Allied Banking Corp. v. Yujuico
REITERATIONFacts
The Antecedents: This case concerns a collection suit initiated by Allied Banking Corporation (Allied Bank), as successor-in-interest to General Bank & Trust Company (Genbank), against Jesus S. Yujuico (and others) for the sum of P6,020,000.00. This amount represented Yujuico Logging & Trading Corporation's (YLTC) outstanding obligations under five promissory notes. YLTC had obtained credit lines from Genbank, initially P800,000 and later increased to P1.5 million and then P5 million. To secure these credit lines, YLTC's principal stockholders, including Jesus S. Yujuico, executed Continuing Guarantees. The dispute centers on whether Jesus S. Yujuico remained liable under these guarantees for loans contracted by YLTC after certain dates, particularly after Genbank was placed under liquidation and Allied Bank acquired its assets and liabilities. Procedural History: The collection suit was originally filed in the Court of First Instance of Manila on November 7, 1978. The Regional Trial Court (RTC) dismissed the case against YLTC and Clarencio S. Yujuico due to unsuccessful service of summons and against Gregoria Y. Paredes due to her death. The case proceeded only against Jesus S. Yujuico. The RTC dismissed the complaint against Jesus S. Yujuico, finding that he had effectively revoked his continuing guarantees and that subsequent credit line increases constituted a novation to which he did not consent. The Court of Appeals (CA) affirmed the RTC's decision. Jesus S. Yujuico passed away during the proceedings, and his estate, represented by Brendon V. Yujuico, was substituted as respondent. The Petition: Allied Banking Corporation filed a petition for review on certiorari with the Supreme Court, assailing the CA's decision. The petitioner argues that the CA erred in upholding the RTC's findings that Jesus S. Yujuico was released from his obligations as a surety due to a revocation letter and that his liability was extinguished by novation. Specifically, Allied Bank contends that there was insufficient evidence to prove the revocation letter was authorized by Jesus S. Yujuico and that the CA improperly gave weight to the testimony of Mr. Presa and Atty. Santiago. Furthermore, the petitioner disputes the finding of novation, asserting that the increase in the credit line did not automatically release Jesus S. Yujuico from his surety obligations without his explicit consent to the new terms.
Issue(s)
Whether Jesus S. Yujuico effectively revoked his continuing guaranties before the incurrence of the obligations sued upon. Whether the increase in YLTC's credit line constituted a novation that extinguished Jesus's liability as a surety. Whether Jesus's undertaking under the continuing guaranties was that of a guarantor or a surety.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, holding that Jesus S. Yujuico was no longer liable for the obligations incurred by YLTC after the revocation of his continuing guaranties. The Court found that the evidence sufficiently established the revocation and that the subsequent credit line increases did not bind Jesus without his consent.
Ratio Decidendi
On the revocation of the continuing guaranties: The Court upheld the findings of the lower courts that Jesus had effectively revoked his continuing guaranties. The testimony of his financial consultant, Teodoro Presa, corroborated by the admission of Genbank's corporate secretary, Atty. Santiago, established that a letter of revocation was sent and received by the bank. The Court found sufficient evidence of the letter's existence and its issuance under Jesus's instructions, despite the loss of the original copy and the petitioner's arguments regarding the witness's alleged bias and lack of personal knowledge. The Court reiterated the principle that a continuing guaranty remains in force until written notice of revocation is received by the creditor. However, such notice does not release the guarantor from liability for obligations held by the creditor at the time of receipt. In this case, the promissory notes sued upon were incurred in 1975 and 1976, which were after the revocation letter dated November 27, 1973. Therefore, Jesus could not be held liable for these subsequent obligations. On novation: The Court agreed with the lower courts that the increase in YLTC's credit line from ₱1.5 million to ₱5 million, coupled with the execution of a new continuing guaranty by Clarencio S. Yujuico alone in 1974, constituted a novation of the loan agreement. This novation effectively replaced the old contract and extinguished the accessory obligations, including the suretyship of Jesus, as he did not consent to the new agreement. The fact that Clarencio executed a new guaranty for the increased amount, which absorbed the previous credit line, further supported the conclusion that Jesus's prior suretyship was superseded. On the nature of the undertaking: The Court clarified that while the documents used the term "guaranty," the stipulations within the continuing guaranties, particularly the "joint and several" liability and the creditor's right to proceed directly against the signatory without exhausting the principal debtor's property, indicated that Jesus's undertaking was that of a surety, not merely a guarantor. A surety is solidarily bound with the principal debtor, making them directly and primarily responsible.
Main Doctrine
A continuing guaranty, once revoked by the guarantor through written notice to the creditor, remains liable only for obligations incurred prior to the revocation. Subsequent obligations are not covered unless the guarantor expressly consents to the renewal or extension of the guaranty.