Title
Pacific Banking Corp. vs. Intermediate Appellate Court
Case
G.R. No. 72275
Decision Date
Nov 13, 1991
Celia Regala defaulted on credit card debt; spouse Roberto, as surety, was held jointly liable for P92,803.98, with interest and fees, per Supreme Court ruling.
duration of advances
indebtedness
joint and several liability

Factual Background

On October 24, 1975, Celia Aurora Syjuco Regala applied for and received a Pacificard credit card from Pacific Banking Corporation under the written Terms and Conditions Governing the Issuance and Use of Pacificard. On the same date, Roberto Regala, Jr., spouse of Celia Regala, signed a document captioned Guarantors Undertaking, by which he agreed jointly and severally with Celia to pay upon demand any and all indebtedness, obligations, charges, or liabilities incurred by Celia through use of the Pacificard, including renewals. The undertaking expressly provided that any changes or novations of the terms and any extension of time to pay would not release the signer from responsibility, and that the undertaking was continuing until all liabilities were fully satisfied.

Use of Card and Demand

Under arrangements between Pacific Banking Corporation and accredited merchants, Pacificard holders made purchases on credit with the Bank advancing the costs. The cardholder undertook to pay statements within thirty days, with overdue accounts bearing interest at 14% per annum from date of default. Celia Regala made numerous purchases with the Pacificard, and at the time the complaint was filed the aggregate advances amounted to P92,803.98. A written demand was sent to Celia Regala and to Roberto Regala, Jr. under his Guarantors Undertaking.

Trial Court Proceedings

A complaint for sum of money was filed against the cardholder and the guarantor. Celia Regala failed to file an answer and was declared in default. Roberto Regala, Jr. filed an answer with a counterclaim, admitted execution of the Guarantors Undertaking, and asserted an understanding that his liability was limited to P2,000.00 per month. Following a fire that destroyed court records, the record was reconstituted. The trial court scheduled a pre-trial conference in respect of Roberto. He and his counsel failed to appear despite notice. The trial court declared him in default and permitted plaintiff to present evidence ex parte on July 21, 1983. On December 5, 1983, the trial court rendered judgment in favor of Pacific Banking Corporation and against the defendants, jointly and severally, for P92,803.98 with interest at 14% per annum compounded annually from the date of demand of November 17, 1978, plus 15% of the principal as attorneys’ fees and costs. The counterclaim of Roberto Regala, Jr. was dismissed.

Intermediate Appellate Court Ruling

The defendants appealed. On August 12, 1985, the Intermediate Appellate Court modified the trial court judgment as to Roberto Regala, Jr. alone. The appellate court held him liable only for purchases made by Celia with the Pacificard from October 29, 1975 to October 29, 1976 and only up to P2,000.00 per month, with interest at 14% per annum from the filing of the complaint, and made no pronouncement as to costs. The appellate court denied the motion for reconsideration on September 19, 1985.

Issues Presented on Petition

Pacific Banking Corporation petitioned for review on certiorari, contending that the Intermediate Appellate Court erred in limiting Roberto Regala, Jr.'s liability to the one‑year period and to P2,000.00 per month. The petitioner sought reinstatement of the trial court judgment holding the defendants jointly and severally liable for P92,803.98 with 14% interest and attorneys’ fees.

Parties' Contentions Before the Court

The petitioner argued that the Guarantors Undertaking was in substance a contract of surety and bound Roberto Regala, Jr. to pay all indebtedness incurred by Celia through the Pacificard, including future charges and changes in terms, until full satisfaction. The respondent-appellate court had relied on the distinction between guarantor and surety and on Article 2054 of the Civil Code to limit the guarantor’s liability to no more than the principal debtor, and it invoked Government of the Philippines v. Tizon for the principle that a surety’s liability arises only upon the principal debtor’s failure to comply.

Legal Basis and Reasoning of the Supreme Court

The Court analyzed the nature of the Guarantors Undertaking and held that, although called a guarantor's undertaking, it was in substance a contract of surety as defined by Art. 2047, Civil Code of the Philippines. The undertaking expressly bound Roberto Regala, Jr. jointly and severally to pay upon demand any and all indebtedness incurred by Celia with the Pacificard and expressly waived discharge by reason of changes, novations, or extensions in terms. The terms of issuance of the Pacificard likewise provided that a Pacificard is issued against the joint and several signature of a third party and that both the cardholder and guarantor assume joint and several liabilities.

The Court observed that while a surety’s liability is in solidum with that of the principal debtor, that characterization does not convert the surety into the debtor nor preclude the surety from being held to the same extent as the principal debtor when the surety’s undertaking so provides. The Court explained that the line in Government v. Tizon — that the surety’s liability arises only if the principal debtor fails — does not prevent the surety’s liability from being coextensive with the debtor’s when the contract so stipulates. The Court pointed to Art. 2053 and Art. 2054 to show that a surety or guarantor may secure future debts and may bind himself for less but not for more than the principal debtor, but concluded that those provisions do not relieve a surety who expressly agrees to a continuing undertaking and a waiver of defenses from liability for the full indebtedness contracted by the principal. The Court cited prior authorities including PCIB v. CA and the application of Art. 2054 in Hospicio de San Jose v. Fidelity and Surety, Co. to support that the nature and extent of the surety's liability are determined by the contract of suretyship.

Court's Disposition

The Supreme Court found merit in the petition. It held that Roberto Regala, Jr. had contracted as a surety to be jointly and severall

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