Carodan v. China Banking Corp.
REITERATIONFacts
The Antecedents: China Banking Corporation (China Bank) filed a complaint for a sum of money against Barbara Perez and Rebecca Perez-Viloria (principal borrowers) and Rosalina Carodan and Madeline Carodan (sureties). Barbara and Rebecca executed a Promissory Note for P2.8 million. Rosalina, along with Barbara and Rebecca, executed a Real Estate Mortgage over Rosalina's property as security. Rosalina, Barbara, and Rebecca also executed a Surety Agreement, warranting payment of the loan obligation. Barbara and Rebecca failed to pay, prompting China Bank to foreclose the mortgaged property, realizing P1.5 million, leaving a deficiency of P365,345.77. Barbara and Rebecca claimed an oral agreement with Rosalina and Madeline to split the loan and obligation, and that Rosalina and Madeline only obtained P1.4 million of the loan. They also claimed that upon their payment of P1.5 million, the bank released their properties from the mortgage. Rosalina alleged that the bank misrepresented her property as the only one mortgaged and omitted Barbara's properties, and that the release of Barbara's properties extinguished the indivisible obligation under Article 2089 of the Civil Code. Procedural History: The Regional Trial Court (RTC) ruled that Rosalina was liable as an accommodation mortgagor and surety, and jointly and severally liable with Barbara and Rebecca for the deficiency. The Court of Appeals (CA) affirmed the RTC's decision. The Petition: Rosalina filed a Petition for Review on Certiorari, arguing that the CA erred in holding her jointly and severally liable for the deficiency claim after the bank released the principal debtors' collateral, alleging this violated the indivisibility of mortgage under Article 2089 of the Civil Code.
Issue(s)
Whether petitioner Rosalina is liable jointly and severally with Barbara and Rebecca for the payment of respondent China Bank's deficiency claim. Whether the release of the principal borrowers' collateral by the bank extinguished Rosalina's liability as a surety.
Ruling
The Supreme Court affirmed the Court of Appeals' decision with modifications regarding the interest rates. The Court held Rosalina jointly and severally liable with Barbara and Rebecca for the deficiency amount, but modified the interest rates to 12% per annum from January 13, 2000, to June 30, 2013, and 6% per annum from July 1, 2013, until full payment. Rebecca and Barbara were ordered to reimburse Rosalina for any deficiency payment charged against her.
Ratio Decidendi
On the issue of Rosalina's joint and several liability for the deficiency claim: The Court held that Rosalina is liable as an accommodation mortgagor and a surety. As an accommodation mortgagor, she allowed her property to be mortgaged to secure a loan she did not directly benefit from, which is permissible under Article 2085 of the Civil Code. As a surety, she bound herself solidarily with the principal debtors, Barbara and Rebecca, to fulfill the obligation in case of their failure to pay, as defined under Article 2047 of the Civil Code. The Court emphasized that a surety is an insurer of the debt, promising to pay if the principal does not, unlike a guarantor who is an insurer of the debtor's solvency. Since Barbara and Rebecca failed to pay their loan obligation, Rosalina, as surety, became liable for the debt. The Court further clarified that a mortgage is merely security for an indebtedness and not a satisfaction thereof. Therefore, when the extrajudicial foreclosure sale did not satisfy the entire obligation, the mortgagee (China Bank) is entitled to claim the deficiency from the debtor, including the surety. On the issue of whether the release of the principal borrowers' collateral extinguished Rosalina's liability as a surety: The Court disagreed with Rosalina's contention that the release of the collateral by China Bank extinguished her liability. The Surety Agreement expressly contained a stipulation allowing the securities to be substituted, withdrawn, or surrendered at any time without notice to or consent by the surety. Rosalina, by signing this agreement, expressly waived her right to demand payment and notice of non-payment, and agreed to the substitution, withdrawal, or surrender of securities. Therefore, China Bank's act of surrendering the properties of the principal debtors was within the ambit of this contractual provision. The Court cited previous rulings where sureties were held liable despite creditor actions when such actions were permitted by express stipulations in the surety agreement. The Court distinguished this from cases where negligence or material alteration of the contract by the creditor, without such waiver, could discharge a surety. Rosalina's argument regarding the indivisibility of mortgage under Article 2089 of the Civil Code was also deemed unmeritorious in light of her express waiver of rights in the surety agreement.
Main Doctrine
A surety who expressly waives the right to demand payment, notice of non-payment, and protest, and agrees that securities may be substituted, withdrawn, or surrendered at any time without notice or consent, remains liable for any deficiency claim even if the creditor releases the principal debtors' collateral. The creditor is not precluded from recovering any unpaid balance on the principal obligation if the extrajudicial foreclosure sale results in a deficiency.