BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellant

vs.
ULRICH FORESTER, as administrator of the intestate deceased Francisco Echavarria, defendant-
appellee

FACTS: The Board of Directors of the corporation Arrocera de la Pototan authorized its treasurer to
obtain a credit for the corporation for the sum of P100,000.00 from the Bank of the Philippine Islands
(BPI). Though no formal document was executed until March 27, 1920, the credit was granted and the
corporation started to draw against the credit as early as February 9, 1920.

The document of “Agreement for Credit” dated March 27, 1920 provides the following salient provisions:

 That the Corporation agrees to pay interest at the rate of 8% per annum;
 That the Corporation agrees to furnish security for the loan granted in the form of pledge of
mortgage of real estate or chattel or assignments of securities;
 That in case of failure to furnish the said securities the whole principal and interest immediately
becomes due and demandable.

In view of this, the treasurer of the corporation issued surety bond declaring that they bind themselves,
their heirs, executors, administrators and assigns to be jointly and severally liable.

The corporation continued to draw against the credit until such time that the corporation exceeded
withdrawals and incurred overdraft, including interest, amounting to P84,922.98. The BPI brought an
action to collect the sum due against the corporation and was able to claim P43,100.00 leaving a balance
of P45,751.37.

BPI by virtue of the surety bond presented the claim to the Committee of Claims against the estate of
then deceased treasurer for the amount of debt of the corporation which the latter allowed the same.
However, the administrator of the estate appealed to the Court of First Instance (CFI). The court rendered
a decision and was held that the bond had no retroactive effect and did not cover amount received from
the bank prior to the date of the instrument (Agreement for Credit).

Hence, this appeal.

ISSUE: Whether or not the surety bond has retroactive effect and covers the amount granted prior to the
date of Agreement of Credit.

HELD: YES. It is very true that bonds or other contracts or suretyship are ordinarily not to be construed
as retrospective, but that rule must yield to the intention of the contracting parties as revealed by the
evidence, and does not interfere with the use of the ordinary tests and canons of interpretation which
apply in regard to other contracts. In the case at bar, though large portion of the credit secured by the
bond had already been exhausted prior to the date of the agreement the treasurer still executed a surety
bond. This circumstance clearly indicates that the bond was intended to cover all of the indebtedness.