CHARLESS LEE, ET AL VS COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS GR NO.

117913 & 117914, February 1, 2002 375 SRA 579

FACTS: MICO Metals Corporation, through its President, Chares Lee requested from Philippine Bank of Communication a discounting loan/credit line in the amount of P3,000,000.000 for the purpose of carrying out MICOs line of business as well as to maintain its volume of business, and another discounting loan/credit line for the purpose of opening letters of credit and trust receipts. Both requests were supported by a resolution that the President, Charles Lee, and the Vice President and General Manager, Mr. Mariano Sio, are authorized and empowered to apply for, negotiate and secure the approval of commercial loans x x x x x but not limited to discount loans, letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of credit x x x x for a total amount of not to exceed P10,000,000.00. The request was approved by the Bank PBCom, and first availment in the amount of P1,000,000.00 was made on March 26, 1979. Total availment has reached P3,000,000.00, which upon maturity, were rolled-over or renewed. As security to the loan, a Real Estate Mortgage over MICOs properties was executed by its VP Mariano Sio. Further, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, executed in their personal capacity a Surety Agreement in favor of PBCom in the amount of P3,000,000.00. Another P4,0000,000.00 was requested by the President Charles Lee from PBCom for the purpose of expansion and modernization of the companies machineries. The request was consequently approved and availed in full. Another surety agreement was executed by the same set of officers-persons in favor of PBCom and their liability shall not at any one time exceed the sum of P7,500,000.00/ Later, MICO furnished PBCom a copy of its notarized certification issued by its corporate secretary stating therein that Chio Siok Suy was the duly authorized person, unanimously approved by the Board of Directors, to negotiate with PBCom on behalf of MICO for loans and other credit availments. After the receipt of this secretarys certificate, foreign letters of credits, domestic letter of credits and loans were further requested, approved and availed. Upon maturity of all the credit availments, PBCom demanded for payment but MICO failed to settle despite repeated demands, reason for the Bank to foreclose extrajudicially the properties, and later sold them in public

auction. The price however, was not sufficient to fully pay the total outstanding. PBCom demanded from the petitioners-sureties the deficiency, which the latter refused to acknowledge. Thus, the filing with the court of the complaint and for attachment on the properties of the petitioners-sureties contending that MICO is no longer in operation and it has no other properties to settle for the deficiency. The trial court denied the complaint for failure on the part of the Bank to prove that the proceeds of the loans were ever delivered to MICO, which the Court of Appeals reversed, hence this petition.

ISSUES: 1) Whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO; and 2) Whether or not the individual petitioners, as sureties, may be held liable under the 2 Surety Agreements executed.

RULING: The SC AFFIRMED in toto the decision of the Court Appeals. In civil cases, the party having the burden of proof must establish his case by preponderance of evidence, which can be established by the operation of presumption or by the probative value, which the law attaches to a specific state of facts, thereby creating a prima facie case. If there is no proof to the contrary, the prima facie case or evidence will prevail. The Negotiable Instruments Law clearly provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon are also presumed to have become a party for value. Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust receipts are however, not negotiable instruments, but drafts issued in connection with letters of credit are negotiable instruments. All documents presented by PBCom have not merely created a prima facie case but have actually proved the solidary obligation of MICO and the petitioners-sureties. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration. The fact that the letters of credit show that the pertinent materials/merchandise have been received by MICO and with drafts signed by the beneficiary/suppliers proved that there was a consideration for value. Therefore, the contention of the petitioner that the contracts on loans and letters of credits were not binding on the premise that there were no consideration for value and if there was, the Bank failed to present evidence as to the crediting of the proceeds to its account is untenable. It was the petitioner who has been preventing the Bank in presenting the evidence. But from the fact

itself that MICO has requested for an additional loan of P4M, impliedly, is a prima facie case which showed that the proceeds of the earlier loans were delivered to MICO. The court also found no merits on the latters contention that the contracts were executed fraudulently by the unauthorized person Chua Siok Suy. The fact that it was MICO which furnished PBCom the Secretarys Certificate, notarized by its own corporate secretary suffices for the PBCom to believe that it was valid and binding, hence the granting of the request for further availments.

Anent petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements, the Court pointed out that the consideration for the surety is the very consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex Plastic Industries Corporation vs. CA, it ruled that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the parties thereto. It is not necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal.