Severino vs. Severino

A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties, and the compromise and dismissal of a lawsuit is a valuable consideration sufficient to support the guarantor's promise, even if the guarantor received no personal benefit from the contract.

Fabiola Severino is the recognized natural daughter of Melecio Severino, a deceased former resident of Occidental Negros who left considerable property. Upon Melecio's death, litigation arose between his widow, Felicitas Villanueva, and Fabiola Severino on one side, and other heirs of the deceased on the other. To settle the dispute, a compromise agreement was reached whereby Guillermo Severino, a son of Melecio Severino, took over the estate property and agreed to pay P100,000 to Felicitas Villanueva and Fabiola Severino. Enrique Echaus signed the compromise agreement as guarantor for Guillermo Severino's obligation.

Fabiola Severino is the recognized natural daughter of Melecio Severino, deceased, a former resident of Occidental Negros who left considerable property upon his death. Litigation ensued between his widow, Felicitas Villanueva, and Fabiola Severino on one part, and the other heirs of the deceased on the other. To end the dispute, a compromise was effected by which Guillermo Severino, a son of Melecio Severino, took over the property pertaining to the estate of his father, agreeing to pay P100,000 to Felicitas Villanueva and Fabiola Severino. The sum was payable as follows: P40,000 in cash upon execution of the compromise document, and the balance in three several payments of P20,000 at the end of one, two, and three years, respectively. To this contract, Enrique Echaus affixed his name as guarantor.

The first payment of P40,000 was made on July 11, 1924, the date when the contract of compromise was executed, and of this amount Fabiola Severino received P10,000. Of the remaining P60,000, all as yet unpaid, Fabiola Severino is entitled to P20,000. At the time the compromise agreement was executed, Fabiola Severino had not yet been judicially recognized as the natural daughter of Melecio Severino, and it was stipulated that the last P20,000 corresponding to Fabiola and the last P5,000 corresponding to Felicitas Villanueva should be retained on deposit until Fabiola's definite status as natural daughter was established. The judicial decree recognizing Fabiola was entered in the Court of First Instance of Occidental Negros on June 16, 1925, rendering the deposit stipulation moot, though the money was never in fact paid.

Fabiola Severino, joined by her husband Ricardo Vergara, thereafter instituted the present action in the Court of First Instance of Iloilo to recover the sum of P20,000 from Guillermo Severino as principal and Enrique Echaus as guarantor. The trial court rendered judgment in favor of the plaintiffs for P20,000 with lawful interest from November 15, 1929, with costs, directing that execution issue first against the property of Guillermo Severino and, if insufficient, against the property of Echaus as guarantor. From this judgment Echaus alone appealed; his principal, Guillermo Severino, did not. The only defense worthy of note raised by Echaus was that he received nothing for affixing his signature as guarantor and that the contract was lacking in consideration as to him.

• Lack of Consideration: Appellant Echaus argued that he received nothing for affixing his signature as guarantor to the compromise contract and that, in effect, the contract was lacking in consideration as to him.

• Consideration in Guaranty: Whether a guarantor's obligation is supported by adequate consideration where the guarantor received no personal benefit from the contract, and whether the compromise and dismissal of a lawsuit constitutes valuable consideration sufficient to bind the guarantor.

• Consideration in Guaranty: Yes. A guarantor is bound by the same consideration that makes the contract effective between the principal parties, and the compromise and dismissal of a lawsuit is a valuable consideration sufficient to support the guarantor's promise, regardless of whether the guarantor received any benefit.

• Consideration in Guaranty: The governing rule, as established in Pyle vs. Johnson, 9 Phil. 249, is that a guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties. Applied to the facts, the compromise and dismissal of the lawsuit instituted by Felicitas Villanueva and Fabiola Severino against Guillermo Severino constituted a valuable consideration supporting Guillermo's promise to pay the stipulated sum. Because the guarantor's obligation is supported by the same consideration that binds the principal, Echaus's promise as guarantor was binding. It is never necessary that the guarantor receive any part of the benefit accruing to the principal; the true consideration was the detriment suffered by the plaintiffs in dismissing the prior proceeding, and it is immaterial that no benefit accrued to either the principal or the guarantor. The defense of lack of consideration was therefore without merit.

• Same-Consideration Rule in Guaranty — A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties. It is not necessary that the guarantor receive any personal benefit from the contract; the consideration that binds the principal simultaneously binds the guarantor. The Court applied this doctrine to reject Echaus's defense that he received nothing for signing as guarantor, holding his obligation enforceable because the underlying compromise agreement was supported by adequate consideration.

• Compromise as Valuable Consideration — The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration. The detriment suffered by a party in dismissing a pending action is sufficient to support a contractual promise, and it is immaterial that no benefit accrues to the promisor or his guarantor. The Court relied on this principle to uphold the enforceability of the compromise agreement and, consequently, the guarantor's ancillary obligation.

• "A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto." — This is the ratio decidendi of the case, stating the canonical formulation of the same-consideration rule in guaranty that binds the guarantor through the principal contract's consideration alone.

• "The compromise and dismissal of a lawsuit is recognized in law as a valuable consideration; and the dismissal of the action which Felicitas Villanueva and Fabiola Severino had instituted against Guillermo Severino was an adequate consideration to support the promise on the part of Guillermo Severino to pay the sum of money stipulated in the contract which is the subject of this action." — This passage establishes that a compromise and dismissal of litigation qualifies as valuable consideration, applying the doctrine to the specific facts of the case.

• "It is never necessary that the guarantor or surety should receive any part of the benefit, if such there be, accruing to his principal. But the true consideration of this contract was the detriment suffered by the plaintiffs in the former action in dismissing that proceeding, and it is immaterial that no benefit may have accrued either to the principal or his guarantor." — This clarifies that consideration for a guaranty may consist of detriment to the promisee rather than benefit to the promisor, reinforcing that the guarantor need not personally profit from the contract.

• Pyle vs. Johnson, 9 Phil. 249 — Controlling precedent cited for the proposition that a guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties. The Court applied this rule directly to uphold Echaus's obligation as guarantor.

Avanceña, C.J., Johnson, Malcolm, Villamor, Ostrand, Romualdez, Villa-Real, and Imperial, JJ., concurred.