Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=82803:56625&catid=1580&Itemid=566
Timestamp: 2019-04-21 04:45:13+00:00

Document:
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.
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.
Assailed in this petition for review on certiorari1 are the Decision2 dated April 30, 2008 and Resolution3 dated March 27, 2009 of the Court of Appeals (CA) in CA-G.R. CV No. 86558 which affirmed the Decision4 dated April 29, 2005 of the Regional Trial Court of Makati, Branch 132 (RTC) in Civil Case No. 95-1812. The CA upheld the RTC’s finding that the liabilities of Paramount Insurance Corporation (Paramount), and respondents Philippine Phoenix Surety and Insurance, Inc. (Phoenix), Mega Pacific Insurance Corporation5 (Mega Pacific), and Fortune Life and General Insurance Company (Fortune) on their respective counter-surety bonds have been extinguished due to the extension of the principal obligations these bonds covered, to which said respondents did not give their consent.
Taking into account the moratorium request30 issued by the Minister of Finance of the Republic of the Philippines (whereby members of the international banking community were requested to grant government financial institutions,31 such as TIDCORP, among others, a 90-day roll over from their foreign debts beginning October 17, 1983), TIDCORP and its various creditor banks, such as Banque Indosuez and PCI Capital, forged a Restructuring Agreement32 on April 16, 1986, extending the maturity dates of the Letters of Guarantee.33 The bonding companies were not privy to the Restructuring Agreement and, hence, did not give their consent to the payment extensions granted by Banque Indosuez and PCI Capital, among others, in favor of TIDCORP. Nevertheless, following new payment schedules,34 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.35 Seeking payment for the damages and liabilities it had incurred under the Letters of Guarantee and with its previous demands therefor left unheeded, TIIDCORP filed a collection case36 against: (a) ASPAC, PICO, and Balderrama on account of their obligations under the deeds of undertaking; and (b) the bonding companies on account of their obligations under the Surety Bonds.
Dissatisfied, TIDCORP and Balderrama filed separate appeals before the CA.39 For its part, TIDCORP averred, among others, that Article 2079 of the Civil Code is only limited to contracts of guaranty, and, hence, should not apply to contracts of suretyship. Meanwhile, Balderrama theorized that the main contractor’s (i.e., ELPCO) failure to pay ASPAC due to the war/political upheaval in Libya which further resulted in the latter’s inability to pay Banque Indosuez and PCI Capital had the effect of releasing him from his obligations under the Deeds of Undertaking.
The essential issue raised for the Court’s resolution is whether or not the CA erred in holding that the bonding companies’ liabilities to TIDCORP under the Surety Bonds have been extinguished by the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement.
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.
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.
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.
The payment extensions granted by Banque Indosuez and PCI Capital pertain to TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and unconditionally guaranteed full payment of ASPAC’s loan obligations to the banks in the event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPAC’s loan agreements to the banks. Under this arrangement, TIDCORP therefore acted58 as a guarantor,59 with ASPAC as the principal debtor, and the banks as creditors.
banks and not ASPAC’s debt to TIDCORP) would not deprive the bonding companies of their right to pay their creditor (TIDCORP) and to be immediately subrogated to the latter’s remedies against the principal debtor (ASPAC) upon the maturity date. It must be stressed that these payment extensions did not modify the terms of the Letters of Guarantee but only provided for a new payment scheme covering TIDCORP’s liability to the banks. In fine, considering the inoperability of Article 2079 of the Civil Code in this case, the bonding companies’ liabilities to TIDCORP under the Surety Bonds - except those issued by Paramount and covered by its Compromise Agreement with TIDCORP - have not been extinguished. Since these obligations arose and have been duly demanded within the coverage periods of all the Surety Bonds,61 TIDCORP’s claim is hereby granted and the CA’s ruling on this score consequently reversed. Nevertheless, given that no appeal has been filed on Balderrama’s adjudged liability or on the award of attorney’s fees, the CA’s dispositions on these matters are now deemed as final and executory.
WHEREFORE, the petition is GRANTED. The Decision dated April30, 2008 and Resolution dated March 27,2009 of the Court of Appeals in CA-G.R. CV No. 86558 are MODIFIED in that respondents Philippine Phoenix Surety and Insurance, Inc., Mega Pacific Insurance Corporation, Fortune Life and General Insurance Company are ORDERED to fulfill their respective obligations to petitioner Trade and Investment Development Corporation of the Philippines (TIDCORP) under the Surety Bonds subject of this case, discounting the obligations arising from the Surety Bonds issued by Paramount Insurance Corporation and covered by its Compromise Agreement with TIDCORP.
Carpio, (Chairperson), Brion, Del Castillo, and Perez, JJ., concur.
* 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.
2 Id. at 92-lll. Penned by Associate Justice Josefina Guevara-Salonga, with Associate Justices Magdangal M. De Leon and Normandie B. Pizarro, concurring.
4 Id. at 325-328. Penned by Judge Rommel O. Baybay.
9 Id. at 94-95 and 49.
11 See id. at 95-96.
13 Id. at 131-134 and 140.
14 Id. at 53 and 230-231.
15 Id. at 128-130 and 139.
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.
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.
32 Id. at 104-105, 188, and 258.
34 Id. at 154-157 and 158-164.
35 Id. at 97, 190 and 258.
39 Id. at 284-324 and 391-408.
43 396 Phil. 108 (2000); see also rollo, p. 105.
46 Id. at 440-451 and 464-473.
50 See Decision dated July 9, 2010 in CA-G.R. CV No. 92818; id. at 682-691.
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).
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).
In 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.
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….
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.
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.

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