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JN DEVELOPMENT CORPORATION vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION FACTS: Petitioner JN Development Corporation Corporation and Traders Royal Bank entered into an agreement that the latter would extend to JN an Export Packing Credit Line for Two 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 PhilGuarantee was made to pay. When JN failed to reimburse the latter, respondent PhilGuarantee PhilGuarantee filed a Complaint for collection of money and damages against herein h erein petitioners. The RTC dismissed PhilGuarantee’s Complaint Complaint as well as the counterclaim of petitioners. 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 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 PhilGuara ntee from seeking recoupment from what it paid to TRB. Thus, PhilGuarantee’s payment to TRB T RB amounts to a waiver of its right under Art. 2058 of the Civil Code.
ISSUE: WON petitioner is still liable to indemnify the guarantor despite the latter seemingly waiving its right to excussion?
HELD: Yes. 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.
