Revoking a Surety Agreement: Proving Timely Notice and Release from Liability

The Supreme Court recently affirmed that a surety who properly revokes a continuing guaranty—and can prove it—may be released from liability for obligations arising after the revocation. The case of Allied Banking Corporation v. De Guzman, Sr. (G.R. No. 225199, July 9, 2018) clarifies the evidentiary rules on proving notice of revocation and the effect of a creditor's failure to object to new defenses raised during trial.

The Facts

In 1990, Eduardo De Guzman, Sr. and three other incorporators of Yeson International Philippines, Inc. executed a Continuing Guaranty/Comprehensive Surety in favor of Allied Banking Corporation (now Philippine National Bank). The agreement stated it would remain in force until the bank received written notice of revocation.

De Guzman later resigned as stockholder and director. On September 4, 1991, he sent a letter to the bank revoking his participation in the surety agreement—by registered mail. He kept the original letter, the registry receipt, and obtained a certification from the postmaster that the letter was posted.

In 1992, the company obtained six trust receipts from the bank. When the company defaulted, the bank sued De Guzman and the other sureties. De Guzman argued he had already revoked his surety obligation before these obligations arose.

The Issue

The central question was whether De Guzman sufficiently proved that he sent the revocation letter and that the bank received it. A related procedural issue was whether the courts could consider his revocation defense even though it was not raised in his original pleadings.

The Ruling

The Supreme Court denied the bank's petition, affirming the Court of Appeals and the trial court. The Court held that De Guzman successfully established the requisites for the disputable presumption that a letter duly directed and mailed was received in the regular course of mail, under Section 3(v), Rule 131 of the Rules of Court.

To raise this presumption, a party must prove: (a) the letter was properly addressed with postage prepaid, and (b) it was mailed. De Guzman presented the original revocation letter, the registry receipt, and a postmaster's certification—sufficient evidence of mailing. The burden then shifted to the bank to rebut the presumption of receipt. The bank offered only a bare, self-serving denial, which the Court found insufficient.

The Court also rejected the bank's procedural objection. Under Section 5, Rule 10 of the Rules of Court, issues not raised in the pleadings but tried with the express or implied consent of the parties are treated as if they had been raised. The bank failed to object when De Guzman testified about the revocation and instead cross-examined him extensively—constituting implied consent.

Practical Takeaways

• A surety can revoke a continuing guaranty by sending written notice to the creditor, provided the agreement allows revocation and the notice is actually received.
• Proof of mailing is critical. Keep the original letter, the registry receipt, and obtain a postmaster's certification. These documents establish the presumption of receipt.
• A creditor's mere denial is not enough to overcome the presumption of receipt. The creditor must present clear and convincing contrary evidence.
• Failure to object at trial can waive procedural defenses. If a party allows new issues to be tried without objection, those issues may be deemed part of the case.
• For creditors, promptly object to evidence on defenses not raised in the pleadings, and be prepared to rebut the presumption of receipt with concrete evidence.

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