PACIFIC BANKING CORPORATION, PETITIONER, VS. HON. INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA, JR., RESPONDENTS.

This is a petition
for review on certiorari of the decision (pp. 21-31, Rollo) of the Intermediate Appellate Court (now Court of Appeals) in
AC-G.R. C.V. No. 02753,^[1] which
modified the decision of the trial court against herein private respondent
Roberto Regala, Jr., one of the defendants in the case for sum of money filed
by Pacific Banking Corporation.

The facts of the case as adopted by the respondent appellate
court from herein petitioner’s brief before said court are as follows:

“On October 24, 1975, defendant Celia Syjuco Regala
(hereinafter referred to as Celia Regala for brevity), applied for and obtained
from the plaintiff the issuance and use of Pacificard credit card (Exhs. ‘A’,
‘A-1’), under the “Terms and Conditions Governing the Issuance and Use of
Pacificard (Exh. ‘B’ and hereinafter referred to as Terms and Conditions), a
copy of which was issued to and received by the said defendant on the date of
the application and expressly agreed that the use of the Pacificard is governed
by said Terms and Conditions. On the same date, the defendant-appellant Roberto
Regala, Jr., spouse of defendant Celia Regala, executed a ‘Guarantor’s
Undertaking’ (Exh. ‘A-1-a’) in favor of the appellee Bank, whereby the latter
agreed ‘jointly and severally of Celia Aurora Syjuco Regala, to pay the Pacific
Banking Corporation upon demand, any and all indebtedness, obligations, charges
or liabilities due and incurred by said Celia Aurora Syjuco Regala with the use
of the Pacificard, or renewals thereof, issued in her favor by the Pacific
Banking Corporation’. It was also
agreed that ‘any changes of or
novation in the terms and conditions in connection with the issuance or use of
the Pacificard, or any extension of time to pay such obligations, charges or
liabilities shall not in any manner release me/us from responsibility
hereunder, it being understood that I fully agree to such charges, novation or
extension, and that this understanding is a continuing one and shall subsist
and bind me until the liabilities of the said Celia Syjuco Regala have been
fully satisfied or paid.’

“Plaintiff-appellee Pacific Banking Corporation has contracted
with accredited business establishments to honor purchases of goods and/or
services by Pacificard holders and the cost thereof to be advanced by the
plaintiff-appellee for the account of the defendant cardholder, and the latter
undertook to pay any statements of account rendered by the plaintiff-appellee
for the advances thus made within thirty (30) days from the date of the
statement, provided that any overdue account shall earn interest at the rate of 14% per annum from date of
default.

“The defendant Celia Regala, as such Pacificard holder, had
purchased goods and/or services on credit (Exh. ‘C’, ‘C-1’ to ‘C-112’) under
her Pacificard, for which the plaintiff advanced the cost amounting to
P92,803.98 at the time of the filing of the complaint.

“In view of defendant Celia Regala’s failure to settle her
account for the purchases made thru the use of the Pacificard, a written demand
(Exh. ‘D’) was sent to the latter and also to the defendant Roberto Regala, Jr. (Exh. ‘ ’) under his
‘Guarantor’s Undertaking’.

“A complaint was
subsequently filed in Court for defendant’s (sic) repeated failure to settle
their obligation. Defendant Celia
Regala was declared in default for her failure
to file her answer within the reglementary period. Defendant-appellant Roberto Regala, Jr., on the other
hand, filed his Answer with Counterclaim admitting his execution of the
‘Guarantor’s Understanding, ‘but with the understanding that his liability
would be limited to P2,000.00 per month.’

“In view of the solidary nature of the liability of the
parties, the presentation of evidence ex-parte as against the defendant Celia
Regala was jointly held with the trial of the case as against the defendant
Roberto Regala.

“After the presentation of plaintiff’s testimonial and
documentary evidence, fire struck the City Hall of Manila, including the court
where the instant case was pending,
as well as all its records.

“Upon plaintiff-appellee’s petition for reconstitution, the
records of the instant case were duly reconstituted. Thereafter, the case was set for pre-trial conference with
respect to the defendant-appellant Roberto Regala on plaintiff-appellee’s
motion, after furnishing the latter a copy of the same. No opposition thereto having been interposed
by defendant-appellant, the trial court
set the case for pre-trial conference. Neither did said defendant-appellant nor his counsel appear on the date
scheduled by the trial court for said
conference despite due notice. Consequently, plaintiff-appellee moved that the defendant-appellant
Roberto Regala be declared as in default and that it be allowed to present its
evidence ex-parte, which motion was granted. On July 21, 1983, plaintiff-appellee presented its evidence
ex-parte. (pp. 23-26, Rollo)

After trial, the court a quo rendered judgment on
December 5, 1983, the dispositive portion of which reads:

“WHEREFORE, the Court renders judgment for the plaintiff and
against the defendants condemning the latter, jointly and severally, to pay
said plaintiff the amount of P92,803.98, with interest thereon at 14% per
annum, compounded annually, from the time of demand on November 17, 1978 until said principal amount is fully paid;
plus 15% of the principal obligation as and for attorney’s fees and expense of
suit; and the costs.

“The counterclaim of defendant Roberto Regala, Jr. is
dismissed for lack of merit.

“SO ORDERED.” (pp. 22-23, Rollo)

The defendants appealed from the decision of the court a quo to the Intermediate Appellate Court.

On August 12, 1985, respondent appellate court rendered judgment
modifying the decision of the trial court. Private respondent Roberto Regala, Jr.
was made liable only to the extent of the monthly credit limit granted
to Celia Regala, i.e., at P2,000.00 a month and only for the advances made during the one year period of the card’s
effectivity counted from October 29, 1975 up to October 29, 1976. The dispositive portion of the decision
states:

“WHEREFORE, the Judgment of the trial court dated December 5,
1983 is modified only as to appellant Roberto Regala, Jr., so as to make him
liable only for the purchases made by defendant Celia Aurora Syjuco Regala with
the use of the Pacificard from October 29, 1975 up to October 29, 1976 up to the amount of P2,000.00 per month
only, with interest from the filing of the complaint up to the payment at the
rate of 14% per annum without pronouncement as to costs.” (p. 32, Rollo)

A motion for reconsideration
was filed by Pacific Banking Corporation which the respondent appellate court
denied for lack of merit on September 19, 1985 (p. 33, Rollo).

On November 8, 1985, Pacificard filed this petition. The petitioner contends that while the
appellate court correctly recognized Celia Regala’s obligation to Pacific Banking
Corp. for the purchases of goods and services with the use of a Pacificard
credit card in the total amount of P92,803.98 with 14% interest per annum, it
erred in limiting private respondent Roberto Regala, Jr.’s liability only for
purchases made by Celia Regala with the use of the card from October 29, 1975
up to October 29, 1976 up to the amount of P2,000.00 per month with 14%
interest from the filing of the complaint.

There is merit in this petition.

The pertinent portion of the
“Guarantor’s Undertaking” which private respondent Roberto Regala,
Jr. signed in favor of Pacific Banking Corporation provides:

“I/We, the undersigned, hereby agree, jointly and severally
with Celia Syjuco Regala to pay the Pacific Banking Corporation upon demand any
and all indebtedness, obligations, charges or
liabilities due and incurred by said Celia
Syjuco Regala with the use of the
Pacificard or renewals thereof issued in his favor by the Pacific Banking Corporation. Any changes of or
Novation in the terms and conditions in
connection with the issuance or use of
said Pacificard, or any extension of time
to pay such obligations, charges or liabilities
shall not in any manner release me/us from the responsibility hereunder,
it being understood that the undertaking
is a continuing one and shall subsist
and bind me/us until all the liabilities of the said
Celia Syjuco Regala have been fully satisfied
or paid.” (p. 12, Rollo)

The undertaking signed by Roberto Regala, Jr. although denominated “Guarantor’s Undertaking,”
was in substance a contract of surety. As distinguished from a
contract of guaranty where the guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor only in case the latter should fail to do so, in a contract of
suretyship, the surety binds himself solidarily with the principal debtor (Art.
2047, Civil Code of the Philippines).

We need not look elsewhere to determine the nature and extent of
private respondent Roberto Regala, Jr.’s undertaking. As a surety he bound himself jointly and severally with the
debtor Celia Regala “to pay the Pacific Banking Corporation upon demand,
any and all indebtedness, obligations, charges or liabilities due and incurred
by said Celia Syjuco Regala with the use of Pacificard or renewals thereof
issued in (her) favor by Pacific Banking Corporation.” This undertaking
was also provided as a condition in the issuance of the Pacificard to Celia
Regala, thus:

“5. A Pacificard is issued to a Pacificard-holder
against the joint and several signature of a third party and as such, the Pacificard-holder and the guarantor
assume joint and several liabilities for any and all amount arising out of the
use of the Pacificard.” (p. 14, Rollo)

The respondent
appellate court held that “all the other rights of the guarantor are not
thereby lost by the guarantor
becoming liable solidarily and therefore a
surety.” It further ruled that although the surety’s liability is
like that of a joint and several debtor, it does not make him the debtor but
still the guarantor (or the surety), relying on the case of Government of the
Philippines v. Tizon, G.R. No. L-22108,
August 30, 1967, 20 SCRA 1182. Consequently, Article 2054 of the Civil Code providing for a limited
liability on the part of the guarantor or debtor still applies.

It is true that under Article 2054 of the Civil Code, “(A)
guarantor may bind himself for less, but not for more than the principal
debtor, both as regards the amount and the onerous nature of the conditions.^[2] It is
likewise not disputed by the
parties that the credit limit granted to Celia Regala was P2,000.00 per month
and that Celia Regala succeeded in using the card beyond the original period of its effectivity, October
29,1979. We do not agree however, that Roberto Jr.’s liability should be
limited to that extent. Private
respondent Roberto Regala, Jr., as surety of his wife, expressly bound
himself up to the extent of the
debtor’s (Celia) indebtedness likewise
expressly waiving any “discharge in case
of any change or novation
of the terms and conditions in connection
with the issuance of the Pacificard credit
card.” Roberto, in fact, made his commitment as a surety a
continuing one, binding upon himself until all the liabilities of Celia Regala
have been fully paid. All these were
clear under the “Guarantor’s Undertaking” Roberto signed, thus:

“x x x. Any changes of or novation
in the terms and conditions in connection
with the issuance or use of said
Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from
the responsibility hereunder, it being understood
that the undertaking is a continuing one
and shall subsist and bind me/us until
all the liabilities of the said Celia
Syjuco Regala have
been fully satisfied or paid.”
(p. 12, supra; underscoring supplied)

Private respondent Roberto Regala, Jr. had been made aware by the
terms of the undertaking of future changes in the terms and conditions
governing the issuance of the credit card to his wife and that notwithstanding,
he voluntarily agreed to be bound as a surety. As in guaranty, a surety may secure additional add future debts of the principal debtor the amount of
which is not yet known (see Article 2053, supra).

The application by respondent court of the ruling in Government
v. Tizon, supra is misplaced. It
was held in that case that:

“x x x, although the defendants bound themselves in solidum, the liability of the
Surety under its bond would arise only if its co-defendants, the principal obligor, should fail to comply with
the contract. To paraphrase the
ruling in the case of Municipality of
Orion vs. Concha, the liability of the Surety is ‘consequent upon the
liability’ of Tizon, or ‘so dependent on that of
the principal debtor’ that the Surety ‘is considered in law as
being the same party as the debtor in relation to whatever is adjudged,
touching the obligation of the latter’; or the liabilities of the the two
defendants herein ‘are so interwoven and dependent as to be
inseparable.’ Changing the expression, if the defendants are held liable, their liability to pay the plaintiff would be solidary, but the nature
of the Surety’s undertaking is such that it does not incur liability unless and
until the principal debtor is held liable.”

A guarantor or surety does not incur liability unless the
principal debtor is held liable. It is
in this sense that a surety, although solidarily liable with the principal
debtor, is different from the debtor. It does not mean, however, that the surety cannot be held liable to the
same extent as the principal debtor. The nature and extent of the liabilities of a guarantor or a surety is
determined by the clauses in the contract of suretyship (see PCIB v. CA,
L-34959, March 18, 1988, 159 SCRA 24).

ACCORDINGLY, the petition is GRANTED. The questioned decision of respondent
appellate court is SET ASIDE and the decision the trial court is REINSTATED.

SO ORDERED.

Narvasa, (Chairman), Cruz, Feliciano, and Grino-Aquino, JJ., concur.

^[1]
Entitled “Pacific Banking Corporation, Plaintiff-Appellee versus
Celia Aurora Syjuco Regala, et. al.,
Defendants, versus Roberto Regala, Jr., Defendant-Appellant.”

^[2]
In Hospicio de San Jose v. Fidelity and Surety, Co., G.R. No. 30427, March 11, 1929, Article 2054 of the Civil Code was applied to a
contract of surety.