G.R. No. 209119. October 03, 2018.
PHILIPPINE INTERNATIONAL TRADING CORPORATION, PETITIONER, V. THRESHOLD PACIFIC CORPORATION AND EDGAR REY A. CUALES, RESPONDENTS.

FACTS

This case stemmed from a Complaint for Sum of Money filed by petitioner Philippine International Trading Corporation (PITC) against respondents Threshold Pacific Corporation (TPC) and its Managing Director, Edgar Rey A. Cuales. The controversy involves an Import Financing Agreement (IFA) and two Addenda executed between PITC and TPC. Under the IFA dated July 5, 1993, PITC agreed to provide TPC a loan of P50,000,000.00 to finance TPC’s importation of urea fertilizer for resale to the Allied Sugarcane Planters Association, Inc. (ASPAI). The loan was secured by, among others, post-dated checks from ASPAI and an assignment of sugar/molasses quedans. The IFA stipulated that TPC’s liability for payment shall subsist until full payment is received by PITC, regardless of the securities/collaterals. The 1st Addendum dated July 6, 1993, required TPC to submit a Trust Receipt upon release of the goods. The 2nd Addendum dated November 4, 1993, modified the payment schedule due to ASPAI’s failure to issue the required post-dated checks, making TPC directly liable to pay PITC and substituting the quedans with a real estate mortgage. PITC opened a letter of credit, and the fertilizer was delivered to and accepted by ASPAI. ASPAI subsequently issued post-dated checks to PITC, but these were dishonored. PITC then demanded payment from TPC. When TPC failed to pay, PITC filed the complaint. The Regional Trial Court (RTC) ruled in favor of PITC, ordering TPC and Cuales to pay jointly and severally. The Court of Appeals (CA) reversed the RTC, absolving TPC and Cuales from liability. The CA held that the IFA created an agency, not a loan, and that PITC’s acceptance of the checks from ASPAI novated the agreement, releasing TPC from obligation. PITC filed the present petition.

ISSUE

Whether the Court of Appeals erred in: (1) ruling that the Import Financing Agreement created a contract of agency and not a contract of loan; and (2) ruling that the obligation of respondents was extinguished by novation.

RULING

The Supreme Court granted the petition, reversed the Court of Appeals Decision and Resolution, and reinstated the Regional Trial Court’s judgment with modification on the interest rate.
1. On the nature of the contract: The Import Financing Agreement (IFA) is a contract of loan, not a contract of agency. The terms of the IFA are clear and unequivocal. It is denominated as an “Import Financing Agreement” where PITC consents to provide “financial assistance (the ‘loan’)” to TPC. The IFA imposed direct, primary, and unconditional liability on TPC as the borrower for the repayment of the principal plus interest, irrespective of the collaterals provided. The stipulation that TPC shall have no right to delay payment for any reason “including but not limited to those relating to the quality/quantity or specifications of the fertilizers” indicates a loan, as an agent would not be liable for the principal’s failure to pay if the goods are defective. The subsequent execution of a Trust Receipt pursuant to the 1st Addendum solidified TPC’s role as a debtor, converting its possession of the goods into one held in trust for PITC as security for the loan. The 2nd Addendum further confirmed the loan nature by holding TPC directly liable for payment to PITC after ASPAI failed to issue the checks. The agreement’s provisions on interest, repayment schedule, events of default, and attorney’s fees are characteristic of a loan, not an agency.
2. On the issue of novation: No novation occurred. Novation requires a clear and unequivocal intent to extinguish the old obligation. The mere issuance and acceptance of post-dated checks from ASPAI did not novate the loan agreement between PITC and TPC. The IFA itself contemplated these checks as security for TPC’s obligation. Their acceptance by PITC was in accordance with the terms of the IFA, not an act constituting a new agreement. The IFA expressly stated that TPC’s liability subsists until full payment is received, “regardless of the securities/collaterals.” The subsequent dishonor of these checks triggered TPC’s default under the IFA. There was no showing that PITC expressly or impliedly released TPC from its primary obligation. Therefore, TPC’s liability under the loan remained.
The Supreme Court held respondents TPC and Edgar Rey A. Cuales jointly and severally liable to pay PITC the principal loan amount with legal interest. The stipulated penalty interest of 2% per month was reduced to 12% per annum from judicial demand until June 30, 2013, and 6% per annum from July 1, 2013 until full payment, conforming to prevailing jurisprudence.