Case Digest: People Bank and Trust Company v. Tambunting, G.R. No. L-29666, October 29, 1971

Commercial Law | Release for Deprivation of Subrogation. 

Facts: 

• Francisco D. Santana was sued by Peoples Bank & Trust Company, along with Jose Maria Tambunting and Maria Paz Tambunting, his son-in-law and his daughter, for the recovery of sum of money.
• On September 9, 1963, plaintiff and defendants executed a contract denominated ‘overdraft agreement and pledge.’
• Santana acted as a surety for the Tambunting couple, who were the principal debtors.
• The overdraft agreement granted the Tambuntings an overdraft up to P200,000.00 with interest at the rate of 9% per annum until September 10, 1964 from the bank for logging operations.
• Santana ,as guarantor, and the spouses Tambuntings, conveyed to the bank shares of capital stock of the International Sports Development Corporation as collateral security.
• Santana also executed a document denominated as absolute guaranty in which, in consideration of the ‘overdraft agreement and pledge,’ he bound himself to the bank, jointly and severally, with the Tambunting spouses for the full and prompt payment of all the indebtedness incurred or to be incurred by said spouses on account of the overdraft line.
• The agreement was extended multiple times with the bank's approval.
• July 24, 1964 — requested renewal of the overdraft agreement;
• September 21, 1964 — extended for six (6) months from September 10, 1964, but reducing the overdraft line to P185,000.00;
• March 5, 1965 — requested another renewal for another year.
• March 15, 1965 — renewed the overdraft line for another year.
• March 29, 1965 — assured the bank of compliance with its requirements.
• On May 11, 1965, the Manager of the Credit Department advised Tambunting of the approval for another year extension and the release of the pledge of 135 shares of stocks.
• However, the defendants failed to repay the debt. Demand letters sent to Santana and Tambuntings on December 14, 1965, January 24, 1966, and March 4, 1966.
• Santana plead Article 2080 of the Civil Code:
• "The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter."

Lower Court:  

• Found the defense untenable.
• In a "contract of absolute guaranty", appellant had waived his rights to the benefit conferred by such a provision.  

Issue: 

• Whether in the release of the pledge without his consent, Santana was released as a guarantor. NO

Held:

Why such a contention was held devoid of merit was explained in such decision thus: 

The contract of absolute guaranty, . . ., expressly authorized the plaintiff bank to extend the time of payment and to release or surrender any security or part thereof held by it without notice to, or the consent of, Santana. 

He had consented in advance to the release of the guaranty which the bank might make, Santana cannot now complain that the release of the pledge was without his consent, and that it deprived him of the right to be subrogated to the rights of the creditor. 

The waiver is not contrary to law, nor is it contrary to public policy. 

The law does not prohibit the debtor-guarantor from agreeing in advance and without notice to the release of any security which had been given to assure payment of the obligation. 

The waiver is not contrary to public policy, because the right is purely personal, and does not affect public interest nor does it violate any public policy. 

Neither does the return of the shares of stocks novate the original contract for the obligation remains the same; and if it is a novation, it is a novation made with the consent of Santana. 

Moreover, the pledge is merely an accessory obligation, and its release does not vary the terms of the principal obligation. 

The appealed decision speaks for itself. It cannot, as was made plain in the opening paragraph of this opinion, be overturned.

1. It is thus obvious that the contract of absolute guaranty executed by appellant Santana is the measure of his rights and duties. As it is with him, so it is with the plaintiff bank. What was therein stipulated had to be complied with by both parties. Nor could appellant have any valid cause for complaint. He had given his word; he must live up to it. Once the validity of its terms is conceded, he cannot be indulged in his unilateral determination to disregard his commitment. A promise to which the law accords binding force must be fulfilled. It is as simple as that. So the Civil Code explicitly requires: "Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." 

2. It could have been different if there were no such contract of absolute guaranty to which appellant was a party under the aforesaid Article 2080. He would have been freed from the obligation as a result of plaintiff releasing to the Tambuntings without his consent the 135 shares of the International Sports Development Corporation pledged to plaintiff bank to secure the overdraft line. For thereby subrogation became meaningless. Such a provision is intended for the benefit of a surety. That was a right he could avail of. 

He is not precluded however from waiving it. That was what appellant did precisely when he agreed to the contract of absolute guaranty. Again the law is clear. A right may be waived unless it would be contrary to law, public order, public policy, morals or good customs. 

There is no occasion here for the exceptions coming into play. It has been traditional in the Philippines for parents to extend all available aid and assistance to their children. That is a custom of long standing. Nor is there anything offensive to morals by an assumption of contingent liability as thus worded. The law has not been thwarted. Neither is public order nor public policy disregarded. The lower court was right therefore in yielding full assent to the waiver in question. The vigor with which counsel for appellant impugned the lower court decision cannot therefore be attended with success. It can stand its ground notwithstanding such a sustained and spirited attack.