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JN DEVELOPMENT CORPORATION v. PHILIPPINE EXPORT

FACTS:

Petitioner JN Development Corporation (JN) and Traders Royal Bank (TRB) entered into an agreement wherein TRB would extend a credit line to JN. The loan was covered by various securities, including a letter of guarantee from respondent Philippine Export and Foreign Loan Guarantee Corporation (PhilGuarantee), which covered 70% of the credit line. JN, along with petitioner spouses Rodrigo and Leonor Sta. Ana and petitioner Narciso Cruz, executed a Deed of Undertaking to assure repayment to PhilGuarantee.

JN failed to pay the loan to TRB upon its maturity, prompting TRB to request PhilGuarantee to honor its guarantee. PhilGuarantee paid TRB the amount owed by JN after receiving no response from JN regarding the loan. PhilGuarantee made multiple demands on JN but the latter still did not pay. JN proposed to settle the obligation through the development and sale of the mortgaged property, but PhilGuarantee rejected the proposal.

PhilGuarantee filed a Complaint for collection of money and damages against the petitioners. The Regional Trial Court (RTC) ruled that the petitioners were not liable to reimburse PhilGuarantee for its payment to TRB, stating that TRB's foreclosure of the real estate mortgage extinguished the petitioners' obligation. The RTC also found that PhilGuarantee's guarantee expired and held that Cruz cannot be held liable since his signature on the Undertaking was different from the signature found in the records.

On appeal, the Court of Appeals (CA) reversed the RTC's decision and ordered the petitioners to pay PhilGuarantee the amount it paid to TRB. The CA found that the foreclosure did not extinguish JN's obligation and that PhilGuarantee's payment to TRB conformed with its guarantee. The CA also ruled that Cruz failed to prove the alleged forgery of his signature on the Undertaking.

Petitioners filed separate petitions for review before the Supreme Court challenging the CA's decision. JN and the spouses Sta. Ana argued that the CA erred in interpreting provisions of the Civil Code, while Cruz questioned the CA's finding of liability. PhilGuarantee maintained that it should be indemnified by the petitioners for its payment to TRB, arguing that the date of default, not the date of payment, determines the guarantor's liability.

ISSUES:

  1. Whether or not PhilGuarantee is entitled to reimbursement from the petitioners.

  2. Whether or not the expiration of the contract of guarantee extinguished PhilGuarantee's obligation to pay TRB.

  3. Whether or not PhilGuarantee's failure to give its express consent to the extensions granted by TRB to JN extinguished the guarantee.

  4. Whether the foreclosure of the real estate mortgage extinguished PhilGuarantee's obligation.

  5. Whether PhilGuarantee's recourse should be directed against TRB as per the pari-passu provision in the contract of guarantee.

  6. Whether PhilGuarantee is entitled to reimbursement for the payment made to TRB.

RULING:

  1. PhilGuarantee is entitled to reimbursement from the petitioners. The law requires the debtor to indemnify the guarantor for what the latter has paid. The guarantor can choose to invoke the benefit of excussion or waive it. PhilGuarantee's waiver of the right of excussion does not prevent it from demanding reimbursement from the petitioners.

  2. The expiration of the contract of guarantee did not extinguish PhilGuarantee's obligation to pay TRB. The guarantee was still in force when default and demand on PhilGuarantee occurred, as these took place within the validity period of the guarantee.

  3. PhilGuarantee's failure to give its express consent to the extensions granted by TRB to JN did not extinguish the guarantee. The requirement for the guarantor's consent to extensions granted by the creditor is for the benefit of the guarantor and can be waived. PhilGuarantee's waiver can be inferred from its actual payment to TRB despite JN's failure to pay the renewal/guarantee fee.

  4. The foreclosure of the real estate mortgage did not extinguish PhilGuarantee's obligation. PhilGuarantee, as the guarantor, was entitled to demand reimbursement for the payment made to TRB regardless of whether TRB was subsequently able to obtain payment from JN. JN should be the one to go after TRB, not PhilGuarantee.

  5. Petitioners cannot invoke the pari-passu clause in the guarantee because they are not parties to the agreement. The clause is only for the benefit of the guarantor.

  6. PhilGuarantee is entitled to reimbursement for the payment made to TRB.

PRINCIPLES:

  • Under a contract of guarantee, the guarantor is entitled to be indemnified by the debtor.

  • The benefit of excussion allows the guarantor to be reimbursed by the debtor only after the creditor has exhausted all legal remedies against the debtor.

  • The expiration of the contract of guarantee does not relieve the guarantor of its obligation to pay if default and demand occurred while the guarantee was still in force.

  • The requirement for the guarantor's consent to extensions granted by the creditor is for the benefit of the guarantor and can be waived.

  • The guarantor has the right to recover what it has paid, even if payment was made before the debt becomes due or without notice to the debtor.

  • The guarantor has the right to demand reimbursement for the payment made to the creditor, regardless of whether the creditor is subsequently able to obtain payment from the debtor.

  • The foreclosure of the real estate mortgage does not extinguish the guarantor's obligation.

  • The pari-passu clause in the guarantee only benefits the guarantor.

  • Forgery cannot be presumed and must be proved by clear, positive, and convincing evidence. Mere denial is not sufficient to overcome the presumption of regularity in a notarized document.