Facts:

The case involves Atok Finance Corporation (petitioner) against the Court of Appeals and several private respondents, including Sanyu Chemical Corporation, Danilo E. Arrieta, Nenita B. Arrieta, Pablito Bermundo, and Leopoldo Halili (respondents). The events leading to the case began on July 27, 1979, when Sanyu Chemical Corporation, as the principal debtor, along with Sanyu Trading Corporation and individual stockholders, executed a Continuing Suretyship Agreement in favor of Atok Finance. This agreement stipulated that the respondents would jointly and severally guarantee the full payment of any indebtedness of Sanyu Chemical to Atok Finance, encompassing all forms of debts, whether existing or future.

On November 27, 1981, Sanyu Chemical assigned its trade receivables, valued at P125,871.00, to Atok Finance in exchange for P105,000.00. The assigned receivables had a standard payment term of 30 days, but it was common practice to extend this to 120 days without penalties. ...

Facts:

Parties and Agreements

• Atok Finance Corporation (petitioner) filed the appeal against the decision of the Court of Appeals.
• Private respondents include Sanyu Chemical Corporation (principal), the Arrieta spouses, Pablito Bermundo, and Leopoldo Halili, who were officers, stockholders, or sureties associated with Sanyu Chemical.
• The continuing suretyship agreement was executed on July 27, 1979, wherein:
• Sanyu Chemical, through Sanyu Trading and its individual stockholders/officers, unconditionally guaranteed the full payment of any and all indebtedness of Sanyu Chemical to Atok Finance.
• The term “indebtedness” was defined broadly to include advances, debts, obligations, liabilities, whether direct or by assignment, and regardless of whether they were liquidated or contingent.
• The agreement was a continuing suretyship covering future transactions, binding not only the sureties themselves but also their heirs, successors, and assigns.
• The obligations of the surety were made joint and several as well as independent of the principal’s obligations.
• Additional provisions provided for liens and rights of set-off on the sureties’ properties, and subordinated any indebtedness held by the surety to that owed to the creditor.

Deed of Assignment and Subsequent Transactions

• On November 27, 1981, Sanyu Chemical executed a Deed of Assignment transferring its trade receivables—initially with a face value of ₱125,871.00—to Atok Finance in exchange for ₱105,000.00.
• The standard term of the assigned receivables was 30 days, though customary commercial practice allowed extensions up to 120 days.
• The Deed included extensive warranties, among which:
• Sanyu Chemical guaranteed that it was the sole owner of the receivables and that they were bona fide in nature.
• It warranted that the invoices and other evidences accurately stated the amounts due and that such debts were not subject to contingencies, offsets, or delayed payment claims.
• Later on, additional trade receivables amounting to ₱100,378.45 were also assigned to Atok Finance under similar terms.

Litigation and Procedural History

• On January 13, 1984, Atok Finance filed an action in the Regional Trial Court of Manila to collect ₱120,240.00 plus penalty charges arising from the assigned receivables.
• Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables.
• Sanyu Chemical and the individual private respondents moved to dismiss the complaint on two grounds: prescription under Article 1629 of the Civil Code and the contention that the continuing suretyship agreement was null and void due to the absence of a preexisting principal obligation and lack of consideration.
• The trial court rendered a decision on April 1, 1985, in favor of Atok Finance, ordering Sanyu Chemical and the private respondents to pay jointly and severally:
• The sum claimed, along with penalty charges.
• Attorney’s fees and costs.
• Appeals and subsequent petitions followed:
• Private respondents appealed before the Intermediate Appellate Court (IAC), but their appeal was dismissed for abandonment on March 21, 1986.
• With a writ of execution issued on July 23, 1986, private respondents filed a Petition for Relief from Judgment before the Court of Appeals on August 27, 1986, claiming excusable negligence in filing their appeal brief.
• The 15th Division of the Court of Appeals granted the petition “in the paramount interest of justice” and subsequently rendered a Decision on the merits on August 18, 1987, dismissing Atok Finance’s complaint, awarding attorney’s fees to the private respondents, and ordering Atok Finance to pay costs.
• Atok Finance then moved to set aside the 15th Division’s decision, raising issues concerning the validity of the continuing suretyship agreement, lack of consideration, and the timing of execution proceedings.

Issue:

Whether the continuing suretyship agreement is valid and enforceable despite being executed before the alleged principal obligation arose, or whether it is null and void for lack of preexisting obligation and consideration.

• Sub-issue: Whether a continuing (or comprehensive) surety agreement may validly cover future debts, even if the specific principal obligation had not yet crystallized at the time of execution.
• Whether individual private respondents (the officers and stockholders of Sanyu Chemical) may be held solidarily liable along with Sanyu Chemical under the suretyship agreement.

Whether Sanyu Chemical is liable under the Deed of Assignment, particularly considering the alleged expiration of warranties on the trade receivables as governed by Article 1629 of the Civil Code.

• Sub-issue: Whether the assignor’s warranty concerning the debtor’s solvency, and the limiting period for such warranty, bars Atok Finance’s cause of action.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)