GR 254510; (June, 2021) (Digest)
G.R. No. 254510 , June 16, 2021
Merrie Anne Tan, Petitioner, vs. First Malayan Leasing and Finance Corp., New Unitedware Marketing Corp., and Edward Yao, Respondents.
FACTS
On December 8, 2000, respondent New Unitedware Marketing Corporation (NUMC) obtained a loan from respondent First Malayan Leasing and Finance Corporation (FMLFC). As additional security, petitioner Merrie Anne L. Tan, Edward Yao, and later Samson Ding and Willy Tan (Merrie Tan’s spouse) executed Continuing Surety Undertakings in favor of FMLFC. NUMC defaulted on the loan. FMLFC filed a Complaint for Sum of Money and Damages against NUMC, Ding, and Spouses Tan. During the proceedings, Yao paid FMLFC P980,000.00, and FMLFC executed a “Receipt and Release” in his favor. Merrie Tan argued that Yao’s release converted the solidary obligation of the sureties into a divisible one, extinguishing her liability for the entire balance. The Regional Trial Court (RTC) ruled in favor of FMLFC, holding NUMC, Ding, and Spouses Tan jointly and solidarily liable. The Court of Appeals (CA) affirmed the RTC decision with modifications on interest rates. Merrie Tan filed the instant Petition.
ISSUE
Whether the release of co-surety Edward Yao by the creditor, FMLFC, upon his partial payment, novated the solidary obligation of the remaining sureties into a divisible one, thereby extinguishing their liability for the entire outstanding loan balance.
RULING
No. The release of a solidary co-debtor, or co-surety in this case, by the creditor does not extinguish the solidary liability of the remaining debtors. The release of Yao constituted a “remission” or “forbearance” of his individual share of the obligation under Article 1219 of the Civil Code. It did not constitute a novation that would convert the solidary obligation into a divisible one. The solidary nature of the obligation among the co-sureties remained, and the creditor’s right to demand full payment from any one of the remaining solidary debtors was preserved. The liability of the remaining sureties was merely reduced by the amount paid by Yao. The Petition was denied. The CA Decision was affirmed with the modification that the penalty charge of 6% per annum and the award of attorney’s fees equivalent to 10% of the total amount due were deemed sufficient and iniquitous, respectively, and thus the award for liquidated damages was deleted.