When a Surety Can Escape Liability: Overcoming the Presumption of Regularity

The Supreme Court recently clarified the limits of a bank's right to collect from sureties under Continuing Suretyship Agreements (CSAs). In Chua v. Bank of Commerce (G.R. Nos. 263632 and 264110, January 22, 2025), the Court ruled that while notarized documents enjoy a presumption of regularity, this presumption can be overcome by clear and convincing evidence of irregularity. The decision offers important guidance for individuals asked to sign surety agreements and for banks seeking to enforce them.

The Facts of the Case

Interbrand Logistics and Distribution, Inc. obtained loans totaling PHP 150 million from Bank of Commerce. To secure the loans, several individuals executed CSAs, including Gil Chua, who was neither an officer, director, nor shareholder of Interbrand. When the company defaulted, the bank sued the corporation and all sureties.

Chua denied ever signing the CSA for Interbrand. He claimed he had no connection to the company and never appeared before the notary public who supposedly notarized his signature. The bank's lone witness admitted she had no personal knowledge of the document's execution and that the bank had no signature card for Chua on file.

The Issue: Can a Surety Overcome the Presumption of Regularity?

The central question was whether the presumption of regularity attached to notarized documents could be overturned by evidence of irregularities. The Court answered yes.

The Supreme Court identified several irregularities that, taken together, destroyed the presumption:

First, Chua had no logical connection to Interbrand. He was not a shareholder, officer, or involved in its operations. The Court found it defied common sense for a person to guarantee a loan for a company that was "a complete stranger to him."

Second, the circumstances of notarization were suspicious. Chua's CSA and another surety's CSA were supposedly notarized on the same date—January 27, 2009—but in two different cities (Calamba and Makati), before different notaries, yet listing the exact same witnesses. The Court found this "contrary to ordinary experience."

Third, the bank failed to present the notary public or the witnesses named in the document to rebut Chua's denial. The bank's lone witness could not identify Chua's signature, and the bank had no signature card for comparison.

The Burden of Evidence Shifts

The Court applied the principle from Dela Rama v. Papa: while the burden of proof initially lies with the party alleging forgery or irregularity, once sufficient evidence is presented, the burden of evidence shifts to the party relying on the document.

Once Chua presented evidence of irregularities, the bank should have presented the notary or other witnesses to establish the document's authenticity. Its failure to do so meant the presumption was overcome.

Continuing Suretyship Agreements Cover Future Loans

For the other sureties (Interbrand et al.), the Court rejected their argument that the CSAs were void because they were executed before the promissory notes. A continuing suretyship agreement, by its nature, covers both present and future loans. The Court emphasized that such agreements are common in commercial practice precisely to avoid executing a new surety contract for each credit accommodation.

The Court also noted that the sureties waived the requirement of prior demand in their CSAs. Under the terms, they waived notice of acceptance, presentment, demand, protest, and notice of dishonor. Such waivers are valid and constitute the law between the parties.

Practical Takeaways

• Notarization is not conclusive. A notarized document enjoys a presumption of regularity, but this presumption can be overcome by clear and convincing evidence of irregularities, especially when the party relying on the document fails to present the notary or witnesses to confirm execution.
• Lack of connection matters. Courts are skeptical when a person with no ownership or management stake in a corporation supposedly guarantees its loans. This can cast doubt on the genuineness of the surety's signature.
• Banks must be prepared to prove execution. If a surety denies signing, the bank should present the notary public, the witnesses to the document, or other evidence of authenticity. A witness with no personal knowledge of execution is insufficient.
• Continuing suretyship agreements cover future loans. Signing a CSA before specific promissory notes are executed does not invalidate the surety's liability for those later loans.
• Waivers of demand are enforceable. Sureties can validly waive the requirement of prior demand, making them liable immediately upon the principal debtor's default.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.