Rizal Commercial Banking Corporation vs. Arro

A surety under a comprehensive surety agreement that expressly covers future debts is liable for obligations subsequently incurred by the principal debtor, regardless of whether the surety signed the specific evidence of indebtedness, provided the principal obligation is within the terms and maximum amount of the surety agreement. The surety agreement is an accessory obligation that stands independently of the instrument evidencing the principal debt.

Residoro Chua and Enrique Go, Sr., President and General Manager, respectively, of Davao Agricultural Industries Corporation (Daicor), executed a comprehensive surety agreement on October 19, 1976 in favor of Rizal Commercial Banking Corporation. The instrument guaranteed any existing indebtedness of Daicor and any future loans, advances, or credit extensions the bank might grant to the corporation, subject to an aggregate principal limit of P100,000.00. The agreement was a continuing guaranty, terminable only upon written notice to the bank. Several months later, Daicor obtained a loan of P100,000.00 from the bank, purportedly for additional capital. The loan was evidenced by a promissory note dated April 29, 1977, payable on June 13, 1977. The note was signed by Enrique Go, Sr. in his personal capacity and on behalf of Daicor; Residoro Chua did not sign it. The loan remained unpaid despite repeated demands.

• The Comprehensive Surety Agreement: On October 19, 1976, Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreement in favor of petitioner Rizal Commercial Banking Corporation. The agreement guaranteed “any existing indebtedness” of Davao Agricultural Industries Corporation (Daicor) and was intended to induce the bank “at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner” to Daicor. The instrument specifically covered any notes, bills, drafts, and other evidences of indebtedness upon which Daicor “is or may become liable as maker, endorser, acceptor, or otherwise.” The liability of the sureties was joint and several, capped at an aggregate principal sum of P100,000.00 at any one time. The agreement was designated a “continuing guaranty” that would remain in full force until the bank received written notice of revocation.

• The Promissory Note: On April 29, 1977, a promissory note for P100,000.00 was issued in favor of petitioner, payable on June 13, 1977. The note was signed by Enrique Go, Sr. both in his personal capacity and on behalf of Daicor. The purpose of the loan was stated as additional capital for buying and selling coco-shell charcoal and importation of activated carbon. Residoro Chua did not sign the promissory note.

• Default and Complaint: The promissory note was not fully paid at maturity despite repeated demands. On June 30, 1978, petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr., and Residoro Chua.

• Motion to Dismiss: Residoro Chua moved to dismiss the complaint on September 23, 1978, arguing that it stated no cause of action against him because he had not signed the promissory note and therefore could not be held liable under it. Petitioner opposed the motion, contending that Chua was liable under the comprehensive surety agreement, which covered not only the specific promissory note but every indebtedness Daicor might incur with the bank, as a continuing guaranty.

• Trial Court’s Ruling: The trial court granted the motion to dismiss. It interpreted the comprehensive surety agreement as requiring a correlative instrument evidencing the obligation, such as a promissory note or other evidence of indebtedness, without which the agreement served no purpose. Because the promissory note—the primary basis of the cause of action—was not signed by Chua, the court concluded he could not be held liable.

• Coverage of the Surety Agreement: Petitioner maintained that the comprehensive surety agreement explicitly covered future debts and was a continuing guaranty. It argued that the promissory note was an instrument evidencing an indebtedness that fell squarely within the terms of the surety agreement, and Chua’s liability arose from the agreement itself, not from the note.

• Error in Dismissal: Petitioner contended that the trial court erred in dismissing the complaint based solely on Chua’s non-signature on the promissory note, because the surety agreement did not require Chua to sign every evidence of indebtedness for his obligation to attach.

• Non-Liability on the Note: Residoro Chua argued that he could not be held liable on the promissory note because he was not a signatory to it. He asserted that the note was signed only by Enrique Go, Sr. in behalf of Daicor and in his personal capacity, and that any obligation must be founded on the note itself.

• Necessity of Correlative Instrument: Chua maintained that the comprehensive surety agreement required a corresponding instrument evidencing the obligation, and because the promissory note did not bear his signature, the agreement could not be the basis of his liability.

• Liability under the Surety Agreement: Whether Residoro Chua is liable to pay the obligation evidenced by the promissory note dated April 29, 1977, which he did not sign, by virtue of the comprehensive surety agreement executed on October 19, 1976.

• Failure to State a Cause of Action: Whether the complaint stated a cause of action against Chua, such that the trial court erred in granting the motion to dismiss.

• Liability under the Surety Agreement: The surety agreement was executed jointly by Chua and Go, Sr. to cover existing as well as future obligations Daicor might incur with the bank, subject only to a maximum aggregate principal of P100,000.00. The agreement was a continuing guaranty, terminable only by written notice, and was in full force and effect when the P100,000.00 loan was obtained. The promissory note was the instrument evidencing the principal obligation of Daicor; it did not replace or supersede the surety agreement. The only condition for Chua’s liability under the agreement was that Daicor “is or may become liable as maker, endorser, acceptor or otherwise.” Daicor was indisputably liable on the note. Because the surety agreement was an accessory obligation securing future debts—a form of guaranty expressly permitted under Article 2053 of the Civil Code—Chua’s liability attached upon Daicor’s incurring of the loan, regardless of whether he signed the promissory note.

• Failure to State a Cause of Action: The complaint, which alleged the existence of the comprehensive surety agreement and the subsequent default on the promissory note covered by it, sufficiently stated a cause of action against Chua. The trial court’s dismissal on the ground that Chua did not sign the note misapprehended the nature of the surety’s obligation, which stemmed from the accessory contract of suretyship and not from the promissory note as the evidence of the principal debt. The dismissal order was therefore reversed and set aside.

• Guaranty for Future Debts (Article 2053, Civil Code): A guaranty may be given as security for future debts, the amount of which is not yet known. There can be no claim against the guarantor until the debt is liquidated, and a conditional obligation may also be secured. In this case, the comprehensive surety agreement was held to be a valid continuing guaranty for future debts, and the promissory note served to liquidate the debt, triggering Chua’s liability.

• Accessory Nature of Suretyship: A surety agreement is an accessory obligation dependent upon a principal one. The surety’s liability is determined by the terms of the surety contract, not by the form of the instrument that evidences the principal obligation. Chua’s liability was founded on the surety agreement; his non-signature on the promissory note was immaterial because the note merely evidenced the principal debt for which the surety agreement stood as security.

• Continuing Guaranty: A continuing guaranty is one that covers all transactions, including future ones, until it is revoked by notice. The agreement’s express designation as a continuing guaranty and its provision for termination only by written notice meant that it subsisted at the time the loan was extended and encompassed the subsequent promissory note.

• “The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity.”

• “The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promissory 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.”

• “Article 2053. — A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured.”

• No prior judicial precedents were cited in the decision. The ruling was anchored directly on Article 2053 of the Civil Code and the express terms of the comprehensive surety agreement.

• Article 2053, Civil Code of the Philippines — This provision expressly allows a guaranty to be given as security for future debts whose amount is not yet known, with no claim against the guarantor until the debt is liquidated. The Supreme Court applied this article to hold that the comprehensive surety agreement, executed before the promissory note was issued, validly secured the future loan, and the execution of the note constituted liquidation of the debt, giving rise to a cause of action against the surety.

Barredo (Chairman), Aquino, Concepcion Jr., Guerrero, Abad Santos, and Escolin, JJ., concurred.