Case Digest (G.R. No. 108584)
Facts:
In Estrella Palmares v. Court of Appeals and M.B. Lending Corporation (G.R. No. 126490, March 31, 1998), private respondent M.B. Lending Corporation extended a short‐term loan of ₱30,000.00 on March 13, 1990 to spouses Osmeña and Merlyn Azarraga, with petitioner Estrella Palmares signing as co‐maker, “jointly and severally or solidarily liable” should the principal debtors default. The note bore a 6% per annum compounded interest, computed every 30 days, and a 3% per month penalty. The Azarragas and Palmares made four payments totaling ₱16,300.00, leaving a balance of ₱13,700.00; no payments ensued after September 26, 1991. Claiming insolvency of the Azarragas, M.B. Lending sued Palmares alone. In her amended answer with counterclaim, Palmares contended she was a guarantor, not a surety, argued usurious interest and penalties, and alleged bad faith in excluding the Azarragas from the suit. The Regional Trial Court of Iloilo City dismissed the complaint, holding her liability secCase Digest (G.R. No. 108584)
Facts:
- Promissory Note and Parties
- On March 13, 1990, M.B. Lending Corporation (creditor) extended a P 30,000 short-term loan to spouses Osmeña and Merlyn Azarraga (principal debtors) and Estrella Palmares (co-maker). Terms: payable on or before May 12, 1990; 6% interest per annum, compounded every 30 days; 3% monthly penalty upon default; waiver of notice and demand.
- Palmares acknowledged she “fully understood the contents” and agreed to be “jointly and severally or solidarily liable” with the principal debtors.
- Payments and Default
- Between execution and September 26, 1991, the parties paid a total of P 16,300, leaving an unpaid balance of P 13,700.
- No payments were made after September 26, 1991, and the loan remained partly unpaid.
- Trial Court Proceedings
- M.B. Lending sued Palmares alone for the unpaid P 13,700 plus interest and penalties, alleging insolvency of the Azarragas justified suing her singly.
- In her answer, Palmares claimed: (a) her liability was subsidiary (guarantor), not primary; (b) interest and penalties were usurious; (c) the promissory note was a contract of adhesion; (d) she offered to settle in August 1990.
- Pre-trial issues: proper interest and penalty rates; nature of Palmares’ liability (primary vs. subsidiary); co-maker vs. guarantor status.
- RTC Iloilo City, Branch 23 (November 26, 1992) dismissed the complaint without prejudice, holding Palmares secondarily liable and that suit against her alone discharged her.
- Court of Appeals Decision
- Reversed RTC: held Palmares a surety co-maker with solidary liability and therefore primarily liable.
- Awarded respondent:
- P 13,700 outstanding balance + 6% monthly interest from date of loan;
- 3% monthly penalty on outstanding balance;
- 25% attorney’s fees;
- costs of suit.
- Petition for Review
- Palmares argued: the note’s terms were vague and conflicting; she was only a guarantor; penalties and interest unconscionable; she had made valid tender; CA miscomputed outstanding balance.
- M.B. Lending opposed, relying on established suretyship and guaranty doctrines.
Issues:
- Whether Palmares’ undertaking as co-maker is that of a surety (joint and several liability) or of a guarantor (subsidiary liability).
- Whether notice and demand on the principal debtors, or suit against them, was a prerequisite before holding Palmares liable.
- Whether the stipulated 6% monthly interest and 3% monthly penalty are enforceable or unconscionable/usurious.
- Whether the award of 25% attorney’s fees is reasonable.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)