G.R. No.187403, February 12, 2014
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES (FORMERLY PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION.), Petitioner, v. ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION (NOW MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE CORPORATION,* AND FORTUNE LIFE AND GENERAL INSURANCE COMPANY, Respondents.
D E C I S I O N
LETTER OF GUARANTEE
LOAN AGREEMENT SECURED
|Letter of Guarantee No. 82-446 F dated March 11, 1982 (LG No. 82-446 F)||Loan Agreement dated March 9, 1982 (with an extension dated March 25, 1983), in the amount of US$250,000.00||Banque Indosuez|
|Letter of Guarantee No. 82-498 F dated June 10, 1982 (LG No. 82-498 F)||Loan Agreement dated June 10, 1982, in the amount of US$250,000.00||PCI Capital|
|Letter of Guarantee No. 82-548 F dated October 5, 1982 (LG No. 82-548 F)||Loan Agreement dated October 5, 1982, in the amount of US$2,000,000.00||PCI Capital|
LETTER OF GUARANTEE COVERED
BONDING COMPANY/ SURETY
FINAL EXPIRATION DATE
Surety Bond No. G(16)0194313
LG No. 82-446 F
March 5, 198614
Surety Bond No. G(16)0190615
LG No. 82-498 F
June 4, 198616
Surety Bond No. G(16)1549517
November 21, 198518
Surety Bond No. G(16)0190319
LG No. 82-548 F
September 28, 198520
Surety Bond No. G(16)0149721
September 28, 198522
Article 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.Thus, since the surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before the surety could be made liable; it is enough that a demand for payment is made by the creditor for the surety’s liability to attach.53 Article 1216 of the Civil Code provides that:chanRoblesVirtualawlibrary
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. (Emphasis and underscoring supplied)
Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.Comparing a surety’s obligations with that of a guarantor, the Court, in the case of Palmares v. CA,54 illumined that a surety is responsible for the debt’s payment at once if the principal debtor makes default, whereas a guarantor pays only if the principal debtor is unable to pay, viz.:55crallawlibrary
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal’s debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. (Emphases and underscoring supplied; citations omitted)Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety & Insurance Co., Inc.,56 and later in the case of Security Bank, held that Article 2079 of the Civil Code, which pertinently provides that “[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty,” equally applies to both contracts of guaranty and suretyship. The rationale therefor was explained by the Court as follows:57crallawlibrary
The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety’s consent would deprive the surety of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon the maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period. (Emphasis and underscoring supplied; citations omitted)Applying these principles, the Court finds that the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement did not have the effect of extinguishing the bonding companies’ obligations to TIDCORP under the Surety Bonds, notwithstanding the fact that said extensions were made without their consent. This is because Article 2079 of the Civil Code refers to a payment extension granted by the creditor to the principal debtor without the consent of the guarantor or surety. In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC, the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the damages and liabilities it may incur under the Letters of Guarantee, within the bounds of the bonds’ respective coverage periods and amounts. No payment extension was, however, granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil Code should not be applied with respect to the bonding companies’ liabilities to TIDCORP under the Surety Bonds.
* Dropped as respondent pursuant to the Court’s Resolution dated December 1, 2010, granting petitioner’s Motion for Partial Withdrawal in its favor; rollo, p. 696-B.
1 Id. at 39-87.
2 Id. at 92-lll. Penned by Associate Justice Josefina Guevara-Salonga, with Associate Justices Magdangal M. De Leon and Normandie B. Pizarro, concurring.
3 Id. at 113-117.
4 Id. at 325-328. Penned by Judge Rommel O. Baybay.
5 Formerly known as “Siddcor Insurance Corp.”
6Rollo, pp. 94-95.
7 See Section 3 of Republic Act No. 8494, entitled “AN ACT FURTHER AMENDING PRESIDENTIAL DECREE NO. 1080, AS AMENDED, BY REORGANIZING AND RENAMING THE PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, EXPANDING ITS PRIMARY PURPOSES, AND FOR OTHER PURPOSES.”
8Rollo, pp. 95.
9 Id. at 94-95 and 49.
10 Id. at 118-127.
11 See id. at 95-96.
12 Id. at 95.
13 Id. at 131-134 and 140.
14 Id. at 53 and 230-231.
15 Id. at 128-130 and 139.
16 Id. at 53.
17 Id. at 137 and 143.
18 Id. at 54, 137, and 143.
19 Id. at 52 and 141.
20 Id. at 54, 133-134, and 141.
21 Id. at 135-136 and 142.
22 Id. at 54, 135-136, and 142.
23 Id. at 96 and 257.
25 Id. at 165-168. TIDCORP initially sent a demand letter on May 24, 1984 to Paramount, calling for the payment of Surety Bond No. G(16)01943.cralawred
26 Id. at 169-171.
27 Id. at 172-174.
28 Id. at 175-176.
29 Id. at 58-59 and 192-194. TIDCORP sent similar demand letters to the bonding companies on October 2, 1986 and May 19, 1994.
30 Id. at 144-145.
31 Id. at 96.
32 Id. at 104-105, 188, and 258.
33 Section 4.01 of the Restructuring Agreement reads:chanRoblesVirtualawlibrarySection 4.01. Scheduled Payments. The Obligor shall repay to each Bank the principal amount of each Credit of such Bank in eleven consecutive semi-annual installments, the first of which shall be on December 31, 1989 and the remaining ten of which shall be on the last day of each sixth Restructure Month thereafter (each such date being a “Principal Payment Date”). Each installment shall be in the amount of one-eleventh of the principal amount of such Credit: provided that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of such Credit. The final Principal payment Date will be on December 31, 1994. (Emphases supplied; id. at 105.)34 Id. at 154-157 and 158-164.
35 Id. at 97, 190 and 258.
36 Id. at 177-197.
37 Id. at 325-328.
38 Id. at 328.
39 Id. at 284-324 and 391-408.
40 Id. at 92-111.
41 Id. at 103-104.
42 Id. at 104-105.
43 396 Phil. 108 (2000); see also rollo, p. 105.
44Rollo, pp. 107-108.
45 Id. at 110-111.
46 Id. at 440-451 and 464-473.
47 Id. at 113-117.
48 Id. at 662-667.
49 Id. at 668-678.
50 See Decision dated July 9, 2010 in CA-G.R. CV No. 92818; id. at 682-691.
51 The Court granted the Motion for Partial Withdrawal in a Resolution dated December 1, 2010 and, hence, “consider[ed] the case closed and terminated insofar as [Paramount] is concerned.” (See id. at 696-B.)
52Molino v. SDIC, 415 Phil. 587, 597 (2001).
53 See TIDCORP v. Roblett Industrial Construction Corp., 523 Phil. 360 (2006).
54 351 Phil. 664 (1998).
55 Id. at 680.
56 235 Phil. 332 (1987).
57Security Bank and Trust Co., Inc. v. Cuenca, supra note 43, at 125, citing Cochingyan, Jr. v. R&B Surety & Insurance Co., Inc., supra note 56, at 347-348.
58 Records show that TIDCORP fully settled its obligations under the Letters of Guarantee to both Banque Indosuez and PCI Capital on December 1, 1992, and April 19 and June 4, 1991, respectively (Id. at 16, 190 & 258).
59 Quoted hereunder for reference are the pertinent portions of the Court’s ruling in the case of Phil. Export & Foreign Loan Guarantee Corp. v. V.P. Eusebio Construction, Inc. (478 Phil. 269, 286-287 ) which involved a similar Letter of Guarantee issued by TIDCORP’s predecessor, the Philippine Export and Foreign Loan Guarantee Corp, finding the same to be a contract of guaranty, viz.:chanRoblesVirtualawlibrary
In determining petitioner’s status, it is necessary to read Letter of Guarantee No. 81- 194-F, which provides in part as follows:chanRoblesVirtualawlibraryIn consideration of your issuing the above performance guarantee/counter- guarantee, we hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay you on your first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand Eight Hundred Eight and fils six hundred ten (ID271,808/610) representing 100% of the performance bond required of V.P. EUSEBIO for the construction of the Physical Therapy Institute, Phase II, Baghdad, Iraq, plus interest and other incidental expenses related thereto.Guided by the abovementioned distinctions between a surety and a guaranty, as well as the factual milieu of this case, we find that the Court of Appeals and the trial court were correct in ruling that the petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition, namely, that the principal obligor should fail in his obligation at the time and in the form he bound himself. In other words, an unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one which depends upon some extraneous event, beyond the mere default of the principal, and generally upon notice of the principal’s default and reasonable diligence in exhausting proper remedies against the principal.
In the event of default by V.P. EUSEBIO, we shall pay you 100% of the obligation unpaid but in no case shall such amount exceed Iraq Dinars (ID) 271,808/610 plus interest and other incidental expenses….
It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that petitioner’s guaranty is unconditional does not make it a surety. Besides, surety is never presumed. A party should not be considered a surety where the contract itself stipulates that he is acting only as a guarantor. It is only when the guarantor binds himself solidarily with the principal debtor that the contract becomes one of suretyship. (Emphases supplied; citations omitted)
60Integrated Packaging Corp. v. CA, 388 Phil. 835, 845 (2000).
61 TIDCORP sent its preliminary demand letters to the bonding companies on May 28, 1985, or before the expiration dates of the Surety Bonds, which - as may be seen from the table above-presented - range from September 28, 1985 at the earliest to June 4, 1986 at the latest.