G.R. No. 188539, March 12, 2014
MARIANO LIM, Petitioner, vs. SECURITY BANK CORPORATION, Respondent.

FACTS

Petitioner Mariano Lim executed a Continuing Suretyship in favor of respondent Security Bank Corporation to secure any and all credit accommodations granted to Raul Arroyo, for the amount of ₱2,000,000.00 covered by a Credit Agreement/Promissory Note. The promissory note stipulated an interest of 19% per annum, compounded monthly, and a penalty of 2% per month on the total outstanding principal and interest if unpaid when due. The Continuing Suretyship stipulated that the surety’s liability is solidary and immediate upon default, without need for notice, and covers “all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof,” as well as all present or future obligations. Raul Arroyo defaulted on his loan. After petitioner failed to comply with a demand to pay the outstanding amount, respondent filed a complaint for collection. The Regional Trial Court (RTC) rendered judgment against petitioner, ordering him to pay the principal sum plus interest and penalty, attorney’s fees, and litigation expenses. The Court of Appeals (CA) affirmed the RTC judgment with modifications on the computation dates and reduced the attorney’s fees to 10% of the total amount due. Petitioner elevated the case to the Supreme Court via a petition for review on certiorari.

ISSUE

The main issue is whether petitioner may validly be held liable for the principal debtor’s loan obtained six months after the execution of the Continuing Suretyship. An ancillary issue is the propriety of the award of attorney’s fees.

RULING

The Supreme Court PARTIALLY GRANTED the petition. It AFFIRMED the CA Decision with MODIFICATION regarding the award of attorney’s fees. On the main issue, the Court held that petitioner is unequivocally bound by the clear terms of the Continuing Suretyship, which by its nature covers future debts. Citing Article 2053 of the Civil Code, the Court ruled that a guaranty may be given for future debts, and the stipulations in the suretyship agreement constitute the law between the parties. Therefore, petitioner is liable for the loan principal, interests, and penalties even if the loan was obtained after the suretyship’s execution. Regarding attorney’s fees, while recoverable by stipulation under Article 2208 of the Civil Code, the Court found the award of 10% of the total amount due (principal plus interest and penalties) to be manifestly exorbitant, as it would exceed the principal debt. Equitably, the Court reduced the attorney’s fees to ten percent (10%) of the principal debt only. The Court declined to revisit factual issues (computation of indebtedness, litigation expenses) and an issue raised for the first time on appeal (making petitioner a hostile witness).