G.R. No. 210542 February 24, 2016
ROSALINA CARODAN, Petitioner, vs. CHINA BANKING CORPORATION, Respondent.

FACTS

China Banking Corporation filed a complaint for sum of money against Barbara Perez, Rebecca Perez-Viloria, Rosalina Carodan, and Madeline Carodan. The bank alleged that on January 15, 1998, Barbara and Rebecca executed a promissory note for P2.8 million. As security, they, along with Rosalina, executed a real estate mortgage over Rosalina’s property. A Surety Agreement was also executed, with Barbara and Rebecca as principals and Rosalina and Madeline as sureties, warranting payment of the loan. Upon the principals’ default, the bank extrajudicially foreclosed the mortgaged property, realizing P1.5 million, leaving a deficiency of P365,345.77, for which it sought payment from all parties.
In their defense, Barbara and Rebecca claimed an oral agreement for an equal split of the loan proceeds and obligations with Rosalina and Madeline, secured by their respective properties. They asserted that after they paid P1.5 million, the bank released the mortgage on their properties, leaving Rosalina’s property to solely answer for the remaining debt. Rosalina, in her answer, argued that the subsequent release of Barbara’s properties from the mortgage lien, after a partial payment, was unjust as it made her property absorb the entire risk of foreclosure for the remaining obligation.

ISSUE

Whether petitioner Rosalina Carodan, as a surety, is liable for the deficiency claim after the extrajudicial foreclosure of the mortgaged property.

RULING

Yes, the Supreme Court affirmed the liability of Rosalina Carodan for the deficiency. The Court explained that a contract of suretyship is an accessory promise by which a person binds themselves to answer for the debt of another, who is primarily liable. Under Article 1216 of the Civil Code, a creditor may proceed against any solidary debtor. The Surety Agreement in this case clearly established the solidary liability of the principals and the sureties for the loan obligation. Consequently, China Bank had the right to proceed against Rosalina for the unpaid balance.
The Court rejected Rosalina’s argument that the release of the co-mortgagor’s (Barbara’s) properties extinguished her liability. The indivisibility of a mortgage under Article 2089 means that the mortgage secures the entire obligation until it is fully satisfied. The release of some mortgaged properties does not discharge a solidary surety from their personal obligation under the Surety Agreement. The right to foreclose the mortgage and the right to recover a personal deficiency are complementary remedies available to a creditor. The foreclosure and sale of the mortgaged property merely satisfy part of the debt; the surety remains liable for any unpaid balance. Therefore, China Bank correctly pursued the deficiency claim against Rosalina Carodan as a solidary obligor under the Surety Agreement.