G.R. No. 238258 - Duty Paid Import Co., Inc. vs. Landbank of the Philippines

Case Summary (G.R. No. 238258)

Factual Background

On November 19, 1997, Landbank of the Philippines granted Duty Paid Import Co. Inc. an Omnibus Credit Line Agreement for P250,000,000.00. A Comprehensive Surety Agreement was executed by Ramon P. Jacinto, Rajah Broadcasting Network, Inc., and RJ Music City, represented by Jaime J. Colayco and Ma. Belen B. Quejano, by which the sureties unconditionally and jointly and severally bound themselves to pay P250,000,000.00 in the event of default by Duty Paid Import Co. Inc. Between July 24, 1997 and August 4, 1998, Colayco and Quejano executed a series of promissory notes in favor of Landbank. As security for a P10,000,000.00 obligation, Colayco executed a real estate mortgage over a condominium unit. When Duty Paid Import Co. Inc. failed to pay, Landbank extrajudicially foreclosed the mortgage and purchased the condominium at auction for P2,970,000.00, applied the proceeds to the loan, and nevertheless asserted a remaining deficiency of P304,524,438.98 after application of sale proceeds.

Trial Court Proceedings

Landbank filed a complaint for collection of a sum of money against the petitioners and others. The Regional Trial Court rendered judgment on June 25, 2015, ordering the petitioners to pay jointly and severally the principal obligation of P166,853,078.57 with interest at six percent per annum from October 7, 1998 until full payment, awarded attorney’s fees of P100,000.00, and costs, and denied petitioners’ compulsory counterclaims. The RTC also denied petitioners’ motion for reconsideration.

Court of Appeals' Ruling

The Court of Appeals dismissed the petitioners’ appeal in a decision dated June 29, 2017 and denied reconsideration by Resolution dated March 20, 2018, thus affirming the RTC in toto. The CA found that petitioners failed to prove that the loan obligations had been restructured, observed that petitioners’ lone witness merely confirmed the existence of the Omnibus Credit Line Agreement, and relied upon a letter from petitioners’ Vice President for Finance acknowledging that the restructuring proposal was denied by Landbank. The CA rejected petitioners’ force majeure defense grounded on the Asian economic crisis of 1997 and sustained the RTC’s conclusion that the petitioners were liable as sureties and therefore solidarily liable with Duty Paid Import Co. Inc. The CA also declined to entertain an invocation of Republic Act No. 3765 raised for the first time on appeal.

Issues Presented in the Petition

Petitioners raised six assignments of error phrased as legal issues: that respondent had no cause or right of action against the petitioners; that the action was prematurely filed because of an alleged agreement to restructure the loan; that the obligation of Duty Paid Import Co. Inc. was much less than the amounts claimed by Landbank; that the amounts claimed were excessive and unconscionably high because of interest rates and penalties; that petitioners Ramon P. Jacinto, Rajah Broadcasting Corp., and RJ Music should not be held solidarily liable with Duty Paid Import Co. Inc.; and that petitioners should not be made to pay because their failure to pay was based on justifiable reasons including the Asian financial crisis.

Parties' Contentions on Appeal

Petitioners maintained that the parties had agreed to restructure the loan and that, pending implementation of that restructuring, the loan was not yet due and the complaint was premature; they also asserted that the amounts claimed were overstated and that the Asian economic crisis excused nonpayment. Landbank countered that the petition raised questions of fact and that petitioners failed to present proof of any restructuring, that petitioners knowingly executed the surety documents, and that the petitioners were liable not merely as guarantors but as sureties who were directly and absolutely bound. Landbank also urged the Court to deny the petition for raising factual issues.

Supreme Court's Analysis and Disposition

The Supreme Court denied the petition for review for lack of merit. The Court reiterated that a petition under Rule 45 is limited to questions of law and that it does not function as a trier of facts; factual findings of the trial court and the Court of Appeals are final when supported by substantial evidence. The Court observed that the petition rehashed factual issues resolved below, and that none of the recognized exceptions to finality of findings listed in Pascual v. Burgos and derived from Medina v. Mayor Asistio, Jr. applied. The Court found that petitioners failed to prove by preponderance of evidence that the loan agreement was restructured; the record contained only a proposal and a letter confirming that Landbank denied the restructuring. The Court rejected petitioners’ contention that Landbank should have consulted an account officer prior to collection as immaterial to contractual consent. The Court also affirmed the lower courts’ finding of a remaining balance of P166,853,078.57 after applying the foreclosure proceeds, noting that petitioners offered no contrary proof.

Legal Basis and Reasoning

The Court applied the basic evidentiary principle that he who alleges a fact bears the burden of proof, citing Lim v. Equitable PCI Bank and Sabellina v. Buray. It construed the terms of the Comprehensive Surety Agreement, which unambiguously provided that the sureties agreed to be “irrevocably, unconditionally and jointly and severally” liable and expressly permitted the bank upon any default to proceed directly against the surety without first exhausting the borrower’s property. On the force majeure plea, the Court held that the Asian financial crisis did not constitute a fortuitous event excusing perfo

Case Syllabus (G.R. No. 238258)

Parties and Procedural Posture

Duty Paid Import Co. Inc. was the principal borrower under an Omnibus Credit Line Agreement extended by Landbank of the Philippines.
Ramon P. Jacinto, Rajah Broadcasting Network, Inc., and RJ Music City, represented by Jaime J. Colayco and Ma. Belen B. Quejano, executed a Comprehensive Surety Agreement in favor of Landbank of the Philippines.
Landbank of the Philippines filed a complaint for collection of sum of money after foreclosure of a mortgaged condominium unit and application of auction proceeds left a deficiency.
Petitioners appealed the Regional Trial Court decision to the Court of Appeals and thereafter filed a petition for review under Rule 45 to the Supreme Court.
The petition challenged the Court of Appeals' Decision dated June 29, 2017 and Resolution dated March 20, 2018 that affirmed the RTC's Decision dated June 25, 2015 and Order dated January 20, 2016.

Key Factual Allegations

Landbank of the Philippines granted an Omnibus Credit Line Agreement to Duty Paid Import Co. Inc. for P250,000,000 on November 19, 1997.
The Comprehensive Surety Agreement bound Ramon P. Jacinto, Rajah Broadcasting Network, Inc., and RJ Music City to pay P250,000,000 jointly and severally in the event of Duty Paid Import Co. Inc.'s default.
From July 24, 1997 to August 4, 1998, promissory notes were executed in varying amounts totaling substantial sums, including P50,000,000, P40,000,000, P25,000,000, P15,000,000, P10,000,000, P50,000,000, P25,000,000, and P35,000,000.
As additional security, Jaime J. Colayco executed a real estate mortgage over a condominium unit for P10,000,000, which Landbank of the Philippines foreclosed and sold at auction for P2,970,000.
After applying the foreclosure proceeds, Landbank of the Philippines alleged a remaining deficiency of P304,524,438.98 and issued demand letters that did not yield payment.
Petitioners asserted defenses including an alleged agreement to restructure the loan, that the amount claimed was overstated, and that the Asian financial crisis of 1997 constituted force majeure.

Lower Courts' Decisions

The Regional Trial Court rendered judgment ordering petitioners to pay P166,853,078.57 as principal plus six percent per annum interest from October 7, 1998, attorney's fees of P100,000, and costs of suit.
The RTC denied petitioners' compulsory counterclaims and denied their motion for reconsideration.
The Court of Appeals dismissed petitioners' appeal and affirmed the RTC's findings in toto, holding that the alleged restructuring was not proven and that petitioners were solidarily liable as sureties.
The Court of Appeals also declined to entertain petitioners' invocation of Republic Act No. 3765 for being raised for the first time on appeal.

Issues Presented

Whether Landbank of the Philippines had a cause of action or right of action against the petitioners.
Whether the present action was prematurely filed by Landbank of the Philippines.
Whether the obligation of Duty Paid Import Co. Inc. was less than the amounts claimed by Landbank of the Philippines.
Whether petitioners could avoid liability