TIDCORP vs. Philippine Veterans Bank

A guarantor who expressly waives the benefit of excussion and agrees to be directly liable to the creditor without prior recourse against the principal debtor becomes a surety solidarily liable with the debtor, and the nature of the obligation is determined by its substance—not by the label "guarantor" or "guarantee agreement." Consequently, a rehabilitation court's stay order does not bar enforcement of claims against such a surety under Section 18(c) of the FRIA.

Philippine Phosphate Fertilizer Corporation (PhilPhos), a PEZA-registered domestic corporation situated in Leyte, obtained financing through a Five-Year Floating Rate Note Facility Agreement (NFA) with several banking institutions, including respondent Philippine Veterans Bank (PVB), which committed ₱1 billion of the ₱5 billion aggregate. To secure payment of the Series A Notes, petitioner Trade and Investment Development Corporation (TIDCORP), also known as PhilEXIM, executed a Guarantee Agreement with the express conformity of PhilPhos, agreeing to guarantee ninety percent (90%) of the outstanding Series A Notes and interest. The Guarantee Agreement contained a waiver of the benefit of excussion under Article 2058 of the Civil Code, permitting direct claims against TIDCORP without exhausting PhilPhos's properties. Typhoon Yolanda devastated PhilPhos's manufacturing plant in November 2013, leading to PhilPhos's eventual petition for voluntary rehabilitation under the Financial Rehabilitation and Insolvency Act of 2010 (FRIA).

On November 23, 2011, Philippine Veterans Bank (PVB), together with other banking institutions referred to as the Series A Noteholders, entered into a Five-Year Floating Rate Note Facility Agreement (NFA) with Philippine Phosphate Fertilizer Corporation (PhilPhos), a PEZA-registered domestic corporation in Leyte, for an aggregate amount of ₱5 billion. PVB committed ₱1 billion under the NFA. To secure payment of the Series A Notes, Trade and Investment Development Corporation (TIDCORP), also known as PhilEXIM, with the express conformity of PhilPhos, executed a Guarantee Agreement dated November 23, 2011. Under the Agreement, TIDCORP agreed to guarantee payment to the extent of ninety percent (90%) of the outstanding Series A Notes, including interest, on a rolling successive three-month period commencing on the first drawdown date and ending on the maturity date of the Series A Notes. Critically, the Guarantee Agreement contained a provision expressly waiving the benefit of excussion under Article 2058 of the Civil Code, as well as presentment, demand, protest, or notice of any kind, thereby allowing the Series A Noteholders to claim directly against TIDCORP without exhausting PhilPhos's properties and without prior recourse to PhilPhos.

On November 8, 2013, Typhoon Yolanda struck Central Visayas, causing widespread devastation in Leyte where PhilPhos's manufacturing plant was located. PhilPhos failed to resume operations. On September 17, 2015, PhilPhos filed a Petition for Voluntary Rehabilitation under the Financial Rehabilitation and Insolvency Act of 2010 (FRIA) before the Regional Trial Court of Ormoc City, Branch 12 (Rehabilitation Court). On September 22, 2015, the Rehabilitation Court issued a Commencement Order, which included a Stay Order enjoining the enforcement of all claims, actions, and proceedings against PhilPhos.

On November 5, 2015, or 45 days as provided in the Guarantee Agreement, PVB filed its Notice of Claim with TIDCORP, which received the same on November 6, 2015. By letter dated November 12, 2015, TIDCORP declined to give due course to PVB's Notice of Claim, invoking the Rehabilitation Court's Stay Order. Despite several demands from PVB pursuant to the Guarantee Agreement, TIDCORP maintained its refusal, citing the Stay Order as precluding action on the claim.

On September 22, 2016, PVB filed a Complaint for Specific Performance before the RTC of Makati City, Branch 150, seeking enforcement of TIDCORP's obligation under the Guarantee Agreement. TIDCORP filed an Answer with Counterclaim, arguing that the RTC could not validly try the case because of the Rehabilitation Court's Stay Order, which enjoined enforcement of all claims against PhilPhos. PVB then filed a Motion for Summary Judgment dated February 14, 2017. On August 16, 2017, the RTC granted the Motion for Summary Judgment, finding no genuine issue as to any material fact and holding PVB entitled to judgment as a matter of law, with only the amount of damages remaining for determination. TIDCORP directly filed the instant Petition before the Supreme Court under Rule 45.

• Stay Order as Jurisdictional Bar: Petitioner argued that the RTC could not validly hear and decide respondent PVB's Complaint because the Rehabilitation Court's Stay Order enjoined the enforcement of all claims, actions, and proceedings against PhilPhos.
• Existence of Genuine Issues: Petitioner maintained that there were genuine issues on material facts that necessitate trial on the merits, asserting that respondent PVB was not entitled to judgment as a matter of law.
• Guarantor Status Despite Waiver: Petitioner insisted that despite the waiver of the benefit of excussion, it remained a guarantor because the Guarantee Agreement expressly designated it as an "Ordinary Guarantor," and that the waiver does not define or characterize a guaranty but is merely one of its effects.
• Denial of Receipt of Complete Notice of Claim: Petitioner argued that it did not receive a Notice of Claim with the required attachments from respondent PVB in accordance with the Guarantee Agreement.
• Reliance on Precedent: Petitioner cited JN Development Corporation vs. Philippine Export and Foreign Loan Guarantee Corporation as supposedly considering the contract therein a contract of guarantee despite the waiver of the benefit of excussion.

• Wrong Mode of Appeal: Respondent argued that the instant Petition should be summarily dismissed because petitioner pursued the wrong mode of appeal, maintaining that the assailed Order was a mere interlocutory order and not a final order subject of an appeal under Rule 45.
• Entitlement to Summary Judgment: Respondent asserted that the Guarantee Agreement, including the waiver of excussion, entitled it to claim directly against TIDCORP, and that no genuine issue of material fact existed warranting a full-blown trial.

• Correct Mode of Appeal: Whether the RTC Order granting the Motion for Summary Judgment is a final order susceptible to appeal under Rule 45.
• Effect of Stay Order: Whether the Rehabilitation Court's Stay Order precluded the RTC from hearing and deciding PVB's Complaint against TIDCORP.
• Nature of Obligation: Whether TIDCORP's waiver of the benefit of excussion transformed its obligation from a guaranty into a suretyship, making it solidarily liable with PhilPhos.
• Propriety of Summary Judgment: Whether the RTC correctly granted summary judgment, there being no genuine issue as to any material fact.

• Correct Mode of Appeal: Yes. An order granting a Motion for Summary Judgment that fully determines the rights and obligations of the parties and leaves no issue unresolved except the amount of damages is a final judgment susceptible to appeal under Rule 45.
• Effect of Stay Order: No. The Stay Order did not preclude the RTC from hearing PVB's Complaint, as it applied only to claims against PhilPhos and not against sureties or persons solidarily liable with the debtor under Section 18(c) of the FRIA.
• Nature of Obligation: Yes. TIDCORP's express waiver of the benefit of excussion and agreement to direct liability without prior recourse against PhilPhos transformed the guarantee obligation into a suretyship, rendering TIDCORP solidarily liable, regardless of the label "Ordinary Guarantor."
• Propriety of Summary Judgment: Yes. The RTC correctly granted summary judgment, as TIDCORP admitted its obligations under the Guarantee Agreement and failed to proffer any plausible defense of a substantial character.

• Correct Mode of Appeal: Citing Ybiernas vs. Tanco-Gabaldon, the Court explained that when a court granting a Motion for Summary Judgment adjudicates the merits and declares categorically the rights and obligations of the parties, the order takes the nature of a final order susceptible to appeal. The exclusion of the determination of the amount of damages does not remove a summary judgment from the category of final judgments. The assailed Order discussed the applicable facts, governing law, and arguments of both parties, making a definitive adjudication in favor of PVB. PVB's argument that the assailed Order was merely interlocutory was therefore unmeritorious.

• Effect of Stay Order: The Stay Order issued by the Rehabilitation Court only covered claims against PhilPhos and not against other persons or entities solidarily liable with the debtor. Section 18(c) of the FRIA explicitly provides that a stay order shall not apply to the enforcement of claims against sureties and other persons solidarily liable with the debtor. Rule 4, Section 6 of A.M. No. 00-8-10-SC (Interim Rules of Procedure on Corporate Rehabilitation) similarly provides that a stay order stays enforcement only with respect to claims against the debtor, its guarantors, and persons not solidarily liable with the debtor. Citing Situs Development Corporation vs. Asiatrust Bank, the Court held that the making of claims against sureties and other persons solidarily liable with the debtor is not barred by a stay order. Since TIDCORP was solidarily liable with PhilPhos, the Stay Order did not prevent the RTC from acquiring jurisdiction over PVB's Complaint.

• Nature of Obligation: The Guarantee Agreement expressly waived the benefit of excussion under Article 2058 of the Civil Code, as well as presentment, demand, protest, or notice of any kind, allowing the Series A Noteholders to claim directly against TIDCORP without exhausting PhilPhos's properties and without prior recourse. Under a normal contract of guarantee, the guarantor cannot be compelled to pay unless the creditor has exhausted the debtor's properties—this is the benefit of excussion. When this benefit is waived, the guarantor can be directly compelled to pay the entire debt. Citing Spouses Ong vs. Philippine Commercial International Bank, the Court explained that a surety is directly, equally, and absolutely bound with the principal debtor and is an original promisor and debtor from the beginning. Under Article 2047 of the Civil Code, when the guarantor binds himself solidarily with the debtor, the contract ceases to be a guaranty and becomes a suretyship. The defining characteristic distinguishing guaranty from suretyship is that in the latter, the obligor promises to pay the principal's debt if the principal will not pay, while in the former, the creditor must first proceed against the principal and exhaust all properties. TIDCORP's argument that it remained a guarantor because the Agreement labeled it an "Ordinary Guarantor" was rejected, as the determination of whether an obligation is a suretyship is not a matter of nomenclature and semantics. Even if a party is designated as a "guarantor," he can be held immediately liable if the benefit of excussion was waived. TIDCORP's reliance on JN Development Corporation was unavailing, as the Court in that case actually distinguished guaranty by the requirement of exhaustion of the debtor's properties—precisely what TIDCORP had waived. TIDCORP's citation of Philippine Export and Foreign Loan Guarantee Corporation vs. VP Eusebio Construction, Inc. further strengthened the suretyship characterization, as the Court there identified as an essential feature of suretyship the obligor's obligation not being discharged by absence of notice of default—which matched the Guarantee Agreement's waiver of presentment, demand, protest, or notice.

• Propriety of Summary Judgment: Summary judgment is proper when the pleadings, supporting affidavits, depositions, and admissions show that, except as to the amount of damages, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. A "genuine issue" is an issue of fact calling for presentation of evidence, as distinguished from one that is sham, fictitious, contrived, set up in bad faith, and patently unsubstantial. TIDCORP readily admitted it was bound by the Guarantee Agreement, which expressly obligated it to guarantee 90% of the outstanding Series A Notes. The only special and/or affirmative defense raised in TIDCORP's Answer was the alleged lack of RTC jurisdiction due to the Stay Order—an assertion already demonstrated to be erroneous. TIDCORP's argument that it did not receive a complete Notice of Claim was manifestly unmeritorious, as its letters dated November 12, 2015 and January 27, 2016 expressly acknowledged receipt of the Notice of Claim on November 6, 2015, and TIDCORP consistently failed to assail the correctness and completeness of the Notice, confining its denial solely to the Stay Order rationale. A defendant must show a bona fide defense of a substantial character; TIDCORP failed to do so. The RTC therefore committed no error in granting summary judgment.

• Distinction Between Guaranty and Suretyship — A guaranty gives rise to a subsidiary obligation; the guarantor answers only if the debtor cannot fulfill the obligation, hence the benefit of excussion. A suretyship, by contrast, involves a surety who is directly, equally, and absolutely bound with the principal debtor for payment of the debt, insuring the debt itself rather than the debtor's solvency. The benefit of excussion is not available to a surety. The defining characteristic is that in suretyship the obligor promises to pay if the principal will not pay, regardless of the principal's financial capacity, while in guaranty the creditor must first proceed against and exhaust the properties of the principal debtor. The Court applied this doctrine by holding that TIDCORP's express waiver of excussion and agreement to direct liability without prior recourse transformed its obligation into a suretyship.

• Nomenclature Does Not Determine the Nature of the Obligation — The determination of whether an obligation is a suretyship is not a matter of nomenclature and semantics. That an obligor is designated as a "guarantor" or that the contract is denominated a "guarantee agreement" does not automatically mean the obligor is a guarantor. Even if a party is expressly made liable only as a "guarantor," he can be held immediately and directly liable if the benefit of excussion was waived. The Court applied this by rejecting TIDCORP's reliance on the label "Ordinary Guarantor" in the Guarantee Agreement.

• Finality of Summary Judgment Orders — An order or resolution granting a Motion for Summary Judgment that fully determines the rights and obligations of the parties and leaves no other issue unresolved except the amount of damages is a final judgment susceptible to appeal under Rule 45. Leaving out the determination of the amount of damages does not remove a summary judgment from the category of final judgments.

• Stay Order Under the FRIA Does Not Bar Claims Against Sureties — Under Section 18(c) of the FRIA, a stay order does not apply to the enforcement of claims against sureties and other persons solidarily liable with the debtor. The rehabilitation court is only empowered to suspend claims against the debtor, its guarantors, and persons not solidarily liable with the debtor.

• "The determination of whether an obligation is a suretyship is not a matter of nomenclature and semantics." — This passage articulates the controlling principle that the substance of the obligation, not the label used by the parties, determines whether the contract is a guaranty or a suretyship.

• "In leaving out the determination of the amount of damages, a summary judgment is not removed from the category of final judgments." — This statement, drawn from Ybiernas vs. Tanco-Gabaldon, defines the rule that a summary judgment order leaving only damages for determination remains a final order appealable under Rule 45.

• "A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself." — This formulation from Spouses Ong vs. Philippine Commercial International Bank captures the canonical distinction between guaranty and suretyship, frequently cited in subsequent jurisprudence.

• Ybiernas vs. Tanco-Gabaldon, 665 Phil. 297 (2011) — Followed. Established that an order granting summary judgment adjudicating the merits and declaring the rights and obligations of the parties is a final order susceptible to appeal, even if the amount of damages remains unresolved.
• Situs Development Corporation vs. Asiatrust Bank, 701 Phil. 569 (2013) — Followed. Held that a stay order only empowers the rehabilitation court to suspend claims against the debtor, its guarantors, and sureties not solidarily liable with the debtor; claims against sureties solidarily liable are not barred.
• Spouses Ong vs. Philippine Commercial International Bank, 489 Phil. 673 (2005) — Followed. Explained that a surety is directly, equally, and absolutely bound with the principal debtor, and that the benefit of excussion is not available to a surety as he is principally liable for payment of the debt.
• JN Development Corporation vs. Philippine Export and Foreign Loan Guarantee Corporation, 505 Phil. 636 (2005) — Distinguished. Petitioner cited it as supporting guaranty status despite waiver of excussion, but the Court found the case actually reinforced the distinction by emphasizing that a guarantor cannot be compelled to pay unless the creditor has exhausted the debtor's properties.
• Philippine Export and Foreign Loan Guarantee Corporation vs. VP Eusebio Construction, Inc., 478 Phil. 269 (2004) — Followed. Identified as an essential feature of suretyship that the obligor's obligation is not discharged by the absence of notice of default of the principal debtor.
• Excelsa Industries, Inc. vs. Court of Appeals, 317 Phil. 664 (1995) — Followed. Defined summary judgment as a device for weeding out sham claims or defenses and defined "genuine issue" as an issue of fact calling for presentation of evidence, as distinguished from sham, fictitious, or contrived issues.

• Article 2058, Civil Code — Provides that the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all legal remedies against the debtor (benefit of excussion). TIDCORP expressly waived this provision in the Guarantee Agreement, which the Court held transformed the obligation into a suretyship.
• Article 2059, Civil Code — Enumerates instances when excussion shall not take place, including when the guarantor has expressly renounced it or has bound himself solidarily with the debtor. The Court cited this to support the proposition that waiver of excussion is recognized under the Civil Code.
• Article 2047, Civil Code — States that a contract is called a suretyship when a person binds himself solidarily with the principal debtor. The Court relied on this provision to conclude that when the guarantor binds himself solidarily with the debtor, the contract ceases to be a guaranty and becomes a suretyship.
• Section 18(c), FRIA (R.A. No. 10142) — Provides that a stay order shall not apply to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and third-party or accommodation mortgagors as well as issuers of letters of credit. The Court applied this to hold that the Stay Order did not bar PVB's claim against TIDCORP as a surety.
• Rule 4, Section 6, A.M. No. 00-8-10-SC (Interim Rules of Procedure on Corporate Rehabilitation) — Provides that a stay order stays enforcement of all claims against the debtor, its guarantors, and persons not solidarily liable with the debtor. The Court cited this to reinforce that claims against persons solidarily liable are not stayed.
• Section 1, Rule 35, Rules of Court — Governs motions for summary judgment, allowing a party seeking to recover upon a claim to move with supporting affidavits, depositions, or admissions for summary judgment after the answer has been served.
• Section 3, Rule 35, Rules of Court — Provides that summary judgment shall be rendered if the pleadings, supporting affidavits, depositions, and admissions show that, except as to the amount of damages, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.

Carpio (Chairperson), Perlas-Bernabe, J. Reyes, Jr., and Lazaro-Javier, JJ., concurred.