Lim vs. Security Corp. (G.R. No. 188539; March 12, 2014)


FACTS: Petitioner executed a Continuing Suretyship in favor of respondent to secure ny and all types of credit accommodation that may be granted by the bank hereinto and hereinafterin favor of Raul Arroyo for the amount of P2,000,000.00 which is covered by a Credit Agreement/Promissory Note. The promissory note contained a stipulation that the interest on the loan shall be 19% per annum, compounded monthly, for the first 30 days from the date thereof, and if the note is not fully paid when due, an additional penalty of 2% per month of the total outstanding principal and interest due and unpaid, shall be imposed.

Debtor Raul Arroyo defaulted on his loan obligation. Petitioner, thereafter, received a Notice of Final Demand dated August 2, 2001, informing him that he was liable to pay the loan obtained by Raul and Edwina Arroyo, including the interests and penalty fees amounting to P7,703,185.54, and demanding payment thereof. Petitioner failed to comply with said demand, hence, respondent filed a complaint for collection of sum of money against him and the Arroyo spouses. The Arroyo spouses can no longer be located and summons was not served on them, hence, only the petitioner actively participated in the case.

The Regional Trial Court of Davao (RTC) rendered judgment against petitioner. Upon appeal to the CA, the Court affirmed the decision of the RTC. Hence, the present petition for review on certiorari.
ISSUE: May petitioner validly be held liable for the principal debtor's loan obtained six months after the execution of the Continuing Suretyship?

A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the obligee. The case of Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, G.R. No. 147561 citing Garcia v. Court of Appeals, enunciated that although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal.

Clear and unequivocal are the terms of the Continuing Suretyship executed by petitioner. It states that petitioner, as surety, shall, without need for any notice, demand or any other act or deed, immediately become liable and shall pay all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as defined hereinbelow.

The foregoing stipulations are valid and legal and, therefore, constitute as law between the parties. Under Article 2053 of the Civil Code, guaranty may also be given as security for future debts, the amount of which is not yet known; x x x.Thus, petitioner is unequivocally bound by the terms of the Continuing Suretyship. There can be no cavil then that petitioner is liable for the principal of the loan, together with the interest and penalties due thereon, even if said loan was obtained by the principal debtor even after the date of execution of the Continuing Suretyship. PARTIALLY GRANTED.

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