International Finance Corp. v. Imperial Textile Mills, Inc.
REITERATIONFacts
The Antecedents: International Finance Corporation (IFC) extended a loan of US$7,000,000.00 to Philippine Polyamide Industrial Corporation (PPIC) under a loan agreement dated December 17, 1974. As a condition for this loan, Imperial Textile Mills, Inc. (ITM) and Grand Textile Manufacturing Corporation (Grandtex) executed a "Guarantee Agreement" with IFC on the same date, agreeing to guarantee PPIC's obligations. PPIC made initial payments but subsequently defaulted on its loan obligations, even after rescheduling. IFC foreclosed on PPIC's mortgaged properties, but the proceeds were insufficient to cover the outstanding loan balance of US$2,833,967.00. Procedural History: Following PPIC's default and the insufficient proceeds from the foreclosure sale, IFC demanded payment from ITM and Grandtex. When they failed to pay, IFC filed a complaint with the Regional Trial Court (RTC) of Manila against PPIC and ITM. The RTC held PPIC liable for the outstanding loan but relieved ITM of its obligation as guarantor, dismissing the complaint against ITM. IFC appealed this decision to the Court of Appeals (CA). The CA reversed the RTC's decision, holding ITM secondarily liable as a guarantor, but only if PPIC could not pay and its inability was sufficiently established. Both parties moved for reconsideration, which the CA denied. IFC then filed the present Petition for Review with the Supreme Court. The Petition: Petitioner IFC seeks review of the CA's decision and resolution under Rule 45 of the Rules of Court. The core issue presented is whether ITM, by executing the "Guarantee Agreement," acted as a surety and is therefore jointly and severally liable with PPIC for the loan. IFC argues that despite the use of the term "guarantor," the specific stipulations in the agreement, particularly the phrase "jointly and severally" and the designation as "primary obligors and not as sureties merely," clearly indicate a contract of suretyship. IFC contends that ITM is solidarily liable with PPIC and should be ordered to pay the outstanding loan balance, interests, and attorney's fees as adjudged against PPIC.
Issue(s)
Whether Imperial Textile Mills, Inc. (ITM) and Grand Textile Manufacturing Corporation (Grandtex) are sureties and therefore, jointly and severally liable with Philippine Polyamide Industrial Corporation (PPIC) for the payment of the loan. Whether the Petition raises a question of law. Whether the Petition raises a theory not raised in the lower court.
Ruling
The Petition is granted. The assailed Decision and Resolution of the Court of Appeals are modified. Imperial Textile Mills, Inc. is declared a surety to Philippine Polyamide Industrial Corporation and is ordered to pay International Finance Corporation the same amounts adjudged against PPIC.
Ratio Decidendi
On the issue of whether ITM and Grandtex are sureties and therefore, jointly and severally liable with PPIC for the payment of the loan: The Supreme Court held that ITM is a surety and thus solidarily liable with PPIC. The Court emphasized that while the contract was denominated as a 'Guarantee Agreement' and referred to ITM as a 'guarantor,' the specific stipulations within the contract clearly indicated a suretyship. Section 2.01 of the Agreement explicitly stated that the Guarantors (including ITM) 'jointly and severally,' irrevocably, absolutely and unconditionally guarantee, as 'primary obligors and not as sureties merely,' the payment of PPIC's obligations. The Court clarified that the use of the word 'guarantee' does not automatically make the contract a mere guaranty, especially when qualified by terms like 'jointly and severally' and 'primary obligors.' Article 2047 of the Civil Code provides that if a person binds himself solidarily with the principal debtor, the contract is called a suretyship. The Court found no ambiguity in the contract's provisions, stating that the literal meaning of the stipulations controls when the terms are clear and the intention of the parties is evident. Therefore, ITM bound itself to be solidarily liable with PPIC, placing it on the same level as the principal debtor and not merely secondarily liable. On the issue of whether the Petition raises a question of law: The Court found that the Petition did raise a question of law. The core of the dispute revolved around the interpretation of the 'Guarantee Agreement' and whether its terms constituted a suretyship or a mere guaranty, which is a matter of legal interpretation and thus a question of law. The Court noted that the appellate court's decision was based on a misapprehension of facts, specifically concerning the stipulations in the Guarantee Agreement, which necessitated a review of the contract by the Supreme Court. On the issue of whether the Petition raises a theory not raised in the lower court: The Court held that there was no change of theory on appeal. The petitioner's arguments before the trial court (that ITM was a 'primary obligor') and before the CA (that ITM was a 'surety') were related and intertwined, both premised on the same stipulations in Section 2.01 of the Agreement and leading to the same legal consequence of solidary liability. The Court found no disparity between IFC's allegations in the trial court and those in the CA, and ITM failed to show any such disparity. Therefore, the contention of a change of theory was dismissed.
Main Doctrine
A contract denominated as a 'Guarantee Agreement' where the guarantor binds itself 'jointly and severally' and as a 'primary obligor and not as surety merely' is considered a contract of suretyship, making the guarantor solidarily liable with the principal debtor.