PALMARES v.

CA and MB LENDING
1998 / Regalado / Surety > Distinguished from guaranty

SURETY / SURETYSHIP GUARANTOR / GUARANTY

SURETY: Insurer of the debt GUARANTOR: Insurer of the solvency of the debtor

A suretyship is an undertaking that the debt shall be paid A guaranty is an undertaking that the debtor shall pay

A guarantor agrees that the creditor, after proceeding against

A surety promises to pay the principal's debt if the principal will
the principal, may proceed against the guarantor if the principal
not pay
is unable to pay

A surety binds himself to perform if the principal does not, A guarantor does not contract that the principal will pay, but

without regard to his ability to do so simply that he is able to do so

A surety undertakes directly for the payment and is so A guarantor contracts to pay if, by the use of due diligence, the

responsible at once if the principal debtor makes default debt cannot be made out of the principal debtor

FACTS

Pursuant to a promissory note, MB Lending extended a 30k loan to Sps. Azarraga and Estrella Palmares, payable on

or before 12 May 1990, with compounded interest at 6% per annum to be computed every 30 days from the date thereof.

I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this

Promissory Note for Short-Term Loan:

That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the

above principal maker of this note;

That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above

loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note subject to

the same conditions above-contained.

Palmares and Sps. Azarraga were only able to pay 16.3k. MB Lending filed a complaint against Palmares as the lone party-

defendant, allegedly by reason of Sps. Azarragas insolvency. Palmares main contention was that she is to be held liable only

upon default of the principal debtor Sps. Azarraga. She avers that immediately after the loan matured, she offered to settle the

obligation, but MB Lending refused, and instead informed her that they would try to collect from Sps. Azarraga. In addition, partial

payment has been made.

RTC dismissed MB Lendings complaint without prejudice to the filing of a separate action for a sum of money against Sps.

Azarraga. The offer Palmares made to pay the obligation is considered a valid tender of payment sufficient to discharge her

secondary liability on the instrument. As co-maker, Palmares is only secondarily liable on the instrument.

CA reversed RTC and declared Palmares liable to pay MB Lending the outstanding balance of 13.7k at 6% per month computed

from the date the loan was contracted until fully paid, penalty charges, attorneys fees, and costs. Palmares is a surety since she

bound herself to be jointly and severally liable with Sps. Azarraga when she signed as co-maker. Therefore, she is primarily liable

and may be sued for the entire obligation.

ISSUE & HOLDING

WON Palmares is a guarantor or a surety. SURETY; primarily liable.

RATIO

Palmares expressly bound herself to be jointly and severally or solidarily liable with Sps. Azarraga; therefore, her liability is that of a

surety. The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies

to contracts of suretyship. The mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of

liability.

The undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a

contract of suretyship. The second and third paragraphs of the promissory note do not contain any other condition for the

enforcement of MB Lendings right against Palmares. A contract of suretyship is that wherein one lends his credit by joining in the

principal debtor's obligation, so as to render himself directly and primarily responsible with him, and without reference to the

solvency of the principal.

Several attendant factors support the finding that Palmares is a surety.

When she was informed about the spouses failure to pay, she immediately offered to settle the account with MB Lending.

She presented the receipts of the payments already made, which were all issued in her name and of the Azarraga

spouses. This can only be construed to mean that the payments made by the principal debtors were considered by MB

Lending as creditable directly upon the account and inuring to the benefit of Palmares.

A surety is bound equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the

beginning. In suretyship, there is but one contract, and the surety is bound by the same agreement which binds the principal. The

contract of a surety starts with the agreement, which is precisely the situation obtaining in this case.

A surety is usually bound with his principal by the same instrument, executed at the same time and upon the same

consideration; he is an original debtor, and his liability is immediate and direct. Where a written agreement on the same sheet of

paper with and immediately following the principal contract between the buyer and seller is executed simultaneously therewith,

providing that the signers of the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly liable with

the buyer.

Re: Palmares argument that the complaint was prematurely filed for lack of demand UNMERITORIOUS

Palmares was saying that Sps. Azarraga cannot as yet be considered in default, as MB Lending has not yet made either a judicial or

extrajudicial demand. This argument fails. Paragraph (G) of the note states that "should I fail to pay in accordance with the above

schedule of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer necessary in order

that delay may exist since the contract itself already expressly so declares. As a surety, petitioner is equally bound by such waiver.

Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the

commencement of the suit is a sufficient demand. A surety is not even entitled, as a matter of right, to be given notice of the
principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere

failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The

surety is bound to take notice of the principal's default and to perform the obligation.

The alleged failure of MB Lending to prove the fact of demand on Sps. Azarraga is immaterial. In the absence of a

statutory or contractual requirement, it is not necessary that performance of his obligation be first demanded of the principal,

especially where demand would have been useless; nor is it a requisite that the principal be called on to account. A suretyship is a

direct contract to pay the debt of another. As an original promisor and debtor from the beginning, he is held ordinarily to

know every default of his principal.

Re: Palmares argument that the filing of the complaint solely against her was improper UNMERITORIOUS

Under NCC 1216, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.

In accordance with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that

his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by

statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before

proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and

surety are equally bound.

MB Lendings mere failure to immediately sue Palmares on her obligation does not release her from liability.

Where a creditor refrains from proceeding against the principal, the surety is not exonerated. Mere want of diligence or

forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice

to sue on the obligation. In the absence of proof of resultant injury, a surety is not discharged by the creditor's mere statement that

the creditor will not look to the surety, or that he need not trouble himself. The consequences of the delay, such as the subsequent

insolvency of the principal, or the fact that the remedies against the principal may be lost by lapse of time, are immaterial. The

raison d'tre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time.

Leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might

be demanded, does not constitute an extension of the time of payment, which would release the surety.

In order to constitute an extension discharging the surety:

It should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal

and the creditor

It was made without the consent of the surety or with a reservation of rights with respect to him

The contract must be one which precludes the creditor from enforcing the principal contract within the period during which

he could otherwise have enforced it, and which precludes the surety from paying the debt

None of these elements are present here. The mere fact that MB Lending gave Sps. Azarraga an extended period of time within

which to comply with their obligation did not effectively absolve Palmares from the consequences of her undertaking. Besides, the

burden is on the surety Palmares to show that she has been discharged by some act of the creditor MB Lending.

SC DECISION: Constrained to dismiss the petition for lack of merit, but to except therefrom the issue anent the propriety of

the monetary award adjudged to herein respondent corporation.

RAUL SESBREO, petitioner,
vs.
HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents.

G.R. No. 89252/ 222 SCRA 466

May 24, 1993

FACTS:

Petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00 with the Philippine Underwriters
Finance Corporation ("Philfinance") with a term of 32 days. PhilFinance issued to Sesbreno the Certificate of Confirmation of Sale of
a Delta Motor Corporation Promissory Note 2731, the Certificate of Securities Delivery Receipt indicating the sale of the note with
notation that said security was in the custody of Pilipinas Bank, and postdated checks drawn against the Insular Bank of Asia and
America for P304, 533.33 payable on 13 March 1981. Upon its maturity, petitioner sought to encash the postdated checks but they
were dishonored for having insufficient funds.

Petitioner then issued a demand letter toprivate respondent Pilipinas Bank, but the note was never released nor any
instrument related thereto. Petitioner also made a written demand upon private respondent Delta as maker for the partial satisfaction
of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note. Delta, however, denied any
liability to petitioner on the promissory note.

As petitioner had failed to collect his investment and interest thereon, he filed an action for damages with the RTC against
private respondents Delta and Pilipinas.The complaint was dismissed and was affirmed by the CA on appeal.

ISSUE:

WON a non-negotiable promissory note be assigned.

RULING:

Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by
indorsement thereof coupled with delivery or by delivery alone where the negotiable instrument is in bearer form. A negotiable
instrument may, however, instead of being negotiated, alsobe assigned or transferred. The legal consequences of negotiation as
distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not
be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face
of the instrument.

In this case, while the promissory note was marked "non-negotiable," it was not at the same time stamped "non-
transferable" or "non-assignable." Hence, there is no stipulation which prohibited the promissory notes assigning or transferring, in
whole or in part.

PNB v.STA. MARIA

FACTS:

Two Special Powers of Attorney were executed in favor of Maximo Sta. Maria.
o Executed by his 6 siblings to mortgage a 16-odd hectare parcel of land
o Executed by Valeriana Sta. Maria to borrow money and mortgage any real estate owned by her.

Maximo obtained two separate loans from PNB, one in the amount of 15K but only 13,216.11 was extended by PNB and 23K where
only P12,427.57 was extended.
Two chattel mortgages on standing crops were executed by him in favor of PNB- guaranteed by surety bonds by Associated
Insurance and Surety Co. The records of crop load show other securities given such as the land jointly owned by his bros and sis.
February 10, 1961- PNB filed for collection of unpaid balances on two agricultural sugar crop loans against Maximo and his siblings.
RTC ruled in favor of PNB. Only the 6 siblings appealed judgment.
Siblings contention: They only authorized Maximo to mortgage land and not borrow money and that they did not benefit from the
loans obtained by Maximo. Therefore, they should be only liable to the value of property which they authorized to be given as
security for loans.

ISSUE: WON siblings are only liable for value of land? YES.

HELD:
Yes except for Valeriana who issued a separate SPOA authorizing Maximo to borrow money on her behalf.
In Bank of P. I. v. De Coster, "where in an instrument powers and duties are specified and defined, that all of such powers and duties
are limited andconfined to those which are specified and defined, and all other powers and duties are excluded.
In De Villa vs. Fabricante, where the power of attorney given to the husband by the wife was limited to a grant of authority to
mortgage a parcel of land titled in the wife's name, the wife may not be held liable for the payment of the mortgage debt contracted
by the husband, as the authority to mortgage does not carry with it the authority to contract obligation.
 Maximo and Valeriana are the only ones liable for the loands and that the other siblings liability only correspond to real estate
mortgage and the foreclosure and sale of mortgage.
Maximos argument that "a mortgage is simply an accessory contract, and that to effect the mortgage, a loan has to be secured"
falls, far short of the mark. Maximo had indeed, secured the loan on his own account and the defendants-appellants had authorized
him to mortgage their respective undivided shares of the real property jointly owned by them as security for the loan. But that was
the extent of their authority land consequent liability, to have the real property answer for the loan in case of non-payment.
The outcome might be different if there had been an express ratification of the loans by defendants-appellants or if it had been
shown that they had been benefited by the crop loans so as to put them in estoppel.
Valeriana is only jointly liable with Maximo under Article 1207 NCC, "the concurrence ... of two or more debtors in one and the same
obligation does not imply that ... each one of the (debtors) is bound to render entire compliance with the prestation. There is a
solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." It
should be noted that in the additional special power of attorney, Exh. E-1, executed by Valeriana, she did not grant Maximo the
authority to bind her solidarity with him on any loans he might secure thereunder.

Pacific Banking Corp vs. Intermediate Appellate Court and Roberto Regala, Jr.

FACTS:
Petitioner bank issued a credit card to private respondents wife, Celia SyjucoRegala. She applied on Oct. 24, 1975 and
was issued and became effective on Oct. 29, 1975, going over the credit limit and even extending from the Oct. 29, 1976 one-year
deadline. As a condition, private respondent, Roberto Regala, Jr., the husband, executed a Guarantors Undertaking that makes him
jointly and severally liable for any and all indebtedness, obligations, charges or liabilities due and incurred by Celia Regala.
Celias incurred charges reached up to P92,803.98 after more than one year of using the credit card but she failed to
settle her account. the bank then sent demand letters to both Celia and Roberto. They still failed to settle, thus the bank filed a
complaint with the trial court.
In his demand letter, Roberto contended that his liability was limited only to P2,000.00 a month, the agreed credit limit.
Celia, on the other hand, remained silent. Having failed to appear at their pre-trial conference, they were both declared in default by
the court.
The RTC decided in favor of the petitioner bank, declaring Roberto to be jointly and severally liable to pay the total
charges with wife Celia. Upon appeal, however, appellant court decided in favor of Roberto in that he is liable only for P2,000.00.

ISSUE/S: Is Roberto liable only to the extent of P2,000.00?

HELD:
No. The Guarantors Undertaking was, in substance, a contract of surety. In suretyship, the surety binds himself solidarily
with the principal debtor. As provided in Robertos Guarantors Undertaking, he bound himself solidarily and jointly to pay Pacific
Banking Corp. any and all indebtedness, obligations, charges or liabilities due and incurred by Celia Regala. This was also a
condition in applying for the banks credit card (#5 of the Terms and Conditions).
Art. 2054 is not applicable in this in limiting the guarantors liability as Roberto expressly bound himself up to the extent of
debtors indebtedness, also waiving any discharge in case of any change or novation of the terms and conditions in connection with
the issuance of the credit card. He bound himself as a surety continuously until all liabilities have been fully paid - including
additional and future debts of Celia.
Therefore, Roberto is held liable to the same extent as Celia.