JN Development Corporation vs. Philippine Export and Foreign Loan Guarantee Corporation

The benefit of excussion and the requirement of consent to extensions of payment are protective devices conferred solely upon the guarantor, who may waive them at will; the principal debtor cannot invoke these rights against the guarantor to evade the statutory duty to indemnify the guarantor for payments made to the creditor on the debtor's behalf.

JN Development Corporation obtained an Export Packing Credit Line of ₱2,000,000 from Traders Royal Bank ("TRB"), secured by a real estate mortgage over a parcel of land in Sta. Cruz, Laguna, and a letter of guarantee from respondent Philippine Export and Foreign Loan Guarantee Corporation ("PhilGuarantee") covering seventy percent (70%) of the credit line. To assure repayment to PhilGuarantee in the event it was called on its guarantee, JN, spouses Rodrigo and Leonor Sta. Ana, and Narciso Cruz executed a Deed of Undertaking in favor of PhilGuarantee. The guarantee was valid for one year from 17 December 1979, and JN's obligation to TRB fell due on 30 June 1980.

On 13 December 1979, JN Development Corporation ("JN") and Traders Royal Bank ("TRB") entered into an agreement whereby TRB would extend to JN an Export Packing Credit Line for ₱2,000,000. The loan was covered by several securities, including a real estate mortgage over a parcel of land in Sta. Cruz, Laguna, and a letter of guarantee from PhilGuarantee covering 70% of the credit line. With PhilGuarantee issuing the guarantee in favor of TRB, JN, spouses Rodrigo and Leonor Sta. Ana, and Narciso Cruz executed a Deed of Undertaking to assure repayment to PhilGuarantee. The guarantee, dated 17 December 1979, was valid for one year and provided that in the event of default by JN, PhilGuarantee would pay TRB the amount of ₱1.4 million or 70% of the total obligation unpaid.

JN failed to pay the loan to TRB upon its maturity on 30 June 1980. On 8 October 1980, TRB requested PhilGuarantee to make good its guarantee. PhilGuarantee informed JN about the call and inquired about JN's action to settle the loan. Having received no response from JN, on 10 March 1981 PhilGuarantee paid TRB ₱934,824.34. Subsequently, PhilGuarantee made several demands on JN, but the latter failed to pay. On 30 May 1983, JN, through Rodrigo Sta. Ana, proposed to settle the obligation "by way of development and sale" of the mortgaged property, but PhilGuarantee rejected the proposal.

PhilGuarantee then filed a complaint for collection of money and damages against petitioners. The RTC dismissed the complaint, finding that TRB was able to foreclose the real estate mortgage, thus extinguishing petitioners' obligation, and that there was no showing TRB demanded any deficiency from JN. The RTC also held that PhilGuarantee's guarantee had expired on 17 December 1980, and that Cruz could not be held liable under the Undertaking because his signature appeared forged. On appeal, the CA reversed, finding no factual support for the foreclosure extinguishment, ruling that JN's obligation became due within the guarantee period, and that Cruz failed to prove forgery. Petitioners sought reconsideration and attempted to introduce documents evidencing the foreclosure, but the CA denied the motion, ruling the documents were not newly discovered evidence and that foreclosure per se is not proof of payment to PhilGuarantee.

• Interpretation of Civil Code Provisions: Petitioners argued that the CA erred in interpreting Articles 2079, 2058, and 2059 of the Civil Code in its Decision.
• Expiration of Guarantee: Petitioners maintained that PhilGuarantee had no more legal obligation to pay TRB because the guarantee expired on 17 December 1980, and actual payment was made only on 10 March 1981, outside the one-year validity period.
• Lack of Consent to Extensions: Petitioners argued that PhilGuarantee's failure to give express consent to extensions granted by TRB to JN had extinguished the guarantee under Art. 2079 of the Civil Code.
• Foreclosure as Extinguishment: Petitioners asserted that TRB's foreclosure of the real estate mortgage extinguished PhilGuarantee's obligation, and that PhilGuarantee's recourse should be directed against TRB pursuant to the pari-passu provision in the contract of guarantee.
• Forgery of Cruz's Signature: Cruz questioned the CA's reversal of the trial court's ruling anent his liability as a signatory to the Undertaking, claiming his signature was forged.

• Date of Default Controls: Respondent maintained that the date of default, not the actual date of payment, determines the liability of the guarantor, and that having paid TRB when the loan became due, PhilGuarantee should be indemnified by petitioners.
• Waiver of Excussion: Respondent argued that there could be no waiver of the right to excussion more explicit than its act of payment to TRB, and that the right to excussion is for the benefit of the guarantor and is not a defense for the debtor to raise and use to evade liability.
• Presumption of Regularity: Respondent maintained that there is no sufficient evidence proving the alleged forgery of Cruz's signature on the Undertaking, which is a notarized document and as such must be accorded the presumption of regularity.

• Benefit of Excussion: Whether the principal debtor can invoke the benefit of excussion to avoid reimbursing the guarantor who paid the creditor on the debtor's behalf.
• Guarantee Period: Whether PhilGuarantee's payment to TRB on 10 March 1981 fell outside the terms of the guarantee, given that the guarantee was valid only for one year from 17 December 1979.
• Consent to Extensions: Whether PhilGuarantee's failure to give express consent to extensions granted by TRB to JN extinguished the guarantee under Art. 2079.
• Effect of Foreclosure: Whether TRB's foreclosure of the real estate mortgage extinguished PhilGuarantee's right to reimbursement from petitioners.
• Pari-passu Clause: Whether petitioners, as non-parties to the guarantee agreement, can invoke the pari-passu clause therein.
• Forgery: Whether Cruz sufficiently proved forgery of his signature on the Undertaking to overcome the presumption of regularity of a notarized document.

• Benefit of Excussion: No. The benefit of excussion is a right granted solely to the guarantor, who may waive it; the principal debtor cannot invoke it to evade the duty to reimburse the guarantor.
• Guarantee Period: No, the payment was within the terms. What is controlling is that default and demand on PhilGuarantee took place while the guarantee was still in force, not the actual date of payment.
• Consent to Extensions: No. The requirement of consent to extensions under Art. 2079 is for the guarantor's benefit and is waivable; PhilGuarantee's waiver was inferred from its actual payment to TRB despite JN's failure to pay the renewal fee.
• Effect of Foreclosure: No. The foreclosure occurred after the case was submitted for decision, the documents were not presented in the trial court, and foreclosure per se is not proof of payment to PhilGuarantee.
• Pari-passu Clause: No. Petitioners cannot invoke the pari-passu clause as they are not parties to the guarantee agreement; the clause is for the benefit of the guarantor alone.
• Forgery: No. Cruz failed to prove forgery by clear, positive, and convincing evidence; the notarized Undertaking enjoys the presumption of regularity, and mere denial or variance of signatures is insufficient.

• Benefit of Excussion: Under Art. 2058 of the Civil Code, the 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. This benefit of excussion is a right granted to the guarantor alone, who may opt to use it or waive it. PhilGuarantee's waiver of excussion — manifested by its voluntary payment to TRB upon demand — cannot prevent it from demanding reimbursement from petitioners, because Art. 2066 requires the debtor to indemnify the guarantor for payments made. Petitioners, as principal debtors, cannot raise the guarantor's own protective defense to avoid their reimbursement obligation. The Court emphasized that excussion is a right pertaining to and conferred on the guarantor, which only the guarantor may invoke against the creditor; the principal debtor's invocation of this defense to evade reimbursement is impermissible and amounts to unjust enrichment at the expense of the guarantor.

• Guarantee Period: The guarantee was valid for one year from 17 December 1979, or until 17 December 1980. JN's obligation to TRB fell due on 30 June 1980, and TRB's demand on PhilGuarantee was made on 8 October 1980 — both within the guarantee period. That actual payment was effected on 10 March 1981 does not take it outside the terms of the guarantee, because what is controlling is that default and demand occurred while the guarantee was still in force. The guarantee expressly provided for payment upon default and consequent call by the bank, and the obligation matured within the one-year validity period.

• Consent to Extensions: Art. 2079's requirement that the guarantor consent to extensions granted by the creditor to the debtor is for the guarantor's benefit and is therefore waivable. Even assuming extensions were granted by TRB to JN, PhilGuarantee could have opted to waive the need for consent, as such waiver is purely personal and not contrary to public policy. PhilGuarantee's waiver was inferred from its actual payment to TRB after demand, despite JN's failure to pay the renewal/guarantee fee. The Court cited People's Bank and Trust Co. vs. Santana for the proposition that a guarantor is not precluded from waiving the right to be notified of or give consent to extensions.

• Effect of Foreclosure: The foreclosure was made on 27 August 1993, after the case had been submitted for decision in 1992 and before the RTC rendered its decision in 1998. This matter was not raised or proved in the trial court or in the appeal before the CA, but was raised for the first time in petitioners' motion for reconsideration. The CA correctly ruled that the foreclosure documents were not newly discovered evidence, as they were already in existence during trial and should have been presented then. Moreover, foreclosure per se is not proof of payment of the loan to PhilGuarantee. The complaint was premised on PhilGuarantee's payment of JN's obligation after default, and PhilGuarantee was well within its rights to demand reimbursement regardless of whether TRB subsequently obtained payment from JN. If double payment occurred, it is JN that should seek recovery from TRB, not PhilGuarantee. Petitioners, having been aware of PhilGuarantee's payment, should have opposed the foreclosure or informed the trial court.

• Pari-passu Clause: The pari-passu clause in the guarantee agreement provides that any amounts recovered from JN or other sources shall be shared 70% for PhilGuarantee and 30% for the bank. Petitioners cannot invoke this clause because they are not parties to the guarantee agreement. The clause is clearly for the benefit of the guarantor and no other.

• Forgery: Forgery cannot be presumed and must be proved by clear, positive, and convincing evidence, with the burden on the party alleging it. Cruz presented only his denial and a perfunctory comparison of signatures, which was insufficient. The Undertaking is a notarized document and enjoys the presumption of regularity as to its due execution. Even where samples of genuine signatures were compared to the alleged forged signature and variance was shown, the Court has found such evidence insufficient. Mere variance of signatures cannot be considered conclusive proof of forgery.

• Benefit of Excussion (Art. 2058, Civil Code) — The 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. This right belongs solely to the guarantor, who may waive it by voluntarily paying the creditor. The principal debtor cannot invoke excussion against the guarantor to evade the duty of reimbursement under Art. 2066. Conditions for invoking excussion include: (1) the guarantor must set it up against the creditor upon the latter's demand for payment, and (2) the guarantor must point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt (Art. 2060).

• Waiver of Consent to Extensions (Art. 2079, Civil Code) — The requirement that the guarantor consent to extensions granted by the creditor to the debtor is a protective device for the guarantor's benefit and is waivable. A guarantor may waive the right to be notified of or give consent to extensions obtained by the debtor, as such waiver is purely personal and not contrary to public policy. Waiver may be inferred from the guarantor's conduct, such as actual payment to the creditor despite the debtor's failure to pay renewal fees.

• Presumption of Regularity of Notarized Documents — A notarized document enjoys the presumption of regularity and carries evidentiary weight as to its due execution. Forgery cannot be presumed; it must be proved by clear, positive, and convincing evidence, with the burden on the party alleging forgery. Mere denial or variance of signatures is insufficient to overcome the presumption.

• "The benefit of excussion, as well as the requirement of consent to extensions of payment, is a protective device pertaining to and conferred on the guarantor. These may be invoked by the guarantor against the creditor as defenses to bar the unwarranted enforcement of the guarantee." — This passage defines the essential character of excussion and consent-to-extension as guarantor's protective devices, establishing the ratio decidendi that these rights cannot be raised by the principal debtor.

• "What is peculiar in the instant case is that petitioners, the principal debtors themselves, are muddling the issues and raising the same defenses against the guarantor, which only the guarantor may invoke against the creditor, to avoid payment of their own obligation to the guarantor." — This captures the Court's rejection of the debtors' attempt to weaponize the guarantor's own protections against the guarantor.

• "What is controlling is that default and demand on PhilGuarantee had taken place while the guarantee was still in force." — This states the rule that the guarantee period is measured by the occurrence of default and demand, not the actual date of payment.

• "Forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the party alleging forgery." — This is the canonical formulation of the standard for proving forgery against a notarized document.

• Baylon vs. Court of Appeals, 371 Phil. 435 (1999) — Cited for the proposition that the creditor must first obtain judgment against the principal debtor before exhaustion of the principal's property can begin, reinforcing that excussion may only be invoked after legal remedies against the debtor have been exhausted.
• People's Bank and Trust Co. vs. Santana, 149 Phil. 169 (1971) — Followed for the rule that a guarantor may waive the right to be notified of or give consent to extensions obtained by the debtor, as such waiver is not contrary to public policy.
• Willex Plastic Industries, Corp. vs. Court of Appeals, 256 SCRA 478 (1996) — Distinguished; petitioners' invocation was misplaced because in that case the guarantor itself claimed excussion, whereas here PhilGuarantee is not invoking excussion but seeking reimbursement from the debtor.
• Ladignon vs. Court of Appeals, 390 Phil. 1161 (2000) — Followed for the rule that forgery cannot be presumed and must be proved by clear, positive, and convincing evidence.
• Aznar Brothers Realty Company vs. Court of Appeals, 384 Phil. 95 (2000) — Followed for the presumption of regularity of notarized documents and their evidentiary weight as to due execution.
• Veloso vs. Court of Appeals, 329 Phil. 398 (1996) — Followed for the proposition that mere variance of signatures cannot be considered conclusive proof of forgery.

• Art. 2047, Civil Code — Defines a contract of guarantee: the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. Applied to characterize PhilGuarantee's relationship with TRB and JN.
• Art. 2058, Civil Code — The 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. Applied to establish the benefit of excussion as a guarantor's right that may be waived, and which the principal debtor cannot invoke.
• Art. 2060, Civil Code — Sets the conditions for invoking excussion: the guarantor must set it up upon the creditor's demand and point out available property of the debtor within the Philippines sufficient to cover the debt.
• Art. 2066, Civil Code — The guarantor who pays for a debtor must be indemnified by the latter, comprising (1) the total amount of the debt, (2) legal interest from the time payment was made known to the debtor, and (3) expenses incurred by the guarantor after notifying the debtor. Applied as the statutory basis for PhilGuarantee's right to reimbursement.
• Art. 2079, Civil Code — Requires the guarantor's consent to extensions granted by the creditor to the debtor. Held to be for the guarantor's benefit and therefore waivable.
• Art. 2068, Civil Code — If the guarantor pays without notifying the debtor, the debtor may enforce against the guarantor all defenses available against the creditor at the time of payment. Cited in the general discussion of guarantor-debtor relations.
• Art. 2069, Civil Code — If the debt was for a period and the guarantor paid before it became due, reimbursement cannot be demanded until the period expires unless ratified. Cited to show the law recognizes a guarantor's right to recover even payments made before due date.
• Art. 2070, Civil Code — If the guarantor pays without notifying the debtor and the debtor repeats payment, the guarantor's remedy is against the creditor. Cited in the same context.

Puno (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.