People v. Santana
REITERATIONFacts
The Antecedents: Peoples Bank and Trust Company (plaintiff-appellee) sued Jose Maria Tambunting, Maria Paz Tambunting, and Francisco D. Santana (defendant-appellant) for recovery of money due on an overdraft agreement. The Tambunting spouses were principal debtors, and Santana was the surety. The agreement granted the Tambuntings an overdraft not exceeding P200,000.00, with interest, for their logging operations. Santana, as guarantor, along with the Tambuntings, pledged shares of International Sports Development Corporation as collateral. Santana also executed an absolute guaranty, binding himself jointly and severally with the Tambuntings for the full payment of the overdraft indebtedness. Procedural History: The Tambunting spouses were declared in default. The lower court ruled against Santana, finding his defense based on Article 2080 of the Civil Code untenable because he had waived his rights in the contract of absolute guaranty. The lower court characterized the contract as an "absolute guaranty" where Santana waived his right to subrogation. The Petition: Santana appealed the decision, contending that his waiver of rights in the contract of absolute guaranty was without binding force and that he should be released from his obligation as a guarantor.
Issue(s)
Whether the appellant, Francisco D. Santana, as guarantor, is released from his obligation due to the plaintiff bank's extension of the payment period and release of the pledged shares without his consent. Whether the waiver of the right to subrogation in the contract of absolute guaranty is valid and binding.
Ruling
The Supreme Court affirmed the decision of the lower court, holding that appellant Francisco D. Santana is not released from his obligation as guarantor. The Court found that Santana, by executing the contract of absolute guaranty, had expressly waived his right to subrogation and consented in advance to any extension of time or release of security by the creditor.
Ratio Decidendi
On the issue of whether the appellant is released from his obligation due to the plaintiff bank's actions: The Court held that Santana is not released from his obligation. The contract of absolute guaranty, to which Santana was a party, expressly authorized the plaintiff bank to extend the time of payment and to release or surrender any security held by it without notice to or consent from Santana. Therefore, Santana could not complain that the release of the pledged shares was without his consent, as he had waived this right in advance. The Court emphasized that obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith, as stated in Article 1159 of the Civil Code. On the issue of the validity and binding force of the waiver of the right to subrogation: The Court ruled that the waiver of the right to subrogation in the contract of absolute guaranty is valid and binding. Article 6 of the Civil Code provides that rights may be waived unless the waiver is contrary to law, public order, public policy, morals, or good customs. The Court found no occasion for these exceptions to apply. The waiver was not contrary to law, public order, public policy, morals, or good customs. The Court noted that it is traditional for parents to aid their children, and assuming a contingent liability as worded was not offensive to morals. The law was not thwarted, nor was public order or public policy disregarded. The release of the pledged shares, being merely an accessory obligation, did not vary the terms of the principal obligation and did not constitute a novation without Santana's consent, as he had already consented in advance to such releases.
Main Doctrine
A guarantor may validly waive their right to subrogation under Article 2080 of the Civil Code, provided such waiver is not contrary to law, public order, public policy, morals, or good customs, as stipulated in a contract of absolute guaranty.