Merrie Anne Tan v. First Malayan Leasing

Summary

This case involves the release of one surety from a multi-party solidary surety arrangement and its effect on remaining co-sureties. When NUMC defaulted on a P5 million loan from FMLFC, secured by multiple sureties including Merrie Tan and Edward Yao, FMLFC released Yao upon partial payment of P980,000.00 while expressly reserving rights against remaining sureties. The Supreme Court held that such release does not convert the solidary obligation to a divisible one, as the creditor properly exercised its Article 1216 rights and expressly reserved claims against co-sureties. However, the Court ruled that simultaneous imposition of penalty charges and liquidated damages constitutes unconscionable redundancy since both serve the same compensatory function under Article 1226. The decision clarifies that suretyship liability remains solidary despite partial release of co-sureties, but prohibits duplicative penalty impositions that serve identical compensatory purposes.