[38] International Finance Corporation v.

Imperial Textile Mills o IFC extend to PPIC a loan of 7M USD

G.R No. 160324 | November 15, 2005 | J. Panganiban o Payable semiannually, in 16 installments of 437k USD per
installment
TOPIC: Security Devices and Other Credit Supports or Enhancements: o Interest: 10%
Guarantee/Suretyship/Standby Letter of Credit  Paid semi-anually on June 1 and December 1
 December 17, 1974: Petitioner IFC entered into a guarantee agreement
SUMMARY: PPIC borrowed money from IFC. IFC and ITM entered into a with respondent ITM and Grandtex
guarantee agreement whereby ITM agreed to guarantee PPIC’s loan from IFC. PPIC o Respondent ITM agreed to guarantee PPIC’s loan from IFC
failed to complete payments and had a balance of 8.06M USD. IFC foreclosed  PPIC failed to pay its loan payments to petitioner IFC despite demand
PPIC’s properties and bought it in the auction sale. But PPIC still had a balance of o Outstanding balance: 8.08M USD
2.83M USD. This, IFC filed a complaint against both PPIC the debtor, and  Due to PPIC’s failure to pay, petitioner IFC and DBP foreclosed PPIC’s
respondent ITM as the surety. RTC dismissed the complaint against respondent properties. IFC purchased the properties for 5.25M USD, leaving a balance
ITM. CA reversed the RTC. CA held that ITM is bound as guarantor of petitioner of around 2.83M USD
IFC. Hence, this petition. IFC argues that Under the Guarantee Agreement, ITM  IFC demanded ITM and Grandtex to pay the outstanding balance.
bound itself as a surety to PPIC's obligations proceeding from the Loan Agreement. However, the guarantors failed to pay.
On the otherchand, respondent ITM claims that by the terms of the Guarantee  Thus, IFC filed a complaint with RTC Manila against PPIC (debtor) and
Agreement, it was merely a guarantor and not a surety. ITM bases its argument on ITM for the payment of the balance.
Sec. 2.01 of the guarantee agreement, which uses the words "guarantee" and
"guarantors”. RULING OF THE LOWER COURTS
 RTC
The issue here is W/N ITM is a surety, and thus solidarily liable with PPIC for the o Held PPIC liable for the payment of the loan + interests
payment of the loan. o Relieved respondent ITM from its obligation. Hence, RTC
dismissed IFC’s claim against ITM
The SC ruled in the affirmative. According to the SC, the use of the words o IFC appealed to the CA regarding its dismissal on its claim on
guarantees and guarantors does notclimit the Contract to a mere guaranty. This is ITM
because the specific stipulations in the Contract show otherwise: (1) while referring  CA
to ITM as a guarantor, the Agreement specifically stated that the corporation was o Reversed the decision of the RTC. ITM is bound as guarantor to
"jointly and severally" liable; (2) the Contract further stated that ITM was a primary petitioner IFC.
obligor, not a mere surety. Those stipulations meant only one thing: that at bottom,  Hence, this petition
and to all legal intents and purposes, it was a surety. As a surety, under Sec. 2047 of
the Civil Code, if a person binds himself solidarily with the principal debtor, the ARGUMENTS OF THE PARTIES
contract shall be called suretyship. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. ITM bound itself to be
 Petitioner IFC
solidarily liable with PPIC for the latter’s obligations under the Loan Agreement
o Under the Guarantee Agreement, ITM bound itself as a surety to
with IFC. ITM thereby brought itself to the level of PPIC and could not be deemed
merely secondarily liable. PPIC's obligations proceeding from the Loan Agreement.
A surety is considered in law to be on the same footing as the principal debtor in  Respondent ITM
relation to whatever is adjudged against the latter. Thus, petitioner IFC, as creditor, o By the terms of the Guarantee Agreement, it was merely a
was justified in taking action directly against respondent ITM. guarantor and not a surety. Moreover, any ambiguity in the
Agreement should be construed against IFC, the party that drafted
DOCTRINE: see underlined portion above it.
 Basis: Sec. 2.01 of the contract, which states that the
FACTS: Guarantors jointly and severally, irrevocably, absolutely
 December 17, 1974: Petitioner IFC and PPIC entered into a loan and unconditionally guarantee, as primary obligors and
agreement: not as sureties merely, the due and punctual payment of
 the principal of, and interest and commitment charge on,  The Court does not find any ambiguity in the provisions of the Guarantee
the Loan, and the principal of, and interest on, the Notes, Agreement. When qualified by the term "jointly and severally," the use of
whether at stated maturity or upon prematuring, all as set the word "guarantor" to refer to a "surety" does not violate the law.
forth in the Loan Agreement and in the Notes.  The phrase in the Agreement -- "as primary obligor and not merely as
 The Agreement uses "guarantee" and "guarantors," surety" -- stresses that ITM is being placed on the same level as PPIC.
prompting ITM to base its argument on those words. Those words emphasize the nature of their liability, which the law
characterizes as a suretyship.
ISSUE/S, HOLDING & RATIO:  The use of the word "guarantee" does not ipso facto make the contract one
W/N ITM is a surety, and thus solidarily liable with PPIC for the payment of of guaranty
the loan - YES
DISPOSITIVE
Language of the Contract WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and
 This Court is not convinced that the use of guarantees and guarantors, as Resolution MODIFIED in the sense that Imperial Textile Mills, Inc. is declared a
asserted by respondent ITM, limits the Contract to a mere guaranty. The surety to Philippine Polyamide Industrial Corporation. ITM is ORDERED to pay
specific stipulations in the Contract show otherwise: International Finance Corporation the same amounts adjudged against PPIC in the
o While referring to ITM as a guarantor, the Agreement assailed Decision. No costs. SO ORDERED.
specifically stated that the corporation was "jointly and
severally" liable.
o The Contract further stated that ITM was a primary obligor,
not a mere surety.
 Those stipulations meant only one thing: that at bottom, and to all legal
intents and purposes, it was a surety

Effect as surety
 NCC 2047:
o Article 2047. By guaranty, a person, called the guarantor binds
himself to the creditor to fulfill the obligation of the principal in
case the latter should fail to do so.
o If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract shall be called suretyship.
o The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously.
 ITM bound itself to be solidarily liable with PPIC for the latter’s
obligations under the Loan Agreement with IFC. ITM thereby brought
itself to the level of PPIC and could not be deemed merely secondarily
liable.
 A surety is considered in law to be on the same footing as the principal
debtor in relation to whatever is adjudged against the latter
 Thus, petitioner IFC, as creditor, was justified in taking action directly
against respondent ITM.

No Ambiguity in the Undertaking