G.R. No.

210542

ROSALINA CARODAN, Petitioner, 
vs.
CHINA BANKING CORPORATION, Respondent.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari  seeking to set aside the Decision  dated 9 July 2013 and
1 2

the Resolution dated 29 November 2013 rendered by the Court of Appeals (CA), Ninth Division,
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Manila, in CA-G.R. CV No. 95835. The CA denied petitioner's appeal assailing the Decision  dated
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23 June 2010 issued by the Regional Trial Court (RTC) of Tuguegarao City, Branch 2, in Civil Case
No. 5692.

THE ANTECEDENT FACTS

The records reveal that on 6 June 2000, China Banking Corporation (China Bank) instituted a
Complaint  for a sum of money against Barbara Perez (Barbara), Rebecca Perez-Viloria (Rebecca),
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Rosalina Carodan (Rosalina) and Madeline Carodan (Madeline). China Bank claimed that on 15
January 1998, Barbara and Rebecca, for value received, executed and delivered Promissory Note
No. TLS-98/0076 to respondent bank under which they promised therein to jointly and severally pay
the amount of P2.8 million.  China Bank further claimed that as security for the payment of the loan,
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Barbara, Rebecca and Rosalina also executed a Real Estate Mortgage  over a property registered in
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the name of Rosalina and covered by Transfer Certificate Title (TCT) No. T-10216.  Respondent
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alleged that a Surety Agreement  in favor of China Bank as creditor was also executed by Barbara
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and Rebecca as principals and Rosalina and her niece Madeline as sureties. Through that
agreement, the principals and sureties warranted the payment of the loan obligation amounting to
P2.8 million including interests, penalties, costs, expenses, and attorney's fees. 11

Barbara and Rebecca failed to pay their loan obligation despite repeated demands from China Bank.
Their failure to pay prompted the bank institute extrajudicial foreclosure proceedings on the
mortgaged property on 26 November 1999.   From the extrajudicial sale, it realized only Pl.5 million
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as evidenced by a Certificate of Sale.  This amount, when applied to the total outstanding loan
13

obligation of Pl,865,345.77, would still leave a deficiency of P365,345.77. For that reason, the bank
prayed that the court order the payment of the deficiency amount with interest at 12% per annum
computed from 13 January 2000; attorney's fees equal to 10% of the deficiency amount; and
litigation expenses and costs of suit. 
14

Barbara and Rebecca filed their Answer. They interposed the defense that although they both stood
as principal borrowers, they had entered into an oral agreement with Madeline and Rosalina. Under
that agreement which was witnessed by China Bank's loan officer and branch manager, they would
equally split both the proceeds of the loan and the corresponding obligation and interest pertaining
thereto, and they would secure the loan with the properties belonging to them. 15 Barbara and
Rebecca used as security their real properties covered by TCT Nos. T-93177, T-93176, T-93174, T-
93167, T-93169, T-93170, T-93171 and T-93172; while Rosalina and Madeline used for the same
purpose the former's property covered by TCTNo.T-10216.  16

Barbara and Rebecca further alleged that while Rosalina and Madeline obtained their share of Pl.4
million of the loan amount, the latter two never complied with their obligation to pay interest. It was
only Rebecca's account with China Bank that was automatically debited in the total amount of
Pl,002,735.54.   Barbara and Rebecca asked China Bank for the computation of their total
17

obligation, for which they paid Pl.5 million aside from the interest payments, and respondent bank
thereafter released the Real Estate Mortgage over their properties. 18

By way of crossclaim, Barbara and Rebecca asked Rosalina and Madeline to pay half of
Pl,002,735.54 as interest payments, as well as the deficiency amount plus 12% interest per annum
and attorney's fees, the total amount of which pertained to the loan obligation of the latter two.   By
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way of counterclaim, Barbara and Rebecca also asked China Bank to pay Plmillion as moral
damages, P500,000 as exemplary damages, plus attorney's fees and costs of suit. 20

China Bank filed its Reply and Answer to Counterclaim clarifying that it was suing Barbara and
Rebecca as debtors under the Promissory Note and as principals in the Surety Agreement, as well
as Rosalina and Madeline as sureties in the Surety Agreement.  It claimed that equal sharing of the
21

proceeds of the loan was "a bat at misrepresentation" and "a self-serving prevarication," because
what was clearly written on the note was that Rebecca and Barbara were the principal debtors.  It 22

reiterated that the two were liable for the full payment of the principal amount plus the agreed
interest, charges, penalties and attorney's fees, with recourse to reimbursement from Rosalina and
Madeline. 23

China Bank also disputed the claim of Rebecca and Barbara that upon their payment to the bank of
Pl.5 million, the Real Estate Mortgage over their properties was cancelled. Their claim was disputed
because, even after their payment of Pl.5 million, Rebecca and Barbara were still indebted in the
amount of P1.3 million exclusive of interest, charges, penalties and other legitimate
fees.  Furthermore, respondent stated that if there was a cancellation of mortgage, it referred to
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other mortgages securing other separate loan obligations of Barbara and Rebecca; more
particularly, that of Barbara.
25

Rosalina filed her Answer with Counterclaim and Crossclaim.  She alleged that on 2 July 1997, she
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and Barbara executed (1) a Real Estate Mortgage covering Rosalina's lot and ancestral house, as
well as Barbara's eight residential apartments, annotated as an encumbrance at the back of the
TCTs corresponding to the properties as evidenced by the Annexes to the Answer; and (2) a Surety
Agreement to secure the credit facility granted by the bank to Barbara and Rebecca up to the
principal amount of P2.8 million.  Rosalina further stated that the execution of the contracts was
27

"made in consideration of the long-time friendship" between Barbara and Rebecca, and Madeline,
and that "no monetary or material consideration whatsoever passed between [Barbara and
Rebecca], on the one hand, and [Rosalina], on the other hand." 28

Rosalina acknowledged that on 15 January 1998, Barbara and Rebecca executed a Promissory
Note for the purpose of evidencing a loan charged against the loan facility secured by the
mortgage.  She averred, though, that when Barbara and Rebecca paid half of the loan under the
29

Promissory Note, the properties of Barbara covered by the mortgage were released by the bank
from liability. The cancellation of the mortgage lien was effected by an instrument dated 27 May
1999 and reflected on the TCTs evidenced by the Annexes to the Answer.  30

This cancellation, according to Rosalina, illegally and unjustly caused her property to absorb the
singular risk of foreclosure.   The result, according to her, was the extinguishment of the indivisible
31

obligation contained in the mortgage pursuant to Article 121632 of the Civil Code. 33

Rosalina further averred that when the bank instituted the foreclosure proceedings, it
misrepresented that her property was the only one that was covered by the mortgage; omitted from
the schedule of mortgaged properties those of Barbara; and misrepresented that "the terms and
condition of the aforesaid mortgage have never been changed or modified whether tacitly or
expressly, by any agreement made after the execution thereof." 34

Finally, Rosalina stated that she had made demands on Barbara and Rebecca to cause the
rectification of the illegal and unjust deprivation of her property in payment of the indemnity.
Allegedly, Barbara and Rebecca simply ignored her demands, so, she prayed that the two be held
solidarily liable for the total amount of damages and for the deficiency judgment sought in this
Complaint. 35

China Bank filed its Reply and Answer to Counterclaim.  It alleged that the issue of whether
36

Rosalina obtained material benefit from the loan was not material, since she had voluntarily and
willingly encumbered her property; that the indivisibility of mortgage does not apply to the case at
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bar, since Article 208938 of the Civil Code presupposes several heirs, a condition that is not present
in this case;  that nothing short of payment of the debt or an express release would operate to
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discharge a mortgage;   and that, as surety, Rosalina was equally liable as principal debtor to pay
40

the deficiency obligation in the sum of P365,345.77   The bank also filed its Comment/Opposition  to
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the Entry of Appearance of Atty. Edwin V. Pascua as counsel for Rosalina. It said that Atty. Pascua
had once been its retained lawyer pursuant to a Retainer Agreement dated 5 September
1997.  Because of its Opposition, Rosalina was subsequently represented by Atty. Reynaldo A.
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Deray.

All the parties submitted their Pre-Trial Briefs with the exception of Madeline, whose case had been
archived by the RTC upon motion of China Bank for the court's failure to acquire jurisdiction over her
person. The issues of the case were thereafter limited to the following: (1) whether the defendants
were jointly and severally liable to pay the deficiency claim; (2) whether the surety was still liable to
the bank despite the release of the mortgage of the principal borrower; (3) whether there was a
previous agreement among the defendants that Barbara and Rebecca would receive half and
Rosalina and Madeline, the other half; and (4) whether respondent bank still had a cause of action
against the surety after the mortgage of the principal borrower had been released by the bank. 44

THE RULING OF THE RTC

The RTC ruled that although no sufficient proof was adduced to show that Rosalina had obtained
any pecuniary benefit from the loan agreement between Rebecca and Barbara and China Bank, the
mortgage between Rosalina and China Bank was still valid.  The trial court declared that respondent
45

bank had therefore lawfully foreclosed the mortgage over the property of Rosalina, even if she was a
mere accommodation mortgagor. 46

The RTC also declared Rosalina's claim to be without merit and without basis in law and
jurisprudence. She claimed that because the Real Estate Mortgage covering her property was a
single and indivisible contract, China Bank's act of releasing the principal debtors' properties resulted
in the extinguishment of the obligation.  The trial court held that the creditor had the right to proceed
47

against any one of the solidary debtors, or some or all of them simultaneously; and that a creditor's
right to proceed against the surety exists independently of the creditor's right to proceed against the
principal.48

Finally, the RTC ordered Rebecca, Barbara and Rosalina to be jointly and severally liable to China
Bank for the deficiency between the acquisition cost of the foreclosed real estate property and the
outstanding loan obligation of Barbara and Rebecca at the time of the foreclosure sale. Interest was
set at the rate of 12% per annum from 13 January 2000 until full payment. Rebecca and Barbara
were also ordered to reimburse Rosalina for the amount of the deficiency payment charged against
her including interests thereon.49
THE RULING OF THE CA

Rosalina filed a timely Notice of Appeal and imputed error to the trial court in finding her, together
with Rebecca and Barbara, jointly and severally liable to pay the deficiency claim; in finding that she
was still liable as surety even if the bank had already released the collateral of the principal
borrower; and in not annulling the foreclosure sale of the property, not reconveying the property to
her, and not awarding her damages as prayed for in her counterclaim. She said that these were
done by the court despite the fact that China Bank had deliberately and maliciously released the
properties of the principal borrowers, thereby exposing her property to risk. 50

The CA found the appeal bereft of merit.   It qualified Rosalina as a surety who had assumed or
51

undertaken a principal debtor's responsibility or obligation. As such, she was supposed to be

principally liable for the payment of the debt in case the principal debtors did not pay, regardless of
their financial capacity to do so.  As for the deficiency, the CA cited BPI Family Savings Bank v.
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Avenido.   The Supreme Court had ruled therein that the creditor was not precluded from recovering
53

any unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property,
subject of the real estate mortgage, would result in a deficiency.   The CA ultimately affirmed the
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RTC Decision in toto  and denied the Motion for Reconsideration.   Hence, this Petition.
55 56

Before this Court, petitioner Rosalina now imputes error to the CA' s affirmance of the RTC Decision.
She says that the CA Decision was not in accord with law and jurisprudence in holding that
petitioner, jointly and severally with Barbara and Rebecca, was liable to pay China Bank's deficiency
claim after the bank's release of the collateral of the principal debtors. Respondent bank's alleged
act of exposing Rosalina's property to the risk of foreclosure despite the indivisible character of the
Real Estate Mortgage supposedly violated Article 2089 of the New Civil Code.  57

China Bank filed its Comment58 claiming that all the grounds cited by petitioner were "mere
reiterations, repetitions, or rehashed grounds and arguments raised in the Appellant's Brief x xx
which were exhaustively passed upon and considered by the CA in its Decision";  and that the 59

petition "is wanting of any new, substantial and meritorious grounds that would justify the reversal of
the CA Decision affirming the RTC decision." 60

THE ISSUE

The sole issue to be resolved by this Court is whether petitioner Rosalina is liable jointly and
severally with Barbara and Rebecca for the payment of respondent China Bank's claims.

THE RULING OF THIS COURT

Loan transactions in banking institutions usually entail the execution of loan documents, typically a
promissory note, covered by a real estate mortgage and/or a surety agreement.  In the instant case,
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petitioner Rosalina admitted that she was a party to these loan documents although she vehemently
insisted that she had received nothing from the proceeds of the loan.   Meanwhile, respondent bank
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offered in evidence the Promissory. Note, the Real Estate Mortgage and the Surety Agreement
signed by the parties.

We find that Rosalina is liable as an accommodation mortgagor.

In Belo v. PNB,  we had the occasion to declare:

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An accommodation mortgage is not necessarily void simply because the accommodation mortgagor
did not benefit from the same. The validity of an accommodation mo1igage is allowed under Article
2085 of the New Civil Code which provides that (t)hird persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own property. An accommodation
mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his
designation as such.  64

Apart from being an accommodation mortgagor, Rosalina is also a surety, defined under Article
2047 of the Civil Code in this wise:

Art. 2047. By guaranty a person, called a guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,
Title I of this Book shall be observed. In such case the contract is called a suretyship.

A contract of suretyship (second paragraph of Article 2047) has been juxtaposed against a contract
of guaranty (first paragraph of Article 2047) as follows:

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. Citations omitted)
65

In Inciong, Jr. v. CA,   we elucidated further in this wise:

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While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is
different from that of a solidary debtor. Thus, Tolentino explains:

A guarantor who binds himself in solidum with the principal debtor under the provisions of the
second paragraph does not become a solidary co-debtor to all intents and purposes. There is a
difference between a solidary co-debtor, and a fiador in solidum (surety). The latter, outside of the
liability he assumes to pay the debt before the property of the principal debtor has been exhausted,
retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a
solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I,
Book IV of the Civil Code.

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations.
Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the
presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate
part of the debt. There is a solidarity liability only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires.  (Citations omitted)
67

Further discussion on the same legal concept proceeded thusly:

A contract of surety is an accessory promise by which a person binds himself for another already
bound, and agrees with the creditor to satisfy the obligation if the debtor does not. A contract of
guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the latter
does not pay the debt.

Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to
both. However, under our civil law, they may be distinguished thus: A surety is usually bound with
his principal by the same instrument, executed at the same time, and on the same consideration. He
is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default
of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to
the principal, or by want of notice of the default of the principal, no matter how much he may be
injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate
undertaking, in which the principal does not join. It is usually entered into before or after that of the
principal, and is often supported on a separate consideration from that supporting the contract of the
principal. The original contract of his principal is not his contract, and he is not bound to take notice
of its non-performance. He is often discharged by the mere indulgence of the creditor to the
principal, and is usually not liable unless notified of the default of the principal.

Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency
of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the
insurer of the debt, and he obligates himself to pay if the principal does not pay.  (Citations omitted)
68

When Rosalina affixed her signature to the Real Estate Mortgage as mortgagor and to the Surety
Agreement as surety which covered the loan transaction represented by the Promissory Note, she
thereby bound herself to be liable to China Bank in case the principal debtors, Barbara and
Rebecca, failed to pay. She consequently became liable to respondent bank for the payment of the
debt of Barbara and Rebecca when the latter two actually did not pay.

China Bank, on the other hand, had a right to proceed after either the principal debtors or the surety
when the debt became due. It had a right to foreclose the mortgage involving Rosalina's property to
answer for the loan.

The proceeds from the extrajudicial foreclosure, however, did not satisfy the entire obligation. For
this reason, respondent bank instituted the present Complaint against Barbara and Rebecca as
principals and Rosalina as surety.

A mortgage is simply a security for, and not a satisfaction of indebtedness.  If the proceeds of the
69

sale are insufficient to cover the debt in an extrajudicial foreclosure of mortgage, the mortgagee is
entitled to claim the deficiency from the debtor.  We have already recognized this rule:
70

While Act No. 3135, as amended, does not discuss the mortgagee's right to recover the deficiency,
neither does it contain any provision expressly or impliedly prohibiting recovery. If the legislature had
intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a
security given to guarantee an obligation, the law would expressly so provide. Absent such a
provision in Act No. 3135, as amended, the creditor is not precluded from taking action to recover
any unpaid balance on the principal obligation simply because he chose to extrajudicially foreclose
the real estate mortgage. 71

The creditor, respondent China Bank in this Petition, is therefore not precluded, from recovering any
unpaid balance on the principal obligation if the extrajudicial foreclosure sale of the property, subject
of the Real Estate Mortgage, would result in a deficiency.
Rosalina protests her liability for the deficiency. She claims that China Bank cancelled the mortgage
lien and released the. principal borrowers from liability. She contends that this act violated Article
2089 of the Civil Code on the indivisibility of mortgage and ultimately discharged her from liability as
a surety.

We disagree.

A resort to the terms of the Surety Agreement can easily settle the question of whether Rosalina
should still be held liable. The agreement expressly contains the following stipulation:

The Surety(ies) expressly waive all rights to demand for payment and notice of non-payment and
protest, and agree that the securities of every kind that are now and may hereafter be left with the
Creditor its successors, indorsees or assigns as collateral to any evidence of debt or obligation, or
upon which a lien may exist therefor, may be substituted, withdrawn or surrendered at any
time, and the time for the payment of such obligations extended, without notice to or consent by
the Surety(ies) x xx.   (Emphases supplied)
72

We therefore find no merit in Rosalina's protestations in this petition. As provided by the quoted
clause in the contract, she not only waived the rights to demand payment and to receive notice of
nonpayment and protest, but she also expressly agreed that the time for payment may be extended.
More significantly, she agreed that the securities may be "substituted, withdrawn or surrendered at
any time" without her consent or without notice to her. That China Bank indeed surrendered the
properties of the principal debtors was precisely within the ambit of this provision in the contract.
Rosalina cannot now contest that act in light of her express agreement to that stipulation.

There have been similar cases in which this Court was tasked to rule on whether a surety can be
discharged from liability due to an act or omission of the creditor. A review of these rulings reveals
though, that in the absence of an express stipulation, the surety was discharged from liability if the
act of the creditor was such as would be declared negligent or constitutive of a material alteration of
the contract. On the other hand, in the presence of an express stipulation in the surety agreement
allowing these acts, the surety was not considered discharged and was decreed to be bound by the
stipulations.

In PNB v. Manila Surety,  the Court en banc declared the surety discharged from liability on account
73

of the creditor's negligence. In that case, the creditor failed to collect the amounts due to the debtor
contrary to the former's duty to make collections as holder of an exclusive and irrevocable power of
attorney. The negligence of the creditor allowed the assigned funds to be exhausted without notice
to the surety and ultimately resulted in depriving the latter of any possibility of recourse against that
security.

Also, in PNB v. Luzon Surety,  the Court hinted at the possibility of the surety's discharge from
74

liability.  It was recognized in that case that in this jurisdiction, alteration can be a ground for release.
1avvphi1

The Court clarified, though, that this principle can only be successfully invoked on the condition that
the alteration is material. Failure to comply with this requisite means that the surety cannot be freed
from liability. Applying this doctrine in that case, the Court ruled that the alterations in the form of
increases in the credit line with the full consent of the surety did not suffice to release the surety.

Meanwhile, in Palmares v. CA,   the Court ruled:

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It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the
creditor without change in the time when the debt might be demanded, does not constitute an
extension of the time of payment, which would release the surety. In order to constitute an extension
discharging the surety, it should appear that the extension of the time was for a definite period,
pursuant to an enforceable agreement between the principal and the creditor, and that it was made
without the consent of the surety or with the reservation of rights with respect to him. The contract
must be one which precludes the creditor from, or at least hinders him in, enforcing the principal
contract with the period during which he could otherwise have enforced it, and which precludes the
surety from paying the debt. (Citations omitted)

In E. Zobel Inc. v. CA, et al.,  the Court upheld the validity of the provision on the continuing
76

guaranty - which we had earlier interpreted as a surety consistent with its contents and intention of
the parties. The Court upheld the validity of the provision despite the insistence of the surety that he
should be released from liability due to the failure of the creditor to register the mortgage. In
particular, the Court decreed:

SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the obligation.
In the Continuing Guaranty executed in favor of SOLID BANK, petitioner bound itself to the contract
irrespective of the existence of any collateral. It even released SOLID BANK from any fault or
negligence that may impair the contract. The pertinent portions of the contract so provides:

the undersigned (petitioner) who hereby agrees to be and remain bound upon this guaranty,
irrespective of the existence, value or condition of any collateral, and notwithstanding any such
change, exchange, settlement, compromise, surrender, release, sale, application, renewal or
extension, and notwithstanding also that all obligations of the Borrower to you outstanding and
unpaid at any time(s) may exceed the aggregate principal sum herein above prescribed.

This is a Continuing Guaranty and shall remain in force and effect until written notice shall have
been received by you that it has been revoked by the undersigned, but any such notice shall not be
released the undersigned from any liability as to any instruments, loans, advances or other
obligations hereby guaranteed, which may be held by you, or in which you may have any interest, at
the time of the receipt of such notice. No act or omission of any kind on your part in the premises
shall in any event affect or impair this guaranty, nor shall same be affected by any change which
may arise by reason of the death of the undersigned, of any partner(s) of the undersigned, or of the
Borrower, or of the accession to any such partnership of any one or more new partners.  77

Another illustrative case is Gateway Electronics Corporation and Geronimo delos Reyes v.
Asianbank,   in which the surety similarly asked for his discharge from liability. He invoked the
78

creditor's repeated extensions of maturity dates to the principal debtor's request, without the surety's
knowledge and consent. Still, this Court ruled:

Such contention is unacceptable as it glosses over the fact that the waiver to be notified of
extensions is embedded in surety document itself, built in the ensuing provision:

In case of default by any/or all of the DEBTOR(S) to pay the whole part of said indebtedness herein
secured at maturity, I/WE jointly and severally, agree and engage to the CREDITOR, its successors
and assigns, the prompt payment, without demand or notice from said CREDITOR of such notes,
drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or
may hereafter become indebted to the CREDITOR, together with interest, penalty and other bank
charges as may accrue thereon and all expenses which may be incurred by the latter in collecting
any or all such instruments. 79

On Rosalina's argument that the release of the mortgage violates the indivisibility of mortgage as
enunciated in Article 208980 of the Civil Code, People's Bank and Trust Company v. Tambunting et
al.   is most instructive. In that case, the surety likewise argued that he should be discharged from
81
liability. He alleged that the creditor had extended the time of payment and released the shares
pledged by the principal debtors without his consent. The Court en banc found his argument
unpersuasive and decreed:

1. It is thus obvious that the contract of absolute guaranty executed by appellant Santana is
the measure of 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 corning into play xxx82

While we rule that Rosalina, along with the principal debtors, Barbara and Rebecca, is still liable as a
surety for the deficiency amount, we modify the RTC's imposition of interest rate at 12% per annum,
which the CA subsequently affirmed. We must modify the rates according to prevailing
jurisprudence. Hence, the 12% legal interest should be imposed on the deficiency amount from 13
January 2000 until 30 June 2013 and 6% legal interest from 1 July 2013 until full payment.

WHEREFORE, premises considered, the assailed CA Decision and Resolution finding Rosalina

Carodan jointly and severally liable with Barbara Perez and Rebecca Perez-Viloria for the deficiency
amount are AFFIRMED WITH MODIFICATIONS. Rebecca, Barbara and Rosalina are held jointly
and severally liable to China Bank for the deficiency amount of P365,345.77 and interest thereon at
the rates of 12% per annum from 13 January 2000 until 30 June 2013 and 6% per annum from 1
July 2013 until full payment; and that Rebecca and Barbara are also ordered to reimburse Rosalina
for the amount charged against her including interests thereon. 83

SO ORDERED.