G.R. No. L-74369. January 29, 1988.
Destileria Limtuaco & Co., Inc., petitioner, vs. Intermediate Appellate Court, Nicolas and Estrella Crodua, Elsie Crodua-Ceniza and Joel Ceniza, respondents.

FACTS

Jesus Crodua was appointed as a sales agent for Destileria Limtuaco & Co., Inc. His agency contract required him to furnish a real estate mortgage or surety bond worth at least P200,000.00 to guarantee his faithful performance. In compliance, his relatives, respondents Estrella Crodua and Elsie Crodua-Ceniza, executed two separate documents titled “Deed of Real Estate Mortgage” over their respective properties. Each deed stated it was executed to “guarantee” the settlement of Jesus Crodua’s accounts and compliance with his obligations under the agency agreement.
Limtuaco later terminated Jesus Crodua’s agency, alleging a substantial account shortage. It filed a complaint for foreclosure of the mortgages against the mortgagor-respondents. The trial court later allowed the dropping of Jesus Crodua as a party defendant after he left the country. The respondents then moved to dismiss the foreclosure complaint, arguing they were mere guarantors entitled to the benefit of excussion, and that the action was premature since the principal debtor was no longer a party.

ISSUE

Whether the contracts executed by the respondents are contracts of mortgage or contracts of guaranty, thereby entitling them to the benefit of excussion.

RULING

The Supreme Court ruled that the contracts are real estate mortgages, not contracts of guaranty. The use of the word “guarantee” in the deeds does not convert them into contracts of guaranty. The legal logic is that the nomenclature of the contract is not controlling; the essential nature is determined by its stipulations. The deeds in question are unequivocally titled “Deed of Real Estate Mortgage” and contain all the essential elements of a mortgage: they constitute a lien on specific real properties to secure the fulfillment of a principal obligation. The word “guarantee” was used merely to express the purpose of the security, which is a common function of a mortgage. A mortgage directly subjects the property for the fulfillment of an obligation, while a guaranty creates a subsidiary personal obligation. The respondents, as mortgagors, are not entitled to the benefit of excussion, which is a defense available only to a guarantor that the creditor must first exhaust the property of the principal debtor. The Court reversed the appellate decision and reinstated the foreclosure complaint.