Dio vs.

Court of Appeals (1992)

Facts:
In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam, applied
for and obtained credit accommodations from Metrobank in the sum of Php700,000. This was secured by
Continuing Suretyships separately executed by petitioners Norberto Uy (who agreed to pay Php300,000) and
Jacinto Dio (who bound himself liable up to Php800,000). Uy Tiam paid the obligation under this letter of
credit in 1977. UTEFS obtained another credit accommodation in 1978, which was likewise settled before he
applied and obtained another in 1979 in the sum of Php815,600. This sum covered UTEFS purchase of
fertilizers from Planters Producst. Uy and Dio did not sign the application for this credit and were not asked to
execute suretyship or guarantee. UTEFS executed a trust receipt whereby it agreed to deliver to Metrobank the
goods in the event of non-sale, and if sold, the proceeds will be delivered to Metrobank. However, UTEFS did
not comply with its obligation. As a result, Metrobank demanded payment from UTEFS and the sureties, Uy &
Dio. The sureties refused to pay on the ground that the obligation for which they executed the continuing
suretyship agreement has been paid. RTC ruled in favor of the petitioners, CA affirmed.
Issue:
WON petitioners are liable for payment of the 1979 transaction under the continuing suretyship agreement they
executed in 1977. Assuming that they are, what is the extent of their liability?
Held:
The Supreme Court held that Uy & Dio are liable. The agreement they executed in 1977 is a continuing
suretyship, one which is not limited to a single transaction but which contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. The agreement that petitioners signed expressly provided
that it is a continuing guaranty and shall be in full force and effect until written notice to the bank that it has
been revoked by the surety. As to the 2 nd issue, petitioners are only liable up to the maximum limit fixed in the
continuing suretyship agreements (Php800,000 for Dio and Php300,000 for Uy). The law is clear that a
guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and
the onerous nature of the conditions (Art. 2054). CA decision ordering petitioners to pay P2,397,883.68 which
represents the amount due inclusive of interest and charges, is modified.
Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be
known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty
or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates
a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked.
It is prospective in its operation and is generally intended to provide security with respect to future
transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the
guarantor becomes liable.
Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the
future, which are within the description or contemplation of the contract of guaranty, until the expiration or
termination thereof.
How : A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to
give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain
period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract states that
the guaranty is to secure advances to be made from time to time, it will be construed to be a continuing one.