In Bitanga v. Pyramid Construction Engineering Corporation, the Supreme Court addressed the obligations and rights of a guarantor, particularly the defense of excussion. The court ruled that a guarantor must properly invoke the benefit of excussion—requiring them to point out available properties of the debtor within the Philippines sufficient to cover the debt. The failure to do so, especially after a demand for payment, effectively waives this defense. This decision reinforces the importance of understanding and adhering to the specific requirements outlined in the Civil Code for guarantors seeking to limit their liability.

Navigating Guaranty: Can a Guarantor Evade Debt by Claiming Debtor Assets?

The case originated from a contract dispute between Pyramid Construction and Engineering Corporation and Macrogen Realty. Pyramid had agreed to construct the Shoppers Gold Building for Macrogen Realty, but the latter failed to settle progress billings. Benjamin Bitanga, as President of Macrogen Realty, assured Pyramid that the outstanding account would be paid, leading Pyramid to continue the project. A subsequent Compromise Agreement, guaranteed by Bitanga, was breached when Macrogen Realty defaulted on payments, leading Pyramid to seek recourse against Bitanga as guarantor.

Bitanga, in his defense, invoked the benefit of excussion, arguing that Pyramid had not exhausted all legal remedies to collect from Macrogen Realty, which allegedly had sufficient uncollected credits. This defense is rooted in Article 2058 of the Civil Code, which generally states that “the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor.” However, the court found that Bitanga failed to meet the requirements outlined in Article 2060, which specifies the conditions for availing of the benefit of excussion.

Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latter’s demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt.

Building on this principle, the Supreme Court emphasized that Bitanga did not point out specific properties of Macrogen Realty that could satisfy the debt despite receiving a demand letter. Furthermore, the Sheriff’s return indicated that Macrogen Realty had minimal assets, which justified the presumption that pursuing the debtor’s property would be futile. Thus, Article 2059(5) of the Civil Code came into play, negating the availability of excussion:

Art. 2059. This excussion shall not take place:
x x x x
(5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation.

The court also dismissed Bitanga’s argument regarding the improper service of the demand letter. The evidence showed that the letter was delivered to Bitanga’s office address, as indicated in the Contract of Guaranty, and received by a person identified as an employee of Bitanga’s companies. Given the circumstances and the presumption that official duties were regularly performed, the Court deemed the service sufficient.

The Court further relied on the principle articulated in Equitable PCI Bank v. Ong, stating that “where, on the basis of the pleadings of a moving party, including documents appended thereto, no genuine issue as to a material fact exists, the burden to produce a genuine issue shifts to the opposing party. If the opposing party fails, the moving party is entitled to a summary judgment.”

Consequently, the Supreme Court upheld the Court of Appeals’ decision, finding Bitanga liable as guarantor. This ruling underscores the guarantor’s responsibility to actively assert and substantiate the defense of excussion by identifying the debtor’s assets and complying with the legal requirements.

FAQs

What is a contract of guaranty?	A contract where a guarantor binds themselves to a creditor to fulfill the obligation of a principal debtor if the debtor fails to do so.
What is the benefit of excussion?	It’s a legal right of a guarantor to demand that the creditor exhaust all the property of the debtor before seeking payment from the guarantor.
What must a guarantor do to avail of the benefit of excussion?	They must set it up against the creditor upon the latter’s demand for payment and point out available property of the debtor within the Philippines sufficient to cover the debt.
What happens if the guarantor fails to point out the debtor’s properties?	The guarantor loses the right to invoke the benefit of excussion and may be compelled to pay the creditor directly.
Can the creditor demand payment from the guarantor immediately?	Generally, no. The creditor must first exhaust all the property of the debtor and resort to all legal remedies against the debtor, unless an exception applies.
Are there exceptions to the benefit of excussion?	Yes, under Article 2059 of the Civil Code, excussion does not take place if the debtor is insolvent or if it may be presumed that an execution on the property of the debtor would not result in the satisfaction of the obligation.
Why was Benjamin Bitanga held liable in this case?	Because he failed to point out properties of Macrogen Realty sufficient to cover its debt after receiving a demand letter, and the Sheriff’s return indicated minimal assets of the debtor.
What does this case teach us about the responsibilities of a guarantor?	It highlights the importance of understanding the legal requirements for invoking defenses like excussion and the need to actively participate in identifying the debtor’s assets.

The Supreme Court’s decision in Bitanga v. Pyramid Construction Engineering Corporation provides clarity on the conditions under which a guarantor can successfully invoke the benefit of excussion. By requiring guarantors to actively identify the debtor’s assets and assert their rights promptly, the ruling ensures a fair balance between the interests of creditors and guarantors in debt obligations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: BENJAMIN BITANGA, PETITIONER, VS. PYRAMID CONSTRUCTION ENGINEERING CORPORATION, RESPONDENT., G.R. No. 173526, August 28, 2008