Duty Paid Import Co. Inc. v. Land Bank of the Philippines
REITERATIONFacts
The Antecedents: Land Bank of the Philippines (LBP) extended an Omnibus Credit Line Agreement to Duty Paid Import Co. Inc. (DPICI) for P250,000,000.00. Ramon P. Jacinto, Rajah Broadcasting Network, Inc., and RJ Music City (collectively, Jacinto, et al.) executed a Comprehensive Surety Agreement, unconditionally and irrevocably binding themselves to pay LBP if DPICI failed to pay its loans. DPICI executed several promissory notes from July 24, 1997, to August 4, 1998, totaling P270,000,000.00. As security for a P10,000,000.00 loan, a real estate mortgage was executed over a condominium unit. DPICI defaulted on its obligations. LBP foreclosed the mortgage, with LBP emerging as the highest bidder for P2,970,000.00. A deficiency of P304,524,438.98 remained. LBP sent demand letters to DPICI, which were unheeded. Procedural History: LBP filed a complaint for collection of sum of money against petitioners. Petitioners contended that the complaint was prematurely filed due to an alleged loan restructuring agreement and that the amounts claimed were excessive. They also invoked the Asian economic crisis of 1997 as force majeure. The Regional Trial Court (RTC) found petitioners solidarily liable, ordering them to pay P166,853,078.57 plus interest and attorney's fees. The RTC denied petitioners' motion for reconsideration. Petitioners appealed to the Court of Appeals (CA). The Petition: The CA affirmed the RTC's decision, holding that the alleged loan restructuring was unsubstantiated, the Asian economic crisis was not force majeure, and petitioners were liable as sureties. The CA also refused to consider the Truth in Lending Act as it was raised for the first time on appeal. Petitioners filed the instant petition for review on certiorari, raising issues regarding cause of action, premature filing, excessive amounts, unconscionable interest rates, and their solidary liability as sureties.
Issue(s)
Whether the Court of Appeals erred in affirming the RTC's finding that the loan agreement was not restructured, thus rendering the complaint prematurely filed. Whether the petitioners, as sureties, are solidarily liable with the principal debtor (DPICI) despite the alleged economic crisis and the existence of collateral. Whether the amounts claimed by LBP were excessive and exorbitant due to unconscionably high interest rates and penalties. Whether the Asian economic crisis of 1997 constitutes force majeure excusing petitioners' non-payment.
Ruling
The petition is DENIED. The Decision dated June 29, 2017, and Resolution dated March 20, 2018, of the Court of Appeals are AFFIRMED in toto.
Ratio Decidendi
On the alleged loan restructuring and premature filing: The Court held that the petitioners failed to substantiate their claim of a loan restructuring agreement by a preponderance of evidence. The lone witness, Colayco, only confirmed the existence of the Omnibus Credit Line Agreement. A letter presented by LBP indicated a denied proposal for restructuring, not an agreed-upon restructuring. Therefore, the RTC and CA correctly disregarded the defense of premature filing. Allegations without evidence do not prove facts, and the burden of proof rests on the party alleging a fact. On the solidary liability of sureties: The Court affirmed the finding that Jacinto, et al., are liable as sureties under the Comprehensive Surety Agreement. The agreement explicitly states that upon any default by the borrower (DPICI), the bank (LBP) may proceed directly against the surety without first proceeding against and without exhausting the property of the borrower. Thus, the sureties became immediately liable upon DPICI's default, irrespective of the sufficiency of the collaterals. On the alleged excessive amounts and unconscionable interest rates: The Court found no error in the lower courts' determination that even after applying the foreclosure proceeds, a deficiency of P166,853,078.57 remained. The petitioners failed to present contrary proof to disprove this finding. The issue of unconscionable interest rates was not sufficiently substantiated by the petitioners. On the Asian economic crisis as force majeure: The Court ruled that the Asian financial crisis of 1997 did not constitute a valid justification for reneging on obligations and is not among the fortuitous events contemplated under Article 1174 of the Civil Code. The loan agreement was entered into after the crisis began, implying petitioners were aware of the economic environment and assumed the associated risks. The burden of proving that the financial distress was the proximate cause of non-compliance rested on the petitioners, which they failed to discharge.
Main Doctrine
Sureties are unconditionally and irrevocably bound to pay the principal debtor's obligations upon default, without the need for the creditor to first exhaust the debtor's collaterals or pursue other remedies against the principal debtor.