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G.R. No. 74886 December 8, 1992
PRUDENTIAL BANK, petitioner,
vs.
INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC.
and ANACLETO R. CHI, respondents.
DAVIDE, JR.,J.:
Petitioner seeks to review and set aside the decision1of public
respondent; Intermediate Appellate Court (now Court of Appeals),
dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in
totothe 15 June 1978 decision of Branch 9 (Quezon City) of the then
Court of First Instance (now Regional Trial Court) of Rizal in Civil
Case No. Q-19312. The latter involved an action instituted by the
petitioner for the recovery of a sum of money representing the
amount paid by it to the Nissho Company Ltd. of Japan for textile
machinery imported by the defendant, now private respondent,
Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon),
represented by co-defendant Anacleto R. Chi.
The facts which gave rise to the instant controversy are summarized
by the public respondent as follows:
On August 8, 1962, defendant-appellant Philippine
Rayon Mills, Inc. entered into a contract with Nissho
Co., Ltd. of Japan for the importation of textile
machineries under a five-year deferred payment
plan (Exhibit B, Plaintiff's Folder of Exhibits, p 2). To
effect payment for said machineries, the defendant-
appellant applied for a commercial letter of credit
with the Prudential Bank and Trust Company in
favor of Nissho. By virtue of said application, the
Prudential Bank opened Letter of Credit No. DPP-
63762 for $128,548.78 (Exhibit A, Ibid., p. 1).
Against this letter of credit, drafts were drawn and
issued by Nissho (Exhibits X, X-1 to X-11, Ibid., pp.
65, 66 to 76), which were all paid by the Prudential
Bank through its correspondent in Japan, the Bank
of Tokyo, Ltd. As indicated on their faces, two of
these drafts (Exhibit X and X-1, Ibid., pp. 65-66)
were accepted by the defendant-appellant through
its president, Anacleto R. Chi, while the others were
not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76).
Upon the arrival of the machineries, the Prudential
Bank indorsed the shipping documents to the
defendant-appellant which accepted delivery of thesame. To enable the defendant-appellant to take
delivery of the machineries, it executed, by prior
arrangement with the Prudential Bank, a trust
receipt which was signed by Anacleto R. Chi in his
capacity as President (sic) of defendant-appellant
company (Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a printed form to
be accomplished by two sureties who, by the very
terms and conditions thereof, were to be jointly andseverally liable to the Prudential Bank should the
defendant-appellant fail to pay the total amount or
any portion of the drafts issued by Nissho and paid
for by Prudential Bank. The defendant-appellant
was able to take delivery of the textile machineries
and installed the same at its factory site at 69
Obudan Street, Quezon City.
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Civil Code and the related evidence and jurisprudence which
provide that such liability had already attached; (f) contravening the
judicial admissions of Philippine Rayon with respect to its liability to
pay the petitioner the amounts involved in the drafts (Exhibits "X",
"X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring
acceptance by Philippine Rayon before the latter could be held
liable thereon. 4
In its decision, public respondent sustained the trial court in all
respects. As to the first and last assigned errors, it ruled that the
provision on unjust enrichment, Article 2142 of the Civil Code,
applies only if there is no express contract between the parties and
there is a clear showing that the payment is justified. In the instant
case, the relationship existing between the petitioner and Philippine
Rayon is governed by specific contracts, namely the application for
letters of credit, the promissory note, the drafts and the trustreceipt. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-
11") which had not been presented to and were not accepted by
Philippine Rayon, petitioner was not justified in unilaterally paying
the amounts stated therein. The public respondent did not agree
with the petitioner's claim that the drafts were sight drafts which
did not require presentment for acceptance to Philippine Rayon
because paragraph 8 of the trust receipt presupposes prior
acceptance of the drafts. Since the ten (10) drafts were not
presented and accepted, no valid demand for payment can be
made.
Public respondent also disagreed with the petitioner's contention
that private respondent Chi is solidarily liable with Philippine Rayon
pursuant to Section 13 of P.D. No. 115 and based on his signature
on the solidary guaranty clause at the dorsal side of the trust
receipt. As to the first contention, the public respondent ruled that
the civil liability provided for in said Section 13 attaches only after
conviction. As to the second, it expressed misgivings as to whether
Chi's signature on the trust receipt made the latter automatically
liable thereon because the so-called solidary guaranty clause at the
dorsal portion of the trust receipt is to be signed not by one (1)
person alone, but by two (2) persons; the last sentence of the same
is incomplete and unsigned by witnesses; and it is not
acknowledged before a notary public. Besides, even granting that it
was executed and acknowledged before a notary public, Chi cannot
be held liable therefor because the records fail to show that
petitioner had either exhausted the properties of Philippine Rayon
or had resorted to all legal remedies as required in Article 2058 of
the Civil Code. As provided for under Articles 2052 and 2054 of the
Civil Code, the obligation of a guarantor is merely accessory and
subsidiary, respectively. Chi's liability would therefore arise only
when the principal debtor fails to comply with his obligation. 5
Its motion to reconsider the decision having been denied by thepublic respondent in its Resolution of 11 June 1986, 6petitioner
filed the instant petition on 31 July 1986 submitting the following
legal issues:
I. WHETHER OR NOT THE RESPONDENT APPELLATE
COURT GRIEVOUSLY ERRED IN DENYING
PETITIONER'S CLAIM FOR FULL REIMBURSEMENT
AGAINST THE PRIVATE RESPONDENTS FOR THE
PAYMENT PETITIONER MADE TO NISSHO CO. LTD.
FOR THE BENEFIT OF PRIVATE RESPONDENT UNDERART. 1283 OF THE NEW CIVIL CODE OF THE
PHILIPPINES AND UNDER THE GENERAL PRINCIPLE
AGAINST UNJUST ENRICHMENT;
II. WHETHER OR NOT RESPONDENT CHI IS
SOLIDARILY LIABLE UNDER THE TRUST RECEIPT
(EXH. C);
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III. WHETHER OR NOT ON THE BASIS OF THE
JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS
LIABLE THEREON AND TO WHAT EXTENT;
IV. WHETHER OR NOT RESPONDENT CHI IS MERELY
A SIMPLE GUARANTOR; AND IF SO; HAS HIS
LIABILITY AS SUCH ALREADY ATTACHED;
V. WHETHER OR NOT AS THE SIGNATORY AND
RESPONSIBLE OFFICER OF RESPONDENT PHIL.
RAYON RESPONDENT CHI IS PERSONALLY LIABLE
PURSUANT TO THE PROVISION OF SECTION 13, P.D.
115;
VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS
LIABLE TO THE PETITIONER UNDER THE TRUSTRECEIPT (EXH. C);
VII. WHETHER OR NOT ON THE BASIS OF THE
JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON IS
LIABLE TO THE PETITIONER UNDER THE DRAFTS
(EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT;
VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE
PRIOR ACCEPTANCE FROM RESPONDENT PHIL.
RAYON BEFORE THE LATTER BECOMES LIABLE TOPETITIONER. 7
In the Resolution of 12 March 1990, 8 this Court gave due course to
the petition after the filing of the Comment thereto by private
respondent Anacleto Chi and of the Reply to the latter by the
petitioner; both parties were also required to submit their
respective memoranda which they subsequently complied with.
As We see it, the issues may be reduced as follows:
1. Whether presentment for
acceptance of the drafts was
indispensable to make Philippine
Rayon liable thereon;
2. Whether Philippine Rayon is
liable on the basis of the trust
receipt;
3. Whether private respondent Chi
is jointly and severally liable with
Philippine Rayon for the obligation
sought to be enforced and if not,
whether he may be considered aguarantor; in the latter situation,
whether the case should have been
dismissed on the ground of lack of
cause of action as there was no
prior exhaustion of Philippine
Rayon's properties.
Both the trial court and the public respondent ruled that Philippine
Rayon could be held liable for the two (2) drafts, Exhibits "X" and "X-
1", because only these appear to have been accepted by the latterafter due presentment. The liability for the remaining ten (10) drafts
(Exhibits "X-2" to "X-11" inclusive) did not arise because the same
were not presented for acceptance. In short, both courts concluded
that acceptance of the drafts by Philippine Rayon was indispensable
to make the latter liable thereon. We are unable to agree with this
proposition. The transaction in the case at bar stemmed from
Philippine Rayon's application for a commercial letter of credit with
the petitioner in the amount of $128,548.78 to cover the former's
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contract to purchase and import loom and textile machinery from
Nissho Company, Ltd. of Japan under a five-year deferred payment
plan. Petitioner approved the application. As correctly ruled by the
trial court in its Order of 6 March 1975: 9
. . . By virtue of said Application and Agreement for
Commercial Letter of Credit, plaintiff bank10
was
under obligation to pay through its correspondent
bank in Japan the drafts that Nisso (sic) Company,
Ltd., periodically drew against said letter of credit
from 1963 to 1968, pursuant to plaintiff's contract
with the defendant Philippine Rayon Mills, Inc. In
turn, defendant Philippine Rayon Mills, Inc., was
obligated to pay plaintiff bank the amounts of the
drafts drawn by Nisso (sic) Company, Ltd. against
said plaintiff bank together with any accruingcommercial charges, interest, etc. pursuant to the
terms and conditions stipulated in the Application
and Agreement of Commercial Letter of Credit
Annex "A".
A letter of credit is defined as an engagement by a bank or other
person made at the request of a customer that the issuer will honor
drafts or other demands for payment upon compliance with the
conditions specified in the credit. 11Through a letter of credit, the
bank merely substitutes its own promise to pay for one of itscustomers who in return promises to pay the bank the amount of
funds mentioned in the letter of credit plus credit or commitment
fees mutually agreed upon.12
In the instant case then, the drawee
was necessarily the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there was no need for
acceptance as the issued drafts are sight drafts. Presentment for
acceptance is necessary only in the cases expressly provided for in
Section 143 of the Negotiable Instruments Law (NIL).13
The said
section reads:
Sec. 143. When presentment for acceptance must
be made. Presentment for acceptance must be
made:
(a) Where the bill is
payable after sight,
or in any other
case, where
presentment for
acceptance is
necessary in order
to fix the maturity
of the instrument;or
(b) Where the bill
expressly stipulates
that it shall be
presented for
acceptance; or
(c) Where the bill is
drawn payableelsewhere than at
the residence or
place of business of
the drawee.
In no other case is presentment for acceptance
necessary in order to render any party to the bill
liable.
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Obviously then, sight draftsdo not require presentment for
acceptance.
The acceptance of a bill is the signification by the drawee of his
assent to the order of the drawer; 14this may be done in writing by
the drawee in the bill itself, or in a separate instrument. 15
The parties herein agree, and the trial court explicitly ruled, that the
subject, drafts are sight drafts. Said the latter:
. . . In the instant case the drafts being at sight, they
are supposed to be payable upon acceptance unless
plaintiff bank has given the Philippine Rayon Mills
Inc. time within which to pay the same. The first
two drafts (Annexes C & D, Exh. X & X-1) were duly
accepted as indicated on their face (sic), and uponsuch acceptance should have been paid forthwith.
These two drafts were not paid and although
Philippine Rayon Mills
ought to have paid the same, the fact remains that
until now they are still unpaid.16
Corollarily, they are, pursuant to Section 7 of the NIL, payable on
demand. Section 7 provides:
Sec. 7. When payable on demand. An instrumentis payable on demand
(a) When so it is
expressed to be
payable on
demand, or at sight,
or on presentation;
or
(b) In which no time
for payment in
expressed.
Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the person
so issuing, accepting, or indorsing it, payable on
demand. (emphasis supplied)
Paragraph 8 of the Trust Receipt which reads: "My/our
liability for payment at maturity of any accepted draft, bill
of exchange or indebtedness shall not be extinguished or
modified"17
does not, contrary to the holding of the public
respondent, contemplate prior acceptance by Philippine
Rayon, but by the petitioner. Acceptance, however, was not
even necessary in the first place because the drafts whichwere eventually issued were sight drafts And even if these
were not sight drafts, thereby necessitating acceptance, it
would be the petitioner and not Philippine Rayon
which had to accept the same for the latter was not the
drawee. Presentment for acceptance is defined an the
production of a bill of exchange to a drawee for
acceptance. 18The trial court and the public respondent,
therefore, erred in ruling that presentment for acceptance
was an indispensable requisite for Philippine Rayon's
liability on the drafts to attach. Contrary to both courts'pronouncements, Philippine Rayon immediately became
liable thereon upon petitioner's payment thereof. Such is
the essence of the letter of credit issued by the petitioner. A
different conclusion would violate the principle upon which
commercial letters of credit are founded because in such a
case, both the beneficiary and the issuer, Nissho Company
Ltd. and the petitioner, respectively, would be placed at the
mercy of Philippine Rayon even if the latter had already
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received the imported machinery and the petitioner had
fully paid for it. The typical setting and purpose of a letter of
credit are described in Hibernia Bank and Trust
Co.vs.J.Aron & Co., Inc., 19thus:
Commercial letters of credit have come into general
use in international sales transactions where much
time necessarily elapses between the sale and the
receipt by a purchaser of the merchandise, during
which interval great price changes may occur.
Buyers and sellers struggle for the advantage of
position. The seller is desirous of being paid as
surely and as soon as possible, realizing that the
vendee at a distant point has it in his power to
reject on trivial grounds merchandise on arrival, and
cause considerable hardship to the shipper. Lettersof credit meet this condition by affording celerity
and certainty of payment. Their purpose is to insure
to a seller payment of a definite amount upon
presentation of documents. The bank deals only
with documents. It has nothing to do with the
quality of the merchandise. Disputes as to the
merchandise shipped may arise and be litigated
later between vendor and vendee, but they may not
impede acceptance of drafts and payment by the
issuing bank when the proper documents arepresented.
The trial court and the public respondent likewise erred in
disregarding the trust receipt and in not holding that Philippine
Rayon was liable thereon. In People vs.Yu Chai Ho, 20this Court
explains the nature of a trust receipt by quoting In re Dunlap Carpet
Co., 21thus:
By this arrangement a banker advances money to
an intending importer, and thereby lends the aid of
capital, of credit, or of business facilities and
agencies abroad, to the enterprise of foreign
commerce. Much of this trade could hardly be
carried on by any other means, and therefore it is of
the first importance that the fundamental factor in
the transaction, the banker's advance of money and
credit, should receive the amplest protection.
Accordingly, in order to secure that the banker shall
be repaid at the critical point that is, when the
imported goods finally reach the hands of the
intended vendee the banker takes the full title to
the goods at the very beginning; he takes it as soon
as the goods are bought and settled for by his
payments or acceptances in the foreign country,and he continues to hold that title as his
indispensable security until the goods are sold in
the United States and the vendee is called upon to
pay for them. This security is not an ordinary pledge
by the importer to the banker, for the importer has
never owned the goods, and moreover he is not
able to deliver the possession; but the security is
the complete title vested originally in the bankers,
and this characteristic of the transaction has again
and again been recognized and protected by thecourts. Of course, the title is at bottom a security
title, as it has sometimes been called, and the
banker is always under the obligation to reconvey;
but only after his advances have been fully repaid
and after the importer has fulfilled the other terms
of the contract.
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We also conclude, for the reason hereinafter discussed, and not for
that adduced by the public respondent, that private respondent
Chi's signature in the dorsal portion of the trust receipt did not bind
him solidarily with Philippine Rayon. The statement at the dorsal
portion of the said trust receipt, which petitioner describes as a
"solidary guaranty clause", reads:
In consideration of the PRUDENTIAL BANK AND
TRUST COMPANY complying with the foregoing, we
jointly and severally agree and undertake to pay on
demand to the PRUDENTIAL BANK AND TRUST
COMPANY all sums of money which the said
PRUDENTIAL BANK AND TRUST COMPANY may call
upon us to pay arising out of or pertaining to,
and/or in any event connected with the default of
and/or non-fulfillment in any respect of theundertaking of the aforesaid:
PHILIPPINE RAYON MILLS, INC.
We further agree that the PRUDENTIAL BANK AND
TRUST COMPANY does not have to take any steps
or exhaust its remedy against aforesaid:
before making demand on me/us.
(
S
g
d
.
)
A
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Petitioner insists that by virtue of the clear wording of the
statement, specifically the clause ". . . we jointly and severally agree
and undertake . . .," and the concluding sentence on exhaustion,
Chi's liability therein is solidary.
In holding otherwise, the public respondent ratiocinates as follows:
With respect to the second argument, we have our
misgivings as to whether the mere signature of
defendant-appellee Chi of (sic) the guaranty
agreement, Exhibit "C-1", will make it an actionable
document. It should be noted that Exhibit "C-1" was
prepared and printed by the plaintiff-appellant. A
perusal of Exhibit "C-1" shows that it was to be
signed and executed by two persons. It was signed
only by defendant-appellee Chi. Exhibit "C-1" was tobe witnessed by two persons, but no one signed in
that capacity. The last sentence of the guaranty
clause is incomplete. Furthermore, the plaintiff-
appellant also failed to have the purported
guarantee clause acknowledged before a notary
public. All these show that the alleged guaranty
provision was disregarded and, therefore, not
consummated.
But granting arguendothat the guaranty provisionin Exhibit "C-1" was fully executed and
acknowledged still defendant-appellee Chi cannot
be held liable thereunder because the records show
that the plaintiff-appellant had neither exhausted
the property of the defendant-appellant nor had it
resorted to all legal remedies against the said
defendant-appellant as provided in Article 2058 of
the Civil Code. The obligation of a guarantor is
merely accessory under Article 2052 of the Civil
Code and subsidiary under Article 2054 of the Civil
Code. Therefore, the liability of the defendant-
appellee arises only when the principal debtor fails
to comply with his obligation.27
Our own reading of the questioned solidary guaranty clause yields
no other conclusion than that the obligation of Chi is only that of
a guarantor. This is further bolstered by the last sentence which
speaks of waiver of exhaustion, which, nevertheless, is ineffective in
this case because the space therein for the party whose property
may not be exhausted was not filled up. Under Article 2058 of the
Civil Code, the defense of exhaustion (excussion) may be raised by a
guarantor before he may be held liable for the obligation. Petitioner
likewise admits that the questioned provision is a solidary guaranty
clause, thereby clearly distinguishing it from a contract of surety. It,however, described the guaranty as solidary between the
guarantors; this would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally agree and undertake"
refers to the undertaking of the two (2) parties who are to sign it or
to the liability existing between themselves. It does not refer to the
undertaking between either one or both of them on the one hand
and the petitioner on the other with respect to the liability
described under the trust receipt. Elsewise stated, their liability is
not divisible as between them, i.e., it can be enforced to its full
extent against any one of them.
Furthermore, any doubt as to the import, or true intent of the
solidary guaranty clause should be resolved against the petitioner.
The trust receipt, together with the questioned solidary guaranty
clause, is on a form drafted and prepared solely by the petitioner;
Chi's participation therein is limited to the affixing of his signature
thereon. It is, therefore, a contract of adhesion; 28as such, it must
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be strictly construed against the party responsible for its
preparation. 29
Neither can We agree with the reasoning of the public respondent
that this solidary guaranty clause was effectively disregarded simply
because it was not signed and witnessed by two (2) persons and
acknowledged before a notary public. While indeed, the clause
ought to have been signed by two (2) guarantors, the fact that it
was only Chi who signed the same did not make his act an idle
ceremony or render the clause totally meaningless. By his signing,
Chi became the sole guarantor. The attestation by witnesses and
the acknowledgement before a notary public are not required by
law to make a party liable on the instrument. The rule is that
contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity
are present; however, when the law requires that a contract be insome form in order that it may be valid or enforceable, or that it be
proved in a certain way, that requirement is absolute and
indispensable.30
With respect to a guaranty,31
which is a promise to
answer for the debt or default of another, the law merely requires
that it, or some note or memorandum thereof, be in writing.
Otherwise, it would be unenforceable unless ratified. 32While the
acknowledgement of a surety before a notary public is required to
make the same apublic document, under Article 1358 of the Civil
Code, a contract of guaranty does not have to appear in a public
document.
And now to the other ground relied upon by the petitioner as basis
for the solidary liability of Chi, namely the criminal proceedings
against the latter for the violation of P.D. No. 115. Petitioner claims
that because of the said criminal proceedings, Chi would be
answerable for the civil liability arising therefrom pursuant to
Section 13 of P.D. No. 115. Public respondent rejected this claim
because such civil liability presupposes prior conviction as can be
gleaned from the phrase "without prejudice to the civil liability
arising from the criminal offense." Both are wrong. The said section
reads:
Sec. 13. Penalty Clause. The failure of an
entrustee to turn over the proceeds of the sale of
the goods, documents or instruments covered by a
trust receipt to the extent of the amount owing to
the entruster or as appears in the trust receipt or to
return said goods, documents or instruments if they
were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions of Article
Three hundred and fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and
fifteen, as amended, otherwise known as theRevised Penal Code. If the violation or offense is
committed by a corporation, partnership,
association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials
or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from
the criminal offense.
A close examination of the quoted provision reveals that it is thelast sentence which provides for the correct solution. It is clear that
if the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty shall
be imposed upon the directors, officers, employees or other officials
or persons therein responsible for the offense. The penalty referred
to is imprisonment, the duration of which would depend on the
amount of the fraud as provided for in Article 315 of the Revised
Penal Code. The reason for this is obvious: corporations,
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partnerships, associations and other juridical entities cannot be put
in jail. However, it is these entities which are made liable for the
civil liability arising from the criminal offense. This is the import of
the clause "without prejudice to the civil liabilities arising from the
criminal offense." And, as We stated earlier, since that violation of a
trust receipt constitutes fraud under Article 33 of the Civil Code,
petitioner was acting well within its rights in filing an independent
civil action to enforce the civil liability arising therefrom against
Philippine Rayon.
The remaining issue to be resolved concerns the propriety of the
dismissal of the case against private respondent Chi. The trial court
based the dismissal, and the respondent Court its affirmance
thereof, on the theory that Chi is not liable on the trust receipt in
any capacity either as surety or as guarantor because his
signature at the dorsal portion thereof was useless; and even if hecould be bound by such signature as a simple guarantor, he cannot,
pursuant to Article 2058 of the Civil Code, be compelled to pay until
after petitioner has exhausted and resorted to all legal remedies
against the principal debtor, Philippine Rayon. The records fail to
show that petitioner had done so33
Reliance is thus placed on
Article 2058 of the Civil Code which provides:
Art. 2056. The guarantor cannot be compelled to
pay the creditor unless the latter has exhausted all
the property of the debtor, and has resorted to allthe legal remedies against the debtor.
Simply stated, there is as yet no cause of action against Chi.
We are not persuaded. Excussion is not a condition sine qua nonfor
the institution of an action against a guarantor. In Southern Motors,
Inc.vs.Barbosa, 34this Court stated:
4. Although an ordinary personal guarantor not a
mortgagor or pledgor may demand the
aforementioned exhaustion, the creditor may, prior
thereto, secure a judgment against said guarantor,
who shall be entitled, however, to a deferment of
the execution of said judgment against him until
after the properties of the principal debtor shall
have been exhausted to satisfy the obligation
involved in the case.
There was then nothing procedurally objectionable in impleading
private respondent Chi as a co-defendant in Civil Case No. Q-19312
before the trial court. As a matter of fact, Section 6, Rule 3 of the
Rules of Court on permissive joinder of parties explicitly allows it. It
reads:
Sec. 6. Permissive joinder of parties. All persons
in whom or against whom any right to relief in
respect to or arising out of the same transaction or
series of transactions is alleged to exist, whether
jointly, severally, or in the alternative, may, except
as otherwise provided in these rules, join as
plaintiffs or be joined as defendants in one
complaint, where any question of law or fact
common to all such plaintiffs or to all such
defendants may arise in the action; but the courtmay make such orders as may be just to prevent
any plaintiff or defendant from being embarrassed
or put to expense in connection with any
proceedings in which he may have no interest.
This is the equity rule relating to multifariousness. It is based on trial
convenience and is designed to permit the joinder of plaintiffs or
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defendants whenever there is a common question of law or fact. It
will save the parties unnecessary work, trouble and expense. 35
However, Chi's liability is limited to the principal obligation in the
trust receipt plus all the accessories thereof including judicial costs;
with respect to the latter, he shall only be liable for those costs
incurred after being judicially required to pay.36
Interest and
damages, being accessories of the principal obligation, should also
be paid; these, however, shall run only from the date of the filing of
the complaint. Attorney's fees may even be allowed in appropriate
cases.37
In the instant case, the attorney's fees to be paid by Chi cannot be
the same as that to be paid by Philippine Rayon since it is only the
trust receipt that is covered by the guaranty and not the full extent
of the latter's liability. All things considered, he can be held liable forthe sum of P10,000.00 as attorney's fees in favor of the petitioner.
Thus, the trial court committed grave abuse of discretion in
dismissing the complaint as against private respondent Chi and
condemning petitioner to pay him P20,000.00 as attorney's fees.
In the light of the foregoing, it would no longer necessary to discuss
the other issues raised by the petitioner
WHEREFORE, the instant Petition is hereby GRANTED.
The appealed Decision of 10 March 1986 of the public
respondent in AC-G.R. CV No. 66733 and, necessarily, that
of Branch 9 (Quezon City) of the then Court of First Instance
of Rizal in Civil Case No. Q-19312 are hereby REVERSED and
SET ASIDE and another is hereby entered:
1. Declaring private respondent
Philippine Rayon Mills, Inc. liable on
the twelve drafts in question
(Exhibits "X", "X-1" to "X-11",
inclusive) and on the trust receipt
(Exhibit "C"), and ordering it to pay
petitioner: (a) the amounts due
thereon in the total sum of
P956,384.95 as of 15 September
1974, with interest thereon at six
percent (6%) per annum from 16
September 1974 until it is fully paid,
less whatever may have been
applied thereto by virtue of
foreclosure of mortgages, if any; (b)
a sum equal to ten percent (10%) ofthe aforesaid amount as attorney's
fees; and (c) the costs.
2. Declaring private respondent
Anacleto R. Chi secondarily liable on
the trust receipt and ordering him
to pay the face value thereof, with
interest at the legal rate,
commencing from the date of the
filing of the complaint in Civil CaseNo. Q-19312 until the same is fully
paid as well as the costs and
attorney's fees in the sum of
P10,000.00 if the writ of execution
for the enforcement of the above
awards against Philippine Rayon
Mills, Inc. is returned unsatisfied.
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Costs against private respondents.
SO ORDERED.
Gutierrez, Jr., Bidin, Romero and Melo, JJ., concur.
G.R. No. 105395 December 10, 1993
BANK OF AMERICA, NT & SA, petitioners,
vs.
COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION,
FRANCISCO TRAJANO, JOHN DOE AND JANE DOE, respondents.
Agcaoili & Associates for petitioner.
Valenzuela Law Center, Victor Fernandez and Ramon Guevarra for
private respondents.
VITUG,J.:
A "fiasco," involving an irrevocable letter of credit, has found the
distressed parties coming to court as adversaries in seeking a
definition of their respective rights or liabilities thereunder.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila,
received by registered mail an Irrevocable Letter of Credit No.
20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch,
for the account of General Chemicals, Ltd., of Thailand in the
amount of US$2,782,000.00 to cover the sale of plastic ropes and
"agricultural files," with the petitioner as advising bank and private
respondent Inter-Resin Industrial Corporation as beneficiary.
On 11 March 1981, Bank of America wrote Inter-Resin informing the
latter of the foregoing and transmitting, along with the bank's
communication,
the latter of credit. Upon receipt of the letter-advice with the letter
of credit, Inter-Resin sent Atty. Emiliano Tanay to Bank of America
to have the letter of credit confirmed. The bank did not. Reynaldo
Dueas, bank employee in charge of letters of credit, however,
explained to Atty. Tanay that there was no need for confirmation
because the letter of credit would not have been transmitted if it
were not genuine.
Between 26 March to 10 April 1981, Inter-Resin sought to make a
partial availment under the letter of credit by submitting to Bank of
America invoices, covering the shipment of 24,000 bales of
polyethylene rope to General Chemicals valued at US$1,320,600.00,
the corresponding packing list, export declaration and bill of lading.Finally, after being satisfied that Inter-Resin's documents conformed
with the conditions expressed in the letter of credit, Bank of
America issued in favor of Inter-Resin a Cashier's Check for
P10,219,093.20, "the Peso equivalent of the draft (for)
US$1,320,600.00 drawn by Inter-Resin, after deducting the costs for
documentary stamps, postage and mail issuance." 1The check was
picked up by Inter-Resin's Executive Vice-President Barcelina Tio. On
10 April 1981, Bank of America wrote Bank of Ayudhya advising the
latter of the availment under the letter of credit and sought the
corresponding reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of
America the documents for the second availment under the same
letter of credit consisting of a packing list, bill of lading, invoices,
export declaration and bills in set, evidencing the second shipment
of goods. Immediately upon receipt of a telex from the Bank of
Ayudhya declaring the letter of credit fraudulent, 2Bank of America
stopped the processing of Inter-Resin's documents and sent a telex
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to its branch office in Bangkok, Thailand, requesting assistance in
determining the authenticity of the letter of credit. 3Bank of
America kept Inter-Resin informed of the developments. Sensing a
fraud, Bank of America sought the assistance of the National Bureau
of Investigation (NBI). With the help of the staff of the Philippine
Embassy at Bangkok, as well as the police and customs personnel of
Thailand, the NBI agents, who were sent to Thailand, discovered
that the vans exported by Inter-Resin did not contain ropes but
plastic strips, wrappers, rags and waste materials. Here at home,
the NBI also investigated Inter-Resin's President Francisco Trajano
and Executive Vice President Barcelina Tio, who, thereafter, were
criminally charged for estafa through falsification of commercial
documents. The case, however, was eventually dismissed by the
Rizal Provincial Fiscal who found noprima facieevidence to warrant
prosecution.
Bank of America sued Inter-Resin for the recovery of
P10,219,093.20, the peso equivalent of the draft for
US$1,320,600.00 on the partial availment of the now disowned
letter of credit. On the other hand, Inter-Resin claimed that not only
was it entitled to retain P10,219,093.20 on its first shipment but
also to the balance US$1,461,400.00 covering the second shipment.
On 28 June 1989, the trial court ruled for Inter-Resin,4holding that:
(a) Bank of America made assurances that enticed Inter-Resin to
send the merchandise to Thailand; (b) the telex declaring the letterof credit fraudulent was unverified and self-serving, hence, hearsay,
but even assuming that the letter of credit was fake, "the fault
should be borne by the BA which was careless and negligent"5for
failing to utilize its modern means of communication to verify with
Bank of Ayudhya in Thailand the authenticity of the letter of credit
before sending the same to Inter-Resin; (c) the loading of plastic
products into the vans were under strict supervision, inspection and
verification of government officers who have in their favor the
presumption of regularity in the performance of official functions;
and (d) Bank of America failed to prove the participation of Inter-
Resin or its employees in the alleged fraud as, in fact, the complaint
for estafa through falsification of documents was dismissed by the
Provincial Fiscal of Rizal.6
On appeal, the Court of Appeals7sustained the trial court; hence,
this present recourse by petitioner Bank of America.
The following issues are raised by Bank of America: (a) whether it
has warranted the genuineness and authenticity of the letter of
credit and, corollarily, whether it has acted merely as an advising
bank or as a confirming bank; (b) whether Inter-Resin has actually
shipped the ropes specified by the letter of credit; and (c) following
the dishonor of the letter of credit by Bank of Ayudhya, whether
Bank of America may recover against Inter-Resin under the draftexecuted in its partial availment of the letter of credit.
8
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on
appeal, belatedly raise the issue of being only an advising bank; (b)
the findings of the trial court that the ropes have actually been
shipped is binding on the Court; and, (c) Bank of America cannot
recover from Inter-Resin because the drawer of the letter of credit
is the Bank of Ayudhya and not Inter-Resin.
If only to understand how the parties, in the first place, gotthemselves into the mess, it may be well to start by recalling how, in
its modern use, a letter of credit is employed in trade transactions.
A letter of credit is a financial device developed by merchants as a
convenient and relatively safe mode of dealing with sales of goods
to satisfy the seemingly irreconcilable interests of a seller, who
refuses to part with his goods before he is paid, and a buyer, who
wants to have control of the goods before paying. 9To break the
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impasse, the buyer may be required to contract a bank to issue a
letter of credit in favor of the seller so that, by virtue of the latter of
credit, the issuing bank can authorize the seller to draw drafts and
engage to pay them upon their presentment simultaneously with
the tender of documents required by the letter of credit.10
The
buyer and the seller agree on what documents are to be presented
for payment, but ordinarily they are documents of title evidencing
or attesting to the shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the
buyer and in the process secures the required shipping documents
or documents of title. To get paid, the seller executes a draft and
presents it together with the required documents to the issuing
bank. The issuing bank redeems the draft and pays cash to the seller
if it finds that the documents submitted by the seller conform with
what the letter of credit requires. The bank then obtains possessionof the documents upon paying the seller. The transaction is
completed when the buyer reimburses the issuing bank and
acquires the documents entitling him to the goods. Under this
arrangement, the seller gets paid only if he delivers the documents
of title over the goods, while the buyer acquires said documents
and control over the goods only after reimbursing the bank.
What characterizes letters of credit, as distinguished from other
accessory contracts, is the engagement of the issuing bank to pay
the seller of the draft and the required shipping documents arepresented to it. In turn, this arrangement assures the seller of
prompt payment, independent of any breach of the main sales
contract. By this so-called "independence principle," the bank
determines compliance with the letter of credit only by examining
the shipping documents presented; it is precluded from determining
whether the main contract is actually accomplished or not.11
There would at least be three (3) parties: (a) the buyer,12
who
procures the letter of credit and obliges himself to reimburse the
issuing bank upon receipts of the documents of title; (b) the bank
issuingthe letter of credit, 13which undertakes to pay the seller
upon receipt of the draft and proper document of titles and to
surrender the documents to the buyer upon reimbursement; and,
(c) the seller, 14who in compliance with the contract of sale ships
the goods to the buyer and delivers the documents of title and draft
to the issuing bank to recover payment.
The number of the parties, not infrequently and almost invariably in
international trade practice, may be increased. Thus, the services of
an advising(notifying) bank15
may be utilized to convey to the seller
the existence of the credit; or, of a confirmingbank16
which will
lend credence to the letter of credit issued by a lesser known issuing
bank; or, of apaying bank,17
which undertakes to encash the draftsdrawn by the exporter. Further, instead of going to the place of the
issuing bank to claim payment, the buyer may approach another
bank, termed the negotiating bank,18
to have the draft discounted.
Being a product of international commerce, the impact of this
commercial instrument transcends national boundaries, and it is
thus not uncommon to find a dearth of national law that can
adequately provide for its governance. This country is no exception.
Our own Code of Commerce basically introduces only its concept
under Articles 567-572, inclusive, thereof. It is no wonder then whygreat reliance has been placed on commercial usage and practice,
which, in any case, can be justified by the universal acceptance of
the autonomy of contract rules. The rules were later developed into
what is now known as the Uniform Customs and Practice for
Documentary Credits ("U.C.P.") issued by the International Chamber
of Commerce. It is by no means a complete text by itself, for, to be
sure, there are other principles, which, although part of lex
mercatoria, are not dealt with the U.C.P.
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In FEATI Bank and Trust Company v.Court of Appeals,19
we have
accepted, to the extent of their pertinency, the application in our
jurisdiction of this international commercial credit regulatory set of
rules. 20In Bank of Phil.Islands v.De Nery, 21we have said that the
observances of the U.C.P. is justified by Article 2 of the Code of
Commerce which expresses that, in the absence of any particular
provision in the Code of Commerce, commercial transactions shall
be governed by usages and customs generally observed. We have
further observed that there being no specific provisions which
govern the legal complexities arising from transactions involving
letters of credit not only between or among banks themselves but
also between banks and the seller or the buyer, as the case may be,
the applicability of the U.C.P. is undeniable.
The first issue raised with the petitioner, i.e., that it has in this
instance merely been advising bank, is outrightly rejected by Inter-Resin and is thus sought to be discarded for having been raised only
on appeal. We cannot agree. The crucial point of dispute in this case
is whether under the "letter of credit," Bank of America has
incurred any liability to the "beneficiary" thereof, an issue that
largely is dependent on the bank's participation in that transaction;
as a mere advising or notifying bank, it would not be liable, but as a
confirming bank, had this been the case, i t could be considered as
having incurred that liability.22
In Insular Life Assurance Co.Ltd.Employees Association Natuvs.Insular Life Assurance Co., Ltd.,23
the Court said: Where the
issues already raised also rest on other issues not specifically
presented, as long as the latter issues bear relevance and close
relation to the former and as long as they arise from the matters on
record, the court has the authority to include them in its discussion
of the controversy and to pass upon them just as well. In brief, in
those cases where questions not particularly raised by the parties
surface as necessary for the complete adjudication of the rights and
obligations of the parties, the interests of justice dictate that the
court should consider and resolve them. The rule that only issues or
theories raised in the initial proceedings may be taken up by a party
thereto on appeal should only refer to independent, not
concomitant matters, to support or oppose the cause of action or
defense. The evil that is sought to be avoided, i.e., surprise to the
adverse party, is in reality not existent on matters that are properly
litigated in the lower court and appear on record.
It cannot seriously be disputed, looking at this case, that Bank of
America has, in fact, only been an advising, not confirming, bank,
and this much is clearly evident, among other things, by the
provisions of the letter of credit itself, the petitioner bank's letter of
advice, its request for payment of advising fee, and the admission of
Inter-Resin that it has paid the same. That Bank of America has
asked Inter-Resin to submit documents required by the letter ofcredit and eventually has paid the proceeds thereof, did not
obviously make it a confirming bank. The fact, too, that the draft
required by the letter of credit is to be drawn under the account of
General Chemicals (buyer) only means the same had to be
presented to Bank of Ayudhya (issuing bank) for payment. It may be
significant to recall that the letter of credit is an engagement of the
issuing bank, not the advising bank, to pay the draft.
No less important is that Bank of America's letter of 11 March 1981
has expressly stated that "[t]he enclosure issolely an adviseof creditopened by the abovementioned correspondent and conveys no
engagement by us." 24This written reservation by Bank of America in
limiting its obligation only to being an advising bank is in
consonance with the provisions of U.C.P.
As an advising or notifying bank, Bank of America did not incur any
obligation more than just notifying Inter-Resin of the letter of credit
issued in its favor, let alone to confirm the letter of credit. 25The
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bare statement of the bank employees, aforementioned, in
responding to the inquiry made by Atty. Tanay, Inter-Resin's
representative, on the authenticity of the letter of credit certainly
did not have the effect of novating the letter of credit and Bank of
America's letter of advise,26
nor can it justify the conclusion that the
bank must now assume total liability on the letter of credit. Indeed,
Inter-Resin itself cannot claim to have been all that free from fault.
As the seller, the issuance of the letter of credit should have
obviously been a great concern to it. 27It would have, in fact, been
strange if it did not, prior to the letter of credit, enter into a
contract, or negotiated at the every least, with General
Chemicals.28
In the ordinary course of business, the perfection of
contract precedes the issuance of a letter of credit.
Bringing the letter of credit to the attention of the seller is the
primordial obligation of an advising bank. The view that Bank ofAmerica should have first checked the authenticity of the letter of
credit with bank of Ayudhya, by using advanced mode of business
communications, before dispatching the same to Inter-Resin finds
no real support in U.C.P. Article 18 of the U.C.P. states that: "Banks
assume no liability or responsibility for the consequences arising out
of the delay and/or loss in transit of any messages, letters or
documents, or for delay, mutilation or other errors arising in the
transmission of any telecommunication . . ." As advising bank, Bank
of America is bound only to check the "apparent authenticity" of the
letter of credit, which it did.
29
Clarifying its meaning, Webster'sNinth New Collegiate Dictionary 30explains that the word
"APPARENT suggests appearance to unaided senses that is not or
may not be borne out by more rigorous examination or greater
knowledge."
May Bank of America then recover what it has paid under the letter
of credit when the corresponding draft for partial availment
thereunder and the required documents were later negotiated with
it by Inter-Resin? The answer is yes. This kind of transaction is what
is commonly referred to as a discounting arrangement. This time,
Bank of America has acted independently as a negotiating bank,
thus saving Inter-Resin from the hardship of presenting the
documents directly to Bank of Ayudhya to recover payment. (Inter-
Resin, of course, could have chosen other banks with which to
negotiate the draft and the documents.) As a negotiating bank, Bank
of America has a right to recourse against the issuer bank and until
reimbursement is obtained, Inter-Resin, as the drawer of the draft,
continues to assume a contingent liability thereon.31
While bank of America has indeed failed to allege material facts in
its complaint that might have likewise warranted the application of
the Negotiable Instruments Law and possible then allowed it to
even go after the indorsers of the draft, this failure, 32/
nonetheless, does not preclude petitioner bank's right (asnegotiating bank) of recovery from Inter-Resin itself. Inter-Resin
admits having received P10,219,093.20 from bank of America on
the letter of credit and in having executed the corresponding draft.
The payment to Inter-Resin has given, as aforesaid, Bank of America
the right of reimbursement from the issuing bank, Bank of Ayudhya
which, in turn, would then seek indemnification from the buyer (the
General Chemicals of Thailand). Since Bank of Ayudhya disowned
the letter of credit, however, Bank of America may now turn to
Inter-Resin for restitution.
Between the seller and the negotiating bank there
is the usual relationship existing between a drawer
and purchaser of drafts. Unless drafts drawn in
pursuance of the credit are indicated to be without
recourse therefore, the negotiating bank has the
ordinary right of recourse against the seller in the
event of dishonor by the issuing bank . . . The fact
that the correspondent and the negotiating bank
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may be one and the same does not affect its rights
and obligations in either capacity, although a special
agreement is always a possibility . . .33
The additional ground raised by the petitioner, i.e., that Inter-Resin
sent waste instead of its products, is real ly of no consequence. In
the operation of a letter of credit, the involved banks deal only with
documents and not on goods described in those documents. 34
The other issues raised in then instant petition, for instance,
whether or not Bank of Ayudhya did issue the letter of credit and
whether or not the main contract of sale that has given rise to the
letter of credit has been breached, are not relevant to this
controversy. They are matters, instead, that can only be of concern
to the herein parties in an appropriate recourse against those, who,
unfortunately, are not impleaded in these proceedings.
In fine, we hold that
First, given the factual findings of the courts below, we conclude
that petitioner Bank of America has acted merely as a notifying
bankand did not assume the responsibility of a confirming bank;
and
Second, petitioner bank, as a negotiating bank, is entitled to recover
on Inter-Resin's partial availment as beneficiary of the letter ofcredit which has been disowned by the alleged issuer bank.
No judgment of civil liability against the other defendants, Francisco
Trajano and other unidentified parties, can be made, in this
instance, there being no sufficient evidence to warrant any such
finding.
WHEREFORE, the assailed decision is SET ASIDE, and respondent
Inter-Resin Industrial Corporation is ordered to refund to petitioner
Bank of America NT & SA the amount of P10,219,093.20 with legal
interest from the filing of the complaint until fully paid.
No costs.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
.R. NO. 117913. February 1, 2002]
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP,
RICHARD VELASCO and ALFONSO CO,petitioners, vs.
COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
[G.R. NO. 117914. February 1, 2002]
MICO METALS CORPORATION,petitioner, vs. COURT OF APPEALS
and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
D E C I S I O N
DE LEON, JR.,J:
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Before us is the joint and consolidated petition for review of
the Decision[1]dated June 15, 1994 of the Court of Appeals in CA-
G.R. CV No. 27480 entitled, Philippine Bank of Communications
vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which
reversed the decision of the Regional Trial Court (RTC) of Manila,Branch 55 dismissing the complaint for a sum of money filed by
private respondent Philippine Bank of Communications against
herein petitioners, Mico Metals Corporation (MICO, for brevity),
Charles Lee, Chua Siok Suy,[2]
Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co.[3]The dispositive portion of the said
Decision of the Court of Appeals, reads:
WHEREFORE, the decision of the Regional Trial Court is hereby
reversed and in lieu thereof, a new one is entered:
a) Ordering the defendants-appellees jointly and severally
to pay plaintiff PBCom the sum of Five million four
hundred fifty-one thousand six hundred sixty-three
pesos and ninety centavos (P5,451,663.90)
representing defendants-appellees unpaid obligations
arising from ordinary loans granted by the plaintiff plus
legal interest until fully paid.
b) Ordering defendants-appellees jointly and severally to
pay PBCom the sum of Four hundred sixty-one
thousand six hundred pesos and sixty-six centavos (P461,600.66) representing defendants-appellees unpaid
obligations arising from their letters of credit and trust
receipt transactions with plaintiff PBCom plus legal
interest until fully paid.
c) Ordering defendants-appellees jointly and severally to
pay PBCom the sum of P50,000.00 as attorneys fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, Charles Lee, as President of MICO wrote
private respondent Philippine Bank of Communications (PBCom)
requesting for a grant of a discounting loan/credit line in the sum of
Three Million Pesos (P3,000,000.00) for the purpose of carrying
out MICOsline of business as well as to maintain its volume of
business.
On the same day, Charles Lee requested for another
discounting loan/credit line of Three Million Pesos (P3,000,000.00)
from PBCom for the purpose of opening letters of credit and trust
receipts.
In connection with the requests for discounting loan/creditlines, PBCom was furnished by MICO the following resolution which
was adopted unanimously by MICOsBoard of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-
President and General Manager, Mr. Mariano A. Sio, singly or
jointly, be and they are duly authorized and empowered for and in
behalf of this Corporation to apply for, negotiate and secure the
approval of commercial loans and other banking facilities and
accommodations, such as, but not limited to discount loans, letters
of credit, trust receipts, lines for marginal deposits on foreign anddomestic letters of credit, negotiate out-of-town checks, etc. from
the Philippine Bank of Communications, 216 Juan Luna, Manila in
such sums as they shall deem advantageous, the principal of all of
which shall not exceed the total amount of TEN MILLION PESOS
(P10,000,000.00), Philippine Currency, plus any interests that may
be agreed upon with said Bank in such loans and other credit lines of
the same kind and such further terms and conditions as may, upon
granting of said loans and other banking facilities, be imposed by
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the Bank; and to make, execute, sign and deliver any contracts of
mortgage, pledge or sale of one, some or all of the properties of the
Company, or any other agreements or documents of whatever
nature or kind, including the signing, indorsing, cashing, negotiation
and execution of promissory notes, checks, money orders or other
negotiable instruments, which may be necessary and proper inconnection with said loans and other banking facilities, or with their
amendments, renewals and extensions of payment of the whole or
any part thereof.[4]
On March 26, 1979, MICO availed of the f irst loan of One
Million Pesos (P1,000,000.00) from PBCom. Upon maturity of the
loan, MICO caused the same to be renewed, the last renewal of
which was made on May 21, 1982 under Promissory Note BNA No.
26218.[5]
Another loan of One Million Pesos (P1,000,000.00) was availed
of by MICO from PBCom which was likewise later on renewed, the
last renewal of which was made on May 21, 1982 under Promissory
Note BNA No. 26219.[6]
To complete MICOsavailment of Three
Million Pesos (P3,000,000.00) discounting loan/credit line
with PBCom, MICO availed of another loan from PBComin the sum
of One Million Pesos (P1,000,000.00) on May 24, 1979. As in
previous loans, this was rolled over or renewed, the last renewal of
which was made on May 25, 1982 under Promissory Note BNA No.
26253.[7]
As security for the loans, MICO through its Vice-President and
General Manager, Mariano Sio, executed on May 16, 1979 a Deed
of Real Estate Mortgage over its properties situated inPasig, Metro
Manila covered by Transfer Certificates of Title (TCT) Nos. 11248
and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap and Richard Velasco, in their personal capacities
executed a Surety Agreement[8]
in favor of PBCom whereby the
petitioners jointly and severally, guaranteed the prompt payment
on due dates or at maturity of overdrafts, promissory notes,
discounts, drafts, letters of credit, bills of exchange, trust receipts,
and other obligations of every kind and nature, for which MICO may
be held accountable by PBCom. It was provided, however, that the
liability of the sureties shall not at any one time exceed the principalamount of Three Million Pesos (P3,000,000.00) plus interest, costs,
losses, charges and expenses including attorneys fees incurred
by PBCom in connection therewith.
On July 14, 1980, petitioner Charles Lee, in his capacity as
president of MICO, wrote PBCom and applied for an additional loan
in the sum of Four Million Pesos (P4,000,000.00). The loan was
intended for the expansion and modernization of the companys
machineries. Upon approval of the said application for loan, MICO
availed of the additional loan of Four Million Pesos (P4,000,000.00)
as evidenced by Promissory Note TA No. 094 .[9]
As per agreement, the proceeds of all the loan availments were
credited to MICOscurrent checking account with PBCom. To induce
the PBCom to increase the credit line of MICO, Charles Lee,
Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co (hereinafter referred to as petitioners-sureties),
executed another surety agreement[10]
in favor of PBCom on July 28,
1980, whereby they jointly and severally guaranteed the prompt
payment on due dates or at maturity of overdrafts, promissory
notes, discounts, drafts, letters of credit, bills of exchange, trustreceipts and all other obligations of any kind and nature for which
MICO may be held accountable by PBCom. It was provided,
however, that their liability shall not at any one time exceed the
sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00)
including interest, costs, charges, expenses and attorneys fees
incurred by MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a notarized
certification issued by its corporate secretary, Atty. P.B. Barrera,
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that Chua Siok Suy was duly authorized by the Board of Directors to
negotiate on behalf of MICO for loans and other
credit availments from PBCom. Indicated in the certification was the
following resolution unanimously approved by the Board
of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be,
as he is hereby authorized and empowered, on behalf of MICO
METALS CORPORATION from time to time, to borrow money and
obtain other credit facilities, with or without security, from the
PHILIPPINE BANK OF COMMUNICATIONS in such amount(s) and
under such terms and conditions as he may determine, with full
power and authority to execute, sign and deliver such contracts,
instruments and papers in connection therewith, including real
estate and chattel mortgages, pledges and assignments over the
properties of the Corporation; and to renew and/or extend and/orroll-over and/or reavail of the credit facilities granted thereunder,
either for lesser or for greater amount(s), the intention being that
such credit facilities and all securities of whatever kind given as
collaterals therefor shall be a continuing security.
RESOLVED FURTHER, That said bank is hereby authorized,
empowered and directed to rely on the authority given hereunder,
the same to continue in full force and effect until written notice of its
revocation shall be received by said Bank.[11]
On July 2, 1981, MICO filed with PBCom an application for a
domestic letter of credit in the sum of Three Hundred Forty-Eight
Thousand Pesos (P348,000.00).[12]
The corresponding irrevocable
letter of credit was approved and opened under LC No. L-
16060.[13]
Thereafter, the domestic letter of credit was negotiated
and accepted by MICO as evidenced by the corresponding bank
draft issued for the purpose.[14]
After the supplier of the
merchandise was paid, a trust receipt
upon MICOsown initiative, was executed in favor of PBCom.[15]
On September 14, 1981, MICO applied for another domestic
letter of credit with PBCom in the sum of Two Hundred Ninety
Thousand Pesos (P290,000.00).[16]
The corresponding irrevocableletter of credit was issued on September 22, 1981 under LC No. L-
16334.[17]After the beneficiary of the said letter of credit was paid
by PBCom for the price of the merchandise, the goods were
delivered to MICO which executed a corresponding trust
receipt[18]
in favor of PBCom.
On November 10, 1981, MICO applied for authority to open a
foreign letter of credit in favor of Ta Jih Enterprises Co., Ltd.,[19]and
thus, the corresponding letter of credit[20]
was then issued
byPBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co.,
Ltd. advising that said beneficiary may draw funds from the accountof PBCom in its correspondent banks New York
Office.[21]PBCom also informed its corresponding bank in Taiwan,
the Irving Trust Company, of the approved letter of credit. The
correspondent bank acknowledged PBComsadvice through a
confirmation letter[22]
and by debiting from PBComsaccount with
the said correspondent bank the sum of Eleven Thousand Nine
Hundred Sixty US Dollars ($11 ,960.00).[23]
As in past transactions,
MICO executed in favor of PBCom a corresponding trust receipt .[24]
On January 4, 1982, MICO applied, for authority to open a
foreign letter of credit in the sum of One Thousand Nine HundredUS Dollars ($1,900.00), with PBCom.[25]Upon approval, the
corresponding letter of credit denominated as LC No. 62293[26]
was
issued whereupon PBCom advised its correspondent bank and
MICO[27]of the same. Negotiation and proper acceptance of the
letter of credit were then made by MICO. Again, a corresponding
trust receipt[28]was executed by MICO in favor of PBCom.
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In all the transactions involving foreign letters of
credit, PBCom turned over to MICO the necessary documents such
as the bills of lading and commercial invoices to enable the latter to
withdraw the goods from the port of Manila.
On May 21, 1982 MICO obtained from PBCom another loan inthe sum of Three Hundred Seventy-Seven Thousand Pesos
(P377,000.00) covered by Promissory Note BA No. 7458.[29]
Upon maturity of all credit availments obtained by MICO
from PBCom, the latter made a demand for payment.[30]For failure
of petitioner MICO to pay the obligations incurred despite repeated
demands, private
respondent PBCom extrajudicially foreclosed MICOsreal estate
mortgage and sold the said mortgaged properties in a public auction
sale held on November 23, 1982. Private respondent PBCom which
emerged as the highest bidder in the auction sale, applied theproceeds of the purchase price at public auction of Three Million
Pesos (P3,000,000.00) to the expenses of the foreclosure, interest
and charges and part of the principal of the loans, leaving an unpaid
balance of Five Million Four Hundred Forty-One Thousand Six
Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90)
exclusive of penalty and interest charges. Aside from the unpaid
balance of Five Million Four Hundred Forty-One Thousand Six
Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90),
MICO likewise had another standing obligation in the sum of Four
Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos(P461,600.06) representing its trust receipts liabilities to private
respondent. PBCom then demanded the settlement of the
aforesaid obligations from herein petitioners-sureties who,
however, refused to acknowledge their obligations to PBCom under
the surety agreements. Hence, PBCom filed a complaint with prayer
for writ of preliminary attachment before the Regional Trial Court of
Manila, which was raffled to Branch 55, alleging that MICO was no
longer in operation and had no properties to answer for its
obligations. PBCom further alleged that petitioner Charles Lee has
disposed or concealed his properties with intent to defraud his
creditors. Except for MICO and Charles Lee, the sheriff of the RTC
failed to serve the summons on herein petitioners-sureties since
they were all reportedly abroad at the time. An alias summons was
later issued but the sheriff was not able to serve the same topetitioners Alfonso Co and Chua Siok Suy who was already sickly at
the time and reportedly in Taiwan where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all
the allegations of the complaint filed by respondent PBCom, and
alleged that: a) MICO was not granted the alleged loans and neither
did it receive the proceeds of the aforesaid loans; b)
Chua Siok Suy was never granted any valid Board Resolution to sign
for and in behalf of MICO; c) PBCom acted in bad faith in granting
the alleged loans and in releasing the proceeds thereof; d)
petitioners were never advised of the alleged grant of loans and the
subsequent releases therefor, if any; e) since no loan was ever
released to or received by MICO, the corresponding real estate
mortgage and the surety agreements signed concededly by the
petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein
petitioners and dismissed the complaint filed by PBCom. The trial
court likewise declared the real estate mortgage and its foreclosure
null and void. In ruling for herein petitioners, the trial court said
that PBCom failed to adequately prove that the proceeds of theloans were ever delivered to MICO. The trial court pointed out,
among others, that while PBCom claimed that the proceeds of the
Four Million Pesos (P4,000,000.00) loan covered by promissory note
TA 094 were deposited to the current account of petitioner
MICO, PBCom failed to produce the ledger account showing such
deposit. The trial court added that while PBCom may have loaned to
MICO the other sums of Three Hundred Forty-Eight Thousand Pesos
(P348,000.00) and Two Hundred Ninety Thousand Pesos
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(P290,000.00), no proof has been adduced as to the existence of the
goods covered and paid by the said amounts. Hence, inasmuch as
no consideration ever passed from PBCom to MICO, all the
documents involved therein, such as the promissory notes, real
estate mortgage including the surety agreements were all void or
nonexistent for lack of cause or consideration. The trial court saidthat the lack of proof as regards the existence of the merchandise
covered by the letters of credit bolstered the claim of herein
petitioners that no purchases of the goods were really made and
that the letters of credit transactions were simply resorted to by
the PBCom and Chua SiokSuy to accommodate the latter in his
financial requirements.
The Court of Appeals reversed the ruling of the trial court,
saying that the latter committed an erroneous application and
appreciation of the rules governing the burden of proof. Citing
Section 24 of the Negotiable Instruments Law which provides that
Every negotiable instrument is deemedprima facie to have been
issued for valuable consideration and every person whose
signature appears thereon to have become a party thereto for
value, the Court of Appeals said that while the subject promissory
notes and letters of credit issued by the PBCom made no mention of
delivery of cash, it is presumed that said negotiable instruments
were issued for valuable consideration. The Court of Appeals also
cited the case of Gatmaitan vs. Court of Appeals[31]
which holds that
"there is a presumption that an instrument sets out the true
agreement of the parties thereto and that it was executed forvaluable consideration. Theappellate court noted and found that
a notarized Certification was issued by MICOscorporate secretary,
P.B. Barrera, that Chua Siok Suy, was duly authorized by the Board
of Directors of MICO to borrow money and obtain credit facilities
from PBCom.
Petitioners filed a motion for reconsideration of the challenged
decision of the Court of Appeals but this was denied in a Resolution
dated November 7, 1994 issued by its Former Second Division.
Petitioners-sureties then filed a petition for review on certiorari
with this Court, docketed as G.R. No. 117913, assailing the decision
of the Court of Appeals. MICO likewise filed a separate petition for
review on certiorari, docketed as G.R. No. 117914, with this Court
assailing the same decision rendered by the Court of Appeals. Uponmotion filed by petitioners, the two (2) petitions were consolidated
on January 11, 1995.[32]
Petitioners contend that there was no proof that the proceeds
of the loans or the goods under the trust receipts were ever
delivered to and received by MICO. But the record shows otherwise.
Petitioners-sureties further contend that assuming that there was
delivery by PBCom of the proceeds of the loans and the goods, the
contracts were executed by an unauthorized person, more
specifically Chua Siok Suy who acted fraudulently and in collusion
with PBCom to defraud MICO.
The pertinent issues raised in the consolidated cases at bar are:
a) whether or not the proceeds of the loans and letters of credit
transactions were ever delivered to MICO, and b) whether or not
the individual petitioners, as sureties, may be held liable under the
two (2) Surety Agreements executed on March 26, 1979 and July 28,
1980.
In civil cases, the party having the burden of proof must
establish his case by preponderance of evidence.[33]
Preponderance
of evidence means evidence which is more convincing to the courtas worthy of belief than that which is offered in opposition thereto.
Petitioners contend that the al leged promissory notes, trust receipts
and surety agreements attached to the complaint filed
by PBCom did not ripen into valid and binding contracts inasmuch
as there is no evidence of the delivery of money or loan proceeds to
MICO or to any of the petitioners-sureties. Petitioners claim that
under normal banking practice, borrowers are required to
accomplish promissory notes in blank even before the grant of the
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