Title
Allied Banking Corp. vs. Yujuico
Case
G.R. No. 163116
Decision Date
Jun 29, 2015
Allied Bank sought debt collection from Jesus Yujuico for YLTC's loans. SC ruled Yujuico's liability extinguished due to valid revocation of guarantee and novation of loan terms.
liability
surety
debts
A

Case Summary (G.R. No. 163116)

Petitioner and Respondent

Allied Banking Corporation sought judicial collection of P6,020,184.90 on five promissory notes executed by YLTC. Allied sued YLTC and its alleged sureties; litigation eventually proceeded only against Jesus S. Yujuico, who was later deceased and represented by his legal heirs.

Key Dates

Material transactional and procedural dates in the record include: continuing guarantees dated February 8, 1966 and February 22, 1967; successive credit-line renewals through 1968–1973; a P5M continuing guarantee executed by Clarencio on February 6, 1974; promissory notes dated 1975–1976 that gave rise to the P6,020,184.90 claim; Genbank liquidation in 1977 and acquisition of its assets/liabilities by Allied; collection suit filed in court on November 7, 1978; RTC judgment dismissing plaintiff’s complaint on November 19, 1997; Court of Appeals affirmation on May 30, 2003; and Supreme Court decision affirming the CA on June 29, 2015.

Applicable Law and Governing Principles

Primary statutory and doctrinal authorities applied in the decision include the Civil Code provisions distinguishing guaranty and suretyship (Article 2047 and related provisions, including Article 2058 cited in the record), and established jurisprudence interpreting the nature and consequences of continuing guarantees, revocation, and novation (cases cited in the record such as E. Zobel, Ang v. Associated Bank, and Palmares). Because the decision date is after 1990, the decision is considered within the framework of the 1987 Philippine Constitution as the constitutional backdrop for adjudication.

Factual Background — Credit Lines and Continuing Guarantees

Genbank granted YLTC a series of annual omnibus credit lines beginning with P800,000 (1966), expanded to P1.5M (1967), repeatedly renewed, and later increased to P5M (1974). To secure these credit accommodations, successive continuing-guaranty instruments were executed: an initial continuing guaranty (1966), a replacement continuing guaranty (1967) signed by Jesus and others, and a later continuing guaranty (1974) signed by Clarencio alone. YLTC executed promissory notes in 1975–1976 totaling approximately P6,020,184.90. After Genbank was placed under liquidation in 1977, Allied acquired Genbank’s assets and sued to collect on those notes.

Procedural History

Allied commenced collection suit in 1978. Defendants denied personal liability and raised prescription, payment, novation, and revocation defenses while asserting counterclaims. The RTC dismissed the action against several defendants for lack of service or death, and the trial proceeded only as to Jesus. The RTC dismissed Allied’s complaint against Jesus in 1997. The Court of Appeals affirmed in 2003. The Supreme Court reviewed the appeal and, on the issues raised, affirmed the lower courts’ judgment by decision of June 29, 2015.

Issues Presented on Appeal

Allied advanced two principal assignments of error: (1) that the trial court and CA erred in finding that Jesus had revoked his continuing guaranties and that Genbank received notice of such revocation; and (2) that the courts erred in finding the 1967 continuing guaranty extinguished by novation when the credit line was increased to P5M and a new continuing guaranty was executed by Clarencio in 1974.

Trial Court Findings on Revocation and Novation

The RTC found credible evidence of a written revocation (a copy marked Exhibit 4) prepared by Teodoro Presa in Jesus’s name, and testimony from Atty. Santiago that Genbank received that revocation and that the board continued the credit line without requiring Jesus’s further guaranty. The RTC concluded that a revocation received by the bank would relieve Jesus from liability for obligations of YLTC arising after receipt of the revocation, because the continuing-guaranty instrument expressly provided that written notice of revocation would terminate future guaranty obligations but would not affect obligations already held by the bank at receipt. The RTC also found that the increase of the credit line to P5M and the subsequent continuing guaranty executed by Clarencio resulted in novation or replacement of the earlier guaranty obligations for subsequent credit-line borrowings, releasing prior sureties who did not consent.

Court of Appeals Rationale

The CA affirmed both factual findings and legal conclusions of the RTC. It accepted the RTC’s credibility determinations regarding the existence and receipt of the revocation letter, reasoning that Jesus would not have presented the letter in defense unless he had authorized it, and found corroboration in Atty. Santiago’s testimony and records showing that the bank proceeded without Jesus as a continuing surety. On novation, the CA accepted evidence that the P5M credit line absorbed the prior P1.5M line and that Clarencio’s 1974 continuing guaranty superseded previous surety undertakings for obligations thereafter, thereby displacing Jesus’s liability for the later promissory notes.

Supreme Court Analysis — Nature of the Undertaking (Surety vs. Guaranty)

The Supreme Court analyzed the content of the continuing-guaranty instruments and concluded that, despite their captions, the documents functioned as suretyship agreements (solidary liability) rather than mere guaranties. This conclusion rested on specific contractual terms: power conferred on the bank to proceed directly against the signatory “without exhausting the property” of the principal debtor, the joint and several liability clause, and the grant of authority to liquidate pledged assets without demand or notice. These attributes align with the legal definition of suretyship where the surety is solidarily bound with the principal debtor.

Supreme Court Analysis — Revocation and Evidentiary Considerations

Although the instruments constituted suretyship, the Supreme Court sustained the lower courts’ findings that Jesus’s continuing guaranties were not renewed and that the bank had received notice of revocation in 1973 (as evidenced by Exhibit 4 and corroborating testimony). The Court gave weight to the trial court’s and CA’s credibility assessments—particularly the testimony of Atty. Santiago that the bank’s board acted on the revocation and the proffered explanation for loss of the original document (custody by respondent’s counsel and destruction among old office records). The Supreme Court applied the well-settled appellate rule that an appellate court will not lightly overturn a trial court’s credibility determinations unless there is a clear failure to consider material facts or a misweighing of evidence.

Supreme Court Analysis — Novation and Substitution of Sureties

The Court accepted the factual finding that between 1968 and February 6, 1974 no new surety signed to cover the credit lines, and that Clarencio’s 1974 continuing guaranty for P5M (which the bank treated as absorbing the prior P1.5M line) effectively replaced the earlie

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