G.R. No. 183947, September 21, 2016
Rizal Commercial Banking Corporation, Petitioner, vs. Teodoro G. Bernardino, Respondent.

FACTS

Marcopper Mining Corporation (MMC) obtained an unsecured bridge loan from RCBC. When MMC failed to secure long-term financing, RCBC requested collateral. MMC offered a chattel mortgage on equipment and a pledge of shares. RCBC later sought to substitute these with MMC’s Forbes Park property, which was mortgaged to the Asian Development Bank (ADB). In a July 1, 1997 letter, MMC proposed two repayment options. Option 2 involved MMC’s major shareholders ensuring repayment through an assignment of the Forbes Park property and a surety agreement from a shareholder, with the condition that RCBC release its mortgage on the mining equipment to allow ADB’s mortgagee, Placer Dome, to accept them as substitute collateral. RCBC chose Option 2. The parties subsequently exchanged correspondence finalizing terms, including the execution of a Deed of Assignment for the Forbes Park property and a Deed of Release for RCBC’s equipment.
RCBC signed the Deed of Assignment for the Forbes Park property but refused to sign the concurrent Deed of Release for the equipment. Consequently, the assignment of the Forbes Park property could not be perfected because Placer Dome, the mortgagee, would not release it without receiving the equipment as substitute collateral. Despite this impasse, RCBC proceeded to have respondent Bernardino, an MMC stockholder, sign two Comprehensive Surety Agreements (CSAs) on August 22, 1997, guaranteeing MMC’s restructured loan. Bernardino later sought the annulment of these surety agreements.

ISSUE

Whether the Comprehensive Surety Agreements executed by Bernardino are valid and enforceable.

RULING

No, the surety agreements are unenforceable. The Supreme Court affirmed the lower courts’ rulings. The legal logic rests on the principle of a conditional obligation under Article 1181 of the Civil Code, where the fulfillment of a condition precedent suspends the birth of an obligation. The Court found that the surety agreements were integral parts of a package deal under Option 2. The validity of Bernardino’s suretyship was expressly conditioned on the prior and concurrent execution of the subrogation agreement, which involved RCBC releasing its mortgage on the equipment to allow Placer Dome to release the Forbes Park property. This subrogation was a condition sine qua non.
Since RCBC itself refused to sign the Deed of Release, the condition precedent failed. The surety agreements, therefore, never became effective. The Court rejected RCBC’s argument that the surety was an independent contract, noting that the contemporaneous acts and correspondence of the parties clearly established the conditional nature of the entire arrangement. Bernardino’s consent to the surety was vitiated as it was predicated on the fulfillment of the entire restructuring plan, which did not materialize due to RCBC’s own inaction. Thus, no binding surety obligation was created.