Philippine Export v. Amalgated Management

G.R. No. 177729 (September 28, 2011)

Cuevas and Saddul liable post-foreclosure; court confirmed 6% interest starts at foreclosure.

Facts:

The petitioner, formerly known as the Philippine Export and Foreign Loan Guarantee Corporation and now the Trade and Investment Development Corporation of the Philippines, is a government-owned corporation established to guarantee foreign loans to domestic entities. The respondent, Amalgamated Management and Development Corporation (AMDC), engaged in hauling commodities in the Middle East, obtained a loan of SR3.3 million (approximately P9,000,000) from the National Commercial Bank of Saudi Arabia (NCBSA) in 1982. The petitioner issued a letter of guaranty to NCBSA upon AMDC's request, with AMDC, its President Felimon R. Cuevas, and Vice-President Jose A. Saddul, Jr. executing a deed of undertaking where they jointly and severally bound themselves to pay any liabilities incurred by the petitioner due to the guaranty.

AMDC defaulted on the loan, prompting the petitioner to pay NCBSA and subsequently demand payment from AMDC, Cuevas, and Saddul. The petitioner foreclosed on a real estate mortgage provided by a sister company, Amalgamated Motors Philippines Incorporated (AMPI), but the proceeds from the foreclosure sale were insufficient to cover the outstanding obligation, leading to a deficiency claim of P45,839,219.95 plus interest and other charges.

In their defense, AMDC and Cuevas admitted the existence of the mortgage and deed of undertaking but raised several defenses, including lack of demand for payment, claims of usurious interest rates, and assertions that the foreclosure sale proceeds were sufficient to cover the loan. Saddul contended that he was not liable as he did not benefit from the guaranty and that the deed of undertaking was unenforceable due to lack of consideration.

The Regional Trial Court (RTC) ruled in favor of the petitioner against AMDC but absolved Cuevas and Saddul from liability. The Court of Appeals (CA) affirmed this decision, leading the petitioner to appeal to the Supreme Court.

Legal Issues:

  1. Whether the CA erred in affirming the RTC's ruling that Cuevas and Saddul were absolved of personal liability on the deficiency claim.
  2. Whether the CA erred in ruling that Cuevas and Saddul had not been notified of the guaranty period extension.
  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 charges at the rate of only 6% per annum instead of 16%.

Arguments:

  • Petitioner’s Arguments:

    • Cuevas and Saddul should be held jointly and severally liable for the deficiency claim.
    • The lack of notice regarding the extension of the guaranty period does not absolve them of liability.
    • The petitioner made a valid demand for payment, which should render Cuevas and Saddul in delay.
    • The prescriptive period for the deficiency claim should start from the date of foreclosure.
    • The interest and penalty charges should be set at 16% per annum.

  • Respondents’ Arguments:

    • Cuevas and Saddul were not notified of the guaranty period extension and thus should not be held liable.
    • They did not receive any demand for payment from the petitioner.
    • The claim against them had already prescribed.
    • The interest and penalty charges imposed by the RTC and CA were reasonable and should not be increased.

Court’s Decision and Legal Reasoning:

The Supreme Court partly granted the petition, modifying the CA's decision to declare Cuevas and Saddul jointly and severally liable with AMDC for the deficiency claim. The Court reasoned that:

  1. The pre-trial order did not limit the RTC's ability to determine Cuevas and Saddul's liability, as their liability was an integral part of the case.
  2. Cuevas and Saddul, as officers of AMDC, had requested extensions of the guaranty period, which indicated their awareness of the obligations, thus they could not claim ignorance of the guaranty extension.
  3. The demand made by the petitioner constituted a judicial demand, placing Cuevas and Saddul in delay regarding their obligation.
  4. The prescriptive period for the deficiency claim began upon the foreclosure of the mortgaged properties, which was within the ten-year period allowed by law.
  5. The Court upheld the lower courts' decision to set the interest and penalty charges at 6% per annum, finding that the higher rates proposed by the petitioner were unconscionable given the circumstances of the case.

Significant Legal Principles Established:

  • The liability of co-obligors in a solidary obligation remains intact despite claims of lack of notice or demand, especially when they have actively participated in the transaction.
  • The prescriptive period for deficiency claims following foreclosure begins at the time of foreclosure, not at the time of default.
  • Courts have the discretion to reduce interest rates and penalty charges deemed unconscionable or excessive based on the circumstances of the case.