NATIONAL MARKETING CORPORATION, PLAINTIFF-APPELLEE, VS. GABINO MARQUEZ, ET AL., DEFENDANTS. PLARIDEL SURETY & INSURANCE COMPANY, DEFENDANT-APPELLANT.

National Marketing Corporation versus Plaridel Surety and Insurance Company

The Case

This is a collection suit. The National Marketing Corporation, which the Court calls NAMARCO, sued Gabino Marquez and the Plaridel Surety and Insurance Company to recover an unpaid balance on a promissory note and on the guaranty bond that secured it. The principal debtor defaulted, and the surety refused to pay. The case matters because it gathers in one decision three recurring bar topics: the jurisdictional threshold that separates municipal courts from courts of first instance, the interruption of extinctive prescription by a written extrajudicial demand, and the extent of a compensated surety's liability, which includes the accessory of moratory interest even beyond the face of the bond.

Procedural History

NAMARCO filed the complaint in the Court of First Instance of Manila, which rendered judgment against the surety for the principal sum of 10,000 pesos, plus 9,990 pesos and 91 centavos in accrued interest up to the first of November 1964, plus interest thereafter at seven percent per annum on the principal and six percent on the accrued interest, together with ten percent of the total amount due as attorney's fees, and costs. The surety appealed directly to the Supreme Court, so the facts found by the trial court bound the appellant. The Supreme Court, speaking through Justice Reyes, affirmed the judgment in full, with costs against the surety.

Facts

Under Executive Order Number 350, series of 1950, the properties, rights, obligations, and contracts of the Philippine Relief and Trade Rehabilitation Administration, or PRATRA, were transferred to the Price Stabilization Corporation, or PRISCO. By virtue of Republic Act Number 1345, as amended, the rights and contracts of PRISCO involving real estate, fixed assets, and stock in trade were assumed by NAMARCO.

On the twenty fourth of June 1950, Gabino Marquez obtained from PRATRA one tractor and one rice thresher worth 20,000 pesos. He paid 8,000 pesos as down payment, leaving a balance of 12,000 pesos, for which he executed a promissory note payable in installments from June 1951 to June 1952, with interest at seven percent per annum from the date of the note until full payment. The note provided that upon default an additional ten percent of the total amount due would be paid as attorney's fees. To guarantee the obligation, Marquez as principal and Plaridel Surety and Insurance Company as surety executed a guaranty bond binding themselves jointly and severally for 12,000 pesos. In that bond the surety expressly waived its right to demand payment and notice of non payment, and agreed that its liability would be direct and immediate, not contingent on exhaustion of remedies against the principal, and would remain valid and continuous until the obligation was paid in full.

Marquez made partial payments of 2,870 pesos and 19 centavos on the seventh of July 1951 and 326 pesos and 77 centavos on the twenty third of February 1952, then defaulted. As of the thirty first of October 1964 the total due was 19,990 pesos and 91 centavos, representing principal and accrued interest. NAMARCO sent written demands to both Marquez and the surety on the twenty second of March 1956, the sixteenth of February 1963, and in June, September, and October of 1964, and registry return receipts showed the surety received copies. Payment never came, so NAMARCO sued on the sixteenth of December 1964.

Issues

• Whether or not the Court of First Instance had original jurisdiction over the suit, the surety arguing that the demand on the principal was only 10,000 pesos and therefore fell within the municipal court's jurisdiction.
• Whether or not NAMARCO's action against the surety was barred by prescription.
• Whether or not the surety's liability could exceed the 12,000 peso face of the guaranty bond.

Applicable Provisions

Section 44, paragraph c, of the Judiciary Act, as amended by Republic Act Number 3828, fixes the original jurisdiction of the Court of First Instance:

all cases in which the demand, exclusive of interest, or the value of the property in controversy, amounts to more than ten thousand pesos.

This is the threshold against which the surety's jurisdictional objection is measured.

Article 1115 of the Civil Code of the Philippines governs interruption of prescription:

the prescription of actions is interrupted when there is a written extrajudicial demand by the creditor.

This defeats the defense that the action had prescribed.

Article 2055, paragraph 2, of the Civil Code of the Philippines defines the extent of a simple or indefinite guaranty:

If it be simple or indefinite, it shall comprise not only the principal obligation but also all its accessories, including judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay.

This is the basis for holding the surety liable for moratory interest beyond the face of the bond.

Ruling

On the first issue, the Court held that the Court of First Instance had jurisdiction. The surety ignored that under the promissory note, a copy of which was annexed to the guaranty bond, default on principal or interest entitled the creditor to an additional ten percent of the total amount due as attorney's fees. Even disregarding overdue interest, when the complaint was filed the creditor was entitled to collect no less than 10,000 pesos on the loan plus 1,000 pesos in attorney's fees, or 11,000 pesos, which exceeds the jurisdictional threshold.

On the second issue, the Court held that the action had not prescribed. The course of extinctive prescription was interrupted by the written demands for payment made on the principal debtor in 1956, 1963, and 1964, copies of which were furnished to the surety. The surety's argument that a demand on the debtor is no demand on the surety was rejected for two reasons: its liability was expressly made joint and several by the guaranty bond, and the bond waived its right to demand payment and notice of non payment. The Court also held that laches, not having been invoked below, could not be raised for the first time on appeal, and that in any event mere delay by the creditor in proceeding against the principal debtor does not release a guarantor, much less a surety solidarily liable with the debtor.

On the third issue, the Court held that the judgment did not exceed the surety's undertaking. The judgment on the principal was only 10,000 pesos; the remaining 9,990 pesos and 91 centavos represented moratory interest arising from default. The surety knew the obligation earned interest because the note was annexed to its contract, and the guaranty nowhere excluded that interest. Article 2055, paragraph 2, therefore applied, and the Court added that compensated sureties are not entitled to have their contracts interpreted strictissimi juris, that is, strictly in their favor.

Doctrine

First, jurisdiction is measured by the amount of the demand at the time the complaint is filed, and stipulated attorney's fees form part of that demand. Second, a written extrajudicial demand by the creditor interrupts the running of prescription, and a demand on the principal debtor, with copies furnished to a solidary surety who has waived notice, interrupts prescription as to the surety. Third, a simple or indefinite guaranty comprises not only the principal obligation but all its accessories, including moratory interest, unless the guarantor has expressly restricted its liability. Fourth, a compensated surety is not favored with a strict interpretation of its contract.

Disposition

The Supreme Court affirmed the judgment of the trial court in full, with costs against Plaridel Surety and Insurance Company.

Remember This

Memorize this line: a compensated surety is not entitled to have its contract interpreted strictissimi juris in its favor, so it answers for the principal and all its accessories, including moratory interest. Examiners use this case for jurisdictional amount when attorney's fees are stipulated, and for the rule that a written extrajudicial demand on the principal debtor interrupts prescription against a solidary surety.