GR 187403; (February, 2014) (Digest)
G.R. No. 187403 ; February 12, 2014
TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE PHILIPPINES, Petitioner, vs. ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION, NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION (now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE CORPORATION, AND FORTUNE LIFE AND GENERAL INSURANCE COMPANY, Respondents.
FACTS
Petitioner TIDCORP issued Letters of Guarantee to secure loans obtained by respondent Asia Paces Corporation (ASPAC) from foreign banks. As a condition, ASPAC, its affiliate, and its president executed Deeds of Undertaking to reimburse TIDCORP. Furthermore, ASPAC secured Surety Bonds from respondent bonding companies (Paramount, Phoenix, Mega Pacific, and Fortune), making them solidarily liable to TIDCORP for any liability under the Letters of Guarantee. ASPAC defaulted on its loans, prompting the banks to demand payment from TIDCORP, which in turn demanded payment from the bonding companies within the bonds’ validity periods.
Subsequently, due to a government-requested moratorium, TIDCORP entered into a Restructuring Agreement with the creditor banks, extending the maturity dates of the guaranteed obligations. The respondent bonding companies were not parties to this agreement and did not consent to the extension. TIDCORP eventually fully settled the obligations under the extended schedule and then filed a collection case against the principal obligors and the bonding companies to recover its payments.
ISSUE
Whether the liabilities of the respondent bonding companies under their Surety Bonds were extinguished due to the extension of the principal obligations granted by TIDCORP to the creditor banks without the sureties’ consent.
RULING
Yes, the Supreme Court affirmed the rulings of the lower courts that the sureties’ liabilities were extinguished. The legal logic is anchored on Article 2079 of the Civil Code, which states that an extension granted to the debtor by the creditor without the surety’s consent releases the surety. The Court emphasized that a surety’s obligation is accessory and strictly construed against the creditor. The extension of time to pay, effected through the Restructuring Agreement, constituted a material alteration of the principal contract.
This alteration was prejudicial to the sureties as it delayed TIDCORP’s right to demand reimbursement from them and prolonged their risk exposure. Since the extension was granted without their knowledge or consent, the law operates to discharge them from their obligations. The Court rejected TIDCORP’s argument that the bonds were demand guarantees independent of the principal obligation, ruling that the contracts were clearly contracts of suretyship, not independent guarantees. Consequently, the bonding companies were correctly absolved from liability, while the principal obligors (ASPAC, PICO, and Balderrama) remained liable under their separate Deeds of Undertaking.