Bitanga vs. Pyramid Construction Engineering Corporation

A guarantor who, upon the creditor's demand for payment, fails to set up the benefit of excussion and point out available properties of the principal debtor within the Philippines sufficient to cover the debt forfeits the defense under Article 2060 of the Civil Code; and summary judgment is proper where the opposing party raises only sham or fictitious issues unsupported by substantial evidence.

Petitioner Benjamin Bitanga was the President of Macrogen Realty, which engaged respondent Pyramid Construction and Engineering Corporation to construct the Shoppers Gold Building in Parañaque City. When Macrogen Realty defaulted on its progress billings, the parties executed a Compromise Agreement before the Construction Industry Arbitration Commission (CIAC), under which Macrogen Realty undertook to pay ₱6,000,000.00 in six monthly installments, with petitioner executing an irrevocable and unconditional Contract of Guaranty for the full amount. Petitioner's wife, Marilyn Bitanga, was not a signatory to either instrument but was substantially the ultimate owner of Macrogen Realty: she owned 99% of Asian Appraisal Holdings, Inc. (AAHI), which in turn owned 99% of Macrogen Realty's capital stock.

On March 26, 1997, respondent Pyramid Construction and Engineering Corporation entered into an agreement with Macrogen Realty, of which petitioner Benjamin Bitanga was President, to construct the Shoppers Gold Building at Dr. A. Santos Avenue corner Palayag Road, Sucat, Parañaque City. Respondent commenced civil, structural, and architectural works by May 1997, but Macrogen Realty failed to settle respondent's progress billings. Petitioner, through his representatives and agents, assured respondent that the outstanding account would be paid and requested that work continue. Relying on these assurances from Macrogen Realty's President, respondent continued the project until August 1998, when it suspended work because the conditions it imposed for continuation—including payment of unsettled accounts—had not been met.

On September 1, 1999, respondent filed a case for arbitration with the Construction Industry Arbitration Commission (CIAC) against Macrogen Realty, seeking payment of unpaid billings and project costs. Petitioner, through counsel, conveyed his willingness to amicably settle. On April 17, 2000, before the arbitration case could be set for trial, respondent and Macrogen Realty entered into a Compromise Agreement, with petitioner signing on behalf of Macrogen Realty. Under the agreement, Macrogen Realty undertook to pay ₱6,000,000.00 in six equal monthly installments beginning June 15, 2000, and stipulated that default in two successive installments would entitle respondent to immediate execution for the unpaid balance without need of judicial decree. On the same date, petitioner executed a Contract of Guaranty in favor of respondent, irrevocably and unconditionally guaranteeing the full and complete payment of the ₱6,000,000.00. The CIAC approved the Compromise Agreement on April 25, 2000.

Macrogen Realty failed and refused to pay all the agreed monthly installments. Respondent moved for and obtained a writ of execution from the CIAC against Macrogen Realty. On November 29, 2000, the sheriff filed a return stating that he was unable to locate any property of Macrogen Realty except its bank deposit of ₱20,242.23 with Planters Bank, Buendia Branch. On January 3, 2001, respondent made a written demand on petitioner as guarantor to pay the ₱6,000,000.00 or to point out available properties of Macrogen Realty within the Philippines sufficient to cover the obligation. The demand letter was delivered to petitioner's office at the 12th Floor, Planters Development Bank Building, 314 Senator Gil Puyat Avenue, Makati City—the same address he indicated in the Contract of Guaranty—and was received by one Dette Ramos, who introduced herself as an employee of petitioner and/or his companies. Petitioner claimed he never received the letter and that Dette Ramos was neither an employee of Macrogen Realty nor authorized to receive it on his behalf. Respondent's demands, both written and verbal, went unheeded.

On September 6, 2001, respondent filed with the RTC a Complaint for specific performance and damages against petitioner and his wife Marilyn, alleging that petitioner's obligation as guarantor was due and demandable and that Marilyn, as ultimate owner of Macrogen Realty through AAHI, could not be unaware of the obligations incurred in the course of its business operations. Marilyn moved to dismiss, asserting she was not a party to the Compromise Agreement or the Contract of Guaranty and that mere ownership of shares was insufficient to disregard corporate personality. The RTC denied her motion under Section 4, Rule 3, which requires spouses to sue or be sued jointly. Petitioner filed his Answer denying that he had made representations about Macrogen Realty's compliance and asserting that respondent had required the guaranty as a condition for compromise. He raised the benefit of excussion as a special defense, contending that respondent had not exhausted remedies against Macrogen Realty, which still had uncollected credits sufficient to satisfy the claim.

At the pre-trial on September 5, 2002, the parties framed five issues, including whether defendants were liable under the Contract of Guaranty, whether Marilyn was liable, and whether defendants were entitled to the benefit of excussion. Before trial, respondent moved for summary judgment, arguing that petitioner had admitted the genuineness and due execution of the Contract of Guaranty and that the benefit of excussion had been forfeited under Article 2060 because petitioner ignored the demand letter. Petitioner opposed, asserting genuine factual disputes regarding proper service of the demand letter and his entitlement to excussion. The RTC rendered partial summary judgment on November 29, 2002, ordering both spouses to pay jointly and severally ₱6,000,000.00 less ₱20,242.23, plus costs. On appeal, the Court of Appeals modified the decision by exonerating Marilyn, holding that a contract cannot be enforced against one who is not a party to it and that substantial share ownership was insufficient to hold her liable.

• Propriety of Summary Judgment: Petitioner maintained that summary judgment was improper because genuine issues of material fact existed—specifically, whether there was proper service of the demand letter, given that it was received by one Dette Ramos at the Macrogen office rather than by petitioner at his residence, and whether petitioner was entitled to the benefit of excussion.
• Benefit of Excussion: Petitioner argued that as a mere guarantor, he was entitled to the benefit of excussion under Articles 2058, 2059, 2060, 2061, and 2062 of the Civil Code, and that he had not waived this right. He contended that respondent failed to exhaust all legal remedies to collect from Macrogen Realty, which still had uncollected credits more than sufficient to satisfy the claim.
• Non-Receipt of Demand Letter: Petitioner asserted that he never received respondent's demand letter dated January 3, 2001, because Dette Ramos was not an employee of Macrogen Realty nor authorized to receive it on his behalf, and that the address to which it was sent was his office, not his residence, making service improper in his personal capacity.
• Marilyn's Non-Liability (as raised below): Petitioner alleged that Marilyn was unaware of the obligations he assumed under the Compromise Agreement and Contract of Guaranty, as he did not inform her or secure her consent, and that the guaranty did not redound to the benefit of their family.

• Entitlement to Summary Judgment: Respondent argued that summary judgment was proper because petitioner had admitted the genuineness and due execution of the Contract of Guaranty during pre-trial, and the issues raised by petitioner regarding the benefit of excussion were not genuine.
• Exhaustion of Remedies Against Debtor: Respondent contended that it had already exhausted all legal remedies to collect from Macrogen Realty, as proven by the sheriff's unsatisfied return showing that the only property located was a bank deposit of ₱20,242.23, thereby establishing the debtor's insolvency and triggering the guarantor's liability.
• Forfeiture of Benefit of Excussion: Respondent maintained that petitioner and Marilyn forfeited the benefit of excussion under Article 2060 of the Civil Code by ignoring the demand letter of January 3, 2001, which required petitioner to pay or point out available properties of Macrogen Realty sufficient to cover the obligation.
• Sufficiency of Service: Respondent asserted that service of the demand letter was proper under Section 6, Rule 13 of the Rules of Court, as it was delivered to petitioner's office—the same address he indicated in the Contract of Guaranty—with a person of sufficient age and discretion who identified herself as his employee.

• Summary Judgment: Whether the Court of Appeals erred in affirming the partial summary judgment despite the existence of genuine and material issues of fact that should have required a trial on the merits.
• Benefit of Excussion: Whether petitioner, as guarantor, was entitled to the benefit of excussion under Articles 2058, 2059, 2060, 2061, and 2062 of the Civil Code.

• Summary Judgment: Yes. Summary judgment was proper because the issues petitioner raised—propriety of service of the demand letter and entitlement to excussion—were sham, not genuine, as they rested on bare denials unsubstantiated by competent evidence.
• Benefit of Excussion: No. Petitioner forfeited the benefit of excussion under Article 2060 for failing to point out available properties of the debtor upon the creditor's demand, and Article 2059(5) applied because the sheriff's return established that execution on the debtor's property would not satisfy the obligation.

• Summary Judgment: The requisites for summary judgment under Rule 35 are: (a) no genuine issue as to any material fact, except for the amount of damages, and (b) the movant is entitled to judgment as a matter of law. A genuine issue is one requiring presentation of evidence, as distinguished from a sham, fictitious, contrived, or false claim. Petitioner did not deny receipt of the demand letter but merely objected to the manner of service, claiming the letter was delivered to his office rather than his residence and was received by Dette Ramos, whom he alleged was not his employee. However, the address of service was the same office address petitioner indicated in the Contract of Guaranty. Under Section 6, Rule 13 of the Rules of Court, service is sufficient when papers are left at the party's office with his clerk or a person having charge thereof. The messenger's affidavit positively stated that Dette Ramos introduced herself as one of petitioner's employees. Petitioner offered only a bare denial, without submitting an affidavit from his personnel manager confirming that Dette Ramos was not employed. The presumption that all things are done correctly and with due formality (omnia praesumuntur rite et solemniter esse acta donec probetur in contrarium) stood unrebutted. A bare denial unsubstantiated by facts admissible in evidence is insufficient to raise a genuine issue of fact to defeat a motion for summary judgment. The issue regarding service was therefore a sham, and summary judgment was correctly rendered.

• Benefit of Excussion: Under a contract of guarantee, the guarantor binds himself to fulfill the principal debtor's obligation if the latter defaults. The benefit of excussion, under Article 2058, allows the guarantor to refuse payment until the creditor has exhausted all property of the debtor and resorted to all legal remedies. However, Article 2060 imposes two conditions: the guarantor must (1) set up the benefit of excussion against the creditor upon the latter's demand for payment, and (2) point out to the creditor available property of the debtor within the Philippines sufficient to cover the debt. Petitioner failed to comply with both conditions. Despite having been served a demand letter at his office, petitioner did not point out to respondent any properties of Macrogen Realty sufficient to cover its debt. Furthermore, Article 2059(5) provides that excussion shall not take place if it may be presumed that execution on the debtor's property would not satisfy the obligation. The sheriff's return—uncontested by petitioner—established that the only property of Macrogen Realty located was a bank deposit of ₱20,242.23, demonstrating the debtor's insolvency. The liability of the guarantor arises when the insolvency or inability of the debtor to pay is proven by the return of an unsatisfied writ of execution. Petitioner's claim that Macrogen Realty had uncollected credits sufficient to satisfy the claim was unsubstantiated; he never informed respondent of such credits even after receipt of the demand letter.

• Benefit of Excussion — Under Article 2058 of the Civil Code, a guarantor cannot be compelled to pay the creditor unless the latter has exhausted all property of the debtor and resorted to all legal remedies against the debtor. However, Article 2060 requires the guarantor to (1) set up the benefit upon the creditor's demand for payment, and (2) point out to the creditor available property of the debtor within the Philippines sufficient to cover the debt. Failure to comply with both requisites forfeits the defense. Additionally, under Article 2059(5), excussion does not apply when it may be presumed that execution on the debtor's property would not result in satisfaction of the obligation—as where the sheriff's return shows the debtor has no assets beyond a negligible bank deposit. In this case, petitioner forfeited excussion by failing to point out debtor properties upon demand, and Article 2059(5) applied because the sheriff's return established the debtor's insolvency.

• Summary Judgment; Genuine vs. Sham Issues — Under Rule 35, summary judgment is proper where there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. A genuine issue is an issue of fact requiring presentation of evidence, as distinguished from a sham, fictitious, contrived, or false claim. A bare denial unsubstantiated by facts admissible in evidence is insufficient to raise a genuine issue sufficient to defeat summary judgment. The non-moving party must present substantial, plausible, and fairly arguable defenses; a mere scintilla of evidence will not suffice. In this case, petitioner's objection to service of the demand letter—based solely on a bare denial that the receiving person was not his employee, without any corroborating affidavit—was a sham issue.

• Presumption of Regularity — The principle omnia praesumuntur rite et solemniter esse acta donec probetur in contrarium provides that all things are presumed to have been done correctly and with due formality until the contrary is proved. This presumption stands even against well-reasoned allegations of irregularity, and the burden of overcoming it rests on the party alleging the anomaly. Petitioner failed to overcome this presumption with sufficient evidence regarding the alleged irregular service of the demand letter.

• "A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an issue which is a sham, fictitious, contrived or false claim." — This passage defines the threshold distinction between genuine and sham issues in summary judgment proceedings, the controlling standard by which the Court evaluated petitioner's objections.

• "In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latter's demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt." — This is the text of Article 2060 of the Civil Code as quoted in the decision, articulating the two-part requisites a guarantor must satisfy to invoke excussion, the failure of which was the decisive ground for holding petitioner liable.

• "It is axiomatic that the liability of the guarantor arises when the insolvency or inability of the debtor to pay the amount of debt is proven by the return of the writ of execution that had not been unsatisfied." — This passage, quoting the Court of Appeals with approval, states the rule that an unsatisfied sheriff's return establishes the debtor's insolvency and triggers the guarantor's liability, applying Article 2059(5) of the Civil Code.

• Equitable PCI Bank vs. Ong, G.R. No. 156207, September 15, 2006, 502 SCRA 127 — Cited for the two requisites of summary judgment: no genuine issue as to any material fact, and entitlement to judgment as a matter of law.
• Wood Technology Corporation vs. Equitable Banking Corporation, G.R. No. 153867, February 17, 2005, 451 SCRA 725 — Cited for the proposition that the crucial question in summary judgment is whether the issues raised by the opposing party are not genuine.
• JN Development Corporation vs. Philippine Export and Foreign Loan Guarantee Corporation, G.R. No. 151060, August 31, 2005, 468 SCRA 554 — Cited for the definition of the benefit of excussion: the guarantor cannot be compelled to pay unless the creditor has exhausted all property of the debtor and resorted to all legal remedies.
• Ramos vs. Court of Appeals, G.R. No. 132196, December 9, 2005, 477 SCRA 85 — Cited by the Court of Appeals for the principle that a contract cannot be enforced against one who is not a party to it, the basis for exonerating Marilyn Bitanga.
• Gold Line Transit, Inc. vs. Ramos, 415 Phil. 492 (2001) — Cited for the presumption of regularity (omnia praesumuntur rite et solemniter esse acta), which stood unrebutted against petitioner's allegations of irregular service.
• Machetti vs. Hospicio de San Jose, 43 Phil. 297 (1922) — Cited in connection with respondent's argument that the guarantor's liability arises upon proof of the debtor's insolvency by unsatisfied execution return.

• Article 2060, Civil Code — Requires the guarantor to set up the benefit of excussion against the creditor upon demand for payment and point out available property of the debtor within the Philippines sufficient to cover the debt. Petitioner's failure to comply with both requisites forfeited his right to excussion.
• Article 2059(5), Civil Code — Provides that excussion shall not take place if it may be presumed that execution on the property of the principal debtor would not result in satisfaction of the obligation. Applied because the sheriff's return showed Macrogen Realty had no assets beyond ₱20,242.23.
• Article 2058, Civil Code — States that the guarantor cannot be compelled to pay unless the creditor has exhausted all property of the debtor and resorted to all legal remedies. Cited as the general rule subject to the conditions and exceptions in Articles 2059 and 2060.
• Section 6, Rule 13, Rules of Court — Governs personal service of pleadings and papers, providing that service is sufficient when delivered to the party or left at his office with his clerk or a person having charge thereof. Applied to uphold the sufficiency of service of the demand letter on petitioner at his office address.
• Section 1, Rule 35, Rules of Court — Authorizes summary judgment for a claimant where no genuine issue as to any material fact exists and the movant is entitled to judgment as a matter of law. Applied to sustain the RTC's partial summary judgment.
• Section 4, Rule 3, Rules of Court — Provides that husband and wife shall sue or be sued jointly, except as provided by law. The RTC applied this provision to deny Marilyn's Motion to Dismiss, though the Court of Appeals ultimately reversed and held her not liable.

Justice Ynares-Santiago (Chairperson), Justice Austria-Martinez, Justice Nachura, and Justice Reyes concurred.