[G.R. No. 89775. November 26, 1992.

JACINTO UY DIÑO and NORBERTO UY, Petitioners, v. HON. COURT OF

APPEALS and METROPOLITAN BANK AND TRUST COMPANY, Respondents.

Guillermo B. Ilagan, for Petitioners.

Jorge, Perez & Associates for Private Respondent.

SYLLABUS

1. CIVIL LAW; GUARANTY; CONTINUING GUARANTY; DEFINED; BASIS AND

NATURE THEREOF; WHEN GUARANTY CONSTRUED AS CONTINUING; CASE AT BAR.
— 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 a 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 s 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. 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 of guaranty states that the same is to secure advances to be
made "from time to time" the guaranty will be construed to be a continuing one. In
other jurisdictions, it has been held that the use of particular words and expressions
such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum,"
or the guaranty of "any transaction" or money to be furnished the principal debtor
"at any time," or "on such time" that the principal debtor may require, have been
construed to indicate a continuing guaranty. . . . Petitioners maintain, however,
that their Continuing Suretyship Agreements cannot be made applicable to the
1979 obligation because the latter was not yet in existence when the agreements
were executed in 1977; under Article 2052 of the Civil Code, a guaranty "cannot
exist without a valid obligation." We cannot agree. First of all, the succeeding article
provides that" [a] guaranty may also be given as security for future debts, the
amount of which is not yet known." Secondly. Article 2052 speaks about a valid
obligations, as distinguished from a void obligation, and not an existing or current
obligation. This distinction is made clearer in the second paragraph of Article 2052
which reads: "Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also guarantee a
natural obligation."
cralaw virtua1aw library
2. ID.; ID.; GUARANTOR MAY BIND HIMSELF FOR LESS, BUT NOT FOR MORE THAN
PRINCIPAL DEBTOR; CASE AT BAR. — The limit of the petitioners’ respective
liabilities must be determined from the suretyship agreement each had signed. It is
undoubtedly true that the law looks upon the contract of suretyship with a jealous
eye, and the rule is settled that the obligation of the surety cannot be extended by
implication beyond its specified limits. To the extent, and in the manner, and under
the circumstances pointed out in his obligation, he is bound, and no farther.
Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and
petitioner Uy fix the aggregate amount of their liability, at any given time, at
P800,000.00 and P300,000.00, respectively. 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.

3. ID.; ID.; GUARANTOR’S LIABILITY FOR PRINCIPAL OBLIGATION, ITS

ACCESSORIES AND ATTORNEY’S FEES; BASIS AND RATIONALE; ITEMS INCLUDED
IN TERM "ACCESSORIES" ; CASE AT BAR. — by express mandate of the Continuing
Suretyship Agreements which they had signed, petitioners separately bound
themselves to pay interests, expenses, attorney’s fees and costs. The last two
items are pegged at not less than ten percent (10%) of the amount due. Even
without such stipulations, the petitioners would, nevertheless, be liable for the
interest and judicial costs. Article 2055 of the Civil Code provides: "ART. 2055. A
guaranty is not presumed; it must be express and cannot extend to more than
what is stipulated therein. If it be simple or indefinite, it shall comprise not only the
principal obligation, but also all its accessories, including the judicial costs, provided
with respect to the latter, that the guarantor shall only be liable for those costs
incurred after he has been judicially required to pay." Interests and damages are
included in the term accessories. However, such interest should run only from the
date when the complaint was filed in court. Even attorney’s fees may be imposed
whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus; in Plaridel
Surety & Insurance Co., Inc. v. P.L. Galang Machinery Co., Inc., this Court held:
"Petitioner objects to the payment of interest and attorney’s fees because: (1) they
were not mentioned in the bond; and (2) the surety would become liable for more
than the amount stated in the contract of suretyship. . . . The objection has to be
overruled, because as far back as the year 1922 this Court held in Tagawa v.
Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover from
the surety as part of their damages, interest at the legal rate even if the surety
would thereby become liable to pay more than the total amount stipulated in the
bond.’The theory is that interest is allowed only by way of damages for delay upon
the part of the sureties in making payment after they should have done so. In some
states, the interest has been charged from the date of the judgment of the
appellate court. In this jurisdiction, we rather prefer to follow the general practice,
which is to order that interest begin to run from the date when the complaint was
filed in court, . . . .’ Such theory aligned with sec. 510 of the Code of Civil
Procedure which was subsequently recognized in the Rules of Court (Rule 53,
section 6) and with Article 1108 of the Civil Code (now Art. 2209 of the New Civil
Code). In other words the surety is made to pay interest, not by reason of the
contract, but by reason of its failure to pay when demanded and for having
compelled the plaintiff to resort to the courts to obtain payment. It should be
observed that interest does not run from the time the obligation became due, but
from the filing of the complaint. As to attorney’s fees. Before the enactment of the
New Civil Code, successful litigants could not recover attorney’s fees as part of the
damages they suffered by reason of the litigation. Even if the party paid thousands
of pesos to his lawyers, he could not charge the amount to his opponent (Tan Ti v.
Alvear, 26 Phil. 566). However the New Civil Code permits recovery of attorney’s
fees in eleven cases enumerated in Article 2208, among them, ‘where the court
deems it just and equitable that attorney’s (sic) fees and expenses of litigation
should be recovered’ or ‘when the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff’s plainly valid, just and demandable claim’. This gives
the courts discretion in apportioning attorney’s fees."

DECISION

DAVIDE, JR., J.:

Continuing Suretyship Agreements signed by the petitioners set off this present
controversy.

Petitioners assail the 22 June 1989 Decision of the Court of Appeals in CA-G.R. CV
No. 17729 1 which reversed the 2 December 1987 Decision of Branch 45 of the
Regional Trial Court (RTC) of Manila in a collection suit entitled "Metropolitan Bank
and Trust Company v. Uy Tiam doing business under the name of ‘UY TIAM
ENTERPRISES & FREIGHT SERVICES,’ Jacinto Uy Diño and Norberto Uy" and
docketed as Civil Case No. 82-9303. They likewise challenge public respondent’s
Resolution of 21 August 1989 2 denying their motion for the reconsideration of the
former.

The impugned decision of the respondent Court summarizes the antecedent facts as
follows:jgc:chanrobles.com.ph

"It appears that in 1977, Uy Tiam Enterprises and Freight Services (hereinafter
referred to as UTEFS), thru its representative Uy Tiam, applied for and obtained
credit accommodations (letter of credit and trust receipt accommodations) from the
Metropolitan Bank and Trust Company (hereinafter referred to as METROBANK) in
the sum of P700,000.00 (Original Records, p. 333). To secure the aforementioned
credit accommodations, Norberto Uy and Jacinto Uy Diño executed separate
Continuing Suretyships (Exhibits "E" and "F" respectively), dated 25 February 1977,
in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay
METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000.00
while Jacinto Uy Diño agreed to be bound up to the aggregate sum of
P800,000.00. chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Having paid the obligation under the above letter of credit in 1977, UTEFS, through
Uy Tiam, obtained another credit accommodation from METROBANK in 1978, which
credit accommodation was fully settled before an irrevocable letter of credit was
applied for and obtained by the abovementioned business entity in 1979
(September 8, 1987, tsn, pp. 14- 15).

The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum
of P815,600.00, covered UTEFS’ purchase of ‘8,000 Bags Planters Urea and 4,000
Bags Planters 21-0-0.’ It was applied for and obtained by UTEFS without the
participation of Norberto Uy and Jacinto Uy Diño as they did not sign the document
denominated as ‘Commercial Letter of Credit and Application.’ Also, they were not
asked to execute any suretyship to guarantee its payment. Neither did METROBANK
nor UTEFS inform them that the 1979 Letter of Credit has been opened and that the
Continuing Suretyships separately executed in February, 1977 shall guarantee its
payment (Appellees’ brief, pp. 2-3; Rollo, p. 28).

The 1979 letter of credit (Exhibit "B") was negotiated. METROBANK paid Planters
Products the amount of P815,600.00 which payment was covered by a Bill of
Exchange (Exhibit "C"), dated 4 June 1979, in favor of the former, drawn on and
accepted by UTEFS (Original Records, p. 331).

Pursuant to the above commercial transaction, UTEFS executed and delivered to

METROBANK a Trust Receipt (Exh. "D"), dated 4 June 1979, whereby the former
acknowledged receipt in trust from the latter of the aforementioned goods from
Planters Products which amounted to P815,600.00. Being the entrustee, the former
agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if
sold, the proceeds of the sale thereof, on or before September 2, 1979.

However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt.
As a consequence, METROBANK sent letters to the said principal obligor and its
sureties, Norberto Uy and Jacinto Uy Diño, demanding payment of the amount due.
Informed of the amount due, UTEFS made partial payments to the Bank which were
accepted by the latter.

Answering one of the demand letters, Diño, thru counsel, denied his liability for the
amount demanded and requested METROBANK to send him copies of documents
showing the source of his liability. In its reply, the bank informed him that the
source of his liability is the Continuing Suretyship which he executed on February
25, 1977.

As a rejoinder, Diño maintained that he cannot be held liable for the 1979 credit
accommodation because it is a new obligation contracted without his participation.
Besides, the 1977 credit accommodation which he guaranteed has been fully paid.

Having sent the last demand letter to UTEFS, Diño and Uy and finding resort to
extrajudicial remedies to be futile, METROBANK filed a complaint for collection of a
sum of money (P613,339.32, as of January 31, 1982, inclusive of interest,
commission penalty and bank charges) with a prayer for the issuance of a writ of
preliminary attachment, against Uy Tiam, representative of UTEFS and impleaded
Diño and Uy as parties-defendants.

The court issued an order, dated 29 July 1983, granting the attachment writ, which
writ was returned unserved and unsatisfied as defendant Uy Tiam was nowhere to
be found at his given address and his commercial enterprise was already non-
operational (Original Records, p. 37).

On April 11, 1984, Norberto Uy and Jacinto Uy Diño (sureties-defendants herein)

filed a motion to dismiss the complaint on the ground of lack of cause of action.
They maintained that the obligation which they guaranteed in 1977 has been
extinguished since it has already been paid in the same year. Accordingly, the
Continuing Suretyships executed in 1977 cannot be availed of to secure Uy Tiam’s
Letter of Credit obtained in 1979 because a guaranty cannot exist without a valid
obligation. It was further argued that they can not be held liable for the obligation
contracted in 1979 because they are not privies thereto as it was contracted
without their participation (Records, pp. 42-46).

On April 24, 1984, METROBANK filed its opposition to the motion to dismiss.
Invoking the terms and conditions embodied in the comprehensive suretyships
separately executed by sureties-defendants, the bank argued that sureties-movants
bound themselves as solidary obligors of defendant Uy Tiam to both existing
obligations and future ones. It relied on Article 2053 of the new Civil Code which
provides: ‘A guaranty may also be given as security for future debts, the amount of
which is not yet known; . . . .’ It was further asserted that the agreement was in
full force and effect at the time the letter of credit was obtained in 1979 as sureties-
defendants did not exercise their right to revoke it by giving notice to the bank.
(Ibid., pp. 51-54).

Meanwhile, the resolution of the aforecited motion to dismiss was held in abeyance
pending the introduction of evidence by the parties as per order dated February 21,
1986 (Ibid., p. 71).

Having been granted a period of fifteen (15) days from receipt of the order dated
March 7, 1986 within which to file the answer, sureties-defendants filed their
responsive pleading which merely rehashed the arguments in their motion to
dismiss and maintained that they are entitled to the benefit of excussion (Original
Records, pp. 88-93).

On February 23, 1987, plaintiff filed a motion to dismiss the complaint against
defendant Uy Tiam on the ground that it has no information as to the heirs or legal
representatives of the latter who died sometime in December, 1986, which motion
was granted on the following day (Ibid., pp 180-182).

After trial, . . . the court a quo, on December 2, 1987, rendered its judgment, a
portion of which reads: chanrob1es virtual 1aw library

‘The evidence and the pleadings, thus, pose the querry (sic): chanrob1es virtual 1aw library
‘Are the defendants Jacinto Uy Diño and Norberto Uy liable for the obligation
contracted by Uy Tiam under the Letter of Credit (Exh. B) issued on March 30, 1979
by virtue of the Continuing Suretyships they executed on February 25, 1977?

‘Under the admitted proven facts, the Court finds that they are not.

‘a) When Uy and Diño executed the continuing suretyships, exhibits E and F, on
February 25, 1977, Uy Tiam was obligated to the plaintiff in the amount of
P700,000.00 — and this was the obligation which both defendants guaranteed to
pay. Uy Tiam paid this 1977 obligation — and such payment extinguished the
obligation they assumed as guarantors/sureties.

‘b) The 1979 Letter of Credit (Exh. B) is different from the 1977 Letter of Credit
which covered the 1977 account of Uy Tiam. Thus, the obligation under either is
apart and distinct from the obligation created in the other — as evidenced by the
fact that Uy Tiam had to apply anew for the 1979 transaction (Exh. A). And Diño
and Uy, being strangers thereto, cannot be answerable thereunder. 

‘c) The plaintiff did not serve notice to the defendants Diño and Uy when it
extended to Uy Tiam the 1979 Letter of Credit — at least to inform them that the
continuing suretyships they executed on February 25, 1977 will be considered by
the plaintiff to secure the 1979 transaction of Uy Tiam.

‘d) There is no sufficient and credible showing that Diño and Uy were fully informed
of the import of the Continuing Suretyships when they affixed their signatures
thereon — that they are thereby securing all future obligations which Uy Tiam may
contract with the plaintiff. On the contrary, Diño and Uy categorically testified that
they signed the blank forms in the office of Uy Tiam at 623 Asuncion Street,
Binondo, Manila, in obedience to the instruction of Uy Tiam, their former employer.
They denied having gone to the office of the plaintiff to subscribe to the documents
(October 1, 1987, tsn, pp. 5-7, 14; October 15, 1987, tsn, pp. 3-8, 13-16).
(Records, pp. 333-334).’" 3 

x          x           x

In its Decision, the trial court decreed as follows: jgc:chanrobles.com.ph

"PREMISES CONSIDERED, judgment is hereby rendered: chanrob1es virtual 1aw library

‘a) dismissing the COMPLAINT against JACINTO UY DIÑO and NORBERTO UY;

‘b) ordering the plaintiff to pay to Diño and Uy the amount of P6,000.00 as
attorney’s fees and expenses of litigation; and 

‘c) denying all other claims of the parties for want of legal and/or factual basis.’ chanrobles
law library

‘SO ORDERED’. (Records, p. 336)." 4 

From the said Decision, the private respondent appealed to the Court of Appeals.
The case was docketed as CA-G.R. CV No. 17724. In support thereof, it made the
following assignment of errors in its Brief: jgc:chanrobles.com.ph

"I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND HOLDING THAT
DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY ARE SOLIDARILY
LIABLE TO PLAINTIFF-APPELLANT FOR THE OBLIGATION OF DEFENDANT UY TIAM
UNDER THE LETTER OF CREDIT ISSUED ON MARCH 30, 1979 BY VIRTUE OF THE
CONTINUING SURETYSHIPS THEY EXECUTED ON FEBRUARY 25, 1977.

II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT IS

ANSWERABLE TO DEFENDANTS-APPELLEES JACINTO UY DIÑO AND NORBERTO UY
FOR ATTORNEY’S FEES AND EXPENSES OF LITIGATION." 5 

On 22 June 1989, public respondent promulgated the assailed Decision the

dispositive portion of which reads:
jgc:chanrobles.com.ph

"WHEREFORE, premises considered, the judgment appealed from is hereby

REVERSED and SET ASIDE. In lieu thereof, another one is rendered: chanrob1es virtual 1aw library

1) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and

severally, to appellant METROBANK the amount of P2,397,883.68 which represents
the amount due as of July 17, 1987 inclusive of principal, interest and charges;

2) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and

severally, appellant METROBANK the accruing interest, fees and charges thereon
from July 18, 1987 until the whole monetary obligation is paid; and

3) Ordering sureties-appellees Jacinto Uy Diño and Norberto Uy to pay, jointly and

severally, to plaintiff P20,000.00 as attorney’s fees.

With costs against appellees.

SO ORDERED." 6 

In ruling for the herein private respondent (hereinafter METROBANK), public

respondent held that the Continuing Suretyship Agreements separately executed by
the petitioners in 1977 were intended to guarantee payment of Uy Tiam’s
outstanding as well as future obligations; each suretyship arrangement was
intended to remain in full force and effect until METROBANK would have been
notified of its revocation. Since no such notice was given by the petitioners, the
suretyships are deemed outstanding and hence, cover even the 1979 letter of credit
issued by METROBANK in favor of Uy Tiam.

Petitioners filed a motion to reconsider the foregoing Decision. They questioned the
public respondent’s construction of the suretyship agreements and its ruling with
respect to the extent of their liability thereunder. They argued that even if the
agreements were in full force and effect when METROBANK granted Uy Tiam’s
application for a letter of credit in 1979, the public respondent nonetheless
seriously erred in holding them liable for an amount over and above their respective
face values.

In its Resolution of 21 August 1989, public respondent denied the motion: jgc:chanrobles.com.ph

". . . considering that the issues raised were substantially the same grounds utilized
by the lower court in rendering judgment for defendants-appellees which We upon
appeal found and resolved to be untenable, thereby reversing and setting aside said
judgment and rendering another in favor of plaintiff, and no new or fresh issues
have been posited to justify reversal of Our decision herein, . . . ." 7 

Hence, the instant petition which hinges on the issue of whether or not the
petitioners may be held liable as sureties for the obligation contracted by Uy Tiam
with METROBANK on 30 May 1979 under and by virtue of the Continuing Suretyship
Agreements signed on 26 February 1977. cralawnad

Petitioners vehemently deny such liability on the ground that the Continuing
Suretyship Agreements were automatically extinguished upon payment of the
principal obligation secured thereby, i.e., this letter of credit obtained by Uy Tiam in
1977. They further claim that they were not advised by either METROBANK or Uy
Tiam that the Continuing Suretyship Agreements would stand as security for the
1979 obligation. Moreover, it is posited that to extend the application of such
agreements to the 1979 obligation would amount to a violation of Article 2052 of
the Civil Code which expressly provides that a guaranty cannot exist without a valid
obligation. Petitioners further argue that even granting, for the sake of argument,
that the Continuing Suretyship Agreements still subsisted and thereby also secured
the 1979 obligations incurred by Uy Tiam, they cannot be held liable for more than
what they guaranteed to pay because it is axiomatic that the obligations of a surety
cannot extend beyond what is stipulated in the agreement.

On 12 February 1990, this Court resolved to give due course to the petition after
considering the allegations, issues and arguments adduced therein, the Comment
thereon by the private respondent and the Reply thereto by the petitioners; the
parties were required to submit their respective Memoranda.

The issues presented for determination are quite simple: chanrob1es virtual 1aw library

1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam to
METROBANK by virtue of the Continuing Suretyship Agreements they separately
signed in 1977; and

2. On the assumption that they are, what is the extent of their liabilities for said
1979 obligations.

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. 8 This is
the basis for contracts denominated as a 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 s 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. 9 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. 10 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 of guaranty states that the same is to secure advances
to be made "from time to time" the guaranty will be construed to be a continuing
one. 11 

In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of "any debt," "any indebtedness," "any deficiency,"
or "any sum," or the guaranty of "any transaction" or money to be furnished the
principal debtor "at any time," or "on such time" that the principal debtor may
require, have been construed to indicate a continuing guaranty. 12 

In the case at bar, the pertinent portion of paragraph I of the suretyship agreement
executed by petitioner Uy provides thus: jgc:chanrobles.com.ph

"I. For and in consideration of any existing indebtedness to the BANK of UY TIAM
(hereinafter called the ‘Borrower’), for the payment of which the SURETY is now
obligated to the BANK, either as guarantor or otherwise, and/or in order to induce
the BANK, in its discretion, at any time or from time to time hereafter, to make
loans or advances or to extend credit in any other manner to, or at the request, of
for the account of the Borrower, either with or without security, and/or to purchase
or discount, or to make any loans or advances evidenced or secured by any notes,
bills, receivables, drafts, acceptances, checks, or other instruments or evidences of
indebtedness (all hereinafter called ‘instruments’) upon which the Borrower is or
may become liable as maker, endorser, acceptor, or otherwise, the SURETY agrees
to guarantee, and does hereby guarantee, the punctual payment at maturity to the
BANK of any and all such instruments, loans, advances credits and/or other
obligations hereinbefore referred to, and also any and all other indebtedness of
every kind which is now or may hereafter become due or owing to the BANK by the
Borrower, together with any and all expenses which may be incurred by the BANK
in collecting all or any such instruments or other indebtedness or obligations
hereinbefore referred to, and/or in enforcing any rights hereunder, and the SURETY
also agrees that the BANK may make or cause any and all such payments to be
made strictly in accordance with the terms and provisions of any agreement(s)
express or implied, which has (have) been or may hereafter be made or entered
into by the Borrower in reference thereto, regardless of any law, regulation or
decree, unless the same is mandatory and non-waivable in character, nor or
hereafter in effect, which might in any manner affect any of the terms or provisions
of any such agreement(s) or the BANK’s rights with respect thereto as against the
Borrower, or cause or permit to be invoked any alteration in the time, amount or
manner of payment by the Borrower of any such instruments, obligations or
indebtedness; provided, however, that the liability of the SURETY hereunder shall
not exceed at any one time the aggregate principal sum of PESOS: THREE
HUNDRED THOUSAND ONLY (P300,000.00) (irrespective of the currency(ies) in
which the obligations hereby guaranteed are payable), and such interest as may
accrue thereon either before or after any maturity(ies) thereof and such expenses
as may be incurred by the BANK as referred to above." 13 

Paragraph I of the Continuing Suretyship Agreement executed by petitioner Diño

contains identical provisions except with respect to the guaranteed aggregate
principal amount which is EIGHT HUNDRED THOUSAND PESOS (P800,000.00). 14 

Paragraph IV of both agreements stipulate that: chanrobles law library : red

"VI. This is a continuing guaranty and shall remain in full force and effect until
written notice shall have been received by the BANK that it has been revoked by
the SURETY, but any such notice shall not release the SURETY from any liability as
to any instruments, loans, advances or other obligations hereby guaranteed, which
may be held by the BANK, or in which the BANK may have any interest at the time
of the recept (sic) of such notice. No act or omission of any kind on the BANK’s part
in the premises shall in any event affect or impair this guaranty, nor shall same
(sic) be affected by any change which may arise by reason of the death of the
SURETY, or of any partner(s) of the SURETY, or of the Borrower, or of the accession
to any such partnership of any one or more new partners." 15 

The foregoing stipulations unequivocally reveal that the suretyship agreements in

the case at bar are continuing in nature. Petitioners do not deny this; in fact, they
candidly admitted it. Neither have they denied the fact that they had not revoked
the suretyship agreements. Accordingly, as correctly held by the public
respondent: jgc:chanrobles.com.ph

"Undoubtedly, the purpose of the execution of the Continuing Suretyships was to

induce appellant to grant any application for credit accommodation (letter of
credit/trust receipt) UTEFS may desire to obtain from appellant bank. By its terms,
each suretyship is a continuing one which shall remain in full force and effect until
the bank is notified of its revocation.

x          x           x

When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from appellant
bank, for the purpose of obtaining goods (covered by a trust receipt) from Planters
Products, the continuing suretyships were in full force and effect. Hence, even if
sureties-appellees did not sign the ‘Commercial Letter of Credit and Application,
they are still liable as the credit accommodation (letter of credit/trust receipt) was
covered by the said suretyships. What makes them liable thereunder is the
condition which provides that the Borrower ‘is or may become liable as maker,
endorser, acceptor or otherwise.’ And since UTEFS which (sic) was liable as
principal obligor for having failed to fulfill the obligatory stipulations in the trust
receipt, they as insurers of its obligation, are liable thereunder." 16 

Petitioners maintain, however, that their Continuing Suretyship Agreements cannot

be made applicable to the 1979 obligation because the latter was not yet in
existence when the agreements were executed in 1977; under Article 2052 of the
Civil Code, a guaranty "cannot exist without a valid obligation." We cannot agree.
First of all, the succeeding article provides that" [a] guaranty may also be given as
security for future debts, the amount of which is not yet known." Secondly. Article
2052 speaks about a valid obligations, as distinguished from a void obligation, and
not an existing or current obligation. This distinction is made clearer in the second
paragraph of Article 2052 which reads: jgc:chanrobles.com.ph

"Nevertheless, a guaranty may be constituted to guarantee the performance of a

voidable or an unenforceable contract. It may also guarantee a natural
obligation."cralaw virtua1aw library

As to the amount of their liability under the Continuing Suretyship Agreements,

petitioners contend that the public respondent gravely erred in finding them liable
for more than the amount specified in their respective agreements, to wit: (a)
P800,000.00 for petitioner Diño and (b) P300,000.00 for petitioner Uy.

The limit of the petitioners’ respective liabilities must be determined from the
suretyship agreement each had signed. It is undoubtedly true that the law looks
upon the contract of suretyship with a jealous eye, and the rule is settled that the
obligation of the surety cannot be extended by implication beyond its specified
limits. To the extent, and in the manner, and under the circumstances pointed out
in his obligation, he is bound, and no farther. 17 

Indeed, the Continuing Suretyship Agreements signed by petitioner Diño — and

petitioner Uy fix the aggregate amount of their liability, at any given time, at
P800,000.00 and P300,000.00, respectively. 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. 18 In the case at bar, both
agreements provide for liability for interest and expenses, to wit: jgc:chanrobles.com.ph

". . . and such interest as may accrue thereon either before or after any
maturity(ies) thereof and such expenses as may be incurred by the BANK referred
to above." 19 

They further provide that: jgc:chanrobles.com.ph

"In the event of judicial proceedings being instituted by the BANK against the
SURETY to enforce any of the terms and conditions of this undertaking, the SURETY
further agrees to pay the BANK a reasonable compensation for and as attorney’s
fees and costs of collection, which shall not in any event be less than ten per cent
(10%) of the amount due (the same to be due and payable irrespective of whether
the case is settled judicially or extrajudicially)." 20 

Thus, by express mandate of the Continuing Suretyship Agreements which they had
signed, petitioners separately bound themselves to pay interests, expenses,
attorney’s fees and costs. The last two items are pegged at not less than ten
percent (10%) of the amount due.

Even without such stipulations, the petitioners would, nevertheless, be liable for the
interest and judicial costs. Article 2055 of the Civil Code provides: 21 

"ARTICLE 2055. A guaranty is not presumed; it must be express and cannot extend
to more than what is stipulated therein.

If it be simple or indefinite, it shall comprise not only the principal obligation, but
also all its accessories, including the judicial costs, provided with respect to the
latter, that the guarantor shall only be liable for those costs incurred after he has
been judicially required to pay." cralaw virtua1aw library

Interests and damages are included in the term accessories. However, such interest
should run only from the date when the complaint was filed in court. Even
attorney’s fees may be imposed whenever appropriate, pursuant to Article 2208 of
the Civil Code. Thus; in Plaridel Surety & Insurance Co., Inc. v. P.L. Galang
Machinery Co., Inc., 22 this Court held: chanrobles virtual lawlibrary

"Petitioner objects to the payment of interest and attorney’s fees because: (1) they
were not mentioned in the bond; and (2) the surety would become liable for more
than the amount stated in the contract of suretyship.

x          x           x

The objection has to be overruled, because as far back as the year 1922 this Court
held in Tagawa v. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond
may recover from the surety as part of their damages, interest at the legal rate
even if the surety would thereby become liable to pay more than the total amount
stipulated in the bond.’The theory is that interest is allowed only by way of
damages for delay upon the part of the sureties in making payment after they
should have done so. In some states, the interest has been charged from the date
of the judgment of the appellate court. In this jurisdiction, we rather prefer to
follow the general practice, which is to order that interest begin to run from the
date when the complaint was filed in court, . . . .’

Such theory aligned with sec. 510 of the Code of Civil Procedure which was
subsequently recognized in the Rules of Court (Rule 53, section 6) and with Article
1108 of the Civil Code (now Art. 2209 of the New Civil Code).
In other words the surety is made to pay interest, not by reason of the contract,
but by reason of its failure to pay when demanded and for having compelled the
plaintiff to resort to the courts to obtain payment. It should be observed that
interest does not run from the time the obligation became due, but from the filing
of the complaint.

As to attorney’s fees. Before the enactment of the New Civil Code, successful
litigants could not recover attorney’s fees as part of the damages they suffered by
reason of the litigation. Even if the party paid thousands of pesos to his lawyers, he
could not charge the amount to his opponent (Tan Ti v. Alvear, 26 Phil. 566).

However the New Civil Code permits recovery of attorney’s fees in eleven cases
enumerated in Article 2208, among them, ‘where the court deems it just and
equitable that attorney’s (sic) fees and expenses of litigation should be recovered’
or ‘when the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff’s plainly valid, just and demandable claim’. This gives the courts
discretion in apportioning attorney’s fees." cralaw virtua1aw library

The records do not reveal the exact amount of the unpaid portion of the principal
obligation of Uy Tiam to METROBANK under Irrevocable Letter of Credit No. SN-Loc-
309 dated 30 March 1979. In referring to the last demand letter to Mr. Uy Tiam and
the complaint filed in Civil Case No. 82-9303, the public respondent mentions the
amount of "P613,339.32, as of January 31, 1982, inclusive of interest commission
penalty and bank charges." 23 This is the same amount stated by METROBANK in
its Memorandum. 24 

However, in summarizing Uy Tiam’s outstanding obligation as of 17 July 1987,

public respondent states: jgc:chanrobles.com.ph

"Hence, they are jointly and severally liable to appellant METROBANK of UTEFS’
outstanding obligation in the sum of P2,397,883.68 (as of July 17, 1987) —
P651,092.82 representing the principal amount, P825,133.54, for past due interest
(5-31-82 to 7-17-87) and P921,657.32, for penalty charges at 12% per annum (5-
31-82 to 7-17-87) as shown in the Statement of Account (Exhibit I)."25 cralaw:red

Since the complaint was filed on 18 May 1982, it is obvious that on that date, the
outstanding principal obligation of Uy Tiam, secured by the petitioners’ Continuing
Suretyship Agreements, was less than P613,339.32. Such amount may be fully
covered by the Continuing Suretyship Agreement executed by petitioner Diño which
stipulates an aggregate principal sum of not exceeding P800,000.00, and partly
covered by that of petitioner Uy which pegs his maximum liability at P300,000.00.

Consequently, the judgment of the public respondent shall have to be modified to

conform to the foregoing exposition, to which extent the instant petition is
impressed with partial merit.

WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged
decision has to be modified with respect to the extent of petitioners’ liability. As
modified, petitioners JACINTO UY DIÑO and NORBERTO UY are hereby declared
liable for and are ordered to pay, up to the maximum limit only of their respective
Continuing Suretyship Agreement, the remaining unpaid balance of the principal
obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under
Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979, together with
the interest due thereon at the legal rate commencing from the date of the filing of
the complaint in Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court
of Manila, as well as the adjudged attorney’s fees and costs.