Monday, February 20, 2012

SPS EDUARDO & EPIFANIA EVANGELISTA vs. MERCATOR FINANCE CORP. LYDIA P. SALAZAR, LAMECS REALTY & DEV’T CORP. and the REGISTER OF DEEDS OF BULACAN [G.R. No. 148864. August 21, 2003]

Facts: The spouses Evangelista filed a complaint for annulment of titles against the respondents, claiming to be the registered owners of five (5) parcels of land contained in the real estate mortgage executed by them and Embassy Farms Inc. in favor of Mercator Financing Corporation (“Mercator”). The mortgage was in consideration of certain loans and credit accommodations amounting to P844, 625.78.

The spouses alleged the following: (1) that they executed the said real estate mortgage merely as officers of Embassy Farms; (2) that they did not receive the proceeds of the loan evidenced by the promissory note, as all went to Embassy Farms; (3) that the real estate mortgage is void due to absence of a principal obligation on which it rests; (4) that since the real estate mortgage is void, the foreclosure proceedings, the subsequent sale as well as the issuance of transfer certificates of title are likewise void. Petitioners further alleged ambiguity in the wording of the promissory note, which should be resolved against Mercator who provided the form thereof.

Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that the spouses executed a Mortgage in favor of Mercator Finance Corporation ‘for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x.’” It contended that since petitioners and Embassy Farms signed the promissory note as co-makers (the note being worded as “For value received, I/We jointly and severally promise to pay to the order of Mercator…”), aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness, the petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are thus valid. Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith.

Issue: May the spouses be held solidarily liable with Embassy Farms?

Held: YES. Courts can interpret a contract only if there is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:

SECTION 17. Construction where instrument is ambiguous. – Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: (g) Where an instrument containing the word “I promise to pay” is signed by two or more persons, they are deemed to be jointly and severally liable thereon.

Petitioners also insist that the promissory note does not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners.

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