Fortune Motors (Phils.) Corporation vs Court of Appeals

G.R. No. 112191 – 267 SCRA 653 – Civil Law – Secured Transactions – Continuing Surety; Future Obligations

In 1981, Joseph Chua and Edgar Rodrigueza executed separate surety agreements in favor of Fortune MotorsĀ (Phils.) Corporation to cover obligations incurred by Fortune Motors whether they be enforced or thereafter made (from the time of said surety contracts).

In 1982, Fortune Motors secured cars from Canlubang Automotive Resources Corporation (CARCO) via trust receipts and drafts made by CARCO. These were assigned to Filinvest Credit Corporation. Later Filinvest, when the obligation matured, demanded payment from Fortune Motor as well as from Chua and Rodrigueza. No payment was made. A case was filed. Rodrigueza averred that the surety agreement was void because when it was signed in 1981, the principal obligation (1982) did not yet exist.

ISSUE: Whether or not the surety agreement is void.

HELD: No. Future obligations can be covered by a surety. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly 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.

Read full text