Case Summary (G.R. No. L-49401)
Factual Background
On October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreement to guaranty existing and future indebtedness of Davao Agricultural Industries Corporation (the Borrower or Daicor) to Rizal Commercial Banking Corporation, up to an aggregate principal sum of P100,000.00. On April 29, 1977 Daicor issued a promissory note in the amount of P100,000.00 in favor of petitioner, signed by Enrique Go, Sr. in his personal capacity and on behalf of Daicor. The note was not fully paid despite demands.
Underlying Agreement and Note
The comprehensive surety agreement provided that the undersigned agreed to guarantee, in joint and several capacity, the punctual payment at maturity of any and all instruments, loans, advances, credits and other indebtedness which the Borrower was or might become liable for, and expressly stated that the liability of the undersigned would not exceed P100,000.00 at any one time. The agreement expressly described itself as a continuing guaranty which would remain in full force and effect until written notice of revocation had been received by the bank.
Trial Court Proceedings and Orders
Petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr., and Residoro Chua on June 30, 1978. On September 23, 1978 Residoro Chua filed a motion to dismiss on the ground that the complaint stated no cause of action as to him because he did not sign the promissory note. The trial court granted the motion to dismiss by decision dated October 6, 1978, and denied petitioner’s motion for reconsideration by order dated November 7, 1978.
Petition, Assignments of Error, and Procedural Posture
Petitioner filed a petition for certiorari in this Court to annul the trial court’s October 6, 1978 decision and November 7, 1978 order. Petitioner later mailed a manifestation and motion on December 14, 1978 requesting that the special civil action for certiorari be treated as a petition for review; that request was noted by the Court on January 10, 1979. Petitioner assigned errors to the trial court for dismissing the complaint against Chua, for misinterpreting the comprehensive surety agreement, and for concluding there was no cause of action against Chua.
Issues Presented
The principal issue was whether Residoro Chua was liable to pay the obligation evidenced by the promissory note dated April 29, 1977, which he did not sign, in light of the comprehensive surety agreement executed on October 19, 1976.
Parties' Contentions
Petitioner contended that the comprehensive surety agreement was a continuing guaranty that covered the promissory note and other future indebtedness of Daicor, thus making Chua jointly and severally liable despite his absence of signature on the promissory note. Residoro Chua contended that he could not be held liable on the promissory note because he did not sign that instrument and, in the trial court’s view, the guaranty required a separate instrument conformable to the comprehensive surety agreement.
Ruling of the Supreme Court
The Court found for the petitioner and reversed and set aside the trial court’s decision and order. The Court remanded the case to the court of origin with instructions to set aside the motion to dismiss and to require Residoro Chua to answer the complaint, after which the case was to proceed under the Rules of Court. The Court ordered no costs.
Legal Reasoning
The Court reasoned that the comprehensive surety agreement was an accessory obligation executed to induce the bank to grant loans and to secure future debts of Daicor, and that it was therefore a valid continuing guaranty under Article 2053 of the Civil Code, which permits a guaranty for future debts and provides that no claim may be made against the guarantor until the debt is liquidated. The Court emphasized that the agreement expressly guaranteed "any and all such instruments, loans, advances, credits and/or other obligations" of the Borrower and that the promissory note was an instrument evidencing the principal obligation of Daicor. Because the surety agreement was in full force when the P100,000.00 loan was obtained, Residoro Chua became liable by virtue of the surety agreement even though he did not sign the p
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Case Syllabus (G.R. No. L-49401)
Parties and Procedural Posture
- RIZAL COMMERCIAL BANKING CORPORATION filed a petition for certiorari to annul the orders of HON. JOSE P. ARRO, JUDGE OF THE COURT OF FIRST INSTANCE OF DAVAO dated October 6, 1978 and November 7, 1978 in Civil Case No. 11-154.
- RESIDORO CHUA was the private respondent whose motion to dismiss the complaint was granted by the respondent judge.
- Petitioner mailed a manifestation and motion on December 14, 1978 requesting that the special civil action for certiorari be treated as a petition for review, and that request was noted in the resolution of January 10, 1979.
- The petition challenged the dismissal of petitioner’s complaint for a sum of money insofar as it was asserted against RESIDORO CHUA.
Key Facts
- Davao Agricultural Industries Corporation (hereinafter called the "Borrower" or "Daicor") and its officers executed a security arrangement that gave rise to the contested obligations.
- On October 19, 1976 RESIDORO CHUA and Enrique Go, Sr. executed the Comprehensive Surety Agreement to guarantee existing and future indebtedness of the Borrower to petitioner, subject to an aggregate principal limit of P100,000.00.
- Paragraph one of the Comprehensive Surety Agreement expressly guaranteed in a joint and several capacity the punctual payment at maturity of instruments, loans, advances, credits and other indebtedness of the Borrower up to P100,000.00.
- Paragraph six of the Comprehensive Surety Agreement stated that the guaranty was continuing and would remain in full force until written revocation was received by the bank.
- On April 29, 1977 a promissory note for P100,000.00 was issued in favor of petitioner and was signed by Enrique Go, Sr. in his personal capacity and on behalf of Daicor.
- The promissory note was not fully paid despite repeated demands, and petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr., and RESIDORO CHUA on June 30, 1978.
- RESIDORO CHUA filed a motion to dismiss on September 23, 1978 alleging that the complaint stated no cause of action against him because he did not sign the promissory note.
- Petitioner opposed the motion on September 26, 1978 on the ground that the Comprehensive Surety Agreement was a continuing guaranty covering the loan evidenced by the promissory note.
- The respondent court granted the motion to dismiss on October 6, 1978 and denied petitioner’s motion for reconsideration on November 7, 1978.
Procedural History
- The respondent court decided solely on the interpretation of the Compre