G.R. No. 177729; September 28, 2011
PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION (now TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES), Petitioner, vs. AMALGAMATED MANAGEMENT AND DEVELOPMENT CORPORATION, FELIMON R. CUEVAS, AND JOSE A. SADDUL, JR., Respondents.

FACTS

Petitioner Philippine Export and Foreign Loan Guarantee Corporation (now TIDCORP) is a government-owned corporation. Respondent Amalgamated Management and Development Corporation (AMDC) obtained a loan from the National Commercial Bank of Saudi Arabia (NCBSA). Petitioner issued a letter of guaranty in favor of NCBSA to secure AMDC’s loan. As security for this guaranty, a real estate mortgage was executed over properties of a sister company. Additionally, AMDC, along with its President Felimon R. Cuevas and Vice-President Jose A. Saddul, Jr., executed a Deed of Undertaking wherein they bound themselves jointly and severally to pay petitioner for any liabilities incurred under the guaranty. AMDC defaulted on the loan. Petitioner paid the obligation to NCBSA and was subrogated to its rights. Petitioner then extrajudicially foreclosed the real estate mortgage. The proceeds from the foreclosure sale were insufficient to cover the total obligation. Petitioner filed a complaint in the RTC to collect the deficiency from AMDC, Cuevas, and Saddul. The RTC held only AMDC liable for the deficiency, absolving Cuevas and Saddul. The CA affirmed the RTC decision. Petitioner appealed to the Supreme Court.
ISSUES:
1. Whether the CA erred in affirming the RTC’s ruling that Cuevas and Saddul were absolved of personal liability on the petitioner’s deficiency claim.
2. Whether the CA erred in ruling that Cuevas and Saddul had not been notified of the guaranty period extension and had been thereby exonerated from liability.
3. Whether the CA erred in holding that Cuevas and Saddul did not receive any demand letter from the petitioner.
4. Whether the CA erred in finding that the petitioner’s claim against Cuevas and Saddul had already prescribed.
5. Whether the CA erred in declaring that AMDC was liable to pay interest and penalty charge at the rate of only 6% per annum instead of 16% per annum.

RULING

The Supreme Court ruled that the appeal was partly meritorious.
1. On the first issue, the Court held that the pre-trial order did not preclude the trial court from determining the liability of Cuevas and Saddul. The issue of their liability was deemed included in the broader issue of whether a deficiency existed to be paid by the obligors.
2. & 3. On the second and third issues, the Court found that the records contained demand letters sent to Cuevas and Saddul. Furthermore, the Deed of Undertaking itself constituted a written contract creating a solidary obligation. Notification of an extension of the guaranty period was not necessary to bind the solidary co-obligors, as their obligation under the deed was direct and unconditional.
4. On the fourth issue, the Court ruled that the action, being based on a written contract (the Deed of Undertaking), prescribed in ten years. The cause of action accrued from the time petitioner paid the guaranteed obligation and made a demand. The complaint was filed within the ten-year prescriptive period.
5. On the fifth issue, the Court modified the interest and penalty rates. It held that the stipulated interest rate of 16% per annum and penalty charge of 16% per annum, as provided in the Deed of Undertaking, were binding. However, applying the principle of equity and the prohibition against iniquitous or unconscionable penalties, the Court reduced the total combined interest and penalty charge to 12% per annum.
In conclusion, the Supreme Court REVERSED the CA decision insofar as it absolved respondents Cuevas and Saddul from liability. Cuevas and Saddul were declared jointly and solidarily liable with AMDC for the deficiency claim. The award of interest and penalty was MODIFIED to a rate of 12% per annum.