JN DEVELOPMENT CORPORATION vs.

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE

CORPORATION

FACTS:

 Petitioner JN Development Corporation and Traders Royal Bank entered into an agreement
that the latter would extend to JN an Export Packing Credit Line for 2 Million Pesos.
 The loan was covered by several securities, including a real estate mortgage and a letter of
guarantee from respondent Philippine Export and Foreign Loan Guarantee Corporation,
covering seventy percent (70%) of the credit line with PhilGuarantee issuing a
guarantee in favor of TRB.
 For failure of petitioner JN to pay upon maturity, PhilGuarantee was made to pay.
 When JN failed to reimburse the latter, respondent PhilGuarantee filed a Complaint for
collection of money and damages against herein petitioners.
 The RTC dismissed PhilGuarantee’s Complaint as well as the counterclaim of petitioners.
- It ruled that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB
since the latter was able to foreclose the real estate mortgage executed by JN, thus
extinguishing petitioners’ obligation.
- According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes
PhilGuarantee from seeking recoupment from what it paid to TRB. Thus, PhilGuarantee’s
payment to TRB amounts to a waiver of its right under Art. 2058 of the Civil Code.

ISSUE:

W/N petitioner is still liable to indemnify the guarantor despite the latter seemingly
waiving its right to excussion – YES

HELD:

 The Court held that PhilGuarantee’s waiver of the right of excussion cannot prevent it from
demanding reimbursement from petitioners.
 The law clearly requires the debtor to indemnify the guarantor what the latter has paid.
 Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
 The guarantor who pays for a debtor, in turn, must be indemnified by the latter.
 However, the guarantor cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor and resorted to all the legal remedies against
the debtor. This is what is otherwise known as the benefit of excussion.
 The complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of action was
premised on its payment of JN’s obligation after the latter’s default.
 PhilGuarantee was well within its rights to demand reimbursement for such payment made,
regardless of whether the creditor, TRB, was subsequently able to obtain payment from JN.
 If double payment was indeed made, then it is JN which should go after TRB, and not
PhilGuarantee.
 Petitioners have no one to blame but themselves, having allowed the foreclosure of the
property for the full value of the loan despite knowledge of PhilGuarantee’s payment to TRB.
 Having been aware of such payment, they should have opposed the foreclosure, or at the very
least, filed a supplemental pleading with the trial court informing the same of the foreclosure
sale.