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Credtrans Guaranty & Suretyship

G.R. No. 80078 May 18, 1993 acquired by the Creditor by assignment or shall be deemed to have been waived by
succession, whether due or not due, any act, omission or conduct on the part
ATOK FINANCE CORPORATION, petitioner, absolute or contingent, liquidated or of the Creditor, or by any neglect to
vs. unliquidated, determined or exercise such right of set-off or to enforce
COURT OF APPEALS, SANYU CHEMICAL CORPORATION, undetermined and whether the Principal such lien, or by any delay in so doing, and
DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO may be may be liable individually of jointly every right of set-off or lien shall continue
BERMUNDO and LEOPOLDO HALILI, respondents. with others, or whether recovery upon in full force and effect until such right of
such indebtedness may be or hereafter set-off of lien is specifically waived or
become barred by any statute of released by an instrument in writing
Syquia Law Offices for petitioner. limitations, or whether such executed by the Creditor.
indebtedness may be or otherwise
Batino, Angala, Allaga & Zara Law Offices for private become unenforceable.1 (Emphasis (7) Any indebtedness of the Principal now
respondents. supplied) or hereafter held by the Surety is hereby
subordinated to the indebtedness of the
Other relevant provisions of the Continuing Principal to the Creditor; and if the
Suretyship Agreement follow: Creditor so requests, such indebtedness
FELICIANO, J.: of the Principal of the Surety shall be
(2) This is a continuing suretyship relating collected, enforced and shall be paid over
to any indebtedness, including that to the Creditor and shall be paid over to
Atok Finance Corporation ("Atok Finance") asks us to review the Creditor and shall be paid over to the
and set aside the Decision of the Court of Appeals which arising under successive transactions
which shall either continue the Creditor on account of the indebtedness
reversed a decision of the trial court ordering private of the Principal to the Creditor but
respondents to pay jointly and severally to petitioner Atok indebtedness from time to time or renew
it after it has been satisfied. This without reducing or affecting in any
Finance certain sums of money. manner the liability of the Surety under
suretyship is binding upon the heirs,
successors, executors, administrators and the provisions of this suretyship.
On 27 July 1979, private respondents Sanyu Chemical assigns of the surety, and the benefits
corporation ("Sanyu Chemical") as principal and Sanyu Trading hereof shall extend to and include the xxx xxx xxx2
Corporation ("Sanyu Trading") along with individual private successors and assigns of the Creditor.
stockholders of Sanyu Chemical, namely, private respondent
spouses Danilo E. Halili and Pablico Bermundo as sureties, (Emphases supplied)
executed in the continuing Suretyship Agreement in favor of (3) The obligations hereunder are joint
Atok Finance as creditor. Under this Agreement, Sanyu Trading and several and independent of the On 27 November 1981, Sanyu Chemical assigned its trade
and the individual private respondents who were officers and obligations of the Principal. A separate receivables outstanding as of 27 November 1981 with a total
stockholders of Sanyu Chemical did: action or actions may be prosecuted face value of P125,871.00, to Atok Finance in consideration of
against the Principal and whether or not receipt from Atok Finance of the amount of P105,000.00. The
the Principal be joined in any such action assigned receivables carried a standard term of thirty (30) days;
(1) For valuable and/or other or actions.
consideration . . ., jointly and severally it appeared, however, that the standard commercial practice
unconditionally guarantee to ATOK was to grant an extension up to one hundred twenty (120) days
FINANCE CORPORATION (hereinafter xxx xxx xxx. without penalties. The relevant portions of this Deed of
called Creditor), the full, faithful and Assignment read as follows:
prompt payment and discharge of any and (6) In addition to liens upon, and rights of
all indebtedness of [Sanyu Chemical] . . . set-off against the moneys, securities or 1. FOR VALUE RECEIVED, the ASSIGNOR
(hereinafter called Principal) to the other property of the Surety given to the does hereby SELL, TRANSFER and ASSIGN
Creditor. The word "indebtedness" is used Creditor by law, the Creditor shall have all his/its rights, title and interest in the
herein in its most comprehensive sense the lien upon and a right of self-off against contracts, receivables, accounts, notes,
and includes any and all advances, debts, all moneys, securities, and other property leases, deeds of sale with reservation of
obligations and liabilities of Principal or of the Surety now and hereafter in the title, invoices, mortgages, checks,
any one or more of them, here[to]fore, possession of the Creditor; and every such negotiable instruments and evidences of
now or hereafter made, incurred or lien or right of self-off may be exercised indebtedness listed in the schedule
created, whether voluntary or involuntary without need of demands upon or notice forming part hereinafter called "Contract"
and however arising, whether direct or to the Surety. No lien or right of set-off or "Contracts."

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2. To induce the ASSIGNEE to purchase the 4. The ASSIGNOR shall without compensation or cost, collect (1) P120,240.00 plus P0.03 for each peso
above Contracts, the ASSIGNOR does and receive in trust for the ASSIGNEE all payments made upon for each month from September 1, 1983
hereby certify, warrant and the assigned contracts and shall remit to the ASSIGNEE all until the whole amount is fully paid;
represent that : collections on the said Contracts as follows :
(2) P50,000.00 as attorney's fees; and
(a). He/It is the sole owner of the assigned Contracts free and P5,450.00 due on January 2, 1982 on every 15th day (semi-
clear of claims of any other party except the herein ASSIGNEE monthly) until November 1, 1982. (3) To pay the costs.
and has the right to transfer absolute title thereto the
ASSIGNEE; P110,550.00 balloon payment after 12 months.3 (Emphasis SO ORDERED.4
supplied)
(b). Each assigned Contract is bonafide and the amount owing
and to become due on each contract is correctly stated upon Private respondents went on appeal before the then
Later, additional trade receivables were assigned by Sanyu Intermediate Appellate Court ("IAC"), and the appeal was there
the schedule or other evidences of the Contract delivered Chemical to Atok Finance with a total face value of
pursuant thereto; (c). Each assigned Contract arises out of the docketed as AC-G.R. No. 07005-CV. The case was raffled to the
P100,378.45. Third Civil Cases Division of the IAC. In a resolution dated 21
sale of merchandise/s which had been delivered and/or
services which have been rendered and none of the Contract is March 1986, that Division dismissed the appeal upon the
now, nor will at any time become, contingent upon the On 13 January 1984, Atok Finance commenced action against ground of abandonment, since the private respondents had
fulfillment of any contract or condition whatsoever, or subject Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and failed to file their appeal brief notwithstanding receipt of the
to any defense, offset or counterclaim Leopoldo Halili before the Regional Trial Court of Manila to notice to do so. On 4 June 1986, entry of judgment was made
collect the sum of P120,240.00 plus penalty charges amounting by the Clerk of Court of the IAC. Accordingly, Atok Finance went
to P0.03 for every peso due and payable for each month before the trial court and sought a writ of execution to enforce
(d). No assigned Contract is represented by any note or other starting from 1 September 1983. Atok Finance alleged that the decision of the trial court of 1 April 1985. The trial court
evidence of indebtness or other security document except such Sanyu Chemical had failed to collect and remit the amount due issued a writ of execution on 23 July 1986.5 Petitioner alleged
as may have been endorsed, assigned and delivered by the under the trade receivables. that the writ of execution was served on private respondents.6
ASSIGNOR to the ASSIGNEE simultaneously with the
assignment of such Contract;
Sanyu Chemical and the individual private respondents sought However, on 27 August 1986, private respondents filed a
dismissal of Atok's claim upon the ground that such claim had Petition for Relief from Judgment before the Court of Appeals.
(e). No agreement has been made, or will be made, with any prescribed under Article 1629 of the Civil Code and for lack of This Petition was raffled off to the 15th Division of the Court of
debtor for any deduction discount or return of merchandise, cause of action. The private respondents contended that the Appeals. In that Petition, private respondents claimed that
except as may be specifically noted at the time of the Continuing Suretyship Agreement, being an accessory contract, their failure to file their appeal brief was due to excusable
assignment of the Contract; was null and void since, at the time of its execution, Sanyu negligence, that is, that their previous counsel had entrusted
Chemical had no pre-existing obligation due to Atok Finance. the preparation and filing of the brief to one of his associates,
(f). None of the terms or provisions of the assigned Contracts which associate, however, had unexpectedly resigned from the
have been amended, modified or waived; At the trial, Sanyu Chemical and the individual private law firm without returning the records of cases he had been
respondents failed to present any evidence on their behalf, handling, including the appeal of private respondents. Atok
(g). The debtor/s under the assigned Contract/s are solvent and although the individual private respondents submitted a Finance opposed the Petition for Relief arguing that no valid
his/its/their failure to pay the assigned Contracts and/or any memorandum in support of their argument. After trial, on 1 ground existed for setting aside the resolution of the Third
installment thereon upon maturity thereof shall April 1985, the trial court rendered a decision in favor of Atok Division of the then IAC.
be conclusively considered as a violation of this warranty; Finance. The dispositive portion of this decision reads as
and(h). Each assigned Contract is a valid obligation of the buyer follows: The 15th Division of the Court of Appeals nonetheless granted
of the merchandise and/or service rendered under the the Petition for Relief from Judgment "in the paramount
Contract And that no Contract is overdue.The foregoing ACCORDINGLY, judgment is hereby interest of justice,"7 set aside the resolution of the Third Civil
warranties and representations are in addition to those rendered in favor of the plaintiff ATOK Cases Division of the then IAC, and gave private respondents a
provided for in the Negotiable Instruments Law and other FINANCE CORPORATION; and against the non-extendible period of fifteen (15) days within which to file
applicable laws. Any violation thereof shall render the defendants SANYU CHEMICAL their appeal brief. Private respondents did file their appeal
ASSIGNOR immediately and unconditionally liable to pay the CORPORATION, DANILO E. ARRIETA, brief.
ASSIGNEE jointly and severally with the debtors under the NENITA B. ARRIETA, PABLITO BERMUNDO
assigned contracts, the amounts due thereon. and LEOPOLDO HALILI, ordering the said The 15th Division, on 18 August 1987, rendered a Decision on
defendants, jointly and severally, to pay the merits of the appeal, and reversed and set aside the
xxx xxx xxx the plaintiff: decision of the trial court and entered a new judgment

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dismissing the complaint of Atok Finance, ordering it to pay confusion may have accompanied the period of transition from enforced. First, because this contract, just
private respondents P3,000.00 as attorney's fees and to pay the IAC to the Court of Appeals, lead us to believe that the like guaranty, cannot exist without a valid
the costs. defect here involved should be disregarded as being of obligation (Art. 2052, Civil Code);
secondary importance. At the same time, nothing in this and, second, although it may be given as
Atok Finance moved to set aside the decision of the 15th decision should be read as impliedly holding that a petition security for future debt (Art. 2053,
Division of the Court of Appeals, inviting attention to the from relief judgment is available in respect of a decision C.C.), the obligation contemplated in the
resolution of the IAC's Third Civil Cases Division of 21 March rendered by the Court of Appeals; this issue is best reserved for case at bar cannot be considered "future
1986 originally dismissing private respondent's appeal for determination in some future cases where it shall have been debt" as envisioned by this law.
abandonment thereof. In a resolution dated 18 August 1987, adequately argued by the parties.
the 15th Division denied Atok Finance's motion stating that it There is no proof that when the suretyship
had granted the Petition for Relief from Judgment and given We turn, therefore, to a consideration of the first substantive agreement was entered into, there was a
private respondents herein fifteen (15) days within which to file issue addressed by the Court of Appeals in rendering its pre-existing obligation which served the
an appeal brief, while Atok Finance did not file an appellee's Decision on the merits of the appeal: whether the individual principal obligation between the parties.
brief, and that its decision was arrived at "on the basis of private respondents may be held solidarily liable with Sanyu Furthermore, the "future debts" alluded
appellant's brief and the original records of the appeal case." Chemical under the provisions of the Continuing Suretyship to in Article 2053 refer to debts already
Agreement, or whether that Agreement must be held null and existing at the time of the constitution of
In the present Petition for Review, Atok Finance assigns the void as having been executed without consideration and the agreement but the amount thereof is
following as errors on the part of the Court of Appeals in without a pre-existing principal obligation to sustain it. unknown, unlike in the case at bar where
rendering its decision of 18 August 1987: the obligation was acquired two years
The Court of Appeals held on this first issue as follows: after the agreement.10 (Emphasis
supplied).
(1) that it had erred in ruling that a
continuing suretyship agreement cannot It is the contention of private appellants
be effected to secure future debts; that the suretyship agreement is null and We consider that the Court of Appeals here was in serious
void because it is not in consonance with error. It is true that a serious guaranty or a suretyship
the laws on guaranty and security. The agreement is an accessory contract in the sense that it is
(2) that it had erred in ruling that the entered into for the purpose of securing the performance of
continuing suretyship agreement was null said agreement was entered into by the
parties two years before the Deed of another obligation which is denominated as the principal
and void for lack of consideration without obligation. It is also true that Article 2052 of the Civil Code
any evidence whatsoever [being] adduced Assignment was executed. Thus,
allegedly, it ran counter to the provision states that "a guarantee cannot exist without a valid
by private respondents; obligation." This legal proposition is not, however, like most
that guaranty cannot exist independently
because by nature it is merely an legal principles, to be read in an absolute and literal manner
(3) that it had erred in granting the accessory contract. The law on guaranty is and carried to the limit of its logic. This is clear from Article
Petition for Relief from Judgment while applicable to surety to some 2052 of the Civil Code itself:
execution proceedings [were] on-going on extent Manila Surety and Fidelity
the trial court.8 (Emphasis in the original) Co. v.Baxter Construction & Co., 53 Art. 2052. A guaranty cannot exist without
O.G. 8836; and, Arran v. Manila Fidelity & a valid obligation.
As a preliminary matter, we note that a Division of the Court of Surety Co., 53 O.G. 7247.
Appeals is co-equal with any other Division of the same court. Nevertheless, a guaranty may be
Accordingly, a Division of the Court of Appeals has no authority We find merit in this contention. constituted to guarantee the performance
to consider and grant a petition for relief from a judgment of a voidable or an unenforceable
rendered by another Division of the same court. In the case at contract. It may also guaranty a natural
bar, however, we must note that an intervening event had Although obligations arising from
contracts have the force of law between obligation." (Emphasis supplied).
occurred between the resolution of 21 March 1986 of the Third
Civil Cases Division of the IAC dismissing private respondents' the contracting parties, (Article 1159 of
appeal and the 30 September 1986 order of the 15th Division the Civil Code) this does not mean that the Moreover, Article 2053 of the Civil Code states:
of the Court of Appeals granting the Petition for Relief from law is inferior to it; the terms of the
Judgment. On 28 July 1986, the old Intermediate Appellate contract could not be enforces if not valid. Art. 2053. A guaranty may also be given
Court went out of existence and a new court, the Court of So, even if, as in this case, the agreement as security for future debts, the amount of
Appeals, came into being, was organized and commenced was for a continuing suretyship to include which is not yet known; there can be no
functioning.9 This event, and the probability that some obligations enumerated in paragraph 2 of claim against the guarantor until the debt
the agreement, the same could not be

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is liquidated. A conditional obligation may holding private respondent surety (Residoro Chua) liable under which are subject to a condition precedent are valid and
also be secured. (Emphasis supplied) the comprehensive surety agreement, the Court said: binding before the occurrence of the condition precedent.14

The Court of Appeals apparently overlooked our caselaw The surety agreement which was earlier Comprehensive or continuing surety agreements are in fact
interpreting Articles 2052 and 2053 of the Civil Code. signed by Enrique Go, Sr. and private quite commonm place in present day financial and commercial
In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas respondent, is an accessory obligation, it practice. A bank or a financing company which anticipates
and Alto Surety Co., Inc.,11 the private respondents assailed the being dependent upon a principal one, entering into a series of credit transactions with a particular
decision of the trial court holding them liable under certain which, in this case is the loan obtained by company, commonly requires the projected principal debtor to
surety bonds filed by private respondent Fojas and issued by Daicor as evidenced by a promissory execute a continuing surety agreement along with its sureties.
private respondent Alto Surety Co. in favor of petitioner NARIC, note. What obviously induced petitioner By executing such an agreement, the principal places itself in a
upon the ground that those surety bonds were null and void bank to grant the loan was the surety position to enter into the projected series of transactions with
"there being no principal obligation to be secured by said agreement whereby Go and Chua bound its creditor; with such surety agreement, there would be no
bonds." In affirming the decision of the trial court, this Court, themselves solidarily to guaranty the need to execute a separate surety contract or bond for each
speaking through Mr. Justice J.B.L. Reyes, made short shrift of punctual payment of the loan at maturity. financing or credit accommodation extended to the principal
the private respondents' doctrinaire argument: By terms that are unequivocal, it can be debtor. As we understand it, this is precisely what happened in
clearly seen that the surety agreement the case at bar.
Under his third assignment of error, was executed to guarantee future debts
appellant Fojas questions the validity of which Daicor may incur with petitioner, as We turn to the second substantive issue, that is, whether
the additional bonds (Exhs. D and D-1) on is legally allowable under the Civil Code. private respondents are liable under the Deed of Assignment
the theory that when they were executed, Thus — which they, along with the principal debtor Sanyu Chemical,
the principal obligation referred to in said executed in favor of petitioner, on the receivables thereby
bonds had not yet been entered into, as no Article 2053. — A assigned.
copy thereof was attached to the deeds of guarantee may also
suretyship. This defense is untenable, be given as security The contention of Sanyu Chemical was that Atok Finance had
because in its complaint the NARIC for future debts, the no cause of action under the Deed of Assignment for the reason
averred, and the appellant did not deny amount of which is that Sanyu Chemical's warranty of the debtors' solvency had
that these bonds were posted to secure not yet known; there ceased. In submitting this contention, Sanyu Chemical relied on
the additional credit that Fojas has can be no claim Article 1629 of the Civil Code which reads as follows:
applied for, and the credit increase over against the
his original contract was sufficient guarantor until the
consideration for the bonds. That the debt is liquidated. A Art. 1629. In case the assignor in good
latter were signed and filed before the conditional faith should have made himself
additional credit was extended by the obligation may also responsible for the solvency of the
NARIC is no ground for complaint.Article be debtor, and the contracting parties should
1825 of the Civil Code of 1889, in force in secured.13 (Emphasi not have agreed upon the duration of the
1948, expressly recognized that "a s supplied) liability, it shall last for one year only, from
guaranty may also be given as security for the time of the assignment if the period
future debts the amount of which is not had already expired.
It is clear to us that the Rizal Commercial Banking
yet known." (Emphasis supplied) Corporation and the NARIC cases rejected the distinction which
the Court of Appeals in the case at bar sought to make with If the credit should be payable within a
In Rizal Commercial Banking Corporation v. Arro,12 the Court respect to Article 2053, that is, that the "future debts" referred term or period which has not yet expired,
was confronted again with the same issue, that is, whether to in that Article relate to "debts already existing at the time of the liability shall cease one year after
private respondent was liable to pay a promissory note dated the constitution of the agreement but the amount [of which] is maturity.
29 April 1977 executed by the principal debtor in the light of unknown," and not to debts not yet incurred and existing at
the provisions of a comprehensive surety agreement which that time. Of course, a surety is not bound under any particular Once more, the Court of Appeals upheld the contention of
petitioner bank and the private respondent had earlier entered principal obligation until that principal obligation is born. But private respondents and held that Sanyu Chemical was free
into on 19 October 1976. Under the comprehensive surety there is no theoretical or doctrinal difficulty inherent in saying from liability under the Deed of Assignment. The Court of
agreement, the private respondents had bound themselves as that the suretyship agreement itself is valid and binding even Appeals said:
solidary debtors of the Diacor Corporation not only in respect before the principal obligation intended to be secured thereby
of existing obligations but also in respect of future ones. In is born, any more that there would be in saying that obligations

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. . . Article 1629 provides for the duration period of 120 days The foregoing
of assignor's warranty of debtor's . . ." (Exhibit B-2). Considering the terms in warranties and
solvency depending on whether there the invoices plus the ordinary practice of representations are
was a period agreed upon for the the company, thus, the assigned debts in addition to those
existence of such warranty, analyzing the matured between April 3, 1982 to May 4, provided for in the
law thus: 1982. The assignor's warranty for debtor's Negotiable
warranty, in this case, would then be from Instruments Law and
(1) if there is a period (or length of time) the maturity period up to April 3, 1983 or other applicable
agreed upon, then for such period; May 4, 1983 to cover all of the receivables laws. Any violation
in the invoices. thereof shall render
the ASSIGNOR
(2) if no period (or length of time) was immediately and
agreed upon, then: The letter of demand executed by
appellee was dated August 29, 1983 unconditionally
(Exhibit D) and the complaint was filed on liable to pay the
(a) one year from January 13, 1984. Both dates were beyond ASSIGNEE jointly and
assignment — if the warranty period. severally with the
debt was due at the debtors under the
time of the assigned contracts,
assignment In effect, therefore, company-appellant the amounts due
was right when it claimed that appellee thereon.
had no cause of action against it or had
(b) one year from lost its cause of
maturity — if debt action. 15 (Emphasis supplied) xxx xxx xxx
was not yet due at
the time of the (Emphasis supplied)
assignment.. Once again, however, we consider that the Court of Appeals
was in reversible error in so concluding. The relevant provision
of the Deed of Assignment may be quoted again in this It may be stressed as a preliminary matter that the Deed of
The debt referred to in this law is the debt connection: Assignment was valid and binding upon Sanyu Chemical.
under the assigned contract or the Assignment of receivables is a commonplace commercial
original debts in favor of the assignor transaction today. It is an activity or operation that permits the
which were later assigned to the assignee. 2. To induce the ASSIGNEE [Atok Finance]
to purchase the above contracts, the assignee to monetize or realize the value of the receivables
The debt alluded to in the law, is not the before the maturity thereof. In other words, Sanyu Chemical
debt incurred by the assignor to the ASSIGNOR [Sanyu Chemical] does hereby
certify, warrant and represent that . . . received from Atok Finance the value of its trade receivables it
assignee as contended by the appellant. had assigned; Sanyu Chemical obviously benefitted from the
assignment. The payments due in the first instance from the
Applying the said law to the case at bar, (g) the debtor/s trade debtors of Sanyu Chemical would represent the return of
the records disclose that none of the under the assigned the investment which Atok Finance had made when it paid
assigned receivables had matured on contract/s are Sanyu Chemical the transfer value of such receivables.
November 27, 1981 when the Deed of solvent and
Assignment was executed. The oldest his/its/their failure
to pay the assigned Article 1629 of the Civil Code invoked by private respondents
debt then existing was that contracted on and accepted by the Court of Appeals is not, in the case at bar,
November 3, 1981 and the latest was contract/s and/or
any installment material. The liability of Sanyu Chemical to Atok Finance
contracted on December 4, 1981. rests not on the breach of the warranty of solvency; the liability
thereon upon
maturity thereof of Sanyu Chemical was not ex lege (ex Article 1629) but
Each of the invoices assigned to the shall be conclusively rather ex contractu. Under the Deed of Assignment, the effect
assignee contained a term of 30 days considered as a of non-payment by the original trade debtors was breach of
(Exhibits B-3-A to 5 and extended by the violation of this warranty of solvency by Sanyu Chemical, resulting in turn in the
notation which appeared in the "Schedule warranty; and . . . assumption of solidary liability by the assignor under the
of Assigned Receivables" which states receivables assigned. In other words, the assignor Sanyu
that the ". . . the terms stated on our Chemical becomes a solidary debtor under the terms of the
invoices were normally extended up to a receivables covered and transferred by virtue of the Deed of

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Assignment. And because assignor Sanyu Chemical became,


under the terms of the Deed of Assignment, solidary obligor
under each of the assigned receivables, the other private
respondents (the Arrieta spouses, Pablito Bermundo and
Leopoldo Halili), became solidarily liable for that obligation of
Sanyu Chemical, by virtue of the operation of the Continuing
Suretyship Agreement. Put a little differently, the obligations of
individual private respondent officers and stockholders of
Sanyu Chemical under the Continuing Suretyship Agreement,
were activated by the resulting obligations of Sanyu Chemical
as solidary obligor under each of the assigned receivables by
virtue of the operation of the Deed of Assignment. That
solidary liability of Sanyu Chemical is not subject to the limiting
period set out in Article 1629 of the Civil Code.

It follows that at the time the original complaint was filed by


Atok Finance in the trial court, it had a valid and enforceable
cause of action against Sanyu Chemical and the other private
respondents. We also agree with the Court of Appeals that the
original obligors under the receivables assigned to Atok Finance
remain liable under the terms of such receivables.

WHEREFORE, for all the foregoing, the Petition for Review is


hereby GRANTED DUE COURSE, and the Decision of the Court
of Appeals dated 18 August 1987 and its Resolution dated 30
September 1987 are hereby REVERSED and SET ASIDE. A new
judgment is hereby entered REINSTATING the Decision of the
trial court in Civil Case No. 84-22198 dated 1 April 1985, except
only that, in the exercise of this Court's discretionary authority
equitably to mitigate the penalty clause attached to the Deed
of Assignment, that penalty is hereby reduced to eighteen
percent (18%) per annum (instead of P0.03 for every peso
monthly [or 36% per annum]). As so modified, the Decision of
the trial court is hereby AFFIRMED. Costs against private
respondents.

SO ORDERED.

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G.R. No. L-49401 July 30, 1982 capacity and in behalf of Daicor. The promissory note was not liable on the note under the provisions of
fully paid despite repeated demands; hence, on June 30, 1978, the comprehensive surety agreement of
RIZAL COMMERCIAL BANKING CORPORATION, petitioner, petitioner filed a complaint for a sum of money against Daicor, October 29, 1976; and/or
vs. Enrique Go, Sr. and Residoro Chua. A motion to dismiss dated
HON. JOSE P. ARRO, Judge of the Court of First instance of September 23, 1978 was filed by respondent Residoro Chua on 2. That the respondent court erred in
Davao, and RESIDORO CHUA, respondents. the ground that the complaint states no cause of action as interpreting the provisions of the
against him. 5 It was alleged in the motion that he can not be Comprehensive Surety Agreement
held liable under the promissory note because it was only towards the conclusion that respondent
Laurente C. Ilagan for petitioner. Enrique Go, Sr. who signed the same in behalf of Daicor and in Chua is not liable on the promissory note
his own personal capacity. because said note is not conformable to
Victor A. Clapano for respondents. the Comprehensive Surety Agreement;
In an opposition dated September 26, 1978 6 petitioner alleged and/or
that by virtue of the execution of the comprehensive surety
agreement, private respondent is liable because said 3. That the respondent court erred in
DE CASTRO, J.: agreement covers not merely the promissory note subject of ordering that there is no cause of action
the complaint, but is continuing; and it encompasses every against respondent Chua in the
other indebtedness the Borrower may, from time to time incur petitioner's complaint.
Petition for certiorari to annul the orders of respondent judge with petitioner bank.
dated October 6, 1978 and November 7, 1978 in Civil Case No.
11-154 of the Court of First Instance of Davao, which granted The main issue involved in this case is whether private
the motion filed by private respondent to dismiss the complaint On October 6, 1978 respondent court rendered a decision respondent is liable to pay the obligation evidence by the
of petitioner for a sum of money, on the ground that the granting private respondent's motion to dismiss the promissory note dated April 29,1977 which he did not sign, in
complaint states no cause of action as against private complaint. 7 Petitioner filed a motion for reconsideration dated the light of the provisions of the comprehensive surety
respondent. October 12, 1978 and on November 7, 1978 respondent court agreement which petitioner and private respondent had earlier
issued an order denying the said motion. 8 executed on October 19, 1976.
After the petition had been filed, petitioner, on December 14,
1978 mailed a manifestation and motion requesting the special The sole issue resolved by respondent court was the We find for the petitioner. The comprehensive surety
civil action for certiorari be treated as a petition for interpretation of the comprehensive surety agreement, agreement was jointly executed by Residoro Chua and Enrique
review. 1 Said manifestation and motion was noted in the particularly in reference to the indebtedness evidenced by the Go, Sr., President and General Manager, respectively of Daicor,
resolution of January 10, 1979. 2 promissory note involved in the instant case, said on October 19, 1976 to cover existing as well as future
comprehensive surety agreement having been signed by obligations which Daicor may incur with the petitioner bank,
Enrique Go, Sr. and private respondent, binding themselves as subject only to the proviso that their liability shall not exceed
It appears that on October 19, 1976 Residoro Chua and Enrique solidary debtors of said corporation not only to existing
Go, Sr. executed a comprehensive surety agreements 3 to at any one time the aggregate principal sum of P100,000.00.
obligations but to future ones. Respondent court said that Thus, paragraph I of the agreement provides:
guaranty among others, any existing indebtedness of Davao corollary to that agreement must be another instrument
Agricultural Industries Corporation (referred to therein as evidencing the obligation in a form of a promissory note or any
Borrower, and as Daicor in this decision), and/or induce the other evidence of indebtedness without which the said For and in consideration of any existing
bank at any time or from time to time thereafter, to make loans agreement serves no purpose; that since the promissory notes, indebtedness to you of Davao Agricultural
or advances or to extend credit in other manner to, or at the which is primarily the basis of the cause of action of petitioner, Industries Corporation with principal
request, or for the account of the Borrower, either with or is not signed by private respondent, the latter can not be liable place of business and postal address at
without security, and/or to purchase on discount, or to make thereon. 530 J. P. Cabaguio Ave., Davao City
any loans or advances evidenced or secured by any notes, bills, (hereinafter called the "Borrower), and/or
receivables, drafts, acceptances, checks or other evidences of in order to induce, you in your discretion,
indebtedness (all hereinafter called "instruments") upon which Contesting the aforecited decision and order of respondent at any time or from time to time
the Borrower is or may become liable, provided that the judge, the present petition was filed before this Court assigning hereafter, to make loans or advances or to
liability shall not exceed at any one time the aggregate principal the following as errors committed by respondent court: extend credit in any other manner to, or
sum of P100,000.00. at he request or for the account of the
1. That the respondent court erred in Borrower, either with or without security,
On April 29, 1977 a promissory note 4 in the amount of dismissing the complaint against Chua and/or to purchase or discount or to make
P100,000.00 was issued in favor of petitioner payable on June simply on the reasons that 'Chua is not a any loans or advances evidenced or
13, 1977. Said note was signed by Enrique Go, Sr. in his personal signatory to the promissory note" of April secured by any notes, bills, receivables,
29, 1977, or that Chua could not be held drafts, acceptances, checks or other

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instruments or evidences of indebtedness dependent upon a principal one which, in this case is the loan
(all hereinafter called "instruments") obtained by Daicor as evidenced by a promissory note. What
upon which the Borrower is or may obviously induced petitioner bank to grant the loan was the
become liable as maker, endorser, surety agreement whereby Go and Chua bound themselves
acceptor, or otherwise) the undersigned solidarily to guaranty the punctual payment of the loan at
agrees to guarantee, and does hereby maturity. By terms that are unequivocal, it can be clearly seen
guarantee in joint and several capacity, that the surety agreement was executed to guarantee future
the punctual payment at maturity to you debts which Daicor may incur with petitioner, as is legally
of any and all such instruments, loans, allowable under the Civil Code. Thus —
advances, credits and/or other
obligations herein before referred to, and Article 2053. — A guaranty may also be
also any and all other indebtedness of given as security for future debts, the
every kind which is now or may hereafter amount of which is not yet known; there
become due or owing to you by the can be no claim against the guarantor
Borrower, together with any and all until the debt is liquidated. A conditional
expenses which may be incurred by you in obligation may also be secured.
collecting an such instruments or other
indebtedness or obligations hereinbefore
referred to ..., provided, however, that In view of the foregoing, the decision (which should have been
the liability of the undersigned shag not a mere "order"), dismissing the complaint is reversed and set
exceed at any one time the aggregate side. The case is remanded to the court of origin with
principal sum of P100,000.00 ... instructions to set aside the motion to dismiss, and to require
defendant Residoro Chua to answer the complaint after which
the case shall proceed as provided by the Rules of Court. No
The agreement was executed obviously to induce petitioner to costs.
grant any application for a loan Daicor may desire to obtain
from petitioner bank. The guaranty is a continuing one which
shall remain in full force and effect until the bank is notified of SO ORDERED.
its termination.

This is a continuing guaranty and shall


remain in fun force and effect until
written notice shall have been received by
you that it has been revoked by the
undersigned, ... 9

At the time the loan of P100,000.00 was obtained from


petitioner by Daicor, for the purpose of having an additional
capital for buying and selling coco-shell charcoal and
importation of activated carbon, 10 the comprehensive surety
agreement was admittedly in full force and effect. The loan
was, therefore, covered by the said agreement, and private
respondent, even if he did not sign the promisory note, is liable
by virtue of the surety agreement. The only condition that
would make him liable thereunder is that the Borrower "is or
may become liable as maker, endorser, acceptor or otherwise".
There is no doubt that Daicor is liable on the promissory note
evidencing the indebtedness.

The surety agreement which was earlier signed by Enrique Go,


Sr. and private respondent, is an accessory obligation, it being

8
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[G.R. No. 112191. February 7, 1997] 2. The amount of P50,000.00 as attorneys fees and demand letter[8] dated December 12, 1983 to Fortune for the
another P50,000.00 as liquidated damages; and payment of its unsettled account in the amount
of P1,302,811.00. Filinvest sent similar demand
3. That the defendants, although spared from paying letters[9] separately to Chua and Rodrigueza as sureties.Despite
exemplary damages, are further ordered to pay, in solidum, the said demands, the amount was not paid. Hence, Filinvest filed
FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L.
costs of this suit. in the Regional Trial Court of Manila a complaint for a sum of
RODRIGUEZA, petitioners, vs. THE HONORABLE
money with preliminary attachment against Fortune, Chua and
COURT OF APPEALS and FILINVEST CREDIT
Rodrigueza.
CORPORATION, respondents. Plaintiff therein was the financing company and the
defendants the car dealer and its sureties. In an order dated September 26, 1984, the trial court
DECISION declared that there was no factual issue to be resolved except
for the correct balance of defendants account with Filinvest as
PANGANIBAN, J.: agreed upon by the parties during pre-trial.[10] Subsequently,
The Facts Filinvest presented testimonial and documentary
To fund their acquisition of new vehicles (which are later evidence. Defendants (petitioners herein), instead of
retailed or resold to the general public), car dealers normally presenting their evidence, filed a Motion for Judgment on
enter into wholesale automotive financing schemes whereby On or about August 4, 1981, Joseph L. G. Chua and Demurrer to Evidence[11] anchored principally on the ground
vehicles are delivered by the manufacturer or assembler on the Petitioner Edgar Lee Rodrigueza (Petitioner Rodrigueza) each that the Surety Undertakings were null and void because, at the
strength of trust receipts or drafts executed by the car dealers, executed an undated Surety Undertaking[5] whereunder they time they were executed, there was no principal obligation
which are backed up by sureties. These trust receipts or drafts absolutely, unconditionally and solidarily guarantee(d) to existing. The trial court denied the motion and scheduled the
are then assigned and/or discounted by the manufacturer Respondent Filinvest Credit Corporation (Respondent Filinvest) case for reception of defendants evidence. On two scheduled
to/with financing companies, which assume payment of the and its affiliated and subsidiary companies the full, faithful and dates, however, defendants failed to present their evidence,
vehicles but with the corresponding right to collect such prompt performance, payment and discharge of any and all prompting the court to deem them to have waived their right
payment from the car dealers and/or the sureties. In this obligations and agreements of Fortune Motors (Phils.) to present evidence. On December 17, 1985, the trial court
manner, car dealers are able to secure delivery of their stock- Corporation (Petitioner Fortune) under or with respect to any rendered its decision earlier cited ordering Fortune, Chua and
in-trade without having to pay cash therefor; manufacturers and all such contracts and any and all other agreements Rodrigueza to pay Filinvest, jointly and severally, the sum
get paid without any receivables/collection problems; and (whether by way of guaranty or otherwise) of the latter with of P1,348,033.83 plus interest at the rate of P922.53 per day
financing companies earn their margins with the assurance of Filinvest and its affiliated and subsidiary companies now in from April 1, 1985 until fully paid, P50,000.00 in attorneys fees,
payment not only from the dealers but also from the force or hereafter made. another P50,000.00 in liquidated damages and costs of suit.
sureties. When the vehicles are eventually resold, the car The following year or on April[6] 5, 1982, Petitioner As earlier mentioned, their appeal was dismissed by the
dealers are supposed to pay the financing companies -- and the Fortune, Respondent Filinvest and Canlubang Automotive Court of Appeals (Tenth Division) which affirmed in toto the
business goes merrily on. However, in the event the car dealer Resources Corporation (CARCO) entered into an Automotive trial courts decision. Hence, this recourse.
defaults in paying the financing company, may the surety Wholesale Financing Agreement[7] (Financing Agreement)
escape liability on the legal ground that the obligations were under which CARCO will deliver motor vehicles to Fortune for
incurred subsequent to the execution of the surety contract? the purpose of resale in the latters ordinary course of business;
Fortune, in turn, will execute trust receipts over said vehicles Issues
This is the principal legal question raised in this petition
for review (under Rule 45 of the Rules of Court) seeking to set and accept drafts drawn by CARCO, which will discount the
aside the Decision[1] of the Court of Appeals (Tenth same together with the trust receipts and invoices and assign
Division)[2] promulgated on September 30, 1993 in CA G.R. CV them in favor of Respondent Filinvest, which will pay the motor Petitioners assign the following errors in the appealed
No. 09136 which affirmed in toto the decision[3] of the Regional vehicles for Fortune. Under the same agreement, Petitioner Decision:
Trial Court of Manila - Branch 11[4] in Civil Case No. 83-21994, Fortune, as trustee of the motor vehicles, was to report and
the dispositive portion of which reads: remit proceeds of any sale for cash or on terms to Respondent 1. that the Court of Appeals erred in declaring that surety can
Filinvest immediately without necessity of demand. exist even if there was no existing indebtedness at the time of
WHEREFORE, judgment is hereby rendered in favor of the Subsequently, several motor vehicles were delivered by its execution.
plaintiff and against the defendants, by ordering the latter to CARCO to Fortune, and trust receipts covered by demand drafts
pay, jointly and severally, the plaintiff the following amounts: and deeds of assignment were executed in favor of Respondent 2. that the Court of Appeals erred when it declared that there
Filinvest. However, when the demand drafts matured, not all was no novation.
1. The sum of P1,348,033.89, plus interest thereon at the rate the proceeds of the vehicles which Petitioner Fortune had sold
of P922.53 per day starting April 1, 1985 until the said principal were remitted to Respondent Filinvest.Fortune likewise failed 3. that the Court of Appeals erred when it declared, that the
amount is fully paid; to turn over to Filinvest several unsold motor vehicles covered evidence was sufficient to prove the amount of the claim.[12]
by the trust receipts. Thus, Filinvest through counsel, sent a
9
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Petitioners argue that future debts which can be In consideration of your entering into an arrangement with the exception thereto. There is such a thing as evidence by silence
guaranteed under Article 2053 of the Civil Code refer only to party (Fortune) named above, x x x x by which you may (Sec. 23, Rule 130, Revised Rules of Court).[14]
debts existing at the time of the constitution of the guaranty purchase or otherwise require from, and or enter into with
but the amount thereof is unknown, and that a guaranty being obligor x x x trust receipt x x x arising out of wholesale and/or The Court of Appeals, affirming the above decision of the
an accessory obligation cannot exist without a principal retail transactions by or with obligor, the undersigned x x trial court, further explained:
obligation. Petitioners claim that the surety undertakings x absolutely, unconditionally, and solidarily guarantee to you x
cannot be made to cover the Financing Agreement executed by x x the full, faithful and prompt performance, payment and
Fortune, Filinvest and CARCO since the latter contract was not discharge of any and all obligations x x x of obligor under and x x x In the case at bar, the surety undertakings in question
yet in existence when said surety contracts were entered into. with respect to any and all such contracts and any and all unequivocally state that Chua and Rodrigueza absolutely,
agreements (whether by way of guaranty or otherwise) of unconditionally and solidarily guarantee to Filinvest the full,
Petitioners further aver that the Financing Agreement obligor with you x x x now in force or hereafter faithful and prompt performance, payment and discharge of
would effect a novation of the surety contracts since it changed made. (Underlinings supplied). any and all obligations and agreements of Fortune under or
the principal terms of the surety contracts and imposed with respect to any and all such contracts and any and all other
additional and onerous obligations upon the sureties. agreements (whether by way of guaranty or otherwise) of the
On the matter of novation, this has already been ruled upon latter with Filinvest in force at the time of the execution of the
Lastly, petitioners claim that no accounting of the when this Court denied defendants Motion to dismiss on the Surety Undertakings or made thereafter. Indeed, if Chua and
payments made by Petitioner Fortune to Respondent Filinvest argument that what happened was really an assignment of Rodrigueza did not intend to guarantee all of Fortunes future
was done by the latter. Hence, there could be no way by which credit, and not a novation of contract, which does not require obligation with Filinvest, then they should have expressly
the sureties can ascertain the correct amount of the balance, if the consent of the debtors. The fact of knowledge is stated in their respective surety undertakings exactly what said
any. enough. Besides, as explained by the plaintiff, the mother or surety agreements guaranteed or to which obligations of
the principal contract was the Financing Agreement, whereas Fortune the same were intended to apply. For another, if Chua
Respondent Filinvest, on the other hand, imputes the trust receipts, the sight drafts, as well as the Deeds of
estoppel (by pleadings or by judicial admission) upon and Rodrigueza truly believed that the surety undertakings
assignment were only collaterals or accidental modifications they executed should not cover Fortunes obligations under the
petitioners when in their Motion to Discharge Attachment, which do not extinguish the original contract by way of
they admitted their liability as sureties thus: AWFA, then why did they not inform Filinvest of such fact when
novation. This proposition holds true even if the subsequent the latter sent them the aforementioned demand letters (Exhs.
agreement would provide for more onerous terms for, at any K and L) urging them to pay Fortunes liability under the
Defendants Chua and Rodrigueza could not have perpetrated rate, it is the principal or mother contract that is to be AWFA. Instead, quite uncharacteristic of persons who have just
fraud because they are only sureties of defendant Fortune followed. When the changes refer to secondary agreements been asked to pay an obligation to which they believe they are
Motors x x x; and not to the object or principal conditions of the contract, not liable, Chua and Rodrigueza elected or chose not to answer
there is no novation; such changes will produce modifications said demand letters. Then, too, considering that appellant
of incidental facts, but will not extinguish the original obligation Chua is the corporate president of Fortune and a signatory to
x x x The defendants (referring to Rodrigueza and Chua) are not
(Tolentino, Commentaries on Jurisprudence of the Civil Code of the AWFA, he should have simply had it stated in the AWFA or
parties to the trust receipts agreements since they are ONLY
the Philippines, 1973 Edition, Vol. IV, page 367; cited in in a separate document that the Surety Undertakings do not
sureties x x x.[13]
plaintiffs Memorandum of September 6, 1985, p. 3). cover Fortunes obligations in the aforementioned AWFA, trust
receipts or demand drafts.
In rejecting the arguments of petitioners and in holding
On the evidence adduced by the plaintiff to show the status of
that they (Fortune and the sureties) were jointly and solidarily
defendants accounts, which took into consideration payments Appellants argue that it was unfair for Filinvest to have
liable to Filinvest, the trial court declared:
by defendants made after the filing of the case, it is enough to executed the AWFA only after two (2) years from the date of
state that a statement was carefully prepared showing a the Surety undertakings because Chua and Rodrigueza were
As to the alleged non-existence of a principal obligation when balance of the principal obligation plus interest thereby made to wait for said number of years just to know
the surety agreement was signed, it is enought (sic) to state totalling P1,348,033.89 as of March 31, 1985 (Exh. M). This what kind of obligation they had to guarantee.
that a guaranty may also be given as security for future debts, accounting has not been traversed nor contradicted by
the amount of which is not known (Art. 2053, New Civil defendants although they had the opportunity to do
Code). In the case of NARIC vs. Fojas, L-11517, promulgated so. Likewise, there was absolute silence on the part of The argument cannot hold water. In the first place, the Surety
April 10, 1958, it was ruled that a bond posted to secure defendants as to the correctness of the previous statement of Undertakings did not provide that after a period of time the
additional credit that the principal debtor had applied for, is account made as of December 16, 1983 (referring to Exh. I), but same will lose its force and effect. In the second place, if Chua
not void just because the said bond was signed and filed before more important, however, is that defendants received demand and Rodrigueza did not want to guarantee the obligations of
the additional credit was extended by the creditor. The letters from the plaintiff stating that, as of December 1983 Fortune under the AWFA, trust receipts and demand drafts,
obligation of the sureties on future obligations of Fortune is (Exhs. J, K and L), this total amount of obligation then why did they not simply terminate the Surety
apparent from a proviso under the Surety Undertakings was P1,302,811,00, and yet defendants were not heard to have Undertakings by serving ten (10) days written notice to Filinvest
marked Exhs. B and C that the sureties agree with the plaintiff responded to said demand letters, let alone have taken any as expressly allowed in said surety agreements. It is highly
as follows: plausible that the reason why the Surety Undertakings were

10
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not terminated was because the execution of the same was parties. Furthermore, the future debts alluded to in Article the contract, of guaranty, until the expiration or termination
part of the consideration why Filinvest and CARCO agreed to 2053 refer to debts already existing at the time of the thereof. A guaranty shall be construed as continuing when by
enter into the AWFA with Fortune.[15] constitution of the agreement but the amount thereof is the terms thereof it is evident that the object is to give a
unknown, unlike in the case at bar where the obligation was standing credit to the principal debtor to be used from time to
acquired two years after the agreement. time either indefinitely or until a certain period; especially if the
right to recall the guaranty is expressly reserved. Hence, where
The Courts Ruling We ruled then that the appellate court was in serious the contract of guaranty states that the same is to secure
error. The distinction which said court sought to make with advances to be made from time to time the guaranty will be
respect to Article 2053 (that future debts referred to therein construed to be a continuing one.
We affirm the decisions of the trial and appellate courts. relate to debts already existing at the time of the constitution
of the agreement but the amount [of which] is unknown and
not to debts not yet incurred and existing at that time) has In other jurisdictions, it has been held that the use of particular
previously been rejected, citing the RCBC and NARIC cases. We words and expressions such as payment of any debt, any
First Issue: Surety May Secure Future Obligations further said: indebtedness, any deficiency, or any sum, or the guaranty of
any transaction or money to be furnished the principal debtor
at any time, or on such time that the principal debtor may
x x x Of course, a surety is not bound under any particular require, have been construed to indicate a continuing
The case at bench falls on all fours with Atok Finance principal obligation until that principal obligation is born. But
Corporation vs. Court of Appeals[16] which reiterated our rulings guaranty.[20]
there is no theoretical or doctrinal difficulty inherent in saying
in National Rice and Corn Corporation (NARIC) vs. Court of that the suretyship agreement itself is valid and binding even
Appeals[17] and Rizal Commercial Banking Corporation vs. before the principal obligation intended to be secured thereby We have no reason to depart from our uniform ruling in
Arro.[18] In Atok Finance, Sanyu Chemical as principal, and is born, any more than there would be in saying that obligations the above-cited cases. The facts of the instant case bring us to
Sanyu Trading along with individual private stockholders of which are subject to a condition precedent are valid and no other conclusion than that the surety undertakings
Sanyu Chemical, namely, spouses Daniel and Nenita Arrieta, binding before the occurrence of the condition precedent. executed by Chua and Rodrigueza were continuing guaranties
Leopoldo Halili and Pablito Bermundo, as sureties, executed a or suretyships covering all future obligations of Fortune Motors
continuing suretyship agreement in favor of Atok Finance as (Phils.) Corporation with Filinvest Credit Corporation.This is
creditor. Under the agreement, Sanyu Trading and the Comprehensive or continuing surety agreements are in fact evident from the written contract itself which contained the
individual private stockholders and officers of Sanyu Chemical quite commonplace in present day financial and commercial words absolutely, unconditionally and solidarily guarantee(d)
jointly and severally unconditionally guarantee(d) to Atok practice. A bank or financing company which anticipates to Respondent Filinvest and its affiliated and subsidiary
Finance Corporation (hereinafter called Creditor), the full, entering into a series of credit transactions with a particular companies the full, faithful and prompt performance, payment
faithful and prompt payment and discharge of any and all company, commonly requires the projected principal debtor to and discharge of any and all obligations and agreements of
indebtedness of [Sanyu Chemical] x x x to the execute a continuing surety agreement along with its Petitioner Fortune under or with respect to any and all such
Creditor.Subsequently, Sanyu Chemical assigned its trade sureties. By executing such an agreement, the principal places contracts and any and all other agreements (whether by way of
receivables outstanding with a total face value of P125,871.00 itself in a position to enter into the projected series of guaranty or otherwise) of the latter with Filinvest and its
to Atok Finance in consideration of receipt of the amount transactions with its creditor; with such suretyship agreement, affiliated and subsidiary companies now in force or hereafter
of P105,000.00. Later, additional trade receivables with a total there would be no need to execute a separate surety contract made.
face value of P100,378.45 were also assigned. Due to or bond for each financing or credit accommodation extended
nonpayment upon maturity, Atok Finance commenced action to the principal debtor. Moreover, Petitioner Rodrigueza and Joseph Chua knew
against Sanyu Chemical, the Arrieta spouses, Bermundo and exactly where they stood at the time they executed their
Halili to collect the sum of P120,240.00 plus penalty charges In Dio vs. Court of Appeals,[19] we again had occasion to respective surety undertakings in favor of Fortune. As stated in
due and payable. The individual private respondents discourse on continuing guaranty/suretyship thus: the petition:
contended that the continuing suretyship agreement, being an
accessory contract, was null and void since, at the time of its x x x A continuing guaranty is one which is not limited to a single Before the execution of the new agreement, Edgar L.
execution, Sanyu Chemical had no pre-existing obligation due transaction, but which contemplates a future course of dealing, Rodrigueza and Joseph Chua were required to sign blank surety
to Atok Finance. The trial court rendered a decision in favor of covering a series of transactions, generally for an indefinite agreements, without informing them how much amount they
Atok Finance and ordered defendants to pay, jointly and time or until revoked. It is prospective in its operation and is would be liable as sureties. However, because of the desire of
severally, aforesaid amount to Atok. generally intended to provide security with respect to future petitioners, Chua and Rodrigueza to have the cars delivered to
transactions within certain limits, and contemplates a petitioner, Fortune, they signed the blank promissory
On appeal, the then Intermediate Appellate Court notes.[21] (underscoring supplied)
reversed the trial court and dismissed the complaint on the succession of liabilities, for which, as they accrue, the guarantor
ground that there was no proof that when the suretyship becomes liable. Otherwise stated, a continuing guaranty is one
agreement was entered into, there was a pre-existing which covers all transactions, including those arising in the It is obvious from the foregoing that Rodrigueza and
obligation which served as the principal obligation between the future, which are within the description or contemplation of Chua were fully aware of the business of Fortune, an

11
Credtrans Guaranty & Suretyship

automobile dealer; Chua being the corporate president of Under the surety undertakings however, the obligation more weight when said court affirms the factual findings of the
Fortune and even a signatory to the Financial Agreement with of the sureties referred to absolutely, unconditionally and trial court.[27]
Filinvest.[22] Both sureties knew the purpose of the surety solidarily guaranteeing the full, faithful and prompt
undertaking which they signed and they must have had an performance, payment and discharge of all obligations of In the case at bar, the findings of the trial court and the
estimate of the amount involved at that time. Their Petitioner Fortune with respect to any and all contracts and Court of Appeals with respect to the assigned error are based
undertaking by way of the surety contracts was critical in other agreements with Respondent Filinvest in force at that on substantial evidence which were not refuted with contrary
enabling Fortune to acquire credit facility from Filinvest and to time or thereafter made. There were no qualifications, proof by petitioners. Hence, there is no necessity to depart
procure cars for resale, which was the business of conditions or reservations stated therein as to the extent of the from the above judicial dictum.
Fortune. Respondent Filinvest, for its part, relied on the surety suretyship. The Financing Agreement, on the other hand, WHEREFORE, premises considered, the petition
contracts when it agreed to be the assignee of CARCO with merely detailed the obligations of Fortune to CARCO is DENIED and the assailed Decision of the Court of Appeals
respect to the liabilities of Fortune with CARCO. After (succeeded by Filinvest as assignee). The allegation of novation concurring with the decision of the trial court is
benefiting therefrom, petitioners cannot now impugn the by petitioners is, therefore, misplaced. There is no hereby AFFIRMED. Costs against petitioners.
validity of the surety contracts on the ground that there was no incompatibility of obligations to speak of in the two
pre-existing obligation to be guaranteed at the time said surety contracts. They can stand together without conflict. SO ORDERED.
contracts were executed. They cannot resort to equity to
escape liability for their voluntary acts, and to heap injustice to Furthermore, the parties have not performed any
Filinvest, which relied on their signed word. explicit and unequivocal act to manifest their agreement or
intention to novate their contract. Neither did the sureties
This is a clear case of estoppel by deed. By the acts of object to the Financing Agreement nor try to avoid liability
petitioners, Filinvest was made to believe that it can collect thereunder at the time of its execution. As aptly discussed by
from Chua and/or Rodrigueza in case of Fortunes the Court of Appeals:
default.Filinvest relied upon the surety contracts when it
demanded payment from the sureties of the unsettled x x x For another, if Chua and Rodrigueza truly believed that the
liabilities of Fortune. A refusal to enforce said surety contracts surety undertakings they executed should not cover Fortunes
would virtually sanction the perpetration of fraud or obligations under the AWFA (Financing Agreement), then why
injustice.[23] did they not inform Filinvest of such fact when the latter sent
them the aforementioned demand letters (Exhs. K and L) urging
them to pay Fortunes liability under the AWFA. Instead, quite
uncharacteristic of persons who have just been asked to pay an
Second Issue: No Novation
obligation to which they are not liable, Chua and Rodrigueza
elected or chose not to answer said demand letters. Then, too,
considering that appellant Chua is the corporate president of
Neither do we find merit in the averment of petitioners
Fortune and a signatory to the AWFA, he should have simply
that the Financing Agreement contained onerous obligations
had it stated in the AWFA or in a separate document that the
not contemplated in the surety undertakings, thus changing
Surety Undertakings do not cover Fortunes obligations in the
the principal terms thereof and effecting a novation.
aforementioned AWFA, trust receipts or demand drafts.[26]
We have ruled previously that there are only two ways
to effect novation and thereby extinguish an obligation. First,
novation must be explicitly stated and declared in unequivocal
Third Issue: Amount of Claim Substantiated
terms. Novation is never presumed. Second, the old and new
obligations must be incompatible on every point. The test of
incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they The contest on the correct amount of the liability of
cannot, they are incompatible and the latter obligation novates petitioners is a purely factual issue. It is an oft repeated maxim
the first.[24] Novation must be established either by the express that the jurisdiction of this Court in cases brought before it
terms of the new agreement or by the acts of the parties clearly from the Court of Appeals under Rule 45 of the Rules of Court
demonstrating the intent to dissolve the old obligation as a is limited to reviewing or revising errors of law. It is not the
consideration for the emergence of the new one. The will to function of this Court to analyze or weigh evidence all over
novate, whether totally or partially, must appear by express again unless there is a showing that the findings of the lower
agreement of the parties, or by their acts which are too clear court are totally devoid of support or are glaringly erroneous as
and unequivocal to be mistaken.[25] to constitute serious abuse of discretion. Factual findings of the
Court of Appeals are conclusive on the parties and carry even
12
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G.R. No. 135462 December 7, 2001 "The present controversy relates to the rights of an Date of Draft Amount
assignee (financing company) of drafts and trust
receipts backed up by sureties, in the event of July 26, 1983 P244,269.00
SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.),
PALAWAN LUMBER MANUFACTURING default by the debtor (car dealer) to whom the July 27, 1983 967,765.50
CORPORATION, petitioners, assignor creditor (car manufacturer) sold and
July 28, 1983 1,138,941.00
vs. delivered motor vehicles for resale. A consistent
BA FINANCE CORPORATION, respondent. ruling on these cases is hereby reiterated: that a August 2, 1983 244,269.00
surety may secure obligations incurred subsequent August 5, 1983 275,079.00
to the execution of the surety contract.
PARDO, J.: August 8, 1983 475,046.10
"Prior to the transactions covered by the subject
The Case drafts and trust receipts, defendant-appellant "(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14).
Fortune Motors Corporation (Phils.) has been
The case is a petition to set aside the decision1 of the Court of availing of the credit facilities of plaintiff-appellant "Fortune Motors Corporation thereafter executed
Appeals, the dispositive portion of which reads: BA Finance Corporation. On January 17, 1983, trust receipts covering the motor vehicles delivered
Joseph L. G. Chua, President of Fortune Motors to it by CARCO under which it agreed to remit to the
"WHEREFORE, premises considered, the appealed Corporation, executed in favor of plaintiff-appellant Entruster (CARCO) the proceeds of any sale and
Decision (as amended by that Order of July 22, 1992) a Continuing Suretyship Agreement, in which he immediately surrender the remaining unsold
of the lower court in Civil Case No. 21944 is hereby "jointly and severally unconditionally" guaranteed vehicles (Folder of Exhibits, pp. 2, 5, 7-A, 9, 12 and
AFFIRMED with the MODIFICATION that defendant- the "full, faithful and prompt payment and discharge 15). The drafts and trust receipts were assigned to
appellee South City Homes, Inc. is hereby ordered to of any and all indebtedness" of Fortune Motors plaintiff-appellant, under Deeds of Assignment
pay, jointly and severally, with Fortune Motors Corporation to BA Finance Corporation (Folder of executed by CARCO (Folder of Exhibits, pp. 3, 6, 7-B,
Corporation, Palawan Lumber Manufacturing Exhibits, pp. 21-22). 10, 13 and 16).
Corporation and Joseph L. G. Chua, the outstanding
amounts due under the six (6) drafts and trust "On February 3, 1983, Palawan Lumber "Upon failure of the defendant-appellant Fortune
receipts, with interest thereon at the legal rate from Manufacturing Corporation represented by Joseph Motors Corporation to pay the amounts due under
the date of filing of this case until said amounts shall L.G. Chua, George D. Tan, Edgar C. Rodrigueza and the drafts and to remit the proceeds of motor
have been fully paid, as follows: Joselito C. Baltazar, executed in favor of plaintiff- vehicles sold or to return those remaining unsold in
appellant a Continuing Suretyship Agreement in accordance with the terms of the trust receipt
which, said corporation "jointly and severally agreements, BA Finance Corporation sent demand
Date of Draft Amount Balance Due unconditionally" guaranteed the "full, faithful and letter to Edgar C. Rodrigueza, South City Homes, Inc.,
July 26, 1983 P244,269.00 P198,659.52 prompt payment and discharge of any and all Aurelio Tablante, Palawan Lumber Manufacturing
indebtedness of Fortune Motors Corporation to BA Corporation, Joseph L. G. Chua, George D. Tan and
July 27, 1983 967,765.50 324,767.41
Finance Corporation (Folder of Exhibits, pp. 19-20). Joselito C. Baltazar (Folder of Exhibits, pp. 29-37).
July 28, 1983 1,138,941.00 1,138,941.00 On the same date, South City Homes, Inc. Since the defendants-appellants failed to settle their
August 2, 1983 244,269.00 244,269.00 represented by Edgar C. Rodrigueza and Aurelio F. outstanding account with plaintiff-appellant, the
Tablante, likewise executed a Continuing Suretyship latter filed on December 22, 1983 a complaint for a
August 5, 1983 275,079.00 275,079.60 Agreement in which said corporation "jointly and sum of money with prayer for preliminary
August 8, 1983 475,046.10 475,046.10 severally unconditionally" guaranteed the "full, attachment, with the Regional Trial Court of Manila,
faithful and prompt payment and discharge of any Branch 1, which was docketed as Civil Case No. 83-
and all indebtedness" of Fortune Motors 21944 (Record, pp. 1-12). Plaintiff-appellant filed a
and the attorney's fees and costs of suit. Corporation to BA Finance Corporation (Folder of surety bond in the amount of P3,391,546.56 and
Exhibits, pp. 17-18). accordingly, Judge Rosalio C. Segundo ordered the
"SO ORDERED."2 issuance of a writ of preliminary attachment on
"Subsequently, Canlubang Automotive Resources January 3, 1984 (Record, pp. 37-47). Defendants
The Facts Corporation (CARCO) drew six (6) Drafts in its own Fortune Motors Corporation, South City Homes, Inc.,
favor, payable thirty (30) days after sight, charged to Edgar C. Rodrigueza, Aurelio F. Tablante, Palawan
the account of Fortune Motors Corporation, as Lumber Manufacturing Corporation, Joseph L. G.
The facts, as found by the Court of Appeals, are as follows:
follows: Chua, George D. Tan and Joselito C. Baltazar filed a
Motion to Discharge Attachment, which was

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opposed by plaintiff-appellant (Record, pp. 49-56). Office of Deputy Sheriff Jorge C. Victorino (RTC, Chua, jointly and severally to pay the plaintiff on the
In an Order dated January 11, 1984, Judge Segundo Branch 1) by Fortune Equipment, Inc. which was July 27, 1983 Draft, the sum of P324,767.41 with the
dissolved the writ of attachment except as against opposed by plaintiff-appellant (Record, pp. 173- interest thereon at the legal rate from the date of
defendant Fortune Motors Corporation and set the 181). On June 15, 1984, Deputy Sheriff Jorge C. filing of this case, December 21, 1983 until the
said incident for hearing (Record, p. 57). On January Victorino issued a "Notice of Levy Upon Personal amount shall have been fully paid;
19, 1984, the defendants filed a Motion to Dismiss. Properties Pursuant to Order of Attachment" which
Therein, they alleged that conventional subrogation was duly served on defendant Fortune Motors "2. Ordering defendants Fortune Motors, Palawan
effected a novation without the consent of the Corporation (Record, pp. 191-199). In an Order Manufacturing Corporation and Joseph Chua jointly
debtor (Fortune Motors Corporation) and thereby dated April 28, 1986, the court a quo denied the and severally to pay to the plaintiff on the July 26,
extinguished the latter's liability; that pursuant to motion to lift the writ of attachment on three (3) 1983 Draft, the sum of P198,659.52 with interest
the trust receipt transaction, it was premature under vehicles described in the Third-Party Claim filed by thereon at the legal rate from the date of filing of
P. D. No. 115 to immediately file a complaint for a Fortune Equipment Inc. (Record, p. 207). On motion this case, until the amount shall have been fully paid;
sum of money as the remedy of the entruster is an of their respective counsel, the trial court granted
action for specific performance; that the suretyship the parties time to sit down and appraise the
agreements are null and void for having been machineries and spare parts owned by defendant "3. Ordering defendant Fortune Motors, Palawan
entered into without an existing principal obligation; Fortune Motors Corporation which are now in the Manufacturing Corporation and Joseph Chua jointly
and that being such sureties does not make them possession of plaintiff corporation by virtue of the and severally to pay to the plaintiff on the July 28,
solidary debtors (Record, pp. 58-64). attachment. A series of conferences was allowed by 1983 Draft the sum of P1,138,941.00 with interest
the court, as means toward possible compromise thereon at the legal rate from the date of filing of
agreement. In an Order dated June 2, 1987, the case this case, until the amount shall have been fully paid;
"After due hearing, the court denied the motion to
discharge attachment with respect to defendant was returned to Branch I, now presided over by
Fortune Motors Corporation as well as the motion to Judge Rebecca G. Salvador (Record, p. 237). The pre- "4. Ordering defendants Fortune Motors, Palawan
dismiss by the defendants (Record, pp. 68 and 87). trial period was terminated and the case was set for Lumber Manufacturing Corporation and Joseph
In their Answer, defendants stressed that their trial on the merits (Record, p. 259). Chua jointly and severally to pay to the plaintiff on
obligations to the creditor (CARCO) was extinguished the August 2, 1983 Draft, the sum of P244,269.00
by the assignment of the drafts and trust receipts to "Acting on the motion to sell levied properties filed with interest thereon at the legal rate from the date
plaintiff-appellant without their knowledge and by defendant George D. Tan, the trial court ordered of filing of this case, until the amount shall have been
consent, and pursuant to legal provision on the public sale of the attached properties (Record, p. fully paid;
conventional subrogation a novation was effected, 406). The court likewise allowed the complaint-in-
thereby extinguishing the liability of the sureties; intervention filed by Fortune Equipment Inc. and "5. Ordering defendants Fortune Motors, Palawan
that plaintiff-appellant failed to immediately South Fortune Motors Corporation who claimed Lumber Manufacturing Corporation and Joseph
demand the return of the goods under the trust ownership of four (4) vehicles earlier seized and Chua jointly and severally to pay to the plaintiff on
receipt agreements or exercise the courses of action attached (Record, p. 471-475). Plaintiff corporation the August 5, 1983 Draft the sum of P275,079.60
by the entruster as provided for under P. D. No. 115; admitted the allegations contained in the complaint- with interest thereon at the legal rate from the date
and that at the time the suretyship agreements were in-intervention only with respect to one truck so of the filing of this case, until the amount shall have
entered into, there were no principal obligations, attached but denied the rest of intervenors' been fully paid;
thus rendering them null and void. A counterclaim allegations (Record, pp. 479-482). Thereafter, the
for the award of actual, moral and exemplary parties submitted their respective pre-trial briefs on "6. Ordering defendants Fortune Motors, Palawan
damages was prayed for by defendants (Record, pp. the complaint-in-intervention, and after the Lumber Manufacturing Corporation and Joseph
91-110). submission of evidence thereon, the case was Chua jointly and severally to pay to the plaintiff on
submitted for decision (Record, pp. 573-577). the August 8, 1983 Draft the sum of P475,046.10
"During the pre-trial, efforts to reach a compromise with interest thereon at legal rate from the date of
was not successful, and in view of the retirement of "On November 25, 1991, the lower court rendered the filing of this case, until the amount shall been
Judge Rosalio C. Segundo of RTC Manila, Branch 1, its judgment, the dispositive portion of which reads fully paid;
the case was-re-raffled off to Branch XXXIII, presided as follows:
over by Judge Felix V. Barbers (Record, pp. 155-160). "7. Ordering defendant Fortune Motors, Palawan
"WHEREFORE, judgment is hereby rendered: Lumber Manufacturing Corporation and Joseph
"Fortune Motors Corporation filed a motion to lift Chua jointly and severally to pay the sum of
the writ of attachment covering three (3) vehicles "1. Ordering defendants Fortune Motors, Palawan P300,000.00 as attorney's fees and the costs of this
described in the Third-Party Claim filed with the Lumber Manufacturing Corporation and Joseph suit;

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"8. Dismissing plaintiff's complaint against South City "9. Ordering Deputy Sheriff Jorge C. signed six (6) months later. The Civil Code, however, allows a
Homes, Aurelio Tablante, Joselito Baltazar, George Victorino to return to Intervenor Fortune suretyship agreement to secure future loans even if the
Tan and Edgar Rodrigueza and the latter's Equipment, Inc. the Mitsubishi Truck amount is not yet known.
counterclaim for lack of basis; Canter with Motor No. 310913 and
Chassis No. 513234; Mitsubishi Truck Article 2053 of the Civil Code provides that:
"9. Ordering Deputy Sheriff Jorge Victorino to return Canter with Motor No. 4D30-313012 and
to Intervenor Fortune Equipment the Mitsubishi Chassis No. 513696, and Fuso Truck with
Motor No. 006769 and Chassis No. 20756, "Art. 2053. A guaranty may also be given as security
Truck Canter with Motor No. 310913 and Chassis No. for future debts, the amount of which is not yet
513234; and to Intervenor South Fortune Motors
Corporation the Cimaron Jeepney with known. x x x"
Plate No. NET-849;
"10. Dismissing the complaint-in-intervention in so In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we
far as the three other vehicles mentioned in the held:
complaint-in-intervention are concerned for lack of "10. Ordering the plaintiff, in the event the
cause of action; motor vehicles could no longer be
returned to pay the estimated value "To fund their acquisition of new vehicles (which are
thereof i.e., P750,000.00 for the three later retailed or resold to the general public), car
"11. Dismissing the complaint-in-intervention trucks, and P5,000.00 for the Cimaron dealers normally enter into wholesale automotive
against Fortune Motor for lack of basis; and Jeepney, to the plaintiffs-intervenors. financing schemes whereby vehicles are delivered by
the manufacturer or assembler on the strength of
"12. Ordering the parties-in-intervention to bear "x x x" (Records, pp. 664-665) trust receipts or drafts executed by the car dealers,
their respective damages, attorneys fees and the which are backed up by sureties. These trust receipts
costs of the suit. or drafts are then assigned and/or discounted by the
"Plaintiffs BA Finance Corporation, defendants manufacturer to/with financing companies, which
Fortune Motors Corp. (Phils.) and Palawan Lumber assume payment of the vehicles but with the
"Upon execution, the sheriff may cause the Manufacturing Corporation, and intervenors
judgment to be satisfied out of the properties corresponding right to collect such payment from
Fortune Equipment and South Fortune Motors, the car dealers and/or the sureties. In this manner,
attached with the exception of one (1) unit interposed the present appeal and filed their
Mitsubishi Truck Canter with Motor No. 310913 and car dealers are able to secure delivery of their stock-
respective Briefs."3 in-trade without having to pay cash therefor;
Chassis No. 513234, if they be sufficient for that
purpose. The officer shall make a return in writing to manufacturers get paid without any
the court of his proceedings. Whenever the On September 8, 1998, the Court of Appeals promulgated a receivables/collection problems; and financing
judgment shall have been paid, the officer, upon decision, the dispositive portion of which is quoted in the companies earn their margins with the assurance of
reasonable demand must return to the judgment opening paragraph of this decision. payment not only from the dealers but also from the
debtor the attached properties remaining in his sureties. When the vehicles are eventually resold,
hand, and any of the proceeds of the properties not Hence, this appeal.4 the car dealers are supposed to pay the financing
applied to the judgment. companies — and the business goes merrily on.
However, in the event the car dealer defaults in
The Issues paying the financing company, may the surety
"SO ORDERED. escape liability on the legal ground that the
The issues presented are: (1) whether the suretyship obligations were incurred subsequent to the
"On two (2) separate motions for reconsideration, agreement is valid; (2) whether there was a novation of the execution of the surety contract?
one filed by plaintiffs-intervenors dated December obligation so as to extinguish the liability of the sureties; and
18, 1991 and the other by plaintiff dated December (3) whether respondent BAFC has a valid cause of action for a "x x x Of course, a surety is not bound under any
26, 1991, the trial court issued an Order dated July sum of money following the drafts and trust receipts particular principal obligation until that principal
22, 1992 amending its Decision dated November 25, transactions.5 obligation is born. But there is no theoretical or
1991. Specifically, said Order amended paragraphs 9 doctrinal difficulty inherent in saying that the
and 10 thereof and deleted the last paragraph of the The Court's Ruling suretyship agreement itself is valid and binding even
said Decision. before the principal obligation intended to be
On the first issue, petitioners assert that the suretyship secured thereby is born, any more than there would
"Paragraphs 9 and 10 now read: agreement they signed is void because there was no principal be in saying that obligations which are subject to a
obligation at the time of signing as the principal obligation was condition precedent are valid and binding before the
occurrence of the condition precedent.

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"Comprehensive or continuing surety agreements "We have ruled in Sison & Sison vs. Yap Tico and
are in fact quite commonplace in present day Avanceña, 37 Phil. 587 [1918] that definitely,
financial and commercial practice. A bank or consent is not necessary in order that assignment
financing company which anticipates entering into a may fully produce legal effects. Hence, the duty to
series of credit transactions with a particular pay does not depend on the consent of the debtor.
company, commonly requires the projected Otherwise, all creditors would be prevented from
principal debtor to execute a continuing surety assigning their credits because of the possibility of
agreement along with its sureties. By executing such the debtor's refusal to give consent.
an agreement, the principal places itself in a position
to enter into the projected series of transactions "What the law requires in an assignment of credit is
with its creditor; with such suretyship agreement, not the consent of the debtor but merely notice to
there would be no need to execute a separate surety him. A creditor may, therefore, validly assign his
contract or bond for each financing or credit credit and its accessories without the debtor's
accommodation extended to the principal debtor." consent (National Investment and Development Co.
v. De Los Angeles, 40 SCRA 489 [1971]. The purpose
Petitioners next posit (second issue) that a novation, as a result of the notice is only to inform that debtor from the
of the assignment of the drafts and trust receipts by the date of the assignment, payment should be made to
creditor (CARCO) in favor of respondent BAFC without the the assignee and not to the original creditor."8
consent of the principal debtor (Fortune Motors), extinguished
their liabilities. Petitioners finally posit (third issue) that as an entruster,
respondent BAFC must first demand the return of the unsold
An assignment of credit is an agreement by virtue of vehicles from Fortune Motors Corporation, pursuant to the
which the owner of a credit, known as the assignor, terms of the trust receipts. Having failed to do so, petitioners
by a legal cause, such as sale, dacion en pago, had no cause of action whatsoever against Fortune Motors
exchange or donation, and without the consent of Corporation and the action for collection of sum of money was,
the debtor, transfers his credit and accessory rights therefore, premature. A trust receipt is a security transaction
to another, known as the assignee, who acquires the intended to aid in financing importers and retail dealers who
power to enforce it to the same extent as the do not have sufficient funds or resources to finance the
assignor could enforce it against the debtor.7 As a importation or purchase of merchandise, and who may not be
consequence, the third party steps into the shoes of able to acquire credit except through utilization, as collateral,
the original creditor as subrogee of the latter. of the merchandise imported or purchased.9 In the event of
Petitioners' obligations were not extinguished. Thus: default by the entrustee on his obligations under the trust
receipt agreement, it is not absolutely necessary that the
"x x x Moreover, in assignment, the debtor's consent entruster cancel the trust and take possession of the goods to
is not essential for the validity of the assignment be able to enforce his rights thereunder. We ruled:
(Art. 1624 in relation to Art. 1475, Civil Code), his
knowledge thereof affecting only the validity of the "x x x Significantly, the law uses the word "may" in
payment he might make (Article 1626, Civil Code). granting to the entruster the right to cancel the trust
and take possession of the goods. Consequently,
"Article 1626 also shows that payment of an petitioner has the discretion to avail of such right or
obligation which is already existing does not depend seek any alternative action, such as a third party
on the consent of the debtor. It, in effect, mandates claim or a separate civil action which it deems best
that such payment of the existing obligation shall to protect its right, at any time upon default or
already be made to the new creditor from the time failure of the entrustee to comply with any of the
the debtor acquires knowledge of the assignment of terms and conditions of the trust agreement."10
the obligation.
The Judgment
"The law is clear that the debtor had the obligation
to pay and should have paid from the date of notice Davide, Jr., C .J ., Puno, Kapunan and Ynares-Santiago, JJ .,
whether or not he consented. concur.

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17
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G.R. No. 72275 November 13, 1991 changes of or novation in the terms and conditions In view of the solidary nature of the liability of the
in connection with the issuance or use of the parties, the presentation of evidence ex-parte as
PACIFIC BANKING CORPORATION, petitioner, Pacificard, or any extension of time to pay such against the defendant Celia Regala was jointly held
vs. obligations, charges or liabilities shall not in any with the trial of the case as against defendant
HON INTERMEDIATE APPELLATE COURT AND ROBERTO manner release me/us from responsibility Roberto Regala.
REGALA, JR., respondents. hereunder, it being understood that I fully agree to
such charges, novation or extension, and that this After the presentation of plaintiff's testimonial and
understanding is a continuing one and shall subsist documentary evidence, fire struck the City Hall of
Ocampo, Dizon & Domingo for petitioner. and bind me until the liabilities of the said Celia Manila, including the court where the instant case
Syjuco Regala have been fully satisfied or paid. was pending, as well as all its records.
Angara, Concepcion, Regala & Cruz for private respondent.
Plaintiff-appellee Pacific Banking Corporation has Upon plaintiff-appellee's petition for reconstitution,
contracted with accredited business establishments the records of the instant case were duly
to honor purchases of goods and/or services by reconstituted. Thereafter, the case was set for pre-
Pacificard holders and the cost thereof to be trial conference with respect to the defendant-
MEDIALDEA, J.: advanced by the plaintiff-appellee for the account of appellant Roberto Regala on plaintiff-appellee's
the defendant cardholder, and the latter undertook motion, after furnishing the latter a copy of the
to pay any statements of account rendered by the same. No opposition thereto having been interposed
This is a petition for review on certiorari of the decision (pp 21- plaintiff-appellee for the advances thus made within
31, Rollo) of the Intermediate Appellate Court (now Court of by defendant-appellant, the trial court set the case
thirty (30) days from the date of the statement, for pre-trial conference. Neither did said defendant-
Appeals) in AC-G.R. C.V. No. 02753, 1 which modified the provided that any overdue account shall earn
decision of the trial court against herein private respondent appellant nor his counsel appear on the date
interest at the rate of 14% per annum from date of scheduled by the trial court for said conference
Roberto Regala, Jr., one of the defendants in the case for sum default.
of money filed by Pacific Banking Corporation. despite due notice. Consequently, plaintiff-appellee
moved that the defendant-appellant Roberto Regala
The defendant Celia Regala, as such Pacificard he declared as in default and that it be allowed to
The facts of the case as adopted by the respondent appellant holder, had purchased goods and/or services on present its evidence ex-parte, which motion was
court from herein petitioner's brief before said court are as credit (Exh. "C", "C-l" to "C-112") under her granted. On July 21, 1983, plaintiff-appellee
follows: Pacificard, for which the plaintiff advanced the cost presented its evidence ex-parte. (pp. 23-26, Rollo)
amounting to P92,803.98 at the time of the filing of
On October 24, 1975, defendant Celia Syjuco Regala the complaint. After trial, the court a quo rendered judgment on December 5,
(hereinafter referred to as Celia Regala for brevity), 1983, the dispositive portion of which reads:
applied for and obtained from the plaintiff the In view of defendant Celia Regala's failure to settle
issuance and use of Pacificard credit card (Exhs. "A", her account for the purchases made thru the use of
"A-l",), under the Terms and Conditions Governing WHEREFORE, the Court renders judgment for the
the Pacificard, a written demand (Exh. "D") was sent plaintiff and against the defendants condemning the
the Issuance and Use of Pacificard (Exh. "B" and to the latter and also to the defendant Roberto
hereinafter referred to as Terms and Conditions), a latter, jointly and severally, to pay said plaintiff the
Regala, Jr. (Exh. " ") under his "Guarantor's amount of P92,803.98, with interest thereon at 14%
copy of which was issued to and received by the said Undertaking."
defendant on the date of the application and per annum, compounded annually, from the time of
expressly agreed that the use of the Pacificard is demand on November 17, 1978 until said principal
governed by said Terms and Conditions. On the same A complaint was subsequently filed in Court for amount is fully paid; plus 15% of the principal
date, the defendant-appelant Robert Regala, Jr., defendant's (sic) repeated failure to settle their obligation as and for attorney's fees and expense of
spouse of defendant Celia Regala, executed a obligation. Defendant Celia Regala was declared in suit; and the costs.
"Guarantor's Undertaking" (Exh. "A-1-a") in favor of default for her failure to file her answer within the
the appellee Bank, whereby the latter agreed reglementary period. Defendant-appellant Roberto The counterclaim of defendant Roberto Regala, Jr. is
"jointly and severally of Celia Aurora Syjuco Regala, Regala, Jr., on the other hand, filed his Answer with dismissed for lack of merit.
to pay the Pacific Banking Corporation upon Counterclaim admitting his execution of the
demand, any and all indebtedness, obligations, "Guarantor's Understanding", "but with the
understanding that his liability would be limited to SO ORDERED. (pp. 22-23, Rollo)
charges or liabilities due and incurred by said Celia
Aurora Syjuco Regala with the use of the Pacificard, P2,000.00 per month."
or renewals thereof, issued in her favor by the Pacific The defendants appealed from the decision of the court a
Banking Corporation". It was also agreed that "any quo to the Intermediate Appellate Court.

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On August 12, 1985, respondent appellate court rendered in connection with the issuance or use of said nature of the conditions. 2 It is likewise not disputed by the
judgment modifying the decision of the trial court. Private Pacificard, or any extension of time to pay such parties that the credit limit granted to Celia Regala was
respondent Roberto Regala, Jr. was made liable only to the obligations, charges or liabilities shall not in any P2,000.00 per month and that Celia Regala succeeded in using
extent of the monthly credit limit granted to Celia Regala, i.e., manner release me/us from the responsibility the card beyond the original period of its effectivity, October
at P2,000.00 a month and only for the advances made during hereunder, it being understood that the undertaking 29, 1979. We do not agree however, that Roberto Jr.'s liability
the one year period of the card's effectivity counted from is a continuing one and shall subsist and bind me/us should be limited to that extent. Private respondent Roberto
October 29, 1975 up to October 29, 1976. The dispositive until all the liabilities of the said Celia Syjuco Regala Regala, Jr., as surety of his wife, expressly bound himself up to
portion of the decision states: have been fully satisfied or paid. (p. 12, Rollo) the extent of the debtor's (Celia) indebtedness likewise
expressly waiving any "discharge in case of any change or
WHEREFORE, the judgment of the trial court dated The undertaking signed by Roberto Regala, Jr. although novation of the terms and conditions in connection with the
December 5, 1983 is modified only as to appellant denominated "Guarantor's Undertaking," was in substance a issuance of the Pacificard credit card." Roberto, in fact, made
Roberto Regala, Jr., so as to make him liable only for contract of surety. As distinguished from a contract of guaranty his commitment as a surety a continuing one, binding upon
the purchases made by defendant Celia Aurora where the guarantor binds himself to the creditor to fulfill the himself until all the liabilities of Celia Regala have been fully
Syjuco Regala with the use of the Pacificard from obligation of the principal debtor only in case the latter should paid. All these were clear under the "Guarantor's Undertaking"
October 29, 1975 up to October 29, 1976 up to the fail to do so, in a contract of suretyship, the surety binds himself Roberto signed, thus:
amount of P2,000.00 per month only, with interest solidarily with the principal debtor (Art. 2047, Civil Code of the
from the filing of the complaint up to the payment Philippines). . . . Any changes of or novation in the terms and
at the rate of 14% per annum without conditions in connection with the issuance or use of
pronouncement as to costs. (p. 32, Rollo) We need not look elsewhere to determine the nature and said Pacificard, or any extension of time to pay such
extent of private respondent Roberto Regala, Jr.'s undertaking. obligations, charges or liabilities shall not in any
A motion for reconsideration was filed by Pacific Banking As a surety he bound himself jointly and severally with the manner release me/us from the responsibility
Corporation which the respondent appellate court denied for debtor Celia Regala "to pay the Pacific Banking Corporation hereunder, it being understood that the undertaking
lack of merit on September 19, 1985 (p. 33, Rollo). upon demand, any and all indebtedness, obligations, charges is a continuing one and shall subsist and bind me/us
or liabilities due and incurred by said Celia Syjuco Regala with until all the liabilities of the said Celia Syjuco Regala
the use of Pacificard or renewals thereof issued in (her) favor have been fully satisfied or paid. (p. 12, supra;
On November 8, 1985, Pacificard filed this petition. The emphasis supplied)
petitioner contends that while the appellate court correctly by Pacific Banking Corporation." This undertaking was also
recognized Celia Regala's obligation to Pacific Banking Corp. for provided as a condition in the issuance of the Pacificard to Celia
the purchases of goods and services with the use of a Pacificard Regala, thus: Private respondent Roberto Regala, Jr. had been made aware
credit card in the total amount of P92,803.98 with 14% interest by the terms of the undertaking of future changes in the terms
per annum, it erred in limiting private respondent Roberto 5. A Pacificard is issued to a Pacificard-holder against and conditions governing the issuance of the credit card to his
Regala, Jr.'s liability only for purchases made by Celia Regala the joint and several signature of a third party and as wife and that, notwithstanding, he voluntarily agreed to be
with the use of the card from October 29, 1975 up to October such, the Pacificard holder and the guarantor bound as a surety. As in guaranty, a surety may secure
29, 1976 up to the amount of P2,000.00 per month with 14% assume joint and several liabilities for any and all additional and future debts of the principal debtor the amount
interest from the filing of the complaint. amount arising out of the use of the Pacificard. (p. of which is not yet known (see Article 2053, supra).
14, Rollo)
There is merit in this petition. The application by respondent court of the ruling in
The respondent appellate court held that "all the other rights Government v. Tizon, supra is misplaced. It was held in that
of the guarantor are not thereby lost by the guarantor case that:
The pertinent portion of the "Guarantor's Undertaking" which
private respondent Roberto Regala, Jr. signed in favor of Pacific becoming liable solidarily and therefore a surety." It further
Banking Corporation provides: ruled that although the surety's liability is like that of a joint and . . . although the defendants bound themselves in
several debtor, it does not make him the debtor but still the solidum, the liability of the Surety under its bond
guarantor (or the surety), relying on the case of Government of would arise only if its co-defendants, the principal
I/We, the undersigned, hereby agree, jointly and the Philippines v. Tizon. G.R. No. L-22108, August 30, 1967, 20 obligor, should fail to comply with the contract. To
severally with Celia Syjuco Regala to pay the Pacific SCRA 1182. Consequently, Article 2054 of the Civil Code paraphrase the ruling in the case of Municipality of
Banking Corporation upon demand any and all providing for a limited liability on the part of the guarantor or Orion vs. Concha, the liability of the Surety is
indebtedness, obligations, charges or liabilities due debtor still applies. "consequent upon the liability" of Tizon, or "so
and incurred by said Celia Syjuco Regala with the use dependent on that of the principal debtor" that the
of the Pacificard or renewals thereof issued in his Surety "is considered in law as being the same party
favor by the Pacific Banking Corporation. Any It is true that under Article 2054 of the Civil Code, "(A)
guarantor may bind himself for less, but not for more than the as the debtor in relation to whatever is adjudged,
changes of or Novation in the terms and conditions touching the obligation of the latter"; or the
principal debtor, both as regards the amount and the onerous

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Credtrans Guaranty & Suretyship

liabilities of the two defendants herein "are so


interwoven and dependent as to be inseparable."
Changing the expression, if the defendants are held
liable, their liability to pay the plaintiff would be
solidary, but the nature of the Surety's undertaking
is such that it does not incur liability unless and until
the principal debtor is held liable.

A guarantor or surety does not incur liability unless the


principal debtor is held liable. It is in this sense that a surety,
although solidarily liable with the principal debtor, is different
from the debtor. It does not mean, however, that the surety
cannot be held liable to the same extent as the principal
debtor. The nature and extent of the liabilities of a guarantor
or a surety is determined by the clauses in the contract of
suretyship(see PCIB v. CA, L-34959, March 18, 1988, 159 SCRA
24).

ACCORDINGLY, the petition is GRANTED. The questioned


decision of respondent appellate court is SET ASIDE and the
decision of the trial court is REINSTATED.

SO ORDERED.

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