Surety Agreements, Demand Requirements, and Interest on Delayed Payments: G.R. No. 280513 Explained

The Supreme Court recently denied a petition filed by Asset Pool A (SPV-AMC) Inc., a bank that sought to collect a deficiency balance from a borrower and its surety after foreclosing on mortgaged properties. The case, Asset Pool A (SPV-AMC) Inc. v. MEVCO Holdings Company, Inc. and Mel Velarde, Jr. (G.R. No. 280513, April 7, 2026), clarifies important rules on when a demand for payment is valid, what evidence is needed to prove a deficiency obligation, and how courts treat issues raised for the first time on appeal. The ruling is a practical reminder for creditors and debtors alike: a claim for money must be supported by clear, substantiated computations.

The Facts of the Case

MEVCO Holdings Company, Inc. obtained a loan of PHP 3,600,000.00 from Far East Bank and Trust Company, which later merged with the Bank of the Philippine Islands (BPI). Mel Velarde, Jr., MEVCO’s president, signed a continuing suretyship agreement, making him jointly and severally liable with MEVCO for the loan. The loan was also secured by real estate mortgages over two parcels of land.

MEVCO defaulted, and the properties were foreclosed and sold at public auction for a total of PHP 5,147,680.00. After applying the sale proceeds, a deficiency balance of PHP 1,806,912.44 remained. BPI filed a collection case against MEVCO and Velarde, seeking the deficiency plus stipulated interest, penalties, and attorney’s fees. The account was later assigned to Asset Pool, which substituted BPI as petitioner.

The Issue: Was the Demand Valid?

The central issue was whether Asset Pool had validly demanded payment of the deficiency and whether it had proven the amount owed. The Regional Trial Court dismissed the complaint as premature, ruling that BPI failed to prove it made a demand before foreclosing the mortgages. The Court of Appeals affirmed the dismissal, but on a different ground: Asset Pool had not sufficiently established the basis for the PHP 1,806,912.44 deficiency.

The Supreme Court agreed with the Court of Appeals. While the presence of an acceleration clause in the promissory note may render a demand unnecessary for the purpose of making the obligation due, the case still had to be resolved on the merits. The Court found that the statement of account submitted by Asset Pool merely listed amounts without explaining how they were calculated. Citing Menez v. Status Maritime Corp., the Court reiterated that a mere allegation is not evidence, and a self-serving statement of account has no evidentiary weight. The Court also cited Lichauco v. Atlantic Gulf & Pacific Co. for the rule that a document favorable to the party who prepared it should not be admitted without supporting proof.

The Demand Must Be Specific and Substantiated

The Court explained that under Article 1169 of the Civil Code, a debtor incurs delay only after the obligee makes a judicial or extrajudicial demand for fulfillment. For a demand to be valid, it must clearly state the amount being collected and provide details on how that amount was computed. If the amount is vague or unsupported, the demand is invalid, and the debtor cannot be considered in delay.

Applying this rule, the Court held that Asset Pool’s statement of account was insufficient. It did not show how the deficiency was derived, making the demand unenforceable against MEVCO.

Issues Raised for the First Time on Appeal

Asset Pool also argued that the Court of Appeals acted beyond its jurisdiction by ruling on the amount of the deficiency when MEVCO only raised the issue of prematurity in its answer. The Court rejected this argument, noting that the amount of the deficiency is the very core of the demand. It cited Canlas v. Tubil and Del Rosario v. Bonga for the exceptions to the rule against raising new issues on appeal, including when the factual bases do not require further evidence or when plain error exists. Since MEVCO had earlier sought documents to verify the amount, the issue was properly considered.

Practical Takeaways

• A demand for payment must be specific. The creditor must state the exact amount and show how it was computed. A vague or unexplained demand is invalid.
• A statement of account is not enough. Courts will not accept a self-serving SOA at face value. Creditors must present supporting computations and documents.
• Sureties are jointly and severally liable. A continuing suretyship makes the surety liable with the principal debtor, but the creditor must still prove the amount owed.
• Deficiency claims require clear evidence. After foreclosure, the creditor must show how the sale proceeds were applied and how the deficiency was calculated.
• New issues on appeal may be considered. Courts may entertain issues raised for the first time on appeal when they are closely related to the issues pleaded and do not require further evidence.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.