G.R. No. L-27249 July 31, 1970
MANILA SURETY & FIDELITY CO., INC., plaintiff-appellant, vs. NOEMI ALMEDA, doing business under the name and style of ALMEDA TRADING, GENEROSO ESQUILLO and NATIONAL MARKETING CORPORATION, defendants-appellees.

FACTS

On December 4, 1961, Noemi Almeda (Almeda Trading) entered into a contract with the National Marketing Corporation (NAMARCO) to purchase goods on credit. Manila Surety & Fidelity Co., Inc. posted a P5,000.00 bond to secure the purchaser’s compliance. The agreement was supplemented on October 17, 1962, with a new bond for the same amount. The bonds stipulated that the surety would pay the principal’s account immediately upon demand if not paid on time, waived demand and notice of non-payment, and stated the surety’s liability was direct, immediate, and continuous until the obligation was paid in full. On June 8, 1965, NAMARCO demanded payment from Almeda Trading for back accounts amounting to P16,335.09. Previously, on March 26, 1965, Generoso Esquillo (spouse of Noemi Almeda) had instituted voluntary insolvency proceedings in the Court of First Instance of Laguna, and was declared insolvent on April 6, 1965. NAMARCO registered its contingent claim in the insolvency proceeding. On September 10, 1965, Manila Surety filed an action against the spouses and NAMARCO to secure its release from liability under the bonds, alleging the spouses’ insolvency and that NAMARCO had rescinded the agreement and demanded payment. The lower court dismissed the complaint, ruling that the insolvency of the debtor-principal did not discharge the surety’s liability.

ISSUE

Whether a surety can avail itself of the relief under Article 2071 of the Civil Code to be released from its liability under the bonds, notwithstanding a prior judicial declaration of the insolvency of the debtor-principal.

RULING

No. The decision of the lower court is affirmed with modification. The surety cannot be released from its obligation. The contract created was one of suretyship, with the surety insuring the debt itself. While Article 2071 of the Civil Code allows a guarantor/surety to proceed against the principal debtor for release before payment in cases of insolvency, this action is against the debtor, not the creditor. The creditor cannot be compelled to release the guaranty without its assent. Furthermore, Section 68 of the Insolvency Law explicitly provides that no discharge of the insolvent shall release any surety liable for the same debt. At the time the surety filed its complaint, the insolvency court had already acquired exclusive jurisdiction over all claims against the debtor. The surety’s proper recourse was to file a contingent claim in the insolvency proceeding. The fact that NAMARCO registered its claim in the insolvency proceeding benefits the surety, as the surety would only be liable for any unsatisfied amount after the disposition of the insolvent’s properties. The surety’s liability is limited to the payment of whatever amount remains due to NAMARCO and is unsatisfied in the insolvency proceeding, but not exceeding the amount of its undertaking under the bonds.