Philippine American General Insurance Co. v. Ramos
REITERATIONFacts
The Antecedents: Associated Reclamation & Development Corporation (ARDC) executed a promissory note for P11,765.00 in favor of General Acceptance & Finance Corporation. Philippine American General Insurance Co., Inc. (PAGI) executed a surety bond to secure this note. Subsequently, spouses Eugenio Ramos and Pilar Miranda (defendants-appellees) signed a counter-guaranty agreement with real estate mortgage in favor of PAGI, and an indemnity agreement binding themselves 'jointly and severally' to indemnify PAGI for any losses under the surety bond. Procedural History: PAGI filed a complaint against the Ramos spouses, alleging ARDC's failure to pay and PAGI's subsequent payment of P11,765.00 under the surety bond. PAGI sought payment from the Ramos spouses, jointly and severally, with interest and attorney's fees, and foreclosure of the mortgaged property in case of non-payment. The Ramos spouses filed a motion to dismiss, arguing that as guarantors, PAGI must first exhaust ARDC's properties. PAGI amended its complaint, incorporating the surety bond, indemnity agreement, and counter-guaranty agreement. The Court of First Instance dismissed the case, ruling that defendants could not be held liable without first proceeding against ARDC. PAGI appealed directly to the Supreme Court. The Petition: PAGI appealed the dismissal, asserting that its amended complaint sufficiently stated a cause of action against the Ramos spouses.
Issue(s)
Whether the amended complaint sufficiently states a cause of action against the defendants-appellees without first proceeding against the principal debtor, Associated Reclamation & Development Corporation. Whether the defendants-appellees, as counter-guarantors with a real estate mortgage, are entitled to demand the exhaustion of the properties of the principal debtor.
Ruling
The Supreme Court reversed and set aside the order of dismissal, remanding the case to the court a quo for further proceedings. The Court held that the amended complaint sufficiently states a cause of action against the defendants-appellees.
Ratio Decidendi
On the issue of cause of action and exhaustion of principal debtor's properties: The Court held that the amended complaint sufficiently states a cause of action against the defendants-appellees. This is because the indemnity agreement (Schedule B) explicitly states that the undersigned indemnitors agree to 'jointly and severally' indemnify the COMPANY and keep it indemnified. Crucially, the agreement stipulates that 'It shall not be necessary for the COMPANY to bring suit against the principal upon his default, or exhaust the property of the principal, but the liability hereunder of the undersigned indemnitors shall be jointly and severally, a primary one, the same as that of the principal, and shall be exigible immediately upon the occurrence of such default.' This provision clearly establishes a primary and solidary liability on the part of the indemnitors, allowing the creditor to proceed against any one, some, or all of the solidary debtors simultaneously, as provided by Article 1216 of the New Civil Code. The Court also noted that the indemnity agreement was executed after the counter-guaranty agreement, implying it could not be modified by the latter. On the right of counter-guarantors to demand exhaustion of principal debtor's properties: The Court further ruled that even under the counter-guaranty agreement with real estate mortgage (Schedule C), the defendants as counter-guarantors are not entitled to demand the exhaustion of the properties of the principal debtor. This is because Article 2058 of the New Civil Code provides that a guarantor has no right to demand the exhaustion of the properties of the principal debtor where a pledge or mortgage has been given as a special security. The Court cited previous rulings in Saavedra vs. Price and Southern Motors vs. Barbosa to support this principle, confirming that the presence of a real estate mortgage as special security negates the right to demand prior exhaustion of the principal's assets.
Main Doctrine
Under an indemnity agreement where indemnitors bind themselves 'jointly and severally' to indemnify a surety company, and explicitly agree that it shall not be necessary to bring suit against the principal or exhaust the principal's property before proceeding against the indemnitors, the liability of the indemnitors is primary and exigible immediately upon the principal's default. Furthermore, even as counter-guarantors with a real estate mortgage, they cannot demand exhaustion of the principal debtor's properties if a pledge or mortgage has been given as special security.