Published 8 January 2021, The Daily Tribune

Buyer’s remorse is a popular topic in social media, particularly in buy and sell groups where the return or exchange of an item is common due to change of mind or pang of regret about a purchase.

But what about remorse or change of mind in transactions with higher stakes and with more daunting legal implications, such as providing suretyship in a loan transaction? Can the surety invoke remorse in backing out of a security already provided?

In this article, we discuss the concept of a continuing surety, a security arrangement meant to apply to various credit accommodations that do not need to be separately identified. In other words, the surety is bound not just for the current obligation of the principal, but also for as long as that principal has some form of liability with the obligee.

To recall, a contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of another party (obligee). Although the contract of a surety is secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.

Art.  2053 of the Civil Code provides that a  guaranty  may   be  given  as  security  also for future debts, the amount  of  which is not  yet known, but there can  be  no  claim  against  the  guarantor  until  the  debt  is liquidated.  A  conditional  obligation  may  also  be  secured.  Note that if  a  person  binds  himself  solidarily  with  the  principal debtor, the contract is called suretyship and the guarantor is called the Surety, hence Art. 2053 stands as basis for continuing suretyship.

Comprehensive or continuing surety agreements are observed by the Supreme Court to be commonplace in present day financial and commercial practice. For instance, a bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor (Totanes vs. China Banking Corporation, G.R. NO. 179880, January 19, 2009).

In Totanes, the Court upheld as valid a contract where petitioner jointly and severally bound himself and warranted to the respondent the prompt payment of all liabilities, such as overdrafts, promissory notes, etc., for which the principal may be indebted or may hereafter become indebted to the respondent bank.  The fact that the contract of suretyship was signed prior to the execution of the promissory note does not negate his liability, for the suretyship was precisely a continuing one and covers even after-incurred obligations of the obligor.

In Lim vs. Security Bank,  a 2014 case (G.R. No. 188539, March 12, 2014), the Court likewise upheld as valid the terms of the Continuing Suretyship. In the document, petitioner bound himself as surety, who, without need for any notice, demand or any other act or deed, shall immediately become liable and shall pay “all credit accommodations extended by the Bank to the Debtor, including increases, renewals, roll-overs, extensions, restructurings, amendments or novations thereof, as well as (i) all obligations of the Debtor presently or hereafter owing to the Bank, as appears in the accounts, books and records of the Bank, whether direct or indirect, and (ii) any and all expenses which the Bank may incur in enforcing any of its rights, powers and remedies under the Credit Instruments as defined hereinbelow.”

Such stipulations are valid and legal and constitute the law between the parties. The Court reiterated that even if the loan was obtained by the principal debtor even after the date of execution of the Continuing Suretyship, petitioner was still liable as a continuing surety.

Hence, before entering into a continuing suretyship, one must first ascertain the scope and extent of such security arrangement. For when the contract is signed, it becomes the law between the parties that must be complied with in good faith – a surety’s remorse notwithstanding.

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