FACTS:

This case involves a petition for review on certiorari to set aside the decision of the Court of Appeals affirming the trial court's denial of the petitioners' motion to dismiss. The petitioners are spouses Alfredo and Susana Ong, the President and Treasurer of Baliwag Mahogany Corporation (BMC), respectively. The respondent is Philippine Commercial International Bank (now Equitable-Philippine Commercial International Bank or E-PCIB).

In 1992, E-PCIB filed a case against the petitioners for the collection of a sum of money based on three promissory notes they issued as sureties for loans obtained by BMC from the bank. The complaint alleged that BMC needed additional capital and applied for loans with E-PCIB, with the petitioners serving as sureties. It was further stated that under the promissory notes, E-PCIB could consider BMC in default and demand payment of the remaining balance of the loan if certain conditions were met. One of these conditions was the attachment or garnishment of any of BMC's properties and the declaration of BMC's suspension of payment. After BMC's properties were attached by creditors and it filed for rehabilitation and suspension of payments, E-PCIB considered BMC in default and sought to collect payment from the petitioners as sureties. The petitioners filed an answer, and later on, a Memorandum of Agreement (MOA) was executed by BMC, the petitioners, and the consortium of creditor banks. The MOA provided for the suspension of filing or pursuing collection cases against BMC. The petitioners then filed a motion to dismiss the complaint against them, arguing that the benefits of the MOA should also be extended to them as sureties. However, the trial court denied the motion, and the Court of Appeals affirmed the decision. Thus, the petitioners appealed to the Supreme Court.

ISSUES:

1. Whether or not the benefits of the Memorandum of Agreement (MOA) should be extended to petitioners-spouses as sureties, considering that the SEC declared the principal debtor, BMC, in a state of suspension of payments.

2. Whether or not the collection case filed against petitioners-spouses as sureties by respondent bank should be dismissed.

3. Whether or not the principles of compromise between the creditor and principal debtor, as well as the defenses available to the principal debtor, can be availed of by the sureties.

RULING:

1. The benefits of the MOA, which provided for the suspension of payment and filing of collection suits against BMC, cannot be extended to the petitioners-spouses as sureties. The MOA only pertains to the properties of the principal debtor, and not to the liabilities of the sureties. The jurisdiction of the SEC, who approved the MOA, is limited to corporations and corporate assets.

2. The collection case filed against petitioners-spouses as sureties by respondent bank can proceed independently of the suspension of payments by BMC and the MOA. The creditor bank has the right to collect payment from the surety separate from its right to proceed against the principal debtor.

3. The principles of compromise between the creditor and principal debtor, as well as the defenses available to the principal debtor, do not apply to suretyship contracts. Guarantor and suretyship contracts have different rights and liabilities. In a suretyship contract, the surety is directly, equally, and absolutely bound with the principal debtor for the payment of the debt.

PRINCIPLES:

• Suretyship contracts are different from guarantor contracts in terms of rights and liabilities.

• A creditor can directly proceed against the surety, regardless of the financial capacity of the principal debtor.

• The benefits of a compromise between the principal debtor and creditor do not extend to the sureties.

• The MOA pertaining to the suspension of payments by the principal debtor and the non-filing of collection suits by the creditor banks only applies to the properties of the debtor and not to the liabilities of the sureties.