FACTS:

The case involves a dispute between a financing company, Filinvest Credit Corporation, and a car dealer, Fortune Motors (Phils.) Corporation. Car dealers often enter into wholesale automotive financing schemes where vehicles are delivered based on trust receipts or drafts executed by the car dealers. These trust receipts or drafts are then assigned and discounted by the manufacturer to financing companies, who assume payment but have the right to collect from the car dealers and/or sureties. In this case, Filinvest entered into a financing agreement with Fortune, where the latter would sell vehicles and remit the proceeds to Filinvest. However, Fortune failed to remit the full proceeds and also failed to turn over unsold motor vehicles covered by the trust receipts. Filinvest sent demand letters for payment to Fortune and its sureties, Joseph Chua and Edgar Lee Rodrigueza. When the amount remained unpaid, Filinvest filed a complaint for a sum of money against Fortune, Chua, and Rodrigueza. The trial court ruled in favor of Filinvest, holding the defendants jointly and severally liable for the amount owed, plus interest, attorney's fees, and costs of the suit. The defendants filed a petition for review seeking to set aside the decision of the trial court.

The dispute centers on the liability of the sureties in a financing agreement. The sureties argue that the surety contracts cannot apply to the financing agreement since it did not exist at the time the contracts were executed. They also claim that the financing agreement would result in the novation of the surety contracts and that there was no accounting of the payments made by one of the sureties.

The trial court held that a guaranty can be given as security for future debts, even if the amount is unknown. It cited a previous case that ruled that a bond posted to secure additional credit is valid even if it was signed and filed before the credit was extended. The trial court also held that the financing agreement did not modify the surety contracts because the changes were only collateral or incidental. Additionally, the trial court found sufficient evidence of the amount claimed and that the sureties did not dispute the accounting made by the financing company.

On the other hand, the defendants argued that the execution of the surety undertakings was unfair because they were made to wait two years to know the kind of obligation they had to guarantee. The Court of Appeals rejected this argument, stating that the surety contracts did not provide for their termination after a certain period and that the defendants had the option to terminate the contracts if they did not want to guarantee the obligations. The Court of Appeals also suggested that the execution of the surety undertakings was part of the consideration for entering into the agreement.

ISSUES:

1. Whether a surety can exist even if there was no existing indebtedness at the time of its execution.

2. Whether there was a novation of the original contract.

3. Whether the evidence was sufficient to prove the amount of the claim.

RULING:

1. Surety for Future Obligations

   The Supreme Court held that a surety can secure future obligations. It affirmed the validity of continuing suretyship agreements, citing that such agreements are common in financial and commercial practices. The suretyship agreement is binding even before the principal obligation is born.

2. No Novation

   The Court found that there was no novation of the original contract. The surety undertakings and the Financing Agreement could stand together without conflict. There must be an explicit agreement or unequivocal acts to show intention to novate, which were absent in this case.

3. Sufficiency of Evidence

   The evidence presented by the plaintiff to support the amount of the claim was found to be substantial and not refuted by the petitioners. The findings of the trial court and the Court of Appeals regarding the amount of the liability were based on substantial evidence and were upheld.

PRINCIPLES:

• Article 2053 of the Civil Code: Refers to the validity of guaranties for future debts.

• Continuing Suretyship Agreement: A surety agreement that covers all future transactions and obligations.

• Estoppel by Deed: Prevents a party from denying the truth of the matter set forth in a deed.

• Novation: Requires express terms or acts to demonstrate the intention to dissolve the old obligation. It must be explicitly stated and the old and new obligations must be incompatible.

• Factual Findings of Lower Courts: Findings of the trial court and the Court of Appeals are conclusive if based on substantial evidence and not contradicted.

CONCLUSION

The petition was denied, and the decision of the Court of Appeals affirming the trial court’s judgment was upheld.

Costs against petitioners.