OBLIGATIONS AND CONTRACTS
Case Digests
Palmares v. Court of Appeals & MB Lending Corp.
Facts:
Pursuant to a promissory note, Spouses Azarraga and
herein petitioner entered into a loan agreement with
private respondent MB Lending Corp for the amount of
P30,000. Petitioner and Spouses Azzaraga were able to
pay a total of P16,300—leaving a balance of P13,700.
No payments were made thereafter.
The promissory note’s second paragraph stipulates that
petitioner was a co-maker and as such declares herself
jointly and severally (solidarily) liable to private
respondent TOGETHER with principal debtors, Spouses
Azarraga. This makes her a surety.
Consequently, private respondent filed a case against
petitioner alone due to the Azarraga spouses’
insolvency. Petitioner argue that she was a mere
guarantor as evidenced by the third paragraph of the
promissory note which states:
“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.”
Petitioner accordingly concludes that her liability should
be restricted by the third paragraph of the promissory
note, and as such can only be liable as a guarantor.
Issue:
WON petitioner is a surety or a guarantor
Held:
It is clear from the outset that petitioner is a surety. As
such he is solidarily liable together with the principal
debtor. A surety ensures the payment of the debt,
unlike a guarantor who ensures that the principal
debtor pays his/her debt.
Also, it has not been shown in both the contracts or the
pleadings, any provision/stipulation that prohibits private
respondent from proceeding against petitioner only if
and when principal debtor (Spouses Azarraga) has
become insolvent.
As a solidary debtor, creditors can go after petitioner
with/without the other debtors declaring insolvency.
Sesbreno v. Court of Appeals, et al.
Facts:
Petitioner made a money market placement worth
P300,000 with Philfinance. Philfinance also issued the
following documents to petitioner:
1. Certificate of Confirmation of Sale “without
recourse” of 1 promissory note of private
respondent Delta Motors Corp (DMC).
2. Certificate of Security Delivery Receipt indicating
the sale of the aforementioned promissory note
as evidenced by a Denominated Custodian
Receipt (DCR) that the said security was under
the custodianship of private respondent Pilipinas
Bank (Pilipinas)
3. post-dated checks with petitioner as payee,
Philfinance as drawer amounting to P304,533.33
When petitioner encashed the post-dated checks, the
checks were dishonored for having insufficient funds.
Philfinance then delivered the DCR (Denominated
Custodian Receipt) of the DMC Promissory Note.
Petitioner then made a demand letter to private
respondent Pilipinas Bank demanding the release of the
DMC promissory note. However, upon examination of
the said promissory note it was found that:
1. The payee was “Philfinance” and the maker was
“Delta Motors Corporation” and
2. the said promissory note is NON-NEGOTIABLE
As a result, private respondent did not release the
promissory note.
Petitioner made a demand letter, this time addressed to
private respondent DMC for a partial satisfaction of the
obligation explaining that Philfinance had assigned the
promissory note to him to the extent of P307,333.33.
Delta denied having such obligation claiming that the
said obligation was offset against Philfinance’s
promissory note issued in favor of DMC.
As petitioner failed to collect his investment, he filed an
action for damages with RTC against private respondent
DMC and Pilipinas Bank, but the RTC dismissed the
complaint for lack of merit and lack of cause of action.
On appeal, the Court of Appeals ruled that Philfinance
acted in bad faith when it accepted petitioner’s
investment and charged it against DMC PN knowing full
well that the said PN is offsetted by their own PN issued
to DMC. Since Philfinance was not impleaded as a
party-defendant in this case, the CA affirmed the RTC’s
decision. Hence this petition.
Issue:
WON petitioner is entitled to the DMC PN despite it
being “compensated” with Philfinance’s own PN
Held:
It is important to note that at the time Philfinance sold
part of its rights under DMC PN No. 2731 to petitioner on
9 February 1981, no compensation had as yet taken
place and indeed none could have taken place.
One of the components of compensation is each one of
the obligors are bound to each other as creditor and
debtor of each other.
The assignment to petitioner would have prevented
compensation had taken place between Philfinance and
Delta, to the extent of P304,533.33, because upon
execution of the assignment in favor of petitioner,
Philfinance and Delta would have ceased to be
creditors and debtors of each other in their own right
to the extent of the amount assigned by Philfinance
to petitioner. Thus, we conclude that the assignment
effected by Philfinance in favor of petitioner was a valid
one and that petitioner accordingly became owner of
DMC PN No. 2731 to the extent of the portion thereof
assigned to him.
PNB v. Sta. Maria, et al.
Facts:
Respondent Sta. Maria is authorized by two SPAs:
1. Special Power of Attorney (SPA) to mortgage a
16-hectare parcel of land jointly owned by
respondent and his siblings.
2. In addition to the original SPA, respondent also
secured another SPA executed by his sister,
Valeriana, authorizing respondent to borrow
money and mortgage and real estate owned by
her and make, execute, sign and deliver any and
all promissory notes necessary in the premises.
Empowered by these 2 SPAs, respondent applied for
two separate crop loans in the amounts of P15,000 and
P23,000. As security for these loans, respondent
executed in his own name in favor of petitioner two
chattel mortgages guaranteed by respondent Associated
Insurance & Surety, Co. as surety and Maximo Sta.
Maria as principal.
The trial court rendered a judgement ordering
respondent Maximo Sta. Maria and his siblings to pay
solidarily for the crop loans plus accrued interest.
Respondent Sta. Maria’s siblings argued that they had
not given Maximo authority to borrow money and that
they have not benefitted from the said loan. Should they
be liable, their liability should not go beyond the value of
the property which they have authorized to be given as
security for the loans obtained by Maximo.
Issue:
WON the defendant’s siblings should be solidarily liable
for the crop loans incurred by defendant.
Held:
The Court agrees with the defendant-appellant siblings.
The authority granted by defendants-appellants (except
Valeriana) unto their brother, Maximo, was merely to
mortgage the property jointly owned by them. They
did not grant Maximo any authority to contract for any
loans in their names and behalf.
As to Valeriana’s liability to the said loans, Valeriana
stands liable not merely on the mortgage of her share in
the property, but also for the loans which Maximo had
obtained from plaintiff bank, since she had expressly
granted Maximo the authority to incur such loans. As
to the nature of the liability, Valeriana is only jointly
liable to the loan since pursuant to Art. 1208, there is a
solidary obligation when the stipulation so states, and as
evidenced by the absence of that stipulation in the SPA,
Valeriana is merely jointly liable.
Pacific Banking Corp. v. IAC & Roberto Regala, Jr.
Facts:
Celia Syjuco Regala (Celia), spouse of herein defendant
Roberto Regala, Jr., applied for and obtained from
plaintiff, Pacific Banking Corp. (PBC) a Pacificard Credit
Card. Defendant Roberto Regala executed a
“guarantor’s undertaking” in favor of plaintiff bank. It is
stipulated in the undertaking that defendant shall be
jointly and severally (solidarily) liable to plaintiff bank
along with spouse Celia upon demand of plaintiff.
Celia purchased goods/services on credit under her
Pacificard. for which the plaintiff bank advanced the total
cost amounting to P92,803.98. Plaintiff sent a demand
letter to Celia and also to defendant pursuant to the
solidary liability established in the “guarantor’s
undertaking”.
A complaint was filed against defendant Celia who was
declared in default for her failure to answer the complaint
within the reglementary period. Defendant Roberto on
the other hand, filed a counterclaim claiming that he
thought he would only be liable to P2,000 per month and
not the entire liability. The trial court ruled in favor of
plaintiff and ordered defendants to pay solidarily the
amount of P92,803.98 plus accrued interest.
Defendants appealed the case before the IAC, which
modified the trial court’s judgement—making defendant
Roberto liable only for P 2,000 per month plus accrued
interest. Aggrieved, plaintiff elevated the case before the
Supreme Court.
Issue:
WON defendant should be solidarily liable pursuant to
the terms stipulated in the undertaking
Held:
Of fucking course. What the fuck made them think
otherwise? Damn retards.

The dispositive portion of the guarantor’s undertaking

reads:

I/We, the undersigned, hereby agree, jointly and

severally with Celia Syjuco Regala to pay the Pacific
Banking Corporation upon demand any and all
indebtedness, obligations, charges or liabilities due
and incurred by said Celia Syjuco Regala with the
use of the Pacificard or renewals thereof issued in
his favor by the Pacific Banking Corporation. Any
changes of or Novation in the terms and conditions in
connection with the issuance or use of said Pacificard, or
any extension of time to pay such obligations, charges or
liabilities shall not in any manner release me/us from the
responsibility hereunder, it being understood that the
undertaking is a continuing one and shall subsist and
bind me/us until all the liabilities of the said Celia Syjuco
Regala have been fully satisfied or paid.

The undertaking signed by defendant although

denominated as a “guarantor’s undertaking” was in
effect a contract of surety, And as evidenced by the
express stipulation in the said undertaking, he was
bound to pay the obligation “jointly and severally” with
defendant Celia.