G.R. No. 126490 March 31, 1998
ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M.B. LENDING CORPORATION, respondents.

FACTS

Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at 6% per annum computed every 30 days. Petitioner signed as a co-maker, with the note stating she was “jointly and severally or solidarily liable” and that the corporation “may demand payment… from me in case the principal maker… defaults.” After partial payments totaling P16,300.00, a balance of P13,700.00 remained. Respondent corporation filed a complaint against petitioner alone, alleging the insolvency of the principal debtors. The Regional Trial Court dismissed the complaint, ruling petitioner was only secondarily liable and suing her alone discharged the prior parties. The Court of Appeals reversed, declaring petitioner a surety solidarily liable for the entire obligation and ordering her to pay the balance with stipulated interest and penalties.

ISSUE

Whether petitioner Estrella Palmares, by signing the promissory note as a co-maker who bound herself to be jointly and severally liable with the principal debtor, undertook the obligation of a surety (primarily and solidarily liable) or that of a guarantor (subsidiarily liable).

RULING

The Supreme Court DENIED the petition, AFFIRMING the Court of Appeals with MODIFICATION regarding the monetary award. The Court ruled that petitioner is a SURETY and is primarily and solidarily liable.
1. Nature of Liability as Surety: The promissory note clearly indicated petitioner was “jointly and severally or solidarily liable.” This solidary liability characterizes a contract of suretyship, not guaranty. A surety is bound equally and absolutely with the principal, making the obligation direct and primary. The clause allowing demand upon the principal’s default does not make the liability subsidiary; it is a conditional promise of payment typical in suretyship, where the surety’s obligation is co-extensive with the principal’s.
2. Interpretation of the Contract: The Court found no conflict between the note’s provisions. The terms “jointly and severally liable” and “solidarily liable” are synonymous. The entire contract, read as a whole, establishes solidary liability. The promissory note is not ambiguous; its terms are clear and leave no doubt as to the parties’ intent. Even if considered a contract of adhesion, it is not invalid per se, and petitioner, by signing, gave her consent.
3. Rights and Liabilities of a Surety: As a surety, petitioner is not entitled to the excussion (benefit of exhaustion of the principal debtor’s assets) available to a guarantor. The creditor may proceed against any one of the solidary obligors. Respondent corporation’s act of suing petitioner alone did not discharge her liability.
4. Modification of Monetary Award: The Court found the compounded interest and penalty charges iniquitous and unconscionable. The stipulated 6% per month interest (72% per annum) and 3% per month penalty (36% per annum) are excessive. Applying the principle of equity and substantive justice, the Court reduced the interest rate to 12% per annum from the date of judicial demand (filing of complaint) until its full payment. The award of attorney’s fees was also reduced to 10% of the principal obligation.