Loan transactions in banking institutions usually entail the execution of loan
Carodan documents, typically a promissory note, covered by a real estate mortgage
vs.
China Bank Corporation
FACTS:
China Banking Corporation (China Bank) instituted a Complaint 5 for a sum of
money against Barbara Perez (Barbara), Rebecca Perez-Viloria (Rebecca),
Rosalina Carodan (Rosalina) and Madeline Carodan (Madeline)
Barbara and Rebecca, for value received, executed and delivered Promissory
Note No. TLS-98/007 6 to respondent bank under which they promised therein
to jointly and severally pay the amount of P2.8 million
As security for the payment of the loan, Barbara, Rebecca and Rosalina also
executed a Real Estate Mortgage over a property registered in the name of
Rosalina
A Surety Agreement in favor of China Bank as creditor was also executed by
Barbara and Rebecca as principals and Rosalina and her niece Madeline as
sureties. The principals and sureties warranted the payment of the loan
obligation amounting to P2.8 million including interests, penalties, costs,
expenses, and attorney’s fees
Barbara and Rebecca failed to pay their loan obligation despite repeated
demands from China Bank. Their failure to pay prompted the bank institute
extrajudicial foreclosure proceedings on the mortgaged property
From the extrajudicial sale, it realized only P1.5 million as evidenced by a
Certificate of Sale. This amount, when applied to the total outstanding loan
obligation of P1,865,345.77, would still leave a deficiency of P365,345.77. For
that reason, the bank prayed that the court order the payment of the
deficiency amount with interest at 12% per annum computed from 13 January
2000
Barbara and Rebecca asked China Bank for the computation of their total
obligation, for which they paid P1.5 million aside from the interest payments,
and respondent bank thereafter released the Real Estate Mortgage over their
properties
China Bank filed its Reply and Answer to Counterclaim clarifying that it was
suing Barbara and Rebecca as debtors under the Promissory Note and as
principals in the Surety Agreement, as well as Rosalina and Madeline as
sureties in the Surety Agreement. It claimed that equal sharing of the
proceeds of the loan was “a bat at misrepresentation” and “a self-serving
prevarication,” because what was clearly written on the note was that Rebecca
and Barbara were the principal debtors. It reiterated that the two were liable
for the full payment of the principal amount plus the agreed interest, charges,
penalties and attorney’s fees, with recourse to reimbursement from Rosalina
and Madeline
Rosalina acknowledged that on 15 January 1998, Barbara and Rebecca
executed a Promissory Note for the purpose of evidencing a loan charged
against the loan facility secured by the mortgage. She averred, though, that
when Barbara and Rebecca paid half of the loan under the Promissory Note,
the properties of Barbara covered by the mortgage were released by the
bank from liability. The cancellation of the mortgage lien was effected by an
instrument dated 27 May 1999 and reflected on the tcts evidenced by the
Annexes to the Answer
Rosalina further averred that when the bank instituted the foreclosure
proceedings, it misrepresented that her property was the only one that was
covered by the mortgage; omitted from the schedule of mortgaged properties
those of Barbara; and misrepresented that “the terms and condition of the
aforesaid mortgage have never been changed or modified whether tacitly or
expressly, by any agreement made after the execution thereof
ISSUE/S & RULING: Whether petitioner Rosalina is liable jointly and severally
with Barbara and Rebecca for the payment of respondent China Bank’s
claims.
and/or a surety agreement. In the instant case, petitioner Rosalina admitted
that she was a party to these loan documents although she vehemently
insisted that she had received nothing from the proceeds of the loan
We find that Rosalina is liable as an accommodation mortgagor:
An accommodation mortgage is not necessarily void simply
because the accommodation mortgagor did not benefit from the
same. The validity of an accommodation mortgage is allowed under
Article 2085 of the New Civil Code which provides that (t)hird
persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property. An
accommodation mortgagor, ordinarily, is not himself a recipient of
the loan, otherwise that would be contrary to his designation as
such
Rosalina is also a surety, defined under Article 2047 of the Civil Code in this
wise:
SURETY GUARANTOR
Insurer of the debt Insurer of the solvency of the debto
Promises to pay the principal’s debt Agrees that the creditor, after
if the principal will not pay proceeding against the principal,
may proceed against the guarantor
if the principal is unable to pay
The insurer of the debt, and he The insurer of the solvency of the
obligates himself to pay if the debtor and thus binds himself to
principal does not pay pay if the principal is unable to pay
When Rosalina affixed her signature to the Real Estate Mortgage as mortgagor
and to the Surety Agreement as surety which covered the loan transaction
represented by the Promissory Note, she thereby bound herself to be liable to
China Bank in case the principal debtors, Barbara and Rebecca, failed to pay.
She consequently became liable to respondent bank for the payment of the
debt of Barbara and Rebecca when the latter two actually did not pay
China Bank, on the other hand, had a right to proceed after either the principal
debtors or the surety when the debt became due. It had a right to foreclose
the mortgage involving Rosalina’s property to answer for the loan. The
proceeds from the extrajudicial foreclosure, however, did not satisfy the entire
obligation. For this reason, respondent bank instituted the present Complaint
against Barbara and Rebecca as principals and Rosalina as surety
Rosalina protests her liability for the deficiency. She claims that China Bank
cancelled the mortgage lien and released the principal borrowers from
liability. She contends that this act violated Article 2089 of the Civil Code on
the indivisibility of mortgage and ultimately discharged her from liability as a
surety. A resort to the terms of the Surety Agreement can easily settle the
question of whether Rosalina should still be held liable. The agreement
expressly contains the following stipulation
As provided by the quoted clause in the contract, she not only waived the
rights to demand payment and to receive notice of nonpayment and protest,
but she also expressly agreed that the time for payment may be extended.
More significantly, she agreed that the securities may be “substituted,
withdrawn or surrendered at any time” without her consent or without notice
to her. That China Bank indeed surrendered the properties of the principal
debtors was precisely within the ambit of this provision in the contract.
Rosalina cannot now contest that act in light of her express agreement to that
stipulation
Orix Metro Leasing and Finance Corporation
vs.
Cardline, Inc.
FACTS:
Cardline leased four machines (machines) from Orix evidenced by three
similarly-worded lease agreements. Carline line’s principal stockholders and
officers — Mary C. Calubad, Sony N. Calubad, and Ng Beng Sheng (individual
respondents) signed the suretyship agreements in their personal capacities to
guarantee Cardline’s obligations under each lease agreement. Cardline
defaulted in paying the rent: the unpaid obligations amounted to
P9,369,657.00
Orix filed a complaint for replevin, sum of money, and damages with an
application for a writ of seizure against Cardline and the individual
respondents (collectively, the respondents) before the RTC. The RTC issued a
writ of seizure allowing Orix to recover the machines from Cardline
and 19.3 are not applicable. Thus, the CA erred in applying these provisions to
the present case. Even assuming that these provisions apply, Section 19.3
states that the net “proceeds” derived from the sale, not the machines’ market
values, shall be applied to the unpaid rent\
On the second point, Sections 6.1 and 19.2(b) of the lease agreements discuss
the use of the guaranty deposit, to wit:

The RTC rendered judgment in Orix’s favor and ordered the respondents to
pay Orix, as follows: 1. The sum of P9,369,657.00 or whatever may be the
balance of defendants’ outstanding obligation still owing the plaintiff after the
recovery or sale of the [machines] as and by way of actual damages
Orix filed a motion for the issuance of a writ of execution which the RTC
granted in its December 1, 2010 order. Thereafter, the RTC clerk of court
issued a writ of execution. The respondents filed a petition for prohibition 6
under Rule 65 of the Rules of Court before the CA. They assailed the issuance
of the December 1, 2010 order, arguing that their rental obligations were
offset by the market value of the returned machines and by the guaranty
deposit
The CA ruled that the respondents’ debt amounting to P9,369,657.00 had
been satisfied when Orix recovered the machines valued at P14,481,500.00
and received the security deposit amounting to P1,635,638.89. Considering
that the judgment had been satisfied in full, the RTC’s issuance of a writ of
execution was no longer necessary
ISSUE/S & RULING: Whether the CA correctly prohibited the RTC from
enforcing the writ of execution
To resolve this issue, we must determine whether the CA correctly interpreted
this portion of the RTC’s May 6, 2008 judgment:
The sum of P9,369,657.00 or whatever may be the balance of
defendants’ outstanding obligation still owing the plaintiff after the
Recovery or sale of the [machines] as and by way of actual damages
xxx
Should the PROPERTY be returned to the LESSOR for any reason
whatsoever including LESSEE’s default under Section 19 hereof
before the expiration of this Agreement, then the GUARANTY
DEPOSIT shall be forfeited automatically in favor of the LESSOR as
additional penalty over and above those stipulated in Section 3.5
[on interest and penalty], without prejudice to the right of the
LESSOR to recover any unpaid RENTAL as well as the OTHER
AMOUNTS for which the LESSEE may be liable under this
agreement
The guaranty deposit was intended to be automatically forfeited to serve as
penalty for Cardline’s default. In any case, Orix retained the right to recover
the unpaid rent but it had the option to consider the guaranty deposit as
liquidated damages. Notably, Orix did not exercise this option. Thus, the CA
erred when it deducted the guaranty deposit from Cardline’s unpaid rent
After examining the RTC’s judgment under the lease agreements’ lenses, we
rule that the return or recovery of the machines does not reduce Cardline’s
outstanding obligation unless the returned machines are sold. No sale
transpired pursuant to the lease agreements. Moreover, the guaranty deposit
was not meant to reduce Cardline’s unpaid obligation. Thus, Cardline’s actual
damages remain at P9,369,657.00
When a party undertakes to be “jointly and severally” liable, it means that the
obligation is solidary. Furthermore, even assuming that a party is liable only as
a guarantor, he can be held immediately liable without the benefit of
excussion if the guarantor agreed that his liability is direct and immediate. 20
In effect, the guarantor waived the benefit of excussion pursuant to Article
2059(1) of the Civil Code

The CA ruled that the balance of Cardline’s debt was P9,369,657.00, less the
machines’ market value and the guaranty deposit. After applying this formula,
the CA concluded that Cardline no longer owed Orix any indebtedness so that
no judgment needed to be executed. We disagree with the CA’s conclusion.
The CA also erred in deducting the guaranty deposit from the outstanding
debt, contrary to the provisions of the lease agreements
The records show that the individual respondents bound themselves solidarily
with Cardline. Section 31.1 21 of the lease agreements states that the persons
who sign separate instruments to secure Cardline’s obligations to Orix shall be
jointly and severally liable with Cardline.

The lease agreements’ default provisions are instructive. Section 19 of the

agreements provides that if Cardline fails to pay rent, Orix may cancel the
agreements and may avail of the following remedies under Section 19.2:

1. LESSOR may require LESSEE to surrender possession of the

property

2. Subject to the provisions of Section 19.3, after repossessing the

property, the LESSOR may re-lease or sell the PROPERTY to any
third person, in such manner and upon such terms as the LESSOR
may solely deem proper

3. Recovery of all accrued and unpaid rental, including rentals up to

the time the PROPERTY is actually returned to the LESSOR

Should Orix choose to re-lease or sell the machines after repossessing them
pursuant to Section 19.2(d), Section 19.3 shall apply, to wit:

The proceeds derived from the sale or re-leasing of the PROPERTY,

shall x x x be applied first to the expenses incurred by the LESSOR
in connection with the repossession, sale, or re-leasing of the
PROPERTY, a reasonable compensation for undertaking such sale
or re-lease, all legal costs and fees, OTHER AMOUNTS, and the
balance, if any, to the RENTAL due from the LESSEE

Applying these provisions, when Cardline defaulted in paying rent, Orix was
authorized to: (a) repossess the machines; and (b) recover all unpaid rent.
Considering that Orix neither re-leased nor sold the machines, Sections 19.2(d)