FACTS:

The case involves a collection suit filed by Metropolitan Bank and Trust Company (METROBANK) against Uy Tiam, Jacinto Uy Diño, and Norberto Uy. In 1977, Uy Tiam Enterprises and Freight Services (UTEFS) obtained credit accommodations from METROBANK in the amount of P700,000.00. Norberto Uy agreed to pay any indebtedness of UTEFS up to P300,000.00, while Jacinto Uy Diño agreed to be bound up to P800,000.00. UTEFS obtained another credit accommodation in 1978, which was fully settled before another letter of credit was obtained in 1979. The 1979 letter of credit, amounting to P815,600.00, was obtained by UTEFS without the participation of Norberto Uy and Jacinto Uy Diño and without informing them that the Continuing Suretyships executed in 1977 would guarantee payment. Diño denied liability for the amount demanded by METROBANK, arguing that he cannot be held liable for the 1979 credit accommodation as it is a new obligation contracted without his participation. METROBANK filed a collection suit, and Uy Diño and Uy filed a motion to dismiss on the ground of lack of cause of action, stating that the obligation they guaranteed in 1977 has already been paid and therefore, the Continuing Suretyships cannot be used to secure the 1979 credit accommodation.

The dispute centers on the interpretation of the suretyship agreements executed in 1977 by Jacinto Uy Diño and Norberto Uy to guarantee the payment of UTEFS's obligations. METROBANK argues that these agreements were still in effect when UTEFS obtained a letter of credit in 1979, and thus, the defendants should be held liable for the obligation. On the other hand, the defendants contend that their liability was limited to the obligations that existed at the time they executed the suretyship agreements in 1977, and that the 1979 letter of credit constituted a separate obligation. The trial court ruled in favor of the defendants, finding that they were not liable for the 1979 obligation. However, the Court of Appeals reversed the trial court's decision, holding the defendants jointly and severally liable for the obligation.

The petitioners filed a motion to reconsider the decision of the Court of Appeals, arguing that they should not be held liable for an amount over and above the face values of the suretyship agreements. The Court of Appeals denied the motion, stating that the issues raised were substantially the same as those already resolved in favor of METROBANK. The instant petition questions whether the petitioners can be held liable as sureties for the obligation contracted by UTEFS with METROBANK in 1979, based on the Continuing Suretyship Agreements signed in 1977. The petitioners claim that the suretyship agreements were automatically extinguished upon payment of the principal obligation secured by the letter of credit obtained in 1977. They also argue that they were not informed by either METROBANK or UTEFS that the agreements would cover the 1979 obligation. They contend that extending the application of the agreements to the 1979 obligation would violate Article 2052 of the Civil Code.

ISSUES:

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

2. If they are liable, what is the extent of their liabilities for said 1979 obligations?

3. Whether the suretyship agreements in this case are continuing in nature.

4. Whether the suretyship agreements can be made applicable to an obligation that was not yet in existence at the time of their execution.

5. Whether the petitioners can be held liable for an amount beyond what was specified in their respective suretyship agreements.

6. Whether the petitioner’s liability under the Continuing Suretyship Agreements includes interests, expenses, attorney’s fees, and costs.

7. Whether interests, damages, and attorney’s fees should only run from the date when the complaint was filed in court.

8. The issue in this case is whether the petitioners, Jacinto Uy Diño and Norberto Uy, are liable for the remaining unpaid balance of Uy Tiam or Uy Tiam Enterprises & Freight Services' principal obligation under an Irrevocable Letter of Credit.

RULING:

1. The Supreme Court held that the petitioners are liable as sureties for the 1979 obligations of Uy Tiam to Metrobank by virtue of the Continuing Suretyship Agreements. The Continuing Suretyship Agreements were not automatically extinguished upon payment of the principal obligation secured by the letter of credit obtained by Uy Tiam in 1977. The court found that the agreements were intended to provide security for future transactions within certain limits, and they contemplated a succession of liabilities, for which the sureties would become liable as they accrue. The court also ruled that the liabilities of the sureties cannot extend beyond what is stipulated in the agreement.

2. Yes, the suretyship agreements in this case are continuing in nature. The stipulations in the agreements clearly state that they shall remain in full force and effect until written notice of revocation is received by the bank. As there was no written notice of revocation, the suretyship agreements were still in effect when the obligations in question were incurred.

3. Yes, the suretyship agreements can be made applicable to an obligation that was not yet in existence at the time of their execution. Article 2052 of the Civil Code allows for a guaranty to be given as security for future debts, the amount of which is not yet known. It also provides that a guaranty may be constituted to guarantee the performance of a voidable or unenforceable contract or a natural obligation.

4. No, the petitioners cannot be held liable for an amount beyond what was specified in their respective suretyship agreements. The agreements clearly state the aggregate amount of liability for each petitioner and the law prohibits extending the obligation of the surety beyond its specified limits. The liability of the sureties is limited to the amounts specified in their respective agreements.

5. Yes, the petitioner’s liability under the Continuing Suretyship Agreements includes interests, expenses, attorney’s fees, and costs. Even without such stipulations, the petitioners would still be liable for interest and judicial costs pursuant to Article 2055 of the Civil Code. The last two items are pegged at not less than ten percent (10%) of the amount due.

6. Yes, interests, damages, and attorney’s fees should only run from the date when the complaint was filed in court. This is in accordance with the general practice in the jurisdiction, as stated in Plaridel Surety & Insurance Co., Inc. vs. P. L. Galang Machinery Co., Inc.

7. The court ruled that the petitioners are liable for the remaining unpaid balance of Uy Tiam or Uy Tiam Enterprises & Freight Services' principal obligation under the Irrevocable Letter of Credit. However, their liability is limited to the maximum limit stated in their respective Continuing Suretyship Agreements. The court also ordered them to pay the interest due on the unpaid balance from the date of the filing of the complaint, as well as the attorney's fees and costs.

PRINCIPLES:

• 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.

• 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," have been construed to indicate a continuing guaranty.

• Liabilities of a surety cannot extend beyond what is stipulated in the agreement.

• Suretyship agreements may be continuing in nature and remain in full force and effect until written notice of revocation is received by the bank.

• A guaranty may be given as security for future debts, even if they are not yet in existence at the time of the execution of the guaranty.

• The liability of a surety is limited to the amounts specified in the suretyship agreement and cannot be extended beyond its specified limits.

• A guaranty must be express and cannot extend to more than what is stipulated therein. If it is simple or indefinite, it shall comprise not only the principal obligation but also all its accessories, including judicial costs, provided that the guarantor shall only be liable for those costs incurred after being judicially required to pay. (Article 2055, Civil Code)

• Interests and damages are included in the term accessories of a guaranty. Attorney’s fees may also be imposed whenever appropriate. (Plaridel Surety & Insurance Co., Inc. vs. P. L. Galang Machinery Co., Inc.)

• Interest is allowed as damages for delay on the part of the sureties in making payment after being demanded, and for having compelled the plaintiff to resort to the courts to obtain payment. Interest should only run from the filing of the complaint. (Plaridel Surety & Insurance Co., Inc. vs. P. L. Galang Machinery Co., Inc.)

• Before the enactment of the New Civil Code, attorney’s fees could not be recovered as part of the damages suffered by successful litigants. However, the New Civil Code permits recovery of attorney’s fees in certain cases, including when the court deems it just and equitable, or when the defendant acted in gross and evident bad faith. The courts have discretion in apportioning attorney’s fees. (Plaridel Surety & Insurance Co., Inc. vs. P. L. Galang Machinery Co., Inc.)

• Suretyship Agreement: The liability of a surety is determined by the terms of the suretyship agreement. In this case, the liability of the petitioners was limited to the maximum limit stated in their respective Continuing Suretyship Agreements.

• Interest on Unpaid Obligations: The interest on an unpaid obligation accrues from the date of the filing of the complaint.

• Attorney's Fees: The court may award attorney's fees to the prevailing party as part of the costs of the suit.