4.

Joint and Solidary Obligations

Palmares vs. CA and M.B. Lending Corporation

Facts: M.B. Lending Corp extended a loan to spouses Azarraga, together with petitioner Estrella Palmares, in the amount of
P30,000 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30
days from the date thereof. Azarraga spouses were able to pay a total of P16,300 in for different occasions after the execution
of the promissory note and even after the loan matured. P13,700 is left for payment. None were made after the last payment.
Because Palmares was considered as solidarily liable for the promissory note, respondent filed a complaint against her as the
lone party as the spouses Azarraga are already insolvent.

Issue: Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with the principal
debtor in case the latter defaults in the payment of the loan, is such undertaking of the former deemed to be that of a surety as
an insurer of the debt, or of a guarantor who warrants the solvency of the debtor?

Promissory Note in question:

ATTENTION TO CO-MAKERS: PLEASE READ WELL
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.

Ruling:

The second paragraph of the promissory note implies that Palmares is a surety while the third implies she is a guarantor.

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an
undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a
surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor,
after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety
binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other
hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety
undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a
guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor.

It is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall also be principally considered. Several attendant factors in that genre lend support to our finding that
petitioner is a surety. For one, when petitioner was informed about the failure of the principal debtor to pay the loan, she
immediately offered to settle the account with respondent corporation. Obviously, in her mind, she knew that she was directly
and primarily liable upon default of her principal. For another, and this is most revealing, petitioner presented the receipts of
the payments already made, from the time of initial payment up to the last, 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
respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner. The concomitant and
simultaneous compliance of petitioner's obligation with that of her principals only goes to show that, from the very start,
petitioner considered herself equally bound by the contract of the principal makers.

A surety is bound equally and absolutely with the principal, and as such is deemed an original promisor and debtor from the
beginning. This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds
the principal.
PNB vs. Maximo Sta. Maria, et. Al

Facts: PNB filed an action against defendant Maximo Sta. Maria and his six brothers and sisters, defendants-appellants,
Valeriana, Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria, and the Associated Insurance & Surety Co.,
Inc. as surety, for the collection of certain amounts representing unpaid balances on two agricultural sugar crop loans due
allegedly from defendants.

The sugar crop loans were obtained by Maximo from PNB under a special power of attorney granted upon him by his siblings to
mortgage a 16-odd hectare parcel of land, jointly owned by all of them. In addition, his sister, Valeriana, also executed in favour
of her brother, Maximo, a special power of attorney granting him the authority to borrow money and mortgage any real estate
owned by her.

Trial court ruled that all the defendant-appellants are jointly and severally (solidarily) liable to pay PNB. Maximo and his surety
didnt appeal the judgement, his six brothers and sisters did.

Issue: W/N Valeriana, Emeteria, Teofilo, Quintin, Rosario and Leonila Sta Maria are solidarily liable of the loan obtained by their
brother Maximo?

Ruling:
As much as Emeteria, Teofilo, Quintin, Rosario and Leonila Sta. Marias is concerned, they are not liable to pay for the loan
because the special power of attorney they have granted to Maximo was only to the extent of mortgage and not to borrow
money. This was erroneously held by the trial court. It has been previously cited In jurisprudence that the fundamental
construction rule that "where in an instrument powers and duties are specified and defined, that all of such powers and duties
are limited and confined to those which are specified and defined, and all other powers and duties are excluded."

However, Valeriana is jointly liable to the loan obtained by her brother because she granted him the special power of attorney
to do so. Valeriana's liability for the loans secured by Maximo is not joint and several or solidary as adjudged by the trial court,
but only joint, pursuant to the provisions of Article 1207 of the Civil Code that "the concurrence ... of two or more debtors in
one and the same obligation does not imply that ... each one of the (debtors) is bound to render entire compliance with the
prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." It should be noted that in the additional special power of attorney, Exh. E-1, executed by
Valeriana, she did not grant Maximo the authority to bind her solidarity with him on any loans he might secure thereunder.
Quiombing v. CA and Sps. Saligo

Facts:
Quiombing and Biscocho contracted a Construction and Service Agreemet where they jointly and severally bound themselves to
construct a house for spouses Francisco and Manuelita Saligo for a price of P137,940 on August 30, 1983.

On Oct. 10, 1984, Quiombing and Manuelita entered into a second written agreement where the latter acknowledged the
completion of the house and undertook to pay the balance of the contract price. On Nov. 19, 1984, Manuelita signed a
promissory note for P125,363.50 representing the amount still due, payable on or before December 31, 1984 to Quiombing. On
Oct. 9, 1986, Quiombing filed a complaint of recovery of the amount, plus charges and interests, which were promised but still
have not been paid despite repeated demands.

The defendants moved to dismiss the complaint because they assumed that Biscocho is an indispensable party and should have
been included as co-plaintiff of Quiombing.

The trial court at first denied the motion, but eventually granted the respondents defense. Complaint was dismissed. CA
sustained the ruling of trial court.

Issue: May one of the two solidary creditors sue by himself alone for the recovery of amounts due to both of them without
joining the other creditor as a co-plaintiff? In such a case, is the defendant entitled to the dismissal of the complaint on the
ground of non-joinder of the second creditor as an indispensable party? More to the point, is the second solidary creditor an
indispensable party?

Ruling:
Suing for the recovery of the contract price is certainly a useful act that Quiombing could do by himself alone.

Article 1212 of the Civil Code provides: Each one of the solidary creditors may do whatever may be useful to the
others, but not anything which may be prejudice to the latter.

A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt, and
each creditor is entitled only to a proportionate part of the credit. A solidary obligation is one in which each debtor is
liable for the entire obligation, and each creditor is entitled to demand the whole obligation. Hence, in the former,
each creditor can recover only his share of the obligation, and each debtor can be made to pay only his part; whereas,
in the latter, each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full. The
essence of active solidarity consists in the authority of each creditor to claim and enforce the rights of all, with the
resulting obligation of paying every one what belongs to him; there is no merger, much less a renunciation of rights,
but only mutual representation.

It would follow from these observations that the question of who should sue the private respondents was a personal issue
between Quiombing and Biscocho in which the spouses Saligo had no right to interfere. It did not matter who as between them
filed the complaint because the private respondents were liable to either of the two as a solidary creditor for the full amount of
the debt. Full satisfaction of a judgment obtained against them by Quiombing would discharge their obligation to Biscocho, and
vice versa; hence, it was not necessary for both Quiombing and Biscocho to file the complaint.
Ronquillo v. CA and Antonio So

Facts:
Ronquillo is one of four debtors to Antonio So for the amount of P117,498.98 in payment for foodstuffs delivered to
and received by them. The defendants issued checks, however these were dishonored by the drawee bank. So then filed a civil
case against them for recovery of payment plus attorney fees and costs. The lower court reduced the costs to be paid to
P55000 to be jointly and individually paid by Ronquillo, et al within a period of six months.
Within that period, only Ronquillo and another debtor, Pilar Tan, who offered to pay the amount they were jointly
liable P13750 to be exact. However, private respondent refused to accept their payments because he demanded the full
payment of P55,000. Thus, Ronquillo and Pilar deposited the amount to the Clerk of Court and were subsequently withdrawn
by private respondent. The lower court ordered the issuance of a writ of execution for the balance of the initial amount
payable, against the other two defendants, Offshore Catertrade Inc. and Johnny Tan who did not pay their shares. On January
22, 1980, private respondent moved for the reconsideration and/or modification of the aforesaid Order of execution and
prayed instead for the "execution of the decision in its entirety against all defendants, jointly and severally." Petitioner opposed
the said motion arguing that under the decision of the lower court being executed which has already become final, the liability
of the four defendants was not expressly declared to be solidary, consequently each defendant is obliged to pay only his own
pro-rata or 1/4 of the amount due and payable. However, a writ of execution to sell petitioners personal belongings were
issued to satisfy the remaining amount. Petitioner filed a petition of certiorari and prohibition with preliminary injunction which
was denied by the CA. Thus this petition to the SC.

Issue: What is the nature of the liability of the defendants, was it merely joint or was it several or solidary?

Ruling:
Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each
one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the
prestation. Then is a solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity.

Art. 1208. If from the law,or the nature or the wording of the obligation to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as
there are creditors and debtors, the credits or debts being considered distinct from one another, subject to the Rules
of Court governing the multiplicity of quits.

The decision of the lower court based on the parties' compromise agreement, provides that the
defendants individually and jointly agree to pay within a period of six months from January 1980 or before June 30, 1980.
Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants obligated
themselves to pay their obligation "individually and jointly".

IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is hereby DISMISSED. Cost against petitioner.
Inchausti vs. Yulo

Facts:

This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the firm of
Inchausti & Company with Teodor Yulo and after his death continued by Gregorio Yulo as principal representative of his children.
On Aug.12, 1909, Gregorio Yulo, in representation of his 3 siblings, executed a notarial instrument, ratifying all the contents of
the prior document of Jan.26, 1908, severally and joint acknowledged their indebtedness for P253,445.42, 10 % per annum, 5
instalments. Plaintiff brought an action against a Gregorio for the payment of the said balance due. But on May 12, 1911, 3 siblings
executed another instrument in recognition of the debt, reduced to P225,000, interest reduced to 6% per annum, instalments
increased to 8.

Issue: W/N the contract constituted a novation

Held:

The contract of May 12, 1911 does not constitute a novation of the former one of Aug.12, 1909, with respect to the
other debtors who executed this contract. First, in order that an obligation may be extinguished by another which substitutes
it, it is necessary that it should be so expressly declared or that the old and the new be incompatible in all points (ART. 1292). It
is always necessary to state that it is the intention of the contracting parties to extinguish the former obligation by the new
one. The obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the
term of payment and adding other obligations not incompatible with the old one.

The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the
solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance with the provision of
Art. 1215, 1222, the defendant has the right to enjoy the benefits of the partial remission. At present judgment can be rendered
only as to P112,500.
5. Divisible and Indivisible Obligations
Pasay City Govt. vs. CFI Manila, VDIS

Facts:

Pasay City Govt. and V.D. Isip Sons and Associates entered into a Contract Agreement where the latter will construct
for the former in stages Pasay City Hall. Per stage, VDIS will advance the amount needed for the construction and Pasay will
reimburse them prior to the construction of the next stage.
After the first stage of the construction was completed, VDIS spent a total P1,713,096.00 and asked for the
reimbursement from Pasay before they will proceed the next stage of construction. Pasay only paid P1.1M leaving a balance of
P613,096, which prompted VDIS to file an action for specific performance.
During the course of litigation, a Compromise Agreement was entered between the two parties. Pasay compromised
to pay the balance subject to VDIS and a new performance bond in proportion to the remaining value of the unfinished
construction.
Still however, Pasay didnt pay VDIS, which prompted VDIS to apply for garnishment on Pasays PNB funds to pay the
remaining amount. Pasay is not questioning the validity of such.
A performance bond of P60, 000, subsequently increased to P100,000 was submitted by VDIS, which pertains to the
20% of the cost of the next stage of the construction to commence. The court found it to be reasonable and complaint as the
court deems it unreasonable to compel VDIS to submit a performance bond for the remaining cost of the project.

ISSUE: W/N the amount of the performance bond should cover the whole unfinished project or only the next stage of work to
be done

HELD: YES. It is a Divisible Obligation.

Sub-paragraph B of paragraph 1 of the Compromise Agreement, to wit:

B. That immediately upon final approval hereof by this Honorable Court, the plaintiff contractor will submit
and file in favor of Pasay City Government a new performance bond in the amount required by pertinent
law, rules and regulations, in proportion to the regular value or cost of the unfinished work of the
construction as per approved plans and specifications ... (p. 4, rec.),

read together with the stage-by-stage construction and payment approach, would inevitably lead to the conclusion that the
parties to the compromise contemplated a divisible obligation necessitating therefore a performance bond "in proportion to"
the uncompleted work.

What is crucial in sub-paragraph B of paragraph 1 of the compromise agreement are the words "in proportion." If the parties
really intended the legal rate of 20% performance bond to refer to the whole unfinished work, then the provision should have
required the plaintiff contractor to submit and file a new performance bond to cover the remaining value cost of the unfinished
work of the construction. Using the words in proportion then significantly changed the meaning of the paragraph to ultimately
mean a performance bond equal to 20% of the next stage of work to be done.