G.R. No.

173526

Benjamin Bitanga, Petitioner

Vs

Pyramid Construction Engineering Corporation, Respondent

FACTS

Pyramid filed w rtc Complaint for spec performance and damages w/ application for writ of prelim
attachment against pet and his wife Marilyn.

Pyramid entered into agreement with Macrogen Realty (Benjamin is president) to construct a building.
Construction commenced, but Macrogen failed to settle Pyramid’s progress billings. President assured
Pyramid that they would pay, so construction continued.

Pyramid suspended work since the conditions for continuation were not complied with, including the
payment of bills. Pyramid instituted with the Construction Industry Arbitration Commission (CIAC) a case
for arbitration against Macrogen for payment of the bills and project costs. Petitioner then conveyed
willingness to settle. They entered a Compromise Agreement.

Under the Compromise, Petitioner acted as signatory for and in behalf of Macrogen. Macrogen agreed
to pay the amount of P6 in installments. It also included an acceleration clause in case of default of two
successive monthly installments. Petitioner executed a Contract of Guaranty in favor of Pyramid
guaranteeing the payment of the liability of Macrogen in the sum of P6M.

Macrogen failed and refused to pay all the installments. Respo moved for writ of execution against
Macrogen. CIAC granted.

Sheriff filed a return stating that he was unable to locate any property of Macrogen, except its bank
deposit with Planters Bank in Buendia (P20k).

Pyramid sent written demand to petitioner, as guarantor, to pay the P6M OR point out available
properties of Macrogen in the PH to cover the obligation. Verbal demands were also made. All demands
were unheeded.

According to Pyramid, Pet’s obligation as guarantor was due and demandable. As to Wife Marilyn’s
liability, Pyramid contends that Macrogen was owned and controlled by Petitioner and Wife and/or the
corporations owned and controlled by them. Macrogen is 99% owned by AAHI, which is 99% owned by
Marilyn. Since the construction would have benefited both Petitioner and Marilyn and their
corporations, Marilyn cannot be unaware of the obligations of Macrogen and Petitioner.

Pyramid prayed for judgment ordering compliance by Pet and Marilyn with the Guaranty for the P6M,
minus the money in the bank account with Planters Bank, plus Attorney’s fees and expenses of litigation.
Marilyn filed to Dismiss, stating Pyramid had no cause of action against her since she did not co-sign the
Guaranty, nor was she a party to the Compromise between Pyramid and Macrogen. Mere ownership is
not by itself a ground for disregarding the separate personality of the corporation. But the RTC denied
for lack of merit.

Sec. 4, Rule 3. As spouses, Husband and wife shall sue or be sued jointly, except as
provided by law.

Pet filed Answer and averred: he never made representations that Macrogen would comply to
the Compromise. He further alleged that his wife was not aware of the obligations under the
Compromise and the Guaranty because he did not inform her, nor did he secure her consent.

As special and affirmative defense, petitioner argued that the benefit of excussion was still
available to him, the guarantor, since he had set it up before any judgment against him. According to
PET, Pyramid failed to exhaust all legal remedies to collect from Macrogen the P6M, because Macrogen
still had uncollected credits, which were enough to pay. PET presented counterclaim for damages.

At the pre-trial held on 5 September 2002, the parties submitted the following issues for the
resolution of the RTC:

(1) Whether the defendants were liable under the contract of guarantee dated April 17, 2000
entered into between Benjamin Bitanga and the plaintiff;

(2) Whether defendant wife Marilyn Bitanga is liable in this action;

(3) whether the defendants are entitled to the benefit of excussion, the plaintiff on the one
hand claiming that it gave due notice to the guarantor, Benjamin Bitanga, and the defendants
contending that no proper notice was received by Benjamin Bitanga;

(4) If damages are due, which party is liable; and

(5) Whether the benefit of excussion can still be invoked by the defendant guarantor even after
the notice has been allegedly sent by the plaintiff although proper receipt is denied

PYRAMID: Pyramid moved for Summary Judgment, alleging that it was entitled to summary judgment
because PET admitted the genuineness and due execution of the guaranty contract during pre-trial.
Excussion was not an issue because Pyramid had exhausted all legal remedies to collect, but were
unsuccessful. Given that the return of the writ of execution already proved the inability of Macrogen to
pay, the guarantor’s liability already arose. PET and Marilyn forfeited their right to avail themselves of
excussion because they failed to comply with Art 2060 when they ignored the demand letter. The duty
to collect the receivables of Macrogen from its creditors could not be imposed on Pyramid, since PET
and Marilyn never informed them of the uncollected credits even after the demand. PET’s allegation
that they did not receive the letter and therefore could not respond was insufficient to raise an issue of
fact that defeats the motion for summary judgment. The claim that Marilyn never participated in the
transactions was a sham.
PETITIONER: in opposing, they countered that there were genuine facts requiring TRIAL ON MERITS.
An affidavit was appended, in which he declared that his spouse could not be held personally liable
under the Guaranty or the Compromise Agreement, nor should her share in the conjugal partnership be
made answerable for the guaranty, because it did not benefit the family.

As guarantor, he was entitled to excussion, and he did not waive his right thereto. He never
received the letter, because the person who received it was not a Macrogen employee, or even
authorized to receive the letter for him. He reiterated that Macrogen had uncollected credits which
were more than enough to satisfy the claim.

RTC rendered judgment, ordering the Spouses Bitanga to pay Pyramid jointly and severally the
P6M, minus the P20,242.23 from the Planters Bank account, and costs of suit.

Pet and Marilyn filed Motion to Reconsider, RTC denied.

Upon appeal to the CA, the court only modified the judgment: Marilyn was not liable under
either the compromise or the guaranty. Bitanga was still liable. CA denied his Motion for
Reconsideration.

Hence this petition.

ISSUE

WON Bitanga can avail of the benefit of Excussion.

HELD:

Petition denied for lack of merit; CA affirmed; Bitanga (alone; not including his wife who is not a
party to the compromise agreement) is liable as per Compromise Agreement or the contract of
guaranty.

NO.

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

Article 2060 of the Civil Code reads:

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
It must be stressed that despite having been served a demand letter at his office, petitioner still failed to
point out to the respondent properties of Macrogen Realty sufficient to cover its debt as required under
Article 2060 of the Civil Code. Such failure on petitioner’s part forecloses his right to set up the defense
of excussion.

Worthy of note as well is the Sheriff’s return stating that the only property of Macrogen Realty which he
found was its deposit of P20,242.23 with the Planters Bank.

Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the
defense of excussion. We quote:

Art. 2059. This excussion shall not take place:

xxxx

(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.

As the Court of Appeals correctly ruled:

We find untenable the claim that the Bitanga cannot be compelled to pay Pyramid because the
Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had not genuinely
controverted the return made by Sheriff Bisnar, who affirmed that, after exerting diligent efforts, he was
not able to locate any property belonging to the Macrogen Realty, except for a bank deposit with the
Planter’s Bank at Buendia, in the amount of P20,242.23. It is axiomatic that the liability of the guarantor
arises when the insolvency or inability of the debtor to pay the amount of debt is proven by the return
of the writ of execution that had not been unsatisfied