Duty Paid Import Co. Inc. vs. Landbank of the Philippines

A surety is solidarily liable with the principal debtor and may be sued directly by the creditor without prior exhaustion of the principal debtor's properties, provided the surety agreement expressly stipulates that the creditor may proceed against the surety upon default without first proceeding against the borrower.

Duty Paid Import Co. Inc. (DPICI) obtained a P250 million Omnibus Credit Line Agreement from Landbank of the Philippines on November 19, 1997. To secure this facility, petitioners Ramon P. Jacinto, Rajah Broadcasting Network, Inc., and RJ Music City executed a Comprehensive Surety Agreement binding themselves jointly and severally to pay the obligation should DPICI default. From July 1997 to August 1998, DPICI executed multiple promissory notes totaling P250 million. A real estate mortgage over a condominium unit was also executed as additional security for P10 million of the loan.

• The Credit Facility and Surety Agreement: On November 19, 1997, Landbank extended to DPICI an Omnibus Credit Line Agreement for P250,000,000.00. Petitioners Jacinto, Rajah Broadcasting Network, Inc., and RJ Music City executed a Comprehensive Surety Agreement whereby they unconditionally, irrevocably, and jointly and severally bound themselves to pay the principal sum in the event DPICI failed to pay its loans on maturity.
• Promissory Notes and Mortgage: From July 24, 1997 to August 4, 1998, DPICI's representatives executed eight promissory notes totaling P250,000,000.00. A real estate mortgage over a condominium unit was executed as security for P10,000,000.00 of the loan.
• Default and Foreclosure: DPICI failed to pay its obligations. Landbank extrajudicially foreclosed the real estate mortgage on December 17, 1998, and emerged as the highest bidder at the February 5, 1999 auction sale for P2,970,000.00. After applying the foreclosure proceeds, a deficiency of P304,524,438.98 remained. Demand letters dated September 22 and October 7, 1998 were sent to no avail.
• Defense of Restructuring: Petitioners claimed that Landbank had agreed to restructure the loan and that the complaint was prematurely filed. They alleged that a proposal for restructuring was pending and that Landbank had granted a grace period similar to that given to DPICI's affiliate, First Women's Credit Corporation.
• Defense of Force Majeure: Petitioners argued that their failure to pay was due to the Asian economic crisis of 1997, which they characterized as a force majeure event beyond their control.
• Lower Court Findings: The RTC and CA found no evidence substantiating the alleged restructuring agreement. A letter from petitioners' Vice President for Finance to Landbank confirmed that the restructuring proposal was denied by Landbank. The lower courts also rejected the force majeure defense, noting that the loan was contracted in November 1997, well after the crisis had begun.

• Prematurity of Action: Petitioner maintained that Landbank's complaint was prematurely filed because the parties had allegedly agreed to restructure the loan agreement, and pending such restructuring, the loan was not yet due.
• Excessive Liability: Petitioner argued that the amount claimed by Landbank was excessive and exorbitant due to unconscionably high interest rates and penalties, and that the actual obligation was much less than the amounts claimed.
• Conditional Surety Liability: Petitioner contended that their liability as sureties would arise only when the collaterals securing the obligation proved insufficient, and not immediately upon default by the principal debtor.
• Force Majeure: Petitioner maintained that the Asian economic crisis of 1997 constituted force majeure that justified their failure to pay, as the crisis was unforeseeable and beyond their control.
• Procedural Defects: Petitioner argued that Landbank had no cause of action against them and that they should not be held solidarily liable with DPICI.

• Questions of Fact: Respondent countered that the petition raised questions of fact, not questions of law, and thus was not proper for review under Rule 45.
• Absence of Restructuring Agreement: Respondent argued that petitioners failed to prove the existence of a restructuring agreement, presenting only bare allegations without documentary or testimonial evidence.
• Nature of Suretyship: Respondent maintained that under the Comprehensive Surety Agreement, petitioners were solidarily liable with DPICI as sureties, not merely guarantors, and that the agreement expressly allowed Landbank to proceed directly against the sureties without first exhausting the borrower's properties.
• Rejection of Force Majeure: Respondent argued that the Asian financial crisis did not constitute force majeure under Article 1174 of the New Civil Code, and that petitioners, having contracted the loan well after the crisis began, assumed the business risk involved.

• Restructuring Agreement: Whether the parties had entered into a binding agreement to restructure the loan obligations, rendering Landbank's collection suit prematurely filed.
• Amount of Liability: Whether the amount sought to be collected by Landbank was excessive and unsupported by evidence.
• Nature of Surety Liability: Whether petitioners were liable as sureties and whether their liability was conditional upon the insufficiency of the principal debtor's collaterals.
• Force Majeure: Whether the Asian economic crisis of 1997 constituted force majeure excusing petitioners' non-payment of their loan obligations.
• Scope of Rule 45 Review: Whether the issues raised by petitioners constituted questions of law proper for review under Rule 45.

• Restructuring Agreement: No restructuring agreement existed. Petitioners failed to discharge their burden of proving by preponderance of evidence that Landbank had agreed to restructure the loan. Allegations without evidence do not prove facts, and the letter presented by Landbank demonstrated only that petitioners' proposal for restructuring was denied.
• Amount of Liability: The deficiency amount of P166,853,078.57 was sustained. Petitioners offered no contrary proof to disprove the lower courts' uniform determination of the outstanding balance after application of the foreclosure proceeds.
• Nature of Surety Liability: Petitioners were solidarily liable as sureties. The Comprehensive Surety Agreement expressly provided that upon any default, Landbank may proceed directly against the surety without first proceeding against or exhausting the property of the borrower. This contractual provision establishes the surety's solidary liability and waives the benefit of excussion.
• Force Majeure: The Asian financial crisis did not constitute force majeure. The crisis was not among the fortuitous events contemplated under Article 1174 of the New Civil Code. Having entered into the loan agreement in November 1997, well after the crisis began, petitioners assumed the business risk and cannot now invoke the economic downturn to excuse non-payment.
• Scope of Rule 45 Review: The issues raised were questions of fact, not law. Whether the parties agreed to restructure the loan and the determination of the actual amount of obligations are factual matters conclusively settled by the Court of Appeals and the Regional Trial Court. None of the ten recognized exceptions to the rule limiting Rule 45 to questions of law applied in this case.

• Rule 45 Limited to Questions of Law: Petitions for review on certiorari under Rule 45 are confined to questions of law, as the Supreme Court is not a trier of facts. Factual findings of the Court of Appeals and trial courts are final and binding when supported by substantial evidence.
• Exceptions to the Question of Law Rule: The Court enumerated ten exceptions where questions of fact may be entertained in a Rule 45 petition: (1) when the conclusion is grounded entirely on speculation, surmises or conjectures; (2) when the inference is manifestly mistaken, absurd or impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when findings of fact are conflicting; (6) when the Court of Appeals went beyond the issues contrary to admissions of both parties; (7) when findings are contrary to those of the trial court; (8) when findings are conclusions without citation of specific evidence; (9) when facts set forth in the petition are not disputed by respondents; and (10) when the finding of fact is premised on supposed absence of evidence but contradicted by evidence on record.
• Suretyship and Solidary Liability: A surety binds itself solidarily with the principal debtor. Under Article 2047 of the New Civil Code, the creditor may proceed directly against the surety, and the surety is entitled to reimbursement from the principal only after satisfying the creditor. Where the surety agreement expressly stipulates that the creditor may proceed against the surety upon default without first exhausting the borrower's properties, such provision is binding.
• Burden of Proof: He who alleges a fact bears the burden of proof. Allegations not substantiated by evidence are deemed bare allegations that cannot prove facts.
• Force Majeure: Force majeure under Article 1174 of the New Civil Code refers to events that are unforeseeable or inevitable. The Asian financial crisis of 1997, being an economic downturn that does not render performance impossible but merely more difficult or onerous, does not constitute force majeure. Business risks assumed by parties entering into loan agreements during economic downturns do not excuse contractual non-performance.

• "Only questions of law should be raised in Rule 45 petitions as this Court is not a trier of facts and will not entertain questions of fact as factual findings of the CA and trial courts are final, binding, or conclusive on the parties, and on this Court when supported by substantial evidence."
• "Allegations are not evidence and without evidence, bare allegations do not prove facts."
• "Upon any default, the BANK may proceed directly against the SURETY without first proceeding against and without exhausting the property of the BORROWER."
• "The 1997 financial crisis that ensued in Asia did not constitute a valid justification to renege on one's obligations and it is not among the fortuitous events contemplated under Article 1174 of the New Civil Code."
• "The account officer merely keeps track of records pertinent to the account. By no measure is the account officer a party to the loan agreement which is strictly between LBP and petitioners."

• Pascual v. Burgos, 776 Phil. 167 (2016) — Cited for the enumeration of the ten recognized exceptions to the rule that only questions of law may be raised in Rule 45 petitions.
• Medina v. Mayor Asistio, Jr. — Original source of the ten exceptions regarding when questions of fact may be entertained in petitions for review on certiorari.
• Lim v. Equitable PCI Bank, 724 Phil. 453 (2014) — Applied for the principle that he who alleges a fact bears the burden of proof.
• Asian Construction and Development Corp. v. PCI Bank, 522 Phil. 168 (2006) — Controlling precedent holding that the Asian financial crisis did not constitute force majeure and did not justify non-payment of contractual obligations.
• Mondragon Leisure and Resorts Corp. v. Court of Appeals, 499 Phil. 268 (2005) — Followed for the holding that the Asian financial crisis is not among the fortuitous events under Article 1174 of the New Civil Code.

• Rule 45, Rules of Court — Limits petitions for review on certiorari to questions of law; the Supreme Court may not entertain questions of fact where findings of the Court of Appeals are supported by substantial evidence.
• Article 1174, New Civil Code — Defines fortuitous events (force majeure) as those that are unforeseeable or inevitable, which excuse a party from liability for loss or damage. The Court held that the Asian financial crisis does not fall under this category.
• Article 2047, New Civil Code — Governs suretyship, providing that if the guarantor (surety) binds himself solidarily with the principal debtor, the contract is one of suretyship, and the creditor may proceed directly against the surety.
• Republic Act No. 3765 (Truth in Lending Act) — Mentioned by petitioners but rejected by the Court of Appeals for having been raised for the first time on appeal; not discussed in the Supreme Court decision.

Peralta, C.J., Caguioa, Reyes, J. Jr., Lazaro-Javier, and Lopez, JJ.