Professional Documents
Culture Documents
grant the loan was the surety agreement whereby Go and Chua bound
themselves solidarily to guaranty the punctual payment of the loan at maturity. By
terms that are unequivocal, it can be clearly seen that the surety agreement was
executed to guarantee future debts which Daicor may incur with petitioner, as is
legally allowable under the Civil Code
HON. RAMON O. NOLASCO, Presiding Judge, Branch IX, Court of First Instance of Manila
and JOSE SAN AGUSTIN, Sheriff of the City of Manila and RAMON C. DY, repsondents.
Exception to the rule that guarantors may not be held liable for more than the
principal debtor.
Anent the issue of interest, this Court has ruled that the surety is liable for interest on the principal
obligation although that would increase the liability of the surety to more than the maximum of its
undertaking under the bond.
If a surety upon demand fails to pay, he can be held liable for even if in thus paying,
the liability becomes more than that in the principal obligation. The increased liability
is not because of the contract but because of the default and the necessity of judicial
collection.
Compounded Interests
The charging of compounded interest has been held as proper as long as the payment
thereof has been agreed upon by the parties. In Mambulao Lumber Company v. Philippine
National Bank, 22 SCRA 359 (1968), we ruled that the parties may, by stipulation, capitalize
the interest due and unpaid, which as added principal shall earn new interest. In the instant
case, private respondents agreed to the payment of 14% interest per annum, compounded
monthly, should they fail to pay the principal loan on the date of maturity.
Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as
lender and borrower may agree upon. 4 The Rules of Court in regards to allegations of usury, procedural
in nature, should be considered repealed with retroactive effect.
Statutes regulating the procedure of the courts will be construed as applicable to
actions pending and undetermined at the time of their passage. Procedural laws are
retrospective in that sense and to that extent. 5
As to the usurious rate of interest, while that issue was considered by Justice de la Fuente
as irrelevant since the Usury Law is now legally inexistent pursuant to Central Bank Circular
No. 905 and the interest now legally chargeable depends upon the agreement of lender and
borrower (Liam Law v. Olympic Sawmill Co., G.R. No. L-30771, May 28, 1984, 129 SCRA
439), she found that the interest charged on the loan was exorbitant.
Respondent rendered it unconscionable by imposing a penalty of twenty per cent (20%)
interest per month compounded monthly. It strikes us, too, that Respondent was equivocal
as to the repayments that were made to him by the Javiers.
The surety has the right, under certain circumstances, to demand the discussion of the property of
the principal debtor. Where suit is brought against the surety alone, he may interpose the plea, and
compel the creditor to discuss the principal debtor. The effect of this is to stay proceedings against
the surety until judgment has been obtained against the principal debtor, and execution against his
property has proved insufficient. When the suit is brought against the surety and the principal debtor
the plea of discussion does not require or authorize any suspension of the proceedings; but the
judgment will be so modified as to require the creditor to proceed by execution against the property
of the principal, and to exhaust it before resorting to the property of the surety
The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party to
the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to
the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other legal
remedies or exhaust respondent spouses' properties before it can hold petitioner liable for the
obligation
The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty.
Authorities recognize that the word "guarantee" is frequently employed in business transactions to
describe not the security of the debt but an intention to be bound by a primary or independent
obligation. 11 As aptly observed by the trial court, the interpretation of a contract is not limited to the title
alone but to the contents and intention of the parties.
October 4, 1930