GR 213156; (July, 2019) (Digest)
G.R. No. 213156 , July 29, 2019
MARIO C. TAN AND ERLINDA S. TAN, Petitioners, vs. UNITED COCONUT PLANTERS BANK, Respondent.
FACTS
Petitioners, spouses Mario and Erlinda Tan, were granted omnibus credit lines by respondent United Coconut Planters Bank (UCPB), secured by their real estate mortgages and suretyship agreements. The credit lines were also made available to several accommodated parties, including Beatriz Siok Ping Tang. The spouses issued letters to UCPB requiring that Beatriz must first obtain their written authorization for any credit availment. In 2002, the spouses discovered that UCPB had issued several bank undertakings in favor of Subic Bay Distribution, Inc. (SBDI) for Beatriz’s account, allegedly without the required authorization and drawn from their credit line.
The spouses demanded that UCPB release their mortgaged properties, contending that the bank undertakings for SBDI were unauthorized and thus invalid, releasing them from their suretyship. UCPB refused, asserting the undertakings were valid and that the spouses’ own obligations under the credit line remained unpaid. The spouses filed a complaint for specific performance and damages to compel the release of their mortgages, which was dismissed by the trial court and the Court of Appeals.
ISSUE
Whether the Court of Appeals erred in affirming the dismissal of the complaint, thereby upholding UCPB’s right to retain the mortgages despite the allegedly unauthorized bank undertakings.
RULING
The Supreme Court denied the petition and affirmed the appellate court’s decision. The Court held that the spouses, as sureties, were not discharged by the allegedly unauthorized transactions. A surety’s obligation is accessory to a principal obligation. The credit agreements established a continuing surety bond, making the spouses liable for all credit availments of the accommodated parties, including Beatriz. The requirement for written authorization was a condition imposed by the spouses on Beatriz, not a limitation on UCPB’s authority to extend credit under the overall agreement.
Crucially, the Court found that the spouses failed to substantiate their claim that the SBDI undertakings were entirely unauthorized. The records showed that Mario Tan had previously authorized a bank undertaking in favor of SBDI for Beatriz. Furthermore, the spouses admitted to having outstanding unpaid obligations from their own direct availments under the credit line. Since the mortgages secured the entire credit facility and not just specific transactions, and as the principal obligations remained outstanding, UCPB was legally entitled to retain the mortgage securities. The action for specific performance to release the mortgages therefore had no basis.