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Republic of the Philippines sureties acceptable to Security

SUPREME COURT Diners who shall be jointly and


Manila severally liable with the
cardholder to pay Security Diners
THIRD DIVISION all the obligations and charges
G.R. No. 136780 August 16, 2001 incurred and credit extended on
the basis of the card. In the event
JEANETTE D. MOLINO, petitioner,
the surety/sureties furnished the
vs.
cardholder are discharged the
SECURITY DINERS INTERNATIONAL
cardholder must furnish a new
CORPORATION, respondent.
surety or sureties acceptable to
GONZAGA-REYES, J.: Security Diners within thirty (30)
Assailed by this petition for review on certiorari days. Otherwise the cardholder's
is the decision of the Court of Appeals dated privileges shall be automatically
September 28, 19981 which held petitioner terminated in accordance with
liable as surety for the outstanding credit card Section 11 hereof."
debts of Danilo Alto with herein respondent The Surety Undertaking signed by
corporation. Jeanette states:
The decision of the Court of Appeals "I/WE, the undersigned, bind
satisfactorily sums up the facts that led to the myself/ourselves jointly and
filing of this case: severally with Mr. Danilo Alto to
The Security Diners International pay SECURITY DINERS
Corporation ("SDIC') operates a credit INTERNATIONAL CORPORATION,
card system under the name of Diners hereinafter referred to as 'Security
Club through which it extends credit Diners' all the obligations and
accommodation to its cardholders for the charges including but not limited
purchase of goods and payment of to fees, interest, attorney's fees
services from its member establishments and all other costs incurred by
to be reimbursed later on by the him/her in connection with the use
cardholder upon proper billing. There are of the DINERS CLUB CARD in
two types of credit cards issued: one, the accordance with the terms and
Regular (Local) Card which entitles the conditions governing the issuance
cardholder to purchase goods and pay and use of the Diners Club Card.
services from member establishments in Any change or novation in the
an amount not exceeding P10,000.00; agreement or any extension of
and two, the Diamond (Edition) Card time granted by SECURITY DINERS
which entitles the cardholder to to pay such obligations, charges
purchase goods and pay services from and fees, shall not release me/us
member establishments in unlimited from this Surety Undertaking, it
amounts. One of the requirements for being understood that said
the issuance of either of these cards is undertaking is a continuing one
that an applicant should have a surety. and shall subsist and bind me/us
until all such obligations, charges
On July 24, 1987, Danilo A. Alto applied and fees have been fully paid and
for a Regular (Local) Card with SDIC. He satisfied.
got as his surety his own sister-in-law
Jeanette Molino Alto. Thus, Danilo signed It is understood that the indication
the printed application form (Exhibit 'A') of a credit limit to the cardholder
and Jeanette signed the Surety shall not relieve me/us of liability
Undertaking (Exhibit 'A-5"). Attached to for charges and all other amounts
the Application Form was an Agreement voluntarily incurred by the
(Use of Diners' Club Card), paragraph 16 cardholder in excess of the credit
of which reads: limit.

16. SURETY. — The cardholder On the basis of the completed and


shall furnish an adequate surety or signed Application Form and Surety
Undertaking, the SDIC issued to Danilo respondent to prove its case by a
Diners Card No. 36510293216-0006. The preponderance of the evidence. It found that
latter used this card and initially paid his while petitioner clearly bound herself as surety
obligations to SDIC. On February 8, 1988, under the terms of Danilo Alto's Regular Diners
Danilo wrote SDIC a letter (Exhibit "B") Club Card, there was no evidence that after the
requesting it to upgrade his Regular card had been upgraded to Diamond (Edition)
(Local) Diners Club Card to a Diamond petitioner consented or agreed to act as surety
(Edition) one. As a requirement of SDIC, for Danilo. Exhibit "C" or Exhibit "1", inter alia,
Danilo secured from Jeanette her which was a note bearing petitioner's signature
approval. The latter obliged and so on certifying to her approval of Danilo's request to
March 2, 1988, she signed a Note have his card upgraded should be read simply
(Exhibit 'C') which states: as a statement of and objection to his request
"This certifies that I, Jeanette D. for upgrading, and not as an assumption of
Molino, approve of the request of liability for the debts that Danilo may later owe
Danilo and Gloria Alto with Card through the said card.4 The trial court also took
No. 3651-203216 0006 and 3651- note of the testimony of Alfredo Vicente, an
203412-5007 to upgrade their officer of respondent, who opined that the
card from regular to diamond consent to be bound as surety to an upgraded
edition." card should be categorical5 and not in a simple
"no objection" form.
Danilo's request was granted and he was
issued a Diamond (Edition) Diners Club The trial court went on further to state that
Card. He used this card and made petitioner was not liable for any amount, not
purchases (Exhibits "D", "D-1" to "D-7") even for P10,000.00 which is the maximum
from member establishments. On credit limit for Regular Diners Club Cards, since
October 1, 1988 Danilo had incurred at the time of the upgrading Danilo had no
credit charged plus appropriate interest outstanding credit card debts.6 This is evident
and service charges in the aggregate from the fact that Danilo's request for
amount of P166,408.31. He defaulted in upgrading was approved, since one of the
the payment of this obligation. requirements for the approval of a request for
the upgrading of a credit card from Regular to
SDIC demanded of Danilo and Jeanette Diamond is that the applicant must have paid
to pay said obligation but they did not all his billings for the last three months prior to
pay. So, on November 9, 1988, SDIC filed his request.
an action to collect said indebtedness
against Danilo and Jeanette. This was Hence, the trial court disposed of the case with
docketed in the Regional Trial Court of these pronouncements:
Makati, Branch 145 as Civil Case No. 88- WHEREFORE, judgment is rendered
2381 x x x2 dismissing the complaint against
Defendant Danilo Alto failed to file an Answer, defendant Jeanette D. Molino-Alto for
and during the pre-trial conference respondent failure of the plaintiff to prove its case by
moved to have the complaint dismissed against a clear preponderance of evidence.
him, without prejudice to a subsequent re- Said defendants counterclaim is also
filing. Petitioner was left as the lone defendant, dismissed.
sued in her capacity as surety of Danilo. No pronouncement as to costs.
In the Answer with Compulsory Counterclaim SO ORDERED.7
that she filed with the RTC, petitioner claimed
that her liability under the Surety Undertaking The Court of Appeals found contrary to the
was limited to P10,000.00 and that she did not lower court, and declared that the Surety
expressly and categorically agree to act as Undertaking signed by petitioner when Danilo
surety for Danilo in an amount higher than Alto first applied for a Regular Diners Club Card
P10,000.00.3 By way of counterclaim, she clearly applied to the unpaid purchases of
asked for moral and exemplary damages. Danilo Alto under the Diamond card. In holding
thus, the Court of Appeals referred to the terms
On August 19, 1991, the trial court rendered a of the said Surety Undertaking, which stated
decision dismissing the complaint for failure of that any change or novation in the agreement
on the use of the Diners Club card does not The findings of the Court of Appeals are
release the surety from his obligations, it being conflicting and/or without citation of
understood that the undertaking is a continuing specific evidence on which they are
one which subsists until all obligations and based.
charges under the subject credit card are paid III.
and satisfied. It also cited Pacific Banking
Corporation vs. Intermediate Appellate Court,8 The Court of Appeals erred in
a 1991 decision which held the surety liable to disregarding the applicable legal
the extent of the credit cardholder's principle established by this Honorable
indebtedness, under the clear terms of the Court that, unlike in ordinary solidary
Guarantor's Undertaking that the surety signed debtors, the surety does not incur
with the credit card company. liability unless the principal debtor is
held liable.10
The Court of Appeals further declared that it
was erroneous of the trial court to conclude Petitioner posits that she did not expressly give
that petitioner was completely relieved of her consent to be bound as surety under the
upgraded card. She points out that the note
liability under Danilo Alto's credit card since the
Surety Undertaking she signed remained valid she signed, marked as Exhibit "C", registering
and enforceable even after the upgrading of her approval of the request of Danilo Alto to
the said card; besides, petitioner herself upgrade his card, renders the Surety
admitted that she was liable to the extent of Undertaking she signed under the terms of the
P10,000.00. previous card "without probative value,
immaterial and irrelevant as it covers only the
Additionally, the Court of Appeals reduced the liability of the surety in the use of the regular
attorney's fees (stipulated in the Agreement for credit card by the principal debtor x x x.11 " She
the Use of Diners Club Card) from 25% to 10% argues further that because the principal
of the amount due, judging this to be a more debtor, Danilo Alto, was not held liable, having
reasonable rate under the circumstances. been dropped as a defendant, she could not be
The dispositive portion of the decision of the said to have incurred liability as surety.
Court of Appeals reads: The petition is devoid of merit.
WHEREFORE, the appealed Decision is The resolution of whether petitioner is liable as
REVERSED and one is rendered ordering surety under the Diamond card revolves
defendant-appellee Jeanette D. Molino- around the effect of the upgrading by Danilo
Alto to pay plaintiff-appellant Security Alto of his card. Was the upgrading a novation
Diners Intentional, Inc. the following: of the original agreement governing the use of
1. The sum of P166,408.31 plus interest Danilo Alto's first credit card, as to extinguish
of 3% per annum and 2% per month that obligation and the Surety Undertaking
from November 9, 1988 until the which was simply accessory to it?
obligation is fully paid; Novation, as a mode of extinguishing
2. The amount equivalent to 10% of the obligations, may be done in two ways: by
obligation mentioned in the preceding explicit declaration, or by material
paragraph as attorneys fees; and incompatibility (implied novation). As we stated
3. Costs. in Fortune Motors vs. Court of Appeals, supra:

SO ORDERED.9 x x x The test of incompatibility is


whether the two obligations can stand
Petitioner's motion for reconsideration of the together, each one having its
above decision was denied for lack of merit on independent existence. If they cannot,
December 1, 1998. Hence, the petition before they are incompatible and the latter
us, which assigns the following errors: obligation novates the first. Novation
I. must be established either by the
express terms of the new agreement or
The material findings of the Court of
by the acts of the parties clearly
Appeals, which are contrary to those of
demonstrating the intent to dissolve the
the lower court are erroneous.
old obligation as a consideration for the
II. emergence of the new one. The will to
novate, whether totally or partially, must card application of his wife. Like herein
appear by express agreement of the petitioner, the husband also argued that his
parties, or by their acts which are too liability should be limited to the credit limit
clear or unequivocal to be mistaken. allowed under his wife's card but the Court
There is no doubt that the upgrading was a declared him liable to the full extent of his
novation of the original agreement covering the wife's indebtedness. Thus:
first credit card issued to Danilo Alto, basically We need not look elsewhere to
since it was committed with the intent of determine the nature and extent of
canceling and replacing the said card. private respondent Roberto Regala, Jr.'s
However, the novation did not serve to release undertaking. As a surety he bound
petitioner from her surety obligations because himself jointly and severally with the
in the Surety Undertaking she expressly waived debtor Celia Regala "to pay the Pacific
discharge in case of change or novation in the Banking Corporation upon demand, any
agreement governing the use of the first credit and all indebtedness, obligations,
card. charges or liabilities due and incurred by
The nature and extent of petitioner's said Celia Syjuco Regala with the use of
obligations are set out in clear and Pacificard or renewals thereof issued in
unmistakable terms in the Surety Undertaking. (her) favor by Pacific Banking
Thus: Corporation. x x x.

1. She bound herself jointly and severally with xxx xxx xxx
Danilo Alto to pay SDIC all obligations and It is likewise not disputed by the parties
charges in the use of the Diners Club Card, that the credit limit granted to Celia
including fees, interest, attorney's fees, and Regala was P2,000.00 per month and
costs; that Celia Regala succeeded in using the
2. She declared that "any change or novation card beyond the original period of its
in the Agreement or any extension of time effectivity, October 29, 1979. We do not
granted by SECURITY DINERS to pay such agree, however, that Roberto Jr.'s liability
obligation, charges, and fees, shall not release should be limited to that extent. Private
(her) from this Surety Undertaking"; respondent Roberto Regala, Jr., as surety
of his wife, expressly bound himself up
3. "(S)aid undertaking is a continuous one and to the extent of the debtor's (Celia's)
shall subsist and bind (her) until all such indebtedness likewise expressly waiving
obligations, charges and fees have been fully any "discharge in case of any change or
paid and satisfied"; and novation of the terms and conditions in
4. "The indication of a credit limit to the connection with the issuance of the
cardholder shall not relieve (her) of liability for Pacificard credit card." Roberto, in fact,
charges and all other amounts voluntarily made his commitment as a surety a
incurred by the cardholder in excess of said continuing one, binding upon himself
credit limit."12 until all the liabilities of Celia Regala
have been fully paid. All these were clear
We cannot give any additional meaning to the
under the "Guarantor's Undertaking"
plain language of the subject undertaking. The
Roberto signed, thus:
extent of a surety's liability is determined by
the language of the suretyship contract or bond "x x x Any changes of or novation
itself.13 Article 1370 of the Civil Code provides: in the terms and conditions in
"If the terms of contract are clear and leave no connection with the issuance or
doubt upon the intention of the contracting use of said Pacificard, or any
parties, the literal meaning of its stipulations extension of time to pay such
shall control." obligations, charges or liabilities
shall not in any manner release
This case is no different from Pacific Banking
me/us from the responsibility
Corporation vs. IAC, supra, correctly applied by
hereunder, it being understood
the Court of Appeals, which involved a
that the undertaking is a
Guarantor's Undertaking (although thus
continuing one and shall subsist
denominated, it was in substance a contract of
and bind me/us until all the
surety signed by the husband for the credit
liabilities of the said Celia Syjuco would be well-advised to study carefully the
Regala have been fully satisfied or terms of the agreements prepared by the credit
paid." (italics supplied) card companies before giving their consent,
As a last-ditch measure, petitioner asseverates and pay heed to speculations that could lead to
that, being merely a surety, a pronouncement onerous effects, like in the present case where
should first be made declaring the principal the credit applied for was limitless. At the same
debtor liable before she herself can be time, it bears articulating that although courts
proceeded against. The argument, which is in appropriate cases may equitably reduce the
hinged upon the dropping of Danilo as award for penalty as provided under such
defendant in the complaint, is bereft of merit. suretyship agreements if the same is iniquitous
or unconscionable,16 we are unable to give
The Surety Undertaking expressly provides that relief to petitioner by way of reducing the
petitioner's liability is solidary. A surety is amount of the principal liability as surety under
considered in law as being the same party as the circumstances of this case.
the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their WHEREFORE, the petition is dismissed for lack
liabilities are interwoven as to be inseparable. 14 of merit The decision of the Court of Appeals is
Although the contract of a surety is in essence AFFIRMED in all respects.
secondary only to a valid principal obligation, SO ORDERED.
his liability to the creditor is direct, primary and Melo, Panganiban and Sandoval-Gutierrez, JJ .,
absolute; he becomes liable for the debt and concur.
duty of another although he possesses no Vitug, J ., concurs in the result (pro hac vice).
direct or personal interest over the obligations
nor does he receive any benefit therefrom.15
There being no question that Danilo Alto Footnotes
incurred debts of P166,408.31 in credit card 1
Promulgated by the former
advances, an obligation shared solidarily by
Seventeenth Division; written by
petitioner, respondent was certainly within its
Associate Justice Hilarion L; Aquino, and
rights to proceed singly against petitioner, as
concurred in by Associate Justice Ramon
surety and solidary debtor, without prejudice to
U. Mabutas, Jr. (Chairman) and Associate
any action it may later file against Danilo Alto,
Justice Renato C. Dacudao.
until the obligation is fully satisfied. This is so
2
provided under Article 1216 of the Civil Code: CA Decision; Rollo, 49-52.
3
The creditor may proceed against any Answer with Compulsory Counterclaim,
one of the solidary debtors or some or all Annex "B" to Petition; Rollo, 29.
of them simultaneously. The demand 4
RTC Decision; Rollo, 44-45.
made against one of them shall not be 5
an obstacle to those which may be Ibid., 45-46.
subsequently directed against the 6
Ibid., 46.
others, so long as the debt has not been 7
Ibid., 47.
fully collected.
8
203 SCRA 496.
Petitioner is a graduate of business
9
administration, and possesses considerable CA Decision; Rollo, 58.
work experience in several banks. She knew 10
Petition; Rollo, 10.
the full import and consequence of the Surety 11
Undertaking that she executed. She had the Ibid., 14.
option to withdraw her suretyship when Danilo 12
Exh. "A-5"; Records of the Case, 93.
upgraded his card to one that permitted 13
Rizal Commercial Banking Corporation
unlimited purchases, but instead she approved
vs. Court of Appeals, 178 SCRA 739
the upgrading. While we commiserate in the
(1989); Luzon Surety Company, Inc. vs.
financial predicament she now faces, it is also
Quebrar, 127 SCRA 295 (1984).
evident that the liability she incurred is only the
14
legitimate consequence of an undertaking that Philippine National Bank vs. Pineda,
she freely and intelligently obliged to. 197 SCRA 1 (1991).
Prospective sureties to credit card applicants
15
Garcia vs. Court of Appeals, 191 SCRA
493 (1990).
16
Article 1229 of the Civil Code provides:
"The judge shall equitably reduce the
panalty when the principal obligation has
been partly or irregularly complied with
by the debtor. Even if there has been no
performance, the penalty may also be
reduced by the courts if it is iniquitous or
unconscionable." Applied in Palmares vs.
Court of Appeals, 288 SCRA 422 (1998);
Barons Marketing Corporation vs. Court
of Appeals, 286 SCRA 96 (1998); Insular
Bank of Asia & America vs. Salazar, 159
SCRA 133 (1988).

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