PALMARES v.

CA and MB LENDING 1998 / Regalado / Surety > Distinguished from guaranty SURETY / SURETYSHIP SURETY: Insurer of the debt A suretyship is an undertaking that the debt shall be paid A surety promises to pay the principal's debt if the principal will not pay A surety binds himself to perform if the principal does not, without regard to his ability to do so A surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default GUARANTOR / GUARANTY GUARANTOR: Insurer of the solvency of the debtor A guaranty is an undertaking that the debtor shall pay A guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay A guarantor does not contract that the principal will pay, but simply that he is able to do so A guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor

FACTS Pursuant to a promissory note, MB Lending extended a 30k loan to Sps. Azarraga and Estrella Palmares, payable on or before 12 May 1990, with compounded interest at 6% per annum to be computed every 30 days from the date thereof. I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this Promissory Note for Short-Term Loan: That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above principal maker of this note; 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. Palmares and Sps. Azarraga were only able to pay 16.3k. MB Lending filed a complaint against Palmares as the lone partydefendant, allegedly by reason of Sps. Azarragas insolvency. Palmares main contention was that she is to be held liable only upon default of the principal debtor Sps. Azarraga. She avers that immediately after the loan matured, she offered to settle the obligation, but MB Lending refused, and instead informed her that they would try to collect from Sps. Azarraga. In addition, partial payment has been made. RTC dismissed MB Lendings complaint without prejudice to the filing of a separate action for a sum of money against Sps. Azarraga. The offer Palmares made to pay the obligation is considered a valid tender of payment sufficient to discharge her secondary liability on the instrument. As co-maker, Palmares is only secondarily liable on the instrument. CA reversed RTC and declared Palmares liable to pay MB Lending the outstanding balance of 13.7k at 6% per month computed from the date the loan was contracted until fully paid, penalty charges, attorney s fees, and costs. Palmares is a surety since she bound herself to be jointly and severally liable with Sps. Azarraga when she signed as co-maker. Therefore, she is primarily liable and may be sued for the entire obligation. ISSUE & HOLDING WON Palmares is a guarantor or a surety. SURETY; primarily liable. RATIO Palmares expressly bound herself to be jointly and severally or solidarily liable with Sps. Azarraga; therefore, her liability is that of a surety. The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. The mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. The undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. The second and third paragraphs of the promissory note do not contain any other condition for the enforcement of MB Lendings right against Palmares. A contract of suretyship is that wherein one lends his credit by joining in the principal debtor's obligation, so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal. Several attendant factors support the finding that Palmares is a surety. When she was informed about the spouses failure to pay, she immediately offered to settle the account with MB Lending. She presented the receipts of the payments already made, which were all issued in her name and of the Azarraga spouses. This can only be construed to mean that the payments made by the principal debtors were considered by MB Lending as creditable directly upon the account and inuring to the benefit of Palmares. A surety is bound equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the beginning. In suretyship, there is but one contract, and the surety is bound by the same agreement which binds the principal. The contract of a surety starts with the agreement, which is precisely the situation obtaining in this case. A surety is usually bound with his principal by the same instrument, executed at the same time and upon the same consideration; he is an original debtor, and his liability is immediate and direct. Where a written agreement on the same sheet of paper with and immediately following the principal contract between the buyer and seller is executed simultaneously therewith, providing that the signers of the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly liable with the buyer. Re: Palmares argument that the complaint was prematurely filed for lack of demand UNMERITORIOUS

Palmares was saying that Sps. Azarraga cannot as yet be considered in default, as MB Lending has not yet made either a judicial or extrajudicial demand. This argument fails. Paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer necessary in order that delay may exist since the contract itself already expressly so declares. As a surety, petitioner is equally bound by such waiver. Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the commencement of the suit is a sufficient demand. A surety is not even entitled, as a matter of right, to be given notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal's default and to perform the obligation. The alleged failure of MB Lending to prove the fact of demand on Sps. Azarraga is immaterial. In the absence of a statutory or contractual requirement, it is not necessary that performance of his obligation be first demanded of the principal, especially where demand would have been useless; nor is it a requisite that the principal be called on to account. A suretyship is a direct contract to pay the debt of another. As an original promisor and debtor from the beginning, he is held ordinarily to know every default of his principal. Re: Palmares argument that the filing of the complaint solely against her was improper UNMERITORIOUS Under NCC 1216, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. In accordance with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound. MB Lendings mere failure to immediately sue Palmares on her obligation does not release her from liability. Where a creditor refrains from proceeding against the principal, the surety is not exonerated. Mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice to sue on the obligation. In the absence of proof of resultant injury, a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, or that he need not trouble himself. The consequences of the delay, such as the subsequent insolvency of the principal, or the fact that the remedies against the principal may be lost by lapse of time, are immaterial. The raison d'tre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. Leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. In order to constitute an extension discharging the surety: It should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor It was made without the consent of the surety or with a reservation of rights with respect to him The contract must be one which precludes the creditor from enforcing the principal contract within the period during which he could otherwise have enforced it, and which precludes the surety from paying the debt None of these elements are present here. The mere fact that MB Lending gave Sps. Azarraga an extended period of time within which to comply with their obligation did not effectively absolve Palmares from the consequences of her undertaking. Besides, the burden is on the surety Palmares to show that she has been discharged by some act of the creditor MB Lending.