Ayo, Hosni Manabat, Leandro Miranda, Clarisse Ann Po, Anthony Radoc, Phil Ma.

Larizza Zea Mirabueno INTERNATIONAL FINANCE CORP. vs. IMPERIAL TEXTILE MILLS INC. GR. No.160324 Nov. 15, 2005 Facts: Petitioner International Finance Corporation (IFC) and respondent Philippine Polyamide Industrial Corporation (PPIC) entered into a loan agreement wherein IFC extended to PPIC a loan payable in 16 semi-annual instalments with interest at the rate of 10% per annum onthe principal amount of the loan advanced and outstanding from time to time. A guarantee agreement was executed with Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation (Grandtex) and IFC as parties. ITM and Grandtex agreed to guarantee PPICs obligations under the loan agreement. There was a reschedule of payments as requested by PPIC. Despite the rescheduling of the instalment payments, however, PPIC defaulted. Hence, IFC served a written notice of default to PPIC demanding the latter to pay the outstanding principal loan and all its accrued interests. Despite such notice, PPIC failed to pay the loan and its interests. IFC, together with DBP, applied for the extrajudicial foreclosure of mortgages on the real estate, buildings, machinery, equipment plant and all improvements owned by PPIC.IFC and DBP were the only bidders during the auction sale. PPIC failed to pay the remaining balance, thus, IFC demanded ITM and Grand tex, as guarantors of PPIC, to pay the outstanding balance. However, despite the demand made by IFC, the outstanding balance remained unpaid. Consequently, IFC filed a complaint against PPIC and ITM for the payment of the outstanding balance plus interests and attorneys fees. The trial court held PPIC liable for the payment of the outstanding loan plus interests and attorneys fees. However, the trial court relieved ITM of its obligation as guarantor. On appeal of the case, the Court of Appeals reversed the decision of the trial court. The CA, however, held that ITMs liability as a guarantor would arise only if and when PPIC could not pay. Since PPICs inability to comply with its obligation was not sufficiently established, ITM could not immediately be made to assume the liability. Hence, this petition. Issue: Whether or not ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan. Held: ITM is a surety, and thus solidarily liable with PPIC for the payment of the loan. As Article 2047 provides, a surety ship is created when a guarantor binds itself solidarily with the principal obligor. While referring to ITM as a guarantor, the agreement specifically stated that the corporation was jointly and severally liable. It further stated that ITM was a primary obligor, not a mere surety. ITM thereby brought itself to the level of PPIC and could not be deemed merely secondarily liable. Those words emphasize the nature of their liability, which the law characterizes as a surety ship. Therefore, ITM

bound itself to be solidarily liable with PPIC for the latters obligations under the loan agreement with IFC