G.R. No. 135462 - South City Homes, Inc. vs. BA Fice Corp.

Fortune Motors Corporation (FMC) had been availing credit facilities from BA Finance Corporation (BAFC).
On January 17, 1983, Joseph L. G. Chua, President of FMC, executed a Continuing Suretyship Agreement in favor of BAFC, unconditionally guaranteeing the payment of any indebtedness of FMC to BAFC.
On February 3, 1983, Palawan Lumber Manufacturing Corporation and South City Homes, Inc. similarly executed Continuing Suretyship Agreements jointly and severally guaranteeing FMC’s debts to BAFC.
Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six drafts payable after 30 days charged to FMC’s account, totaling several million pesos.

FMC executed trust receipts covering motor vehicles delivered by CARCO, agreeing to remit sales proceeds and surrender unsold vehicles.
CARCO assigned these drafts and trust receipts to BAFC under Deeds of Assignment.

FMC defaulted in payment of drafts and failed to remit sales proceeds or surrender unsold vehicles.
BAFC sent demand letters to guarantors and sureties including South City Homes, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, and others.
BAFC filed a complaint for sum of money with prayer for preliminary attachment. Some attachments were issued on FMC’s properties.
Defendants filed motions to discharge attachment and to dismiss, alleging among others that (a) novation occurred due to assignment without debtor’s consent; (b) obligations were extinguished; (c) suretyship agreements lacked principal obligation and thus void; (d) action for sum of money was premature under PD No. 115 applicable to trust receipts.
Trial court denied motions to discharge attachment and to dismiss and proceeded to judgment after trial.

The trial court ordered defendants Fortune Motors, Palawan Lumber Manufacturing Corporation, and Joseph Chua to pay amounts due on the six drafts with interest, attorney’s fees, and costs of suit.
The complaint against South City Homes, Aurelio Tablante, and others was dismissed.
Intervenors’ claims on certain attached vehicles were partly granted or dismissed.
The court amended some orders regarding the return or payment for motor vehicles involved.

The Court of Appeals affirmed the trial court’s decision with modification ordering South City Homes, Inc. also to pay jointly and severally with others the outstanding amounts under the drafts with interest and attorney’s fees.
Petitioners filed the present petition seeking to set aside the Court of Appeals decision.

Whether the suretyship agreement is valid despite being executed before the principal obligation arose.
Whether the assignment of drafts and trust receipts without debtor’s consent operated as a novation extinguishing the sureties’ liability.
Whether BAFC has a valid cause of action for sum of money under the drafts and trust receipts transactions without first demanding the return of unsold vehicles as entruster under the trust receipts.