Case Summary (G.R. No. 203346)
Loan Agreements and Security Instruments
– March 28, 1978: Spouses Crystal, as managing partners of CCCC, obtained a ₱300,000 loan from BPI-Butuan, secured by a chattel mortgage on CCCC’s heavy equipment.
– Same day: Spouses executed a continuing suretyship binding themselves as sureties for up to ₱300,000.
– March 29, 1979: Raymundo Crystal executed a promissory note for ₱300,000 in favor of BPI-Butuan.
– August 13, 1979: CCCC renewed a prior loan with BPI-Cebu City via a ₱300,000 promissory note signed by the spouses personally and as managing partners, jointly and severally liable.
– September 22 and October 3, 1977: Spouses mortgaged their real property (Lot 6098-B-2, TCT No. T-16118) to secure CCCC loans, including an additional ₱20,000.
Default and Extrajudicial Foreclosure
– CCCC and the spouses failed to pay when due despite demands.
– BPI obtained a restraining order but later completed extrajudicial foreclosure of the chattel mortgage on February 28, 1988, yielding ₱240,000 applied to the butuan loan (then ₱707,393.90).
– BPI also foreclosed the real estate mortgages after securing a money judgment against CCCC and the spouses in RTC Butuan for the deficiency on the BPI-Butuan loan.
Procedural History
– RTC Butuan: Granted BPI’s complaint for sum of money; ordered extrajudicial foreclosure of spouses’ mortgaged property.
– April 10, 1985: Spouses filed an injunction suit seeking to stop foreclosure, claiming they were mere guarantors and entitled to exhaustion of principal debtor’s assets; prayed for moral and exemplary damages, attorney’s fees, litigation expenses.
– Amended complaint added allegation of wrongful retention of CCCC’s foreign-currency savings account passbook by BPI-Makati.
– RTC Cebu City (Branch 5): Dismissed spouses’ complaint; ruled spouses were solidarily liable and that BPI validly foreclosed both chattel and real estate mortgages; awarded moral and exemplary damages and attorney’s fees in favor of BPI.
– Court of Appeals: Affirmed R TC decision on October 24, 2005; denied motion for reconsideration on March 31, 2006.
– Present petition: Heirs of the spouses challenge foreclosure and damage awards.
Issue on Third-Party Offer to Pay
Petitioners argued that BPI’s refusal to accept Insular Bank of Asia and America’s offer to purchase the mortgaged lot and pay off the Cebu City loan extinguished their obligation.
– Ruling: Under Civil Code Art. 1236, a creditor need not accept performance by a third party without stipulation. IBAA was not a party to the promissory note; no clause allowed third-party payment. BPI’s refusal did not extinguish the spouses’ debt.
Solidary Obligation and Suretyship
– The pr omissory note expressly bound the spouses “jointly and severally” to pay ₱120,000 to BPI-Cebu City.
– Under Civil Code, “jointly and severally” creates a solidary obligation. Each debtor may be held liable for the entire debt.
– A solidary obligation undertaken to guarantee a principal obligation partakes the nature of suretyship, making the guarantors directly and absolutely liable alongside the principal debtor.
– Spouses’ failure to pay justified BPI’s foreclosure of both chattel and real estate mortgages without prior exhaustion of CCCC’s assets.
Damages: Moral, Exemplary, and Attorney’s Fees
–
Case Syllabus (G.R. No. 203346)
Facts
- On March 28, 1978, spouses Raymundo and Desamparados Crystal obtained a ₱300,000 loan for Cebu Contractors Consortium Co. (CCCC) from BPI-Butuan, secured by a chattel mortgage over heavy equipment.
- The same day, the spouses executed a Continuing Suretyship binding themselves as sureties for CCCC’s obligation, up to ₱300,000.
- On March 29, 1979, Raymundo Crystal signed a promissory note for ₱300,000 in favor of BPI-Butuan.
- In August 1979, CCCC renewed its indebtedness with BPI-Cebu City by a promissory note dated August 13, 1979, signed by the spouses in their personal capacities and as managing partners, declaring joint and several liability.
- To secure the Cebu City loan, the spouses mortgaged their own Lot 6098-B-2 (TCT No. T-16118) by two separate real estate mortgages dated September 22 and October 3, 1977, the latter covering an additional ₱20,000 loan.
- CCCC defaulted on its obligations to both BPI-Butuan and BPI-Cebu City; the spouses likewise failed to pay after demand.
- BPI extrajudicially foreclosed the chattel mortgage, selling the equipment on February 28, 1988, and applied proceeds of ₱240,000 against a then-accrued debt of ₱707,393.90.
- On July 7, 1981, Insular Bank of Asia and America (IBAA) offered to purchase the mortgaged lot and pay off CCCC’s indebtedness directly, but BPI refused the proposed payment scheme.
Procedural History
- BPI filed a complaint for sum of money before the RTC of Butuan City against CCCC and the spouses to recover the deficiency on the BPI-Butuan loan. The RTC ruled in favor of BPI and ordered extrajudicial foreclosure of the spouses’ real estate mortgages.
- On April 10, 1985, the spouses sought injunctive relief with damages, claiming wrongful foreclosure and asserting their status as mere guarantors entitled to exhaustion of principal debtor’s assets. They also sought moral and exemplary damages, attorney’s fees, litigation expenses, and costs.
- The spouses amended their complaint to allege that a foreign currency savings account (FCSA-197) with BPI-Makati had been wrongfully retained by BPI, preventing them from using its funds to satisfy their obligations.
- The RTC d