Willex Plastic Industries Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: Inter-Resin Industrial Corporation (Inter-Resin) opened a letter of credit with Manila Banking Corporation (Manilabank). To secure this, Inter-Resin and Investment and Underwriting Corporation of the Philippines (IUCP) executed Continuing Surety Agreements. Subsequently, Inter-Resin, along with Willex Plastic Industries Corporation (Willex Plastic), executed a "Continuing Guaranty" in favor of IUCP, guaranteeing payment of obligations of Inter-Resin to IUCP up to P5,000,000.00. IUCP paid Manilabank P4,334,280.61 for Inter-Resin's outstanding obligation. Atrium Capital Corp., successor of IUCP, demanded payment from Inter-Resin and Willex Plastic. Inter-Resin paid P687,600.00 from its fire insurance proceeds. Atrium Capital Corp. was substituted by Interbank as plaintiff. Procedural History: The Regional Trial Court (RTC) ordered Inter-Resin and Willex Plastic jointly and severally to pay Interbank. Inter-Resin and Willex Plastic appealed. The Court of Appeals (CA) affirmed the RTC decision. Willex Plastic's motion for reconsideration was denied. The Petition: Willex Plastic filed a petition for review on certiorari, questioning its joint and several liability under the "Continuing Guaranty."
Issue(s)
Whether Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial under the "Continuing Guaranty" for the amount paid by Interbank to Manilabank. Whether the "Continuing Guaranty" is valid despite Willex Plastic not being a party to the principal obligation with Manilabank. Whether the "Continuing Guaranty" can be retroactively applied to secure payments made by Interbank under prior "Continuing Surety Agreements." Whether Willex Plastic is entitled to the benefit of excussion. Whether Willex Plastic should have been allowed to present evidence of Inter-Resin Industrial's alleged payment.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, holding Willex Plastic Industries Corporation jointly and severally liable with Inter-Resin Industrial Corporation. The petition for review on certiorari was denied.
Ratio Decidendi
On the issue of joint and several liability under the "Continuing Guaranty": The Court held that Willex Plastic's contention that its liability was limited to sums directly obtained by Inter-Resin from Interbank was untenable. Evidence aliunde presented in the trial court clarified that the "Continuing Guaranty" was executed to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank on behalf of Inter-Resin Industrial. Inter-Resin Industrial admitted this in its answer, and Willex Plastic's counsel indicated that Willex Plastic signed as a guarantor to the guarantee. Furthermore, Interbank's witness testified that Willex "guaranteed the exposure/of whatever exposure of ACP [Atrium Capital] will later be made because of the guarantee to Manila Banking Corporation." By failing to object to the parol evidence presented, Willex Plastic waived the protection of the parol evidence rule, allowing the admission of evidence explaining the circumstances and purpose of the guaranty. The factual findings of the RTC and CA, confirmed by the Supreme Court's own examination of the record, established that the "Continuing Guaranty" was intended to secure the guarantee made by Interbank of the credit accommodation granted to Inter-Resin Industrial by Manilabank. On the validity of the "Continuing Guaranty" as an accessory contract: The Court rejected Willex Plastic's argument that the "Continuing Guaranty" was invalid due to the absence of a valid principal obligation to which it was accessory, as Willex Plastic was not a party to the surety agreements with Manilabank. The Court reiterated the principle that the consideration for a surety obligation need not pass directly to the surety; a consideration moving to the principal alone is sufficient. A guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties. In an analogous case, the Court held that a surety agreement, being an accessory obligation, is dependent on a principal one, and the surety is liable if the borrower is liable on the promissory note evidencing the indebtedness. The "Continuing Guaranty" was executed while the surety agreements were in full force and effect, covering the loan obtained by Inter-Resin Industrial. On the retrospective application of the "Continuing Guaranty": The Court distinguished the present case from El Vencedor v. Canlas and Diño v. Court of Appeals, where contracts of suretyship were held not to be retrospective for defaults occurring before their execution or were generally prospective. In this case, the parties to the "Continuing Guaranty" clearly provided that the guaranty would cover "sums obtained and/or to be obtained" by Inter-Resin Industrial. The Court emphasized that while a contract of suretyship is ordinarily not retrospective, the intention of the parties as revealed by the evidence is controlling. The circumstances clearly indicated that the guaranty was intended to cover all indebtedness of Inter-Resin Industrial upon its current account with Interbank, including amounts paid by Interbank to Manilabank. On the right of excussion: Willex Plastic's claim to the benefit of excussion was denied. The Court pointed to two provisions in the "Continuing Guaranty": first, an express renunciation of the right of excussion, stating that Interbank could "directly proceed against Me/Us without first proceeding against and exhausting DEBTOR/s properties in the same manner as if all such liabilities constituted My/Our direct and primary obligations." Second, Willex Plastic bound itself "jointly and severally" with Inter-Resin Industrial, which under Article 2059(2) of the Civil Code negates the requirement of excussion. On the alleged payment and refusal to admit evidence: The Court found no basis for Willex Plastic's plea to present evidence of Inter-Resin Industrial's alleged payment. The records showed that Inter-Resin Industrial was given numerous opportunities to present its evidence but repeatedly failed to appear at scheduled hearings, leading the trial court to finally declare it had waived its right to present evidence. Willex Plastic itself rested its case without presenting evidence. Therefore, the Court of Appeals correctly denied Willex Plastic's motion for reconsideration seeking to present evidence on this matter.
Main Doctrine
A continuing guaranty executed to secure payment of amounts paid by a creditor to a third party on behalf of the debtor is valid and binding, even if the guaranty's wording initially suggests it secures direct loans to the debtor, especially when evidence aliunde clarifies the intent and the parol evidence rule is waived by failure to object.