Case Digest (G.R. No. 187403)
Facts:
Trade and Investment Development Corporation of the Philippines v. Asia Paces Corporation, et al., G.R. No. 187403, February 12, 2014, the Supreme Court Second Division, Perlas‑Bernabe, J., writing for the Court.
The dispute arose from several Letters of Guarantee issued by petitioner Trade and Investment Development Corporation of the Philippines (TIDCORP) in favor of foreign banks (Banque Indosuez and PCI Capital) to secure loans obtained by Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) for a contracting project in Libya. As condition precedent to issuance of the Letters of Guarantee, ASPAC, PICO and ASPAC’s president, Nicolas C. Balderrama, executed Deeds of Undertaking in favor of TIDCORP; ASPAC also secured separate surety bonds from Paramount Insurance Corporation, Philippine Phoenix Surety and Insurance, Inc. (Phoenix), Mega Pacific Insurance Corporation (Mega Pacific), and Fortune Life and General Insurance Company (Fortune) to guarantee its liabilities to TIDCORP. The Letters of Guarantee and the Surety Bonds bore specific coverage amounts and final expiration dates.
After ASPAC defaulted on its bank loans, the banks demanded payment from TIDCORP under the Letters of Guarantee (demand letters sent March 5, 1984 and February 21, 1985). TIDCORP in turn demanded payment from the bonding companies under the Surety Bonds (letters sent May 28, 1985 and later), but the bonding companies did not pay. Meanwhile, owing to a moratorium request and related international banking negotiations, TIDCORP and the banks executed a Restructuring Agreement on April 16, 1986 which extended the maturity dates for TIDCORP’s obligations to the banks (Section 4.01 scheduled principal payments beginning December 31, 1989 to a final payment on December 31, 1994). The bonding companies were not consulted and did not consent to that Restructuring Agreement. TIDCORP eventually paid the banks in full in 1991–1992.
TIDCORP filed a collection case in RTC Makati, Branch 132 (Civil Case No. 95‑1812) against (a) ASPAC, PICO and Balderrama on the Deeds of Undertaking and (b) the bonding companies on the Surety Bonds. In a Decision dated April 29, 2005 the RTC held ASPAC, PICO and Balderrama jointly and severally liable to TIDCORP but absolved the bonding companies, ruling that the creditor’s extension of time to the debtor without the sureties’ consent extinguished the sureties’ obligations under Article 2079 of the Civil Code. TIDCORP and Balderrama separately appealed to the Court of Appeals (CA).
In a Decision dated April 30, 2008 (CA‑G.R. CV No. 86558), the CA affirmed the RTC insofar as the sureties were released by the banks’ payment extensions under the Restructuring Agreement, applying Article 2079 and the Court’s prior rulings extending that provision to suretyship (citing Security Bank and Trust Co., Inc. v. Cuenca). The CA rejected TIDCORP’s argument that Article 2079 is limited to guaranty contracts and denied Balderrama’s contention that he was released. The CA did, however, modify the RTC to award attorneys’ fees against ASPAC, PICO and Balderrama. Motions for reconsideration wer...(Pro-only)
Issues:
- Did the CA err in holding that the bonding companies’ liabilities under the Surety Bonds were extinguished by the payment extensions granted by Banque Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement?
- If Article 2079 of the Civil Code applies, does it operate to extinguish the surety obligations in this case where the extensions concerned TIDCORP’s obligations under the Letters of Guarantee rathe...(Pro-only)
Ruling:
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Ratio:
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Doctrine:
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