G.R. No. 80078 May 18, 1993
ATOK FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents.

FACTS

On July 27, 1979, private respondent Sanyu Chemical Corporation, as principal, along with Sanyu Trading Corporation and its individual stockholders (spouses Danilo E. Arrieta and Nenita B. Arrieta, Pablito Bermundo, and Leopoldo Halili) as sureties, executed a Continuing Suretyship Agreement in favor of petitioner Atok Finance Corporation. The agreement unconditionally guaranteed the payment of any and all indebtedness of Sanyu Chemical to Atok Finance, defining “indebtedness” in its most comprehensive sense. It was a continuing suretyship binding upon the sureties’ heirs and assigns.
On November 27, 1981, Sanyu Chemical assigned its trade receivables to Atok Finance for P105,000.00 under a Deed of Assignment, wherein Sanyu Chemical warranted the receivables’ validity and assumed immediate liability for any violation of the warranties. Additional receivables were later assigned.
When Sanyu Chemical failed to collect and remit the amounts due, Atok Finance filed a collection suit. The trial court ruled in favor of Atok Finance, ordering the defendants to pay jointly and severally. Private respondents appealed to the then Intermediate Appellate Court (IAC), but their appeal was dismissed for failure to file an appeal brief. After entry of judgment, Atok Finance secured a writ of execution. Private respondents then filed a Petition for Relief from Judgment with the Court of Appeals, which was granted. Subsequently, the Court of Appeals reversed the trial court’s decision, holding the Continuing Suretyship Agreement void for lack of a principal obligation at the time of its execution and ruling that the action had prescribed under Article 1629 of the Civil Code.

ISSUE

1. Whether the Court of Appeals erred in granting the Petition for Relief from Judgment.
2. Whether the Continuing Suretyship Agreement is valid despite being executed prior to the principal obligations it guaranteed.
3. Whether Atok Finance’s cause of action had prescribed.

RULING

1. Yes. The Supreme Court found that the Court of Appeals’ 15th Division acted without jurisdiction and with grave abuse of discretion in granting the Petition for Relief from Judgment. The proper remedy for the private respondents after the IAC’s Third Division dismissed their appeal was a petition for certiorari under Rule 65, not a petition for relief under Rule 38. The grant of relief constituted an improper interference with a final and executory judgment.
2. Yes. The Continuing Suretyship Agreement is valid. A suretyship can be given to secure future debts even if the principal obligation does not yet exist at the time of the suretyship’s execution. The agreement expressly covered indebtedness “heretofore, now or hereafter made, incurred or created.” This is recognized under Article 2053 of the Civil Code.
3. No. The cause of action had not prescribed. The action was based on the Deed of Assignment, not on the assigned receivables themselves. The Deed created a direct obligation for Sanyu Chemical to pay Atok Finance if the warranties were breached. The ten-year prescriptive period for written contracts under Article 1144 of the Civil Code applied, not the shorter period under Article 1629. The action was filed well within ten years from the assignment.
The Supreme Court REVERSED and SET ASIDE the Decision of the Court of Appeals. It REINSTATED the trial court’s Decision, with the MODIFICATION that the penalty charge was reduced equitably to eighteen percent (18%) per annum.