. YES
The Supreme Court ruled that Far Eastern Surety & Insurance Co., Inc. is liable for legal
interest on the P5,000.00 from the filing of the complaint until the date of payment.
2. YES
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 of
P9,990.91 represent the moratory interest 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. 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 obligation
but 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.'
8. Southern Motors, Inc. v. Barbosa, 99 Phil 263 (1956)

Facts:

Southern Motors, Inc. filed an action against Eliseo Barbosa to foreclose a real estate
mortgage which Barbosa executed as security for Alfredo Brillantes’ debt to Southern Motors.
Brillantes defaulted on his obligation. Barbosa explicitly admitted all allegations in the
complaint but asserted as a special defense that Southern Motors must first exhaust remedies
against Brillantes, who was solvent and had local properties, before enforcing the mortgage
against him (Barbosa).

Southern Motors moved for summary judgment, but Judge Ibanez of the Court of First Instance
of Iloilo denied the motion as premature. Southern Motors then filed a motion for
reconsideration and requested to transfer the case to another court branch due to the backlog
of cadastral cases at Judge Ibanez’s branch.Law firm websites. With Judge Ibanez’s
permission, the case was transferred to Judge Makalintal, who eventually ruled in favor of
Southern Motors, ordering Barbosa to pay the sum owed with 12% interest and attorney’s
fees. If Barbosa failed to pay, the property would be sold at auction. Barbosa appealed this
decision, which was then certified to the Supreme Court due to questions of law.

Issue/s:

1. Whether the trial court erred in hearing the plaintiff’s motion for reconsideration without
serving notice to Barbosa’s counsel.

2. Whether the trial court’s judgment on the pleadings was erroneous due to no issue being
subject to resolution.
3. Whether Barbosa was deprived of his property rights without due process of law by the trial
court’s decision.

Ruling:

1.The Supreme Court found Barbosa’s claim that he wasn’t served notice of the motion for
reconsideration to be unfounded, as records showed his counsel received the notice.

2.The Supreme Court held that a factual dispute did not exist since Barbosa admitted the
complaint’s allegations. The primary issue regarding the sufficiency of Barbosa’s affirmative
defense (the need for Southern Motors to exhaust remedies against Brillantes first) was rightly
decided via judgment on the pleadings.Law firm websites

3.The Court held that Barbosa’s defense was without merit. Under the mortgage terms and by
law, Southern Motors could directly enforce the mortgage without exhausting Brillantes’
properties. Articles 2087 and 2126 of the Civil Code allow the sale of mortgaged property
when the debt becomes due, reflecting the essence of a mortgage contract.

Doctrine/s :

A mortgage allows the creditor to directly enforce the security against the mortgagor’s
property upon the debtor’s default, without exhausting other debtor’s properties.

A Contract of mortgage is distinct and separately enforceable compared to the personal

9. Central Surety and Insurance v. Ubay

Facts:
 Petitioner: Central Surety and Insurance Company, Inc.
 Respondents: Hon. Alberto Q. Ubay, Judge of the Court of First Instance of Rizal,
Caloocan City, Branch XXXII.
 Ong Chi, doing business under the firm name "Tableria de Luxe."
 Ong Chi filed a lawsuit against Francisco Reyes, Jr. for a sum of money in the City Court
of Caloocan City.
 Ong Chi applied for a writ of attachment and posted a bond of P6,464.18, leading to the
attachment of Reyes' jeep.
 Reyes moved to dissolve the writ of attachment and posted a counterbond of
P6,465.00, with Central Surety and Insurance Co. as the surety.
 The condition of the counterbond was that if Ong Chi recovered judgment, Reyes and
the surety would either redeliver the attached property or pay its full value.
 The writ of attachment was lifted, and the jeep was returned to Reyes.
 The City Court ruled in favor of Ong Chi, ordering Reyes to pay P6,964.18, plus legal
interest, attorney’s fees, and costs.
 Reyes appealed to the Court of First Instance of Rizal, which affirmed the judgment in
full.
 Upon finality of the judgment, a writ of execution was issued, and the jeep was sold for
P4,000.00, which was credited against the judgment.
 Central Surety filed a motion to cancel the counterbond, but Ong Chi opposed it and
sought a deficiency judgment of P5,730.00 (P9,730.00 total judgment less P4,000.00
from the jeep sale).
  The court ordered the surety to pay the deficiency, and the motion for reconsideration
was denied, prompting the petition.

Issue:
Whether or not the petitioner surety (Central Surety and Insurance Co.) is liable for the
deficiency judgment after the sale of the attached property.

Ruling:
The Supreme Court ruled in favor of the petitioner, Central Surety and Insurance Co.
The court set aside the orders of the respondent judge and entered a new order cancelling the
petitioner's counterbond.
The surety was not liable for the deficiency judgment as it had fulfilled its obligation under the
counterbond.

10. Associated Insurance & Surety Co., Inc. v. Bacolod, 105 Phil 246 (1959)
Facts:
The complainant alleges that defendants Sixto R. Ruiz obtained 2 crop loans subject to the
condition that he shal post surety bonds to guarantee the payment of 25% of said crop loans;
that in compliance with said condition, plaintiff, also a corporation, executed in favor of the
milling corporation two surety bonds, that the said bonds were executed subject to the
following condition (1) the creditor shall apply the share of the debtor in the harvest of the
crops for which the loans were granted to the liquidation of said loans and no part thereof
shall be applied to other indebtedness until the loans have been fully liquidated; (2) the
creditor shall not grant any additional loan to the debtor in excess of the latter's share in the
crops covered by the bonds without the prior written consent of the surety; and (3) the
liability of the surety will terminate upon complete payment of the indebtedness guaranteed
by the bonds; that defendant milling company failed to comply with conditions 1 and 2
mentioned above when it granted to the debtor loans in excess of the latter's share in the
harvest of the crops covered by the bonds without the written consent of plaintiff, and when it
failed to notify plaintiff of the amount the debtor has actually availed himself of the crop loans
obtained by him, thereby depriving plaintiff of its right to be apprised of the amount of the
loan actually obtained, this notice being necessary to enable plaintiff to take steps to protect
its interest; and that in view of the violations of the conditions above-mentioned, plaintiff is
deemed to have been relieved of its liability under the bonds.

Issue:
1. Whether the complaint states a valid cause of action against Bacolod-Murcia Milling Co.,
Inc. for the cancellation of the surety bonds due to alleged breaches of the bond
conditions.
 2. Whether the plaintiff’s failure to allege payment or demand for payment under the
bonds is fatal to its cause of action.
Ruling:
 The Supreme Court reversed the lower court’s decision and held that the complaint
states a valid cause of action against Bacolod-Murcia Milling Co., Inc.
 The case was remanded to the lower court for further proceedings.
Ratio:
1. Nature of the Action: The plaintiff’s action was not to dispute a demand for payment
but to seek release from liability under the surety bonds due to the milling company’s
alleged breaches of the bond conditions. Therefore, it was unnecessary for the plaintiff
to allege that it had paid or been required to pay the obligation under the bonds.
2. Sufficiency of Allegations: The complaint sufficiently alleged that the milling company
violated the conditions of the surety bonds, which, if proven, would release the plaintiff
from liability. These allegations constitute a valid cause of action.
3. Alternative Cause of Action: The inclusion of Ruiz and Dizon in the complaint under the
indemnity agreement is a separate and distinct action that does not affect the
plaintiff’s cause of action against the milling company.

11. Associated Insurance & Surety Co., Inc. v. Bacolod, 105 Phil 246 (1959)
Facts:
Background of the Case
 Plaintiff, Associated Insurance & Surety Co., Inc., filed an action in the Court of First
Instance of Manila seeking the cancellation of surety bonds it executed in favor of
defendant Bacolod-Murcia Milling Co., Inc. Alternatively, it sought payment from
defendants Sixto R. Ruiz and Raymundo D. Dizon for the amount of P2,956.60, plus
interest, attorney’s fees, and costs.
Crop Loans and Surety Bonds
 Defendant Sixto R. Ruiz obtained two crop loans totaling P11,626.00 from Bacolod-
Murcia Milling Co., Inc., with the condition that he post surety bonds to guarantee 25%
of the loans.
 Plaintiff executed two surety bonds totaling P2,956.50 in favor of the milling company
to guarantee the loans.
Conditions of the Surety Bonds
1. The creditor (milling company) must apply the debtor’s share of the harvest to liquidate
the loans, and no part of the harvest shall be applied to other debts until the loans are
fully paid.
2. The creditor shall not grant additional loans to the debtor exceeding the debtor’s share
in the crops without the surety’s prior written consent.
 3. The surety’s liability terminates upon full payment of the guaranteed indebtedness.
Alleged Breach of Conditions
 The milling company allegedly violated conditions 1 and 2 by:
o Granting additional loans to Ruiz exceeding his share in the harvest without the
plaintiff’s written consent.
o Failing to notify the plaintiff of the actual amount of loans availed by Ruiz,
depriving the plaintiff of the opportunity to protect its interests.
Alternative Cause of Action
 Plaintiff also alleged that Ruiz and Dizon executed an indemnity agreement to
reimburse the plaintiff for any damages arising from the surety bonds.
 The milling company demanded payment of P2,956.50 from the plaintiff, which the
plaintiff sought to recover from Ruiz and Dizon under the indemnity agreement.
Motion to Dismiss
 The milling company filed a motion to dismiss, arguing that the complaint failed to
state a cause of action because:
o The plaintiff had not paid or been required to pay the obligation under the bonds.
o The alleged breaches of the bond conditions were matters of defense, not
grounds for a cause of action.
Lower Court’s Decision
 The lower court granted the motion to dismiss, agreeing with the milling company’s
arguments.
Issue:
1. Whether the complaint states a valid cause of action against Bacolod-Murcia Milling Co.,
Inc. for the cancellation of the surety bonds due to alleged breaches of the bond
conditions.
2. Whether the plaintiff’s failure to allege payment or demand for payment under the
bonds is fatal to its cause of action.
Ruling:
 The Supreme Court reversed the lower court’s decision and held that the complaint
states a valid cause of action against Bacolod-Murcia Milling Co., Inc.
 The case was remanded to the lower court for further proceedings.
Ratio:
1. Nature of the Action: The plaintiff’s action was not to dispute a demand for payment
but to seek release from liability under the surety bonds due to the milling company’s
alleged breaches of the bond conditions. Therefore, it was unnecessary for the plaintiff
to allege that it had paid or been required to pay the obligation under the bonds.
2. Sufficiency of Allegations: The complaint sufficiently alleged that the milling company
violated the conditions of the surety bonds, which, if proven, would release the plaintiff
from liability. These allegations constitute a valid cause of action.
3. Alternative Cause of Action: The inclusion of Ruiz and Dizon in the complaint under the
indemnity agreement is a separate and distinct action that does not affect the
plaintiff’s cause of action against the milling company.