Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&amp;view=article&amp;id=84313:60391&amp;catid=1594&amp;Itemid=566
Timestamp: 2019-04-26 03:45:31+00:00

Document:
G.R. No. 193890, March 11, 2015 - ESTANISLAO AND AFRICA SINAMBAN, Petitioners, v. CHINA BANKING CORPORATION, Respondent.
ESTANISLAO AND AFRICA SINAMBAN, Petitioners, v. CHINA BANKING CORPORATION, Respondent.
On Februaiy 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses Manalastas) executed a Real Estate Mortgage (REM)4 in favor of respondent China Banking Corporation (Chinabank) over two real estate properties covered by Transfer Certificate of Title Nos. 173532-R and 173533-R, Registry of Deeds of Pampanga, to secure a loan from Chinabank of P700,000.00 intended as working capital in their rice milling business. During the next few years, they executed several amendments to the mortgage contract progressively increasing their credit line secured by the aforesaid mortgage. Thus, from P700,000.00 in 1990, their loan limit was increased to P1,140,000.00 on October 31, 1990, then to P1,300,000.00 on March 4, 1991, and then to P2,450,000.00 on March 23, 1994.5 The spouses Manalastas executed several promissory notes (PNs) in favor of Chinabank. In two of the PNs, petitioners Estanislao and Africa Sinamban (spouses Sinamban) signed as co-makers.
The spouses Sinamban, in their Answer17 dated February 26, 1999, averred that they do not recall having executed PN No. OACL 636-95 for P325,000.00 on May 23, 1995, or PN No. CLF 5-93 for P1,300,000.00 on February 26, 1991, and had no participation in the execution of PN No. OACL 634-95 for P1,800,000.00 on April 24, 1995. They however admitted that they signed some PN forms as co-makers upon the request of the spouses Manalastas who are their relatives; although they insisted that they derived no money or other benefits from the loans. They denied knowing about the mortgage security provided by the spouses Manalastas, or that the latter defaulted on their loans. They also refused to acknowledge the loan deficiency of P1,758,427.87 on the PNs, insisting that the mortgage collateral was worth more than P10,000,000.00, enough to answer for all the loans, interests and penalties. They also claimed that they were not notified of the auction sale, and denied that they knew about the Certificate of Sale18 and the Statement of Account dated May 18, 1998, and insisted that Chinabank manipulated the foreclosure sale to exclude them therefrom. By way of counterclaim, the Spouses Sinamban prayed for damages and attorney's fees of 25%, plus litigation expenses and costs of suit.
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff China Banking Corporation and against defendant Sps. Danilo and Magdalena Manalastas and defendant Sps. Estanislao and Africa Sinamban to jointly and severally pay [Chinabank] the amount of P1,758,427.87, representing the deficiency between the acquisition cost of the foreclosed real estate properties and the outstanding obligation of defendants at the time of the foreclosure sale; interest at the legal rate of 12% per annum from and after May 18, 1998; attorney's fees equivalent to 10% of the aforesaid deficiency amount and the litigation and costs of suit.
WHEREFORE, premises considered, the decision dated July 30, 1999 is hereby Reconsidered and Set Aside with respect to the Spouses Estanislao and Africa Sinamban hereby Relieving them from any liability arising from the said Decision which is affirmed in toto with respect to Spouses Manalastas.
WHEREFORE, premises considered, the instant Motion for Reconsideration of plaintiff is Granted.
Order dated October 22, 1999 is hereby Set Aside.
THE LOWER COURT ERRED WHEN IT HELD DEFENDANTS-APPELLANTS SPS. SINAMBAN LIABLE TO PAY A PERCENTAGE OF P1,758,427.87, JOINTLY AND SEVERALLY WITH THE DEFENDANTS SPS. MANALASTAS ON THE TWO PROMISSORY NOTES (EXHIBITS 'C' AND 'A').
THE LOWER COURT ERRED WHEN IT RECONSIDERED AND SET ASIDE ITS PREVIOUS ORDER DATED 22 OCTOBER 1999 RELIEVING DEFENDANTS-APPELLANTS SPS. SINAMBAN FROM ANY LIABILITY ARISING FROM THE DECISION DATED 30 JULY 1999.
The foregoing amounts shall bear interest at the rate of 12% per annum from 18 November 1998 until fully paid.
The Court modifies the CA decision.
A co-maker of a PN who binds himself with the maker "jointly and severally" renders himself directly and primarily liable with the maker on the debt, without reference to his solvency.
According to Article 2047 of the Civil Code,38 if a person binds himself solidarily with the principal debtor, the provisions of Articles 1207 to 1222 of the Civil Code (Section 4, Chapter 3, Title I, Book IV) on joint and solidary obligations shall be observed. Thus, where there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 provides that among them, "[t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity." It is settled that when the obligor or obligors undertake to be "jointly and severally" liable, it means that the obligation is solidary.39 In this case, the spouses Sinamban expressly bound themselves to be jointly and severally, or solidarily, liable with the principal makers of the PNs, the spouses Manalastas.
Pursuant to Article 1216 of the Civil Code, as well as Paragraph 5 of the PNs, Chinabank opted to proceed against the co-debtors simultaneously, as implied in its May 18, 1998 statement of account when it applied the entire amount of its auction bid to the aggregate amount of the loan obligations.
Significantly, in modifying the RTC's second amended decision, which provides for the pro rata distribution of the loan deficiency of P1,758,427.87, the C A first applied the entire net proceeds of the auction sale of P4,183,744.63 (after auction expenses of P416,255.37), to PN No. OACL 634-95, which on May 18, 1998 had an outstanding balance of P4,264,987.50, inclusive of interest and penalties, plus 10% attorney's fees, or a total of P4,691,486.25. Thus, P4,691,486.25 less P4,183,744.63 leaves a deficiency on PN No. OACL 634-95 of P507/741.62, which is due solely from the spouses Manalastas.
As for PN No. OACL 636-95, the CA ordered the spouses Sinamban to pay, solidarity with the spouses Manalastas, the entire amount due thereon, P844,501.90, consisting of the loan principal of P767,729.00 plus accrued interest, penalties and 10% attorney's fees; concerning PN No. CLF 5-93, the CA ordered the spouses Sinamban to pay, solidarity with the spouses Manalastas, the amount of P406,184.35, consisting of the balance of the loan principal of P369,258.50 plus accrued interest, penalties and 10% attorney's fees. The CA further ordered the payment of 12% interest per annum from November 18, 1998, the date of judicial demand, until fully paid, on the above deficiencies.
Article 1216 of the Civil Code provides that "[t]he creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected." Article 125242 of the Civil Code does not apply, as urged by the petitioners, because in the said article the situation contemplated is that of a debtor with several debts due, whereas the reverse is true, with each solidary debt imputable to several debtors.
While the CA correctly noted that the choice is given to the solidary creditor to determine against whom he wishes to enforce payment, the CA stated that Chinabank, in the exercise of the aforesaid option, chose to apply the net proceeds of the extrajudicial foreclosure sale first to the PN solely signed by spouses Manalastas.43 Thus, the net proceeds were applied first to PN No. OACL 634-95 in the principal amount of P1,800,000.00, instead of pro rata to all three PNs due.
The Court finds this factual conclusion of the CA not supported by any evidence or any previous arrangement. To the contrary, as clearly shown in its Statement of Account dated May 18, 1998, Chinabank opted to apply the entire auction proceeds to the aggregate amount of the three PNs due, P5,401,975.00 (before attorney's fees and auction expenses). Had it chosen to enforce the debts as ruled by the CA, the Statement of Account would have shown that the loan due on PN No. OACL 634-95 which is P4,691,486.25, should have been deducted first from the net auction proceeds of P4,183,744.63, arriving at a deficiency of P507,741.62 on PN No. OACL 634-95 alone; thereby, leaving no remainder of the proceeds available to partially settle the other two PNs. As it appears, the auction proceeds are not even sufficient to cover just PN No. OACL 634-95 alone.
But as the Court has noted, by deducting the auction proceeds from the aggregate amount of the three loans due, Chinabank in effect opted to apply the entire proceeds of the auction simultaneously to all the three loans. This implies that each PN will assume a pro rata portion of the resulting deficiency on the total indebtedness as bears upon each PN's outstanding balance. Contrary to the spouses Sinamban's insistence, none of the three PNs is more onerous than the others to justify applying the proceeds according to Article 1254 of the Civil Code, in relation to Articles 1252 and 1253.44 Since each loan, represented by each PN, was obtained under a single credit line extended by Chinabank for the working capital requirements of the spouses Manalastas' rice milling business, which credit line was secured also by a single REM over their properties, then each PN is simultaneously covered by the same mortgage security, the foreclosure of which will also benefit them proportionately. No PN enjoys any priority or preference in payment over the others, with the only difference being that the spouses Sinamban are solidarity liable for the deficiency on two of them.
c) PN No. CLF 5-93, with an outstanding balance of P369,258.50 as of May 18, 1998: its share in the deficiency is computed as the ratio of P369,258.50 to P5,401,975.00, multiplied by P1,758,427.87, or P120,199.45, (not P406,184.35 as found by the CA).
In short, in the CA decision, the spouses Manalastas would be solely liable on PN No. OACL 634-95 for only P507,741.62 (instead of the much bigger amount of P1,388,320.55 which this Court found), whereas the spouses Sinamban would be solidarily liable with the spouses Manalastas for a total deficiency of P1,250,686.25 on PN No. OACL 636-95 and PN No. CLF 5-93. But under the Court's interpretation, the spouses Sinamban are solidarily liable with the spouses Manalastas for only P370,107.32 on the said two PNs, for a significant difference of P880,578.93.
Pursuant to Monetary Board Circular No. 799, effective July 1, 2013, the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, has been reduced to six percent (6%) per annum.
4. The foregoing amounts shall bear interest at the rate of twelve percent (12%) per annum from November 18, 1998 to June 30, 2013, and six percent (6%) per annum from July 1, 2013 until fully paid.
2 Penned by Associate Justice Celia C. Librea-Leagogo, with Associate Justices Remedios A. Salazar-Fernando and Michael P. Elbinias, concurring; id. at 28-53.
3 Issued by Judge Adelaida Ala-Medina; id. at 101-104.
15 But note that the PNs stipulated interest rates from 21% to 23% per annum, plus a penalty of 1% per month of delay.
36Sierra v. Court of Appeals, G.R. No. 90270, July 24, 1992, 211 SCRA 785, 795.
38 Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed, tn such case the contract is called a suretyship.
39Crystal v. Bank of the Philippine Islands, G.R. No. 172428, November 28, 2008, 572 SCRA 697, 703. See also Escaño v. Ortigas, Jr., 553 Phil. 24, 39 (2007).
42 ART. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.
44 Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.
If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.
45S.C. Megaworld Construction and Development Corporation v. Parada, G.R. No. 183804, September 11, 2013, 705 SCRA 584, 608; Nacar v. Gallery Frames, G.R. No. 189871 August 13, 2013, 703 SCRA 439, 455-456.

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