Case Summary (G.R. No. 112191)
Factual Background
On August 4, 1981, Edgar L. Rodrigueza and Joseph L. G. Chua each executed undated Surety Undertakings by which they "absolutely, unconditionally and solidarily" guaranteed to Filinvest Credit Corporation the full performance and payment of any and all obligations of Fortune Motors (Phils.) Corporation with Filinvest then in force or thereafter made. On April 5, 1982, Fortune, Filinvest and Canlubang Automotive Resources Corporation entered into an Automotive Wholesale Financing Agreement whereby CARCO delivered motor vehicles to Fortune, Fortune executed trust receipts and accepted drafts, CARCO discounted and assigned the drafts and trust receipts to Filinvest, and Filinvest paid for the vehicles. Subsequent deliveries occurred, but Fortune failed to remit proceeds from sales and failed to surrender unsold vehicles covered by trust receipts. Filinvest then sent demand letters to Fortune and to the two sureties for an unsettled account and, upon nonpayment, filed a complaint for a sum of money with preliminary attachment against Fortune, Chua and Rodrigueza.
Trial Court Proceedings
The Regional Trial Court declared on September 26, 1984 that only the correct balance remained to be resolved. Filinvest presented testimonial and documentary evidence. Defendants moved for judgment on demurrer to evidence, arguing that the Surety Undertakings were void because no principal obligation existed at the time they were executed. The trial court denied the motion, required defendants to present evidence, and ultimately deemed them to have waived presentation of evidence when they failed to appear on scheduled dates. On December 17, 1985 the court rendered judgment in favor of Filinvest and against Fortune, Chua and Rodrigueza, ordering them to pay jointly and severally P1,348,033.89 plus daily interest from April 1, 1985, P50,000 as attorneys' fees, P50,000 as liquidated damages, and costs.
Court of Appeals' Decision
The Court of Appeals affirmed the trial court in toto on September 30, 1993. The appellate court held that the Surety Undertakings expressly bound the sureties to guarantee any and all obligations of Fortune "now in force or hereafter made," and that the sureties, being corporate officers and signatories to Fortune's documents, knew the scope of the undertakings. The Court of Appeals further found that the sureties failed to repudiate the undertakings by notice, elected silence in response to demand letters, and therefore could not avoid liability. The court also ruled that the Financing Agreement did not effect a novation because it did not expressly extinguish the prior obligation nor was it incompatible with the Surety Undertakings. Finally, the appellate court accepted the accounting introduced by Filinvest as uncontroverted.
Issues Presented
Petitioners framed the principal issues as: whether a surety may be held liable where the obligations allegedly guaranteed arose after execution of the surety contract; whether the Financing Agreement effected a novation of the surety contracts; and whether Filinvest proved the amount of its claim with sufficient accountings and evidence.
Petitioners' Contentions
Petitioners asserted that under Art. 2053, Civil Code a guaranty, as an accessory obligation, cannot subsist in the absence of a principal obligation and that the phrase "future debts" refers only to debts already existing but with an unknown amount at the time of the guaranty. They argued that the Financing Agreement was not in existence when the Surety Undertakings were executed and therefore the sureties cannot be bound. Petitioners further contended that the Financing Agreement changed the principal terms of the transaction and imposed additional onerous obligations, thereby effecting a novation which extinguished any prior suretyship. Finally, petitioners maintained that Filinvest failed to present an adequate and traversed accounting of payments and balances, rendering the claimed amount unsubstantiated.
Respondent's Contentions
Filinvest Credit Corporation replied that the Surety Undertakings were continuing guaranties by their express language and thus valid to secure obligations thereafter incurred. Filinvest invoked estoppel by deed and by silence, noting that petitioners did not terminate the undertakings by the express ten-day written notice available to them and that petitioners failed to respond to demand letters. Filinvest also argued that the Financing Agreement did not novate the Surety Undertakings because it merely delineated the principal debtor's obligations and did not expressly or necessarily conflict with the earlier continuing guaranty. Finally, Filinvest relied on its statement of account, which the trial court found uncontroverted.
The Supreme Court's Ruling
The Supreme Court affirmed the decisions of the trial court and the Court of Appeals and denied the petition for review. The Court held that the Surety Undertakings were continuing guaranties valid to secure future obligations of Fortune toward Filinvest, that no novation occurred, and that the amount claimed was sufficiently established by uncontradicted evidence. Costs were imposed on petitioners.
Legal Basis and Reasoning
The Court relied on its precedents, notably Atok Finance Corporation vs. Court of Appeals (222 SCRA 232, May 18, 1993), which reiterated rulings in National Rice and Corn Corporation (NARIC) vs. Court of Appeals (103 Phil. 1131, 1958) and Rizal Commercial Banking Corporation vs. Arro (115 SCRA 777, July 30, 1982), to reaffirm that continuing or comprehensive surety agreements may validly secure obligations not yet born at the time of the suretyship. The Court explained that a suretyship agreement may subsist before the principal obligation is born, much like obligations subject to conditions precedent; such continuing guaranties are common in commercial practice and avoid the need for separate surety contracts for each advance. The Court found the contractual language — guaranteeing "any and all obligations ... now in force or hereafter made" — to be clear and unqualified. The Court
...continue readingCase Syllabus (G.R. No. 112191)
Parties and Posture
- FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA filed a petition for review under Rule 45, Rules of Court from a decision of the Court of Appeals.
- THE HONORABLE COURT OF APPEALS rendered the assailed decision in CA G.R. CV No. 09136 on September 30, 1993 which affirmed the judgment of the Regional Trial Court, Manila, Branch 11, in Civil Case No. 83-21994.
- FILINVEST CREDIT CORPORATION was the plaintiff in the trial court action and the appellee in the appellate proceedings.
- The petition sought reversal of the Court of Appeals' affirmance of the trial court judgment ordering the petitioners to pay the sums adjudged against them.
Key Facts
- On August 4, 1981, Joseph L. G. Chua and EDGAR L. RODRIGUEZA each executed an undated Surety Undertaking guaranteeing Fortune's obligations to FILINVEST CREDIT CORPORATION.
- On April 5, 1982, FORTUNE MOTORS (PHILS.) CORPORATION, FILINVEST, and Canlubang Automotive Resources Corporation (CARCO) entered into an Automotive Wholesale Financing Agreement under which CARCO delivered motor vehicles to Fortune and trust receipts, demand drafts, and deeds of assignment were to be assigned or discounted in favor of FILINVEST.
- Several vehicles were delivered and trust receipts and demand drafts were executed, but Fortune failed to remit proceeds of sold vehicles and to turn over unsold vehicles covered by the trust receipts.
- FILINVEST sent a demand letter dated December 12, 1983 stating an unpaid obligation of PHP 1,302,811.00, and sent similar demands to Chua and Rodrigueza as sureties.
- FILINVEST filed a complaint for sum of money with preliminary attachment against Fortune, Chua, and Rodrigueza, and the trial court later found no factual issues except the correct balance owed.
- The trial court rendered judgment on December 17, 1985 ordering joint and several payment of PHP 1,348,033.89 plus interest at PHP 922.53 per day from April 1, 1985, attorneys' fees of PHP 50,000.00, liquidated damages of PHP 50,000.00, and costs of suit.
- The Court of Appeals affirmed the trial court decision in toto, prompting the present petition for review.
Agreements and Documents
- The Surety Undertakings expressly stated that the sureties "absolutely, unconditionally and solidarily guarantee(d)" the full, faithful and prompt performance, payment and discharge of "any and all obligations and agreements" of FORTUNE with FILINVEST "now in force or hereafter made."
- The Automotive Wholesale Financing Agreement (AWFA) provided that CARCO would deliver vehicles to Fortune, that Fortune would execute trust receipts and accept drafts, and that such instruments could be discounted, assigned, and collected by FILINVEST which would pay for the vehicles.
- Documentary evidence before the courts included trust receipts, demand drafts, deeds of assignment, demand letters, and statements of account marked as exhibits.
- The record contains a Motion to Discharge Attachment in which the sureties described themselves as "ONLY sureties" and not parties to the trust receipt agreements.
Issues
- Whether a surety agreement may secure obligations which did not yet exist at the time the surety agreement was executed.
- Whether the AWFA and related instruments effected a novation that extinguished the surety undertakings.
- Whether the evidence presented by FILINVEST sufficiently established the amount of the claim against petitioners.
Parties' Contentions
- Petitioners argued that a guaranty being an accessory obligation cannot exist without a principal obligation and that Art. 2053, New Civil Code limits guaranty of future debts to debts already existing when the guaranty was constituted.
- Petitioners cont