Aguenza vs. Metropolitan Bank & Trust Co.

A contract of surety is never presumed; it must be express and cannot extend to more than what is stipulated, and it is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety. Where a loan is obtained by corporate officers without authority from the Board of Directors, the obligation is personal to those officers and is not covered by a continuing suretyship agreement that guarantees only the corporation's obligations.

Petitioner J. Antonio Aguenza was the President of Intertrade & Marketing Co., Inc. (Intertrade), a corporation. Private respondent Vitaliado P. Arrieta was Intertrade's Executive Vice-President, and private respondent Lilia P. Perez was a bookkeeper in its employ. On February 28, 1977, Intertrade's Board of Directors passed a resolution authorizing petitioner and Arrieta to jointly apply for and open credit lines with private respondent Metropolitan Bank & Trust Company (Metrobank). The dispute concerns the scope of a Continuing Suretyship Agreement executed by petitioner and Arrieta in favor of Metrobank, and whether a subsequent loan obtained by Arrieta and Perez was a corporate obligation covered by that agreement.

Petitioner J. Antonio Aguenza was the President of Intertrade & Marketing Co., Inc. (Intertrade), while private respondent Vitaliado P. Arrieta was its Executive Vice-President and private respondent Lilia P. Perez was its bookkeeper. On February 28, 1977, Intertrade's Board of Directors, through a Board Resolution, authorized and empowered petitioner and Arrieta to jointly apply for and open credit lines with private respondent Metropolitan Bank & Trust Company (Metrobank). Pursuant to this authority, petitioner and Arrieta executed several trust receipts from May to June 1977, with an aggregate value of P562,443.46, with Intertrade as entrustee and Metrobank as entruster. On March 14, 1977, petitioner and Arrieta executed a Continuing Suretyship Agreement, binding themselves jointly and severally with Intertrade to pay Metrobank whatever obligation Intertrade incurs, but not exceeding P750,000.00. Metrobank's Debit Memo to Intertrade dated March 22, 1978 showed full settlement of the letters of credit covered by said trust receipts.

On March 21, 1978, Arrieta and Lilia Perez obtained a P500,000.00 loan from Metrobank, executing a Promissory Note in the bank's favor. Under the note, they promised to pay the amount, jointly and severally, in twenty-five equal installments of P20,000.00 each starting on April 20, 1979, with interest of 18.704% per annum, and in case of default, a further 8% per annum. Arrieta and Perez defaulted in the payment of several installments, causing the entire obligation to become due and demandable. In 1979, Metrobank instituted suit against Intertrade, Arrieta, Lilia Perez, and her husband Patricio Perez. More than a year later, Metrobank filed an Amended Complaint dated August 30, 1980, impleading petitioner as liable for the loan made by Arrieta and Perez, claiming liability under the Continuing Suretyship Agreement dated March 14, 1977.

The trial court absolved petitioner from liability, finding that the promissory note was the responsibility only of Arrieta and Lilia Perez in their personal capacity, and that the loan was not a corporate liability of Intertrade. On appeal, the Court of Appeals reversed, holding that Intertrade had admitted the loan to be its corporate liability through its answer, and that the suretyship agreement, being continuing and retrospective and prospective in operation, covered the promissory note. The appellate court also found that the stated purpose of the note, "operating capital," could not refer to the personal capital requirements of Arrieta and Perez, and that their combined resources would not have justified a business loan of that magnitude.

• Error in Reversing Trial Court Finding: Petitioner argued that the respondent court erred in reversing the trial court's finding that the P500,000.00 loan procured by Arrieta and Lilia Perez was not a corporate liability of Intertrade, and that petitioner was not liable under the Continuing Suretyship Agreement.
• Misapprehension of Facts: Petitioner maintained that the conclusion that the loan was a corporate liability, consequently rendering him liable in his personal capacity as surety, was grossly erroneous and premised on a misapprehension of facts.
• Incorrect Construction: Petitioner argued that the conclusions and construction reached by the respondent court from the facts and evidence of record were incorrect, resulting in an erroneous decision gravely prejudicial to his substantial rights.

N/A — The decision does not recount the specific arguments of the respondents (Metrobank, Arrieta, and the Perez spouses) in a manner that can be separately summarized. The Court of Appeals' reasoning, which favored the respondents, is detailed in the Facts and Ruling Rationale sections.

• Corporate Liability: Whether the P500,000.00 loan obtained by Arrieta and Lilia Perez on March 21, 1978 was a corporate liability of Intertrade.
• Coverage of Suretyship Agreement: Whether the Continuing Suretyship Agreement executed by petitioner covered the obligation arising from the P500,000.00 loan.
• Judicial Admission: Whether Intertrade's answer constituted a judicial admission of corporate liability for the loan.

• Corporate Liability: No. The loan was not a corporate liability of Intertrade. There was no enabling corporate act, board resolution, or stockholder's resolution authorizing Arrieta and Lilia Perez to contract the loan on behalf of the corporation. The obligation was the individual and personal obligation of Arrieta and Lilia Perez.
• Coverage of Suretyship Agreement: No. Since the loan was not an obligation of Intertrade, it was not an undertaking covered by the Continuing Suretyship Agreement. A contract of surety is never presumed and cannot extend to more than what is stipulated.
• Judicial Admission: No. The alleged judicial admission in Intertrade's answer was taken out of context and no admission was made at all. Even assuming an admission was made, it was without any enabling act or attendant ratification of corporate act and thus does not bind the corporation.

• Corporate Liability: The Court found no factual or legal basis for the appellate court's finding that the loan was a corporate liability. The power to borrow money is one of those cases where even a special power of attorney is required, citing Article 1878 of the New Civil Code. The records were bereft of any evidence that Intertrade, through its Board of Directors, conferred upon Arrieta and Lilia Perez the authority to contract a loan with Metrobank. Neither a board resolution nor a stockholder's resolution was presented to show they were empowered to execute the promissory note. The prevailing practice in Intertrade was to explicitly authorize an officer to contract loans in behalf of the corporation, as evidenced by the board resolution that jointly empowered petitioner and Arrieta to open credit lines, mandating their participation to be joint and not separate and individual. In this case, only Arrieta, together with a bookkeeper, signed the promissory note without the participation and approval of petitioner.
• Coverage of Suretyship Agreement: Proceeding from the premise that the subject loan was not the responsibility of Intertrade, the undertaking of Arrieta and the bookkeeper was not an undertaking covered by the Continuing Suretyship Agreement. The Court applied the rule that a contract of surety is never presumed; it must be express and cannot extend to more than what is stipulated, citing Article 2055 of the New Civil Code. It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety. The obligation incurred in the subject contract of loan was the individual and personal obligation of Arrieta and Lilia Perez, not of the corporation and petitioner.
• Judicial Admission: The Court held that the general rule that allegations, statements, or admissions contained in a pleading are conclusive against the pleader is not an absolute and inflexible rule. Under Rule 129, Section 4 of the Rules of Evidence, an admission may be contradicted by showing that it was made through palpable mistake or that no such admission was made. The Court found that the respondent court erred in appreciating the "Answer" filed by Intertrade's counsel as an admission of corporate liability. A careful study revealed that there was neither express nor implied admission of corporate liability. Even assuming the pleading contained such an admission, it could not be given effect because it was made "without any enabling act or attendant ratification of corporate act." Citing Vicente vs. Geraldez, the Court explained that ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract; the ratification must be by the officer or governing body having authority to make such contract. The unauthorized act of Arrieta could only be ratified by the action of the Board of Directors and/or petitioner jointly with Arrieta.

• Strict Construction of Suretyship Agreements — A contract of surety is never presumed; it must be express and cannot extend to more than what is stipulated. It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety. The Court applied this doctrine to hold that a surety agreement covering only the corporation's obligations does not extend to a loan that is the personal obligation of corporate officers.
• Judicial Admissions are Not Absolute — The rule that allegations, statements, or admissions contained in a pleading are conclusive against the pleader is not absolute and inflexible. Under Rule 129, Section 4 of the Rules of Evidence, an admission may be contradicted by showing that it was made through palpable mistake or that no such admission was made. The Court applied this to find that the alleged admission of corporate liability in Intertrade's answer was taken out of context.
• Corporation's Distinct Personality and Authority of Officers — A corporation has a distinct personality separate from its members and transacts business only through its officers or agents. Whatever authority these officers or agents may have is derived from the Board of Directors or other governing body unless conferred by the charter of the corporation. An officer's power as an agent must be sought from the statute, charter, by-laws, or the acts of the Board of Directors. The Court applied this to hold that Arrieta and Perez had no authority to bind the corporation to the loan.
• Ratification of Unauthorized Acts — Ratification can never be made on the part of the corporation by the same persons who wrongfully assume the power to make the contract; the ratification must be by the officer or governing body having authority to make such contract. The Court applied this to reject the argument that letters from Arrieta's office ratified the unauthorized loan.

• "The rule is that a contract of surety is never presumed; it must be express and cannot extend to more than what is stipulated, It is strictly construed against the creditor, every doubt being resolved against enlarging the liability of the surety." — This passage states the controlling doctrine on suretyship, which is the ratio decidendi for absolving the petitioner from liability.
• "In the case at bench, only respondent Arrieta, together with a bookkeeper of the corporation, signed the promissory notes, without the participation and approval of petitioner Aguenza. Moreover, the enabling corporate act on this particular transaction has not been obtained." — This excerpt identifies the key factual finding that the loan was not a corporate act, as the officers lacked the necessary authority.
• "The present obligation incurred in subject contract of loan, as secured by the Arrieta and Perez promissory note, is not the obligation of the corporation and petitioner Aguenza, but the individual and personal obligation of private respondents Arrieta and Lilia Perez." — This is the core conclusion of the Court, defining the nature of the obligation and the resulting non-liability of the surety.

• Vicente vs. Geraldez, 52 SCRA 210 (1973) — Cited as controlling authority for the doctrine that ratification of an unauthorized act by a corporation must be made by the officer or governing body having authority to make such contract, not by the same persons who wrongfully assumed the power.
• Cunanan vs. Amparo, 80 Phil. 227 (1948) — Cited for the general rule that allegations, statements, or admissions contained in a pleading are conclusive against the pleader.
• Gardner vs. Court of Appeals, 131 SCRA 585 (1984) — Cited to support the proposition that the rule on judicial admissions is not absolute and inflexible.
• Boyer-Roxas vs. Court of Appeals, 211 SCRA 470 (1992) — Cited for the principle that a corporation's officers derive their authority from the Board of Directors or other governing body.
• Traders Insurance & Surety Co. vs. Dy eng Giok, et al., 104 Phil. 806 (1958) — Cited in support of the rule that a contract of surety is never presumed and is strictly construed against the creditor.

• Article 1878, New Civil Code — Cited to establish that the power to borrow money is one of those cases where even a special power of attorney is required, supporting the finding that Arrieta and Perez lacked authority to bind the corporation.
• Article 2055, New Civil Code — Cited as the statutory basis for the rule that a contract of surety is never presumed and cannot extend to more than what is stipulated.
• Rule 129, Section 4, Rules of Evidence — Cited to define judicial admissions and the exceptions to the rule that they are conclusive, allowing them to be contradicted by showing palpable mistake or that no such admission was made.

Padilla, Bellosillo, Vitug, and Kapunan, JJ., concurred.

N/A — No dissenting opinions were noted in the provided text.