Philippine Export and Foreign Loan Guarantee Corporation v V.P. Eusebio the performance bond up to December 1986.

Construction Inc.
8. In October 1986, Al Ahli Bank sent a telex call demanding full payment of
Facts:
its performance bond counter-guarantee. Upon receipt, VPECI requested
1. The State Organization of Buildings (SOB), Ministry of Housing and
Iraq Trade and Economic Development Minister Fadhi Hussein to recall the
Construction, Baghdad, Iraq awarded the construction of the Institute of
telex for being in contravention of its mutual agreement that the penalty
Physical Therapy-Medical Rehabilitation Center in Iraq to Ayjal Trading and
will be held in abeyance until completion of the project. It also wrote SOB
Contracting Company for a total contract price of about $18M.
protesting the telex since the Iraqi government lacks foreign exchange to
pay VPECI and the non-compliance with the 75% billings in US dollars.
2. Spouses Santos, in behalf of 3-Plex International, Inc., a local contractor
engaged in construction business, entered into a joint venture agreement
9. Philguarantee received another telex from Al Ahli stating that it already
with Ayjal wherein the former undertook the execution of the entire a
paid to Rafidain Bank. The Central Bank authorized the remittance to Al Ahli
project, while the latter would be entitled to a commission of 4%.
Bank representing the full payment of the performance counter-guarantee
for VPECI's project in Iraq.
3. 3-Plex not accredited by the Philippine Overseas Construction Board
(POCB) assigned and transferred all its rights and interests to VPECI.
10. Philguarantee sent letters to respondents demanding the full payment
of the surety bond. Respondents failed to pay so petitioner filed a civil case
4. The SOB required the contractors to submit a performance bond
for collection of sum of money.
representing 5% of the total contract price, an advance payment bond
representing 10% of the advance payment to be released upon signing of
11. Trial Court ruling: Dismissed. Philguarantee had no valid cause of action
the contract. To comply with these requirements 3-Plex and VPECI applied
against the respondents. The joint venture incurred no delay in the
for a guarantee with Philguarantee, a government financial institution
execution of the project considering that SOB's violations of the contract
empowered to issue guarantees for qualified Filipino contractors.
rendered impossible the performance of its undertaking.

5. But what SOB required was a guarantee from the Rafidain Bank of
12. CA: Affirmed.
Baghdad so Rafidain Bank issued a performance bond in favor of SOB on the
condition that another foreign bank (not Phil Guarantee) would issue the
Issue:
counter-guarantee. Hence, Al Ahli Bank of Kuwait was chosen to provide the
What law should be applied in determining whether or not contractor (joint
counter guarantee.
venture) has defaulted?

6.Afterwards, SOB and the joint venture of VPECI and Ayjal executed the
Held:
service contract. Under the contract, the joint venture would supply
The question of whether there is a breach of the agreement which includes
manpower and materials, SOB would refund 25% of the project cost in Iraqi
default pertains to the INTRINSIC validity of the contract.
Dinar and 75% in US dollars at an exchange rate of 1 Dinar to $3.37.
No conflicts rule on essential validity of contracts is expressly provided for in
7.The project was not completed. Upon seeing the impossibility of meeting
our laws. The rule followed by most legal systems is that the intrinsic validity
the deadline, the joint venture worked for the renewal or extension (12x) of
of a contract must be governed by lex contractus (proper law of the
contract). This may be the law voluntarily agreed upon by the parties (lex
loci voluntatis) or the law intended by them either expressly or implicitly
(lex loci intentionis). The law selected may be implied from factors such as
substantial connection with the transaction, or the nationality or domicile of
the parties. Philippine courts adopt this: to allow the parties to select the
law applicable to their contract, SUBJECT to the limitation that it is not
against the law, morals, public policy of the forum and that the chosen law
must bear a substantive relationship to the transaction.
In the case, the service contract between SOB and VPECI contains no
express choice of law. The laws of Iraq bear substantial connection to the
transaction and one of the parties is the Iraqi government. The place of
performance is also in Iraq. Hence, the issue of whether VPECI defaulted
may be determined by the laws of Iraq.
BUT, Since foreign law was not properly pleaded or proved, processual
presumption will apply.
According to Art 1169 of the Civil Code: In reciprocal obligations, neither
party incurs in delay if the other party does not comply or is not ready to
comply in a proper manner what is incumbent upon him.
As found by the lower courts: the delay or non-completion of the project
was caused by factors not imputable to the Joint Venture, it was rather due
to the persistent violations of SOB, particularly it's failure to pay 75% of the
accomplished work in US dollars. Hence, the joint venture does not incur in
delay if the other party(SOB) fails to perform the obligation incumbent upon
him.
Bitanga vs. Pyramid
OCTOBER 20, 2011 ~ VBDIAZ
Bitanga vs. Pyramid Const.
G.R. No. 173526
August 28, 2008
FACTS: Pyramid filed with the RTC a Complaint for specific
performance and damages with application for the issuance of
a writ of preliminary attachment against the petitioner and wife
Marilyn.
Respondent alleged in its Complaint that, it entered into an
agreement with Macrogen Realty, of which Bitanga is the
President, to construct for the latter the Shoppers Gold
Building located in Parañaque City. Respondent commenced
civil, structural, and architectural works on the construction
project. However, Macrogen failed to settle respondent’s
progress billings. Petitioner, through his representatives and
agents, assured respondent that the outstanding account of
Macrogen would be paid and relying on the assurances made
by petitioner, respondent continued the construction project.
Later, respondent suspended work on the construction project
since the conditions that it imposed for the continuation
thereof, including payment of unsettled accounts, had not been
complied with by Macrogen. Respondent instituted with the
Construction Industry Arbitration Commission (CIAC) a case
for arbitration against Macrogen Realty seeking payment by
the latter of its unpaid billings and project costs. Before the
arbitration case could be set for trial, Pyramid and Macrogen
entered into a Compromise Agreement, with petitioner acting
as signatory for and in behalf of Macrogen Realty.
Under the Compromise Agreement, Macrogen Realty agreed
to pay respondent the total amount of P6,000,000.00 by
installments. Petitioner guaranteed the obligations of
Macrogen Realty under the Compromise Agreement by
executing a Contract of Guaranty in favor of respondent, by
virtue of which he irrevocably and unconditionally guaranteed
the full and complete payment of the principal amount of
liability of Macrogen. Upon joint motion of respondent and
Macrogen Realty, the CIAC approved the Compromise
Agreement.
Macrogen Realty failed and refused to pay all the monthly
installments agreed upon in the Compromise Agreement.
Hence respondent moved for the issuance of a writ of
execution against Macrogen, which CIAC granted.
The sheriff filed a return stating that he was unable to locate
any property of Macrogen Realty, except its bank deposit
of P20,242.33, with the Planters Bank, Buendia Branch.
Respondent then made, a written demand on petitioner, as
guarantor of Macrogen to pay the liability or to point out
available properties of the Macrogen within the Philippines
sufficient to cover the obligation guaranteed. It also made
verbal demands on petitioner. Yet, respondent’s demands were
left unheeded.
Petitioner filed with the RTC his Answer to respondent’s
Complaint. As a special and affirmative defense, petitioner
argued that the benefit of excussion was still available to him
as a guarantor since he had set it up prior to any judgment
against him. According to petitioner, respondent failed to
exhaust all legal remedies to collect from Macrogen the
amount due under the Compromise Agreement, considering
that Macrogen Realty still had uncollected credits which were
more than enough to pay for the same. Given these premise,
petitioner could not be held liable as guarantor.
ISSUE: WON petitioner cam 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