Dio vs.

Court of Appeals (1992)

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?

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written notice to the bank that it has been revoked by the surety.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
2nd 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.