Surety Bonds and Deficiency Claims: Why Evidence of Demand and Computation Matters

The Supreme Court recently clarified an important point in collection cases involving surety agreements: a creditor cannot simply present a statement of account and expect the court to accept the amount claimed. In Asset Pool A (SPV-AMC) Inc. v. MEVCO Holdings Company Inc. (G.R. No. 280513, April 7, 2026), the Court affirmed that a demand for payment must be supported by clear evidence showing how the amount was computed.

The case arose from a loan granted by Far East Bank and Trust Company (FEBTC) to MEVCO Holdings Company, Inc. in the amount of PHP 3,600,000.00. Mel Velarde, Jr., MEVCO's president, executed a continuing suretyship, binding himself jointly and severally liable with MEVCO. The loan was secured by real estate mortgages over two parcels of land.

When MEVCO defaulted, the properties were foreclosed and sold at public auction for PHP 2,314,080.00 and PHP 2,833,600.00. After applying the proceeds, a deficiency balance of PHP 1,806,912.44 remained. The creditor (later assigned to Asset Pool) filed a collection suit against MEVCO and Velarde.

The Procedural History

The Regional Trial Court dismissed the complaint, ruling that the creditor failed to prove that demand was made before the extrajudicial foreclosure. The Court of Appeals affirmed the dismissal but on a different ground: the creditor failed to present sufficient evidence demonstrating its entitlement to the deficiency balance.

The CA noted that the records did not indicate how the amount of PHP 1,806,912.44 was determined. There appeared to be no factual basis supporting the claim.

The Supreme Court's Ruling

The Supreme Court denied the petition, agreeing with the CA's dismissal based on insufficiency of evidence.

The Court examined the statement of account submitted by Asset Pool and found it lacking. The document simply listed amounts without explaining their calculation or origin. Citing Menez v. Status Maritime Corp., the Court emphasized that a mere allegation is not evidence and carries no evidentiary weight. The statement of account, being favorable to the creditor's own interest, should not be admitted by the court, as held in Lichauco v. Atlantic Gulf & Pacific Co.

The Demand Requirement Under Article 1169

The Court explained that under Article 1169 of the Civil Code, an obligor incurs delay from the time the obligee judicially or extrajudicially demands fulfillment of the obligation. This presupposes a valid demand.

A valid demand in a collection case must specifically show the amount being collected and provide details on how such amount was arrived at. If the amount is vaguely stated, the demand cannot be considered valid. If the creditor fails to properly establish the validity of the demand, it cannot be concluded that the debtor is in delay.

The statement of account presented by Asset Pool constituted a demand, but it lacked the necessary information to establish with clarity the basis of MEVCO's liability. A creditor cannot merely demand payment without adequately substantiating the claim or making it determinable.

Issues Raised for the First Time on Appeal

Asset Pool also argued that MEVCO only raised the issue of premature demand in its answer, not the amount of deficiency. The Court rejected this argument, noting that the very core of the demand is the amount being claimed.

Citing Canlas v. Tubil and Del Rosario v. Bonga, the Court recognized exceptions to the rule against raising new issues on appeal. These include situations where the factual bases would not require presentation of further evidence, plain error, jurisprudential developments, or matters of public policy.

Practical Takeaways

• Document your demand. A demand letter must clearly state the amount owed and explain how that amount was computed. A vague or unexplained statement of account may be deemed an invalid demand.
• Keep supporting computations. A statement of account alone, without supporting documents showing how figures were derived, may be dismissed as self-serving and lacking evidentiary weight.
• Understand the suretyship relationship. A surety is jointly and severally liable with the principal debtor. However, the creditor must still prove the amount of the obligation before enforcing the surety's liability.
• Preserve evidence of demand. Courts require proof that demand was made before foreclosure or collection proceedings. Keep copies of demand letters and proof of service.
• Respond to discovery requests. In this case, the creditor opposed the debtor's motion for written interrogatories, which may have contributed to the evidentiary gap. Cooperating with discovery can help establish the factual basis of claims.

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