On November 16, 1995, PBC granted a loan to an International Trading Co (ITC) as evidenced by a Promissory Note (PN) and the Continuing Surety Agreement (SA) signed by its officers Elena and Ramon. PBC granted renewal of said loan upon ITC’s request, the most recent being on January 21, 1998 as evidenced by PN Renewal BD 829802101 in the amount of P3 million. It was expressly stipulated therein that the venue for any legal action that may arise out of said Promissory Note shall be Makati City "to the exclusion of all other courts".
ITC and the sureties failed to pay said obligation upon maturity. So PBC foreclosed the real estate mortgage executed by ITC, Elena and Ramon valued at P1,081,600 leaving a deficiency balance of P4,014,297.23 as of August 31, 1999. To recover the deficiency, PBC filed a complaint against Elena, Ramon and ITC with the Regional Trial Court of Manila.
Elena, Ramon and ITC moved to dismiss the complaint on the ground of improper venue invoking the stipulation in the PN with respect to the restrictive/exclusive venue, which is the court of Makati City. PBC however contended that there was no restriction on venue because none was stipulated in the SA on which it had allegedly based its suit. Accordingly, the action on the SA may be filed in Manila, PBC’s place of business or residence. Was PBC correct?
No. A restrictive stipulation on the venue of actions contained in a promissory note applies to the surety agreement supporting it, because the nature of the two contracts and the factual circumstances surrounding their execution are intertwined or interconnected.
The factual milieu of the present case shows that the SA was entered into to facilitate existing and future loan agreements. PBC approved the loan covered by the PN partly because of the SA that assured the payment of the principal obligation. The surety agreement is merely an accessory to the principal loan agreement embodied in the promissory note. Hence, the enforcement of the former depends upon the latter.
Surety-ship arises upon the solidary binding of a person – deemed the surety–with the principal debtor, for the purpose of fulfilling an obligation. The prestation is not an original and direct obligation for the performance of the surety’s own act, but merely an accessory or collateral to the obligation contracted by the principal. Although the surety contract is secondary, the surety assumes liability as a regular party to the undertaking.
In enforcing a surety contract, it must be read in its entirety together with the principal agreement in order to arrive at their true meaning; certain stipulations cannot be segregated and then made to control. This no-segregation principle is applicable to the present case. Incapable of standing by itself, the SA can be enforced only in conjunction with the PN. The latter documents the debt that is sought to be collected in the action against the sureties.
Notably, the PN was a contract of adhesion that PBC required the principal debtor to execute as a condition of the approval of the loan. It was made in the form and language prepared by the bank. By inserting the provision that Makati City would be the venue for any legal action (that) may arise out of (the) PN, PBC also restricted the venue of actions against the sureties. The legal action against the sureties arose not only from the SA, but also from the PN (Philippine Bank of Communications vs. Lim et.al., G.R. 158138, April 12, 2005. 455 SCRA 714).