Lee vs. Court of Appeals

The presumptions under Section 24 of the Negotiable Instruments Law (every negotiable instrument is deemed prima facie to have been issued for valuable consideration) and Section 3, Rule 131 of the Rules of Court (presumption of sufficient consideration for a contract) stand as evidence when uncontradicted; bare denials and self-serving testimonies do not rebut the prima facie case established by documentary evidence. In suretyship, the consideration moving to the principal alone is sufficient consideration for the surety, who need not receive any direct benefit.

MICO Metals Corporation, through its president Charles Lee, wrote to PBCom on 2 March 1979 requesting a discounting loan/credit line of ₱3 million and another ₱3 million line for letters of credit and trust receipts. The MICO board adopted a resolution authorizing Lee and Vice-President/General Manager Mariano Sio to obtain credit facilities. PBCom granted the lines, and MICO availed of three ₱1 million loans, evidenced by promissory notes and secured by a real estate mortgage over MICO’s Pasig properties. Five individuals—Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, and Richard Velasco—executed a surety agreement capping their aggregate liability at ₱3 million. In July 1980 Lee applied for an additional ₱4 million loan, and all six sureties (including Alfonso Co) executed a second surety agreement with a ₱7.5 million liability limit. The board later authorized Chua Siok Suy to negotiate further credit facilities. MICO subsequently obtained domestic and foreign letters of credit, executed trust receipts, and availed of another loan of ₱377,000. After default, PBCom foreclosed the mortgage and sued MICO and the sureties for the deficiency and the unpaid trust receipt liabilities.

• Initial Loan Applications and Grant of Credit Facilities: On 2 March 1979, Charles Lee, as president of MICO, applied for discounting loan and letter of credit/trust receipt lines of ₱3 million each. MICO’s Board of Directors adopted a unanimous resolution authorizing Lee and Vice-President Mariano Sio, singly or jointly, to obtain credit facilities from PBCom up to ₱10 million. Between March and May 1979, MICO availed of three separate loans of ₱1 million each, which were renewed and ultimately covered by Promissory Notes BNA Nos. 26218, 26219, and 26253, all dated May 1982. As security, MICO through Mariano Sio executed a Deed of Real Estate Mortgage over two parcels of land in Pasig covered by TCT Nos. 11248 and 11250.

• First Surety Agreement: On 26 March 1979, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, and Richard Velasco, in their personal capacities, signed a Surety Agreement guaranteeing MICO’s obligations up to an aggregate principal amount of ₱3 million plus interest, costs, and attorney’s fees.

• Additional Loan and Second Surety Agreement: On 14 July 1980, Lee applied for an additional loan of ₱4 million for machinery expansion. The loan was granted and evidenced by Promissory Note TA No. 094 dated 29 July 1980. On 28 July 1980, Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco, and Alfonso Co executed a second Surety Agreement in favor of PBCom, jointly and severally guaranteeing MICO’s obligations up to ₱7.5 million.

• Authorisation of Chua Siok Suy: On 29 July 1980, MICO’s corporate secretary, Atty. P.B. Barrera, issued a notarised Certification attaching a board resolution that authorised Chua Siok Suy to borrow money and obtain credit facilities on behalf of MICO in such amounts and under such terms as he might determine, with authority to execute all necessary documents, and stating that the authority would continue until written notice of revocation was received by the bank.

• Letters of Credit and Trust Receipt Transactions: Between July 1980 and January 1982, MICO obtained domestic and foreign letters of credit from PBCom:

  • Domestic LC No. L-16060 for ₱348,000 (2 July 1981), proceeds paid to supplier Perez Battery Center; MICO executed a trust receipt.
  • Domestic LC No. L-16334 for ₱290,000 (22 September 1981), proceeds likewise paid to Perez Battery Center; MICO executed a trust receipt.
  • Foreign LC No. 61873 for US$11,960 (10 November 1981), issued in favour of Ta Jih Enterprises Co., Ltd. of Taiwan. PBCom’s correspondent bank Irving Trust Company paid the supplier; MICO executed a trust receipt upon delivery of the goods.
  • Foreign LC No. 62293 for US$1,900 (4 January 1982); similar arrangements, with MICO executing a trust receipt. All drafts under the foreign letters of credit were drawn on correspondent banks and later transmitted to PBCom.

• Additional Loan: On 21 May 1982, MICO obtained a further loan of ₱377,000 covered by Promissory Note BA No. 7458.

• Default, Foreclosure, and Demand: MICO failed to pay its obligations at maturity. PBCom made formal demand for payment. When MICO and the sureties did not settle, PBCom extrajudicially foreclosed the real estate mortgage. At the public auction on 23 November 1982, PBCom was the highest bidder and applied the ₱3 million purchase price to expenses, interest, and part of the principal, leaving an unpaid balance of ₱5,441,663.90 (exclusive of penalties and interest). An additional ₱461,600.06 remained outstanding on the trust receipt obligations.

• Complaint and the Parties’ Positions: PBCom filed a complaint with prayer for preliminary attachment before the RTC, alleging that MICO was no longer operating and had no properties, and that Charles Lee had concealed or disposed of his properties. The sureties denied all material allegations and claimed that: (a) MICO never received the loan proceeds; (b) Chua Siok Suy was not authorised and acted fraudulently with PBCom; (c) PBCom acted in bad faith; (d) the sureties were not informed of the loan releases; and (e) since no consideration passed, the mortgage and surety agreements were void.

• Trial Court’s Dismissal: The RTC dismissed the complaint and declared the mortgage and foreclosure void. It found that PBCom failed to prove that the ₱4 million proceeds were deposited to MICO’s account because no ledger was produced, and that no evidence was offered to show the existence of the goods covered by the letters of credit. The RTC concluded that the transactions lacked consideration and were void.

• Court of Appeals’ Reversal: The appellate court reversed, citing Section 24 of the Negotiable Instruments Law and Gatmaitan v. Court of Appeals, holding that the promissory notes and drafts were presumptively supported by valuable consideration, and that the notarised board certification amply established Chua Siok Suy’s authority.

• Lack of Consideration and Non-Delivery of Proceeds: Petitioners maintained that the promissory notes, trust receipts, and surety agreements never ripened into valid contracts because no money or goods were ever delivered to MICO. They argued that under normal banking practice, promissory notes are signed in blank before loan release and become binding only upon actual delivery of funds. The proceeds of the loans were allegedly not received by MICO, and the letters of credit were mere accommodations to Chua Siok Suy for his personal needs.

• Want of Authority of Chua Siok Suy: Petitioners contended that Chua Siok Suy was not validly authorised by MICO’s board to contract loans. They relied on MICO’s by-laws, which they asserted limited borrowing authority to the president, and claimed that Chua Siok Suy acted fraudulently in collusion with PBCom.

• Surety Agreements Signed in Blank and Without Consideration: The individual sureties alleged that Chua Siok Suy induced them to sign blank surety agreements and other documents, with assurances that the transactions would be handled by the bank’s chairman. They argued they received no personal benefit from the surety contracts, which were therefore unenforceable for lack of consideration.

• Presumption of Consideration: PBCom contended that the promissory notes presented were negotiable instruments presumptively issued for valuable consideration under Section 24 of the Negotiable Instruments Law. The bank also invoked the presumption under Section 3, Rule 131 of the Rules of Court that every contract has sufficient consideration. The documentary evidence—including promissory notes, drafts, trust receipts, and letters of credit—established a prima facie case of valid and binding obligations.

• Authority of Chua Siok Suy: PBCom argued that the notarised certification of MICO’s corporate secretary proved Chua Siok Suy’s authority to borrow on behalf of the corporation. The by-laws did not limit the power to the president; the board could delegate borrowing authority. The bank had every right to rely on that certification, absent any written revocation.

• Validity and Enforceability of the Surety Agreements: PBCom maintained that the sureties—who were also directors and officers of MICO—could not be heard to deny the transactions. The consideration for the principal debtor constituted sufficient consideration for the sureties. The bank further argued that the sureties’ claim of having signed in blank was belied by the notarised documents and the legal presumption that a person takes ordinary care of his concerns.

• Delivery of Loan Proceeds and Goods: Whether MICO actually received the proceeds of the loans and the goods covered by the letters of credit and trust receipts, thereby giving rise to a valid obligation.
• Authority of Chua Siok Suy: Whether Chua Siok Suy was duly authorised by MICO’s Board of Directors to obtain credit facilities such that the transactions are binding on MICO and its sureties.
• Liability of the Sureties: Whether the individual sureties are solidarily liable under the surety agreements despite their allegations that they signed in blank, received no personal consideration, and that the transactions were unauthorised.

• Delivery of Loan Proceeds and Goods: The promissory notes, bank drafts, and trust receipts were presumed to be supported by valuable consideration. Section 24 of the Negotiable Instruments Law provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration, and Section 3, Rule 131 of the Rules of Court presumes sufficient consideration for a contract. PBCom adduced documentary evidence of the promissory notes, the letters of credit, the drafts signed by suppliers showing payment by PBCom, the trust receipts acknowledging delivery of merchandise, and the letters from MICO requesting credit lines. These documents constituted a prima facie case. Petitioners’ bare denials, unsupported by competent evidence, failed to rebut the presumptions. MICO’s objection to the presentation of its current account ledger—which could have directly shown deposit of proceeds—prevented PBCom from producing that proof; MICO could not benefit from the absence of a record it had moved to keep confidential. Moreover, the application for an additional ₱4 million loan in 1980 implied prior availment of earlier loans. The drafts drawn on correspondent banks were consistent with standard letter-of-credit practice, and the trust receipts evidenced that MICO received the goods. Consequently, delivery and consideration were sufficiently established.

• Authority of Chua Siok Suy: The notarised certification of MICO’s corporate secretary, Atty. P.B. Barrera, proved that Chua Siok Suy was authorised by the board to borrow money and obtain credit facilities for MICO. The corporation’s by-laws permitted the board to delegate borrowing power. Petitioners presented no written revocation of that authority. PBCom was entitled to rely on the certification, and notice to Chua Siok Suy as MICO’s authorised representative was notice to the corporation. Thus, the transactions were binding on MICO.

• Liability of the Sureties: The consideration for the surety agreements is the same consideration that supports the principal debtor’s contracts. It need not pass directly to the surety; consideration moving to MICO suffices. The sureties’ claims that they signed in blank were inconsistent with the presumption that a person takes ordinary care of his concerns and does not sign a document without informing himself of its contents. The sureties held positions as directors and officers of MICO and were deemed to have knowledge of the transactions through the authorised representative. Their self-serving testimonies did not outweigh the documentary proof and legal presumptions. Accordingly, the sureties were jointly and severally liable with MICO for the unpaid obligations.

• Presumption of Consideration for Negotiable Instruments — Under Section 24 of the Negotiable Instruments Law, every negotiable instrument is deemed prima facie to have been issued for valuable consideration, and every person whose signature appears thereon is deemed a party for value. This presumption stands in the place of evidence unless rebutted by proof to the contrary. Applied here, the promissory notes and drafts were presumed valid and for value, and petitioners’ denials did not overcome the presumption.

• Presumption of Consideration for Contracts — Section 3, Rule 131 of the Rules of Court creates a presumption that there was sufficient consideration for a contract. Even instruments that are not negotiable (such as letters of credit and trust receipts) enjoy this presumption. The Court relied on this to hold that the trust receipts and related documents were supported by consideration absent contrary proof.

• Effect of Legal Presumptions on the Burden of Proof — A legal presumption temporarily relieves the party with the burden of proof from producing evidence, shifting the necessity of going forward to the adversary. If the adversary fails to present evidence sufficient to create an equipoise, the prima facie case prevails. Petitioners’ failure to present competent rebutting evidence meant that PBCom’s prima facie case carried the day.

• Consideration in Suretyship Moves from the Principal Debtor — The consideration necessary to support a surety obligation need not pass directly to the surety; consideration moving to the principal alone is sufficient. A surety is bound by the same consideration that makes the contract effective between the creditor and the principal debtor. (Reaffirming Willex Plastic Industries Corporation v. Court of Appeals.)

• Reliance on Corporate Secretary’s Certification of Board Authority — A bank may rely on a notarised certification issued by the corporate secretary attesting to a board resolution authorising an officer to obtain credit facilities. The corporation is bound unless it proves that a written revocation was communicated to the bank. Notice to the authorised representative is notice to the corporation.

• Presumption of Ordinary Care in Signing Documents — Under Section 3(d), Rule 131 of the Rules of Court, a person is presumed to take ordinary care of his concerns. Thus, one who signs a document is deemed to have read and understood its contents; a claim that documents were signed in blank is viewed with disfavour and requires clear and convincing evidence to be accepted.

• "Every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party for value." — Section 24, Negotiable Instruments Law, quoted as the anchor for the presumption applied to the promissory notes.

• "A presumption may operate against his adversary who has not introduced proof to rebut the presumption. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and which if no proof to the contrary is presented and offered, will prevail." — Articulates how legal presumptions interact with the burden of proof in civil cases.

• "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." — Cited from Willex Plastic Industries Corporation v. Court of Appeals, confirming that indirect consideration suffices in suretyship.

• "Modern letters of credit are usually not made between natural persons. They involve bank to bank transactions." — Explains why drafts drawn on correspondent banks, rather than payable directly to the issuing bank, are normal in international trade finance.

• "A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased." — Defines the function of a trust receipt in letter-of-credit financing.

• Gatmaitan v. Court of Appeals, 200 SCRA 37 (1991) — Followed for the principle that there is a presumption that an instrument sets out the true agreement of the parties and was executed for valuable consideration.
• Vintola v. Insular Bank of Asia and America, 150 SCRA 578 (1987) — Cited for the definition and nature of a trust receipt as a security transaction.
• Willex Plastic Industries Corporation v. Court of Appeals, 256 SCRA 478 (1996) — Relied upon for the doctrine that the consideration for a surety need not pass directly to the surety; consideration moving to the principal debtor is sufficient.

• Section 24, Negotiable Instruments Law — Applied to create the presumption that the promissory notes and bank drafts were issued for valuable consideration, which petitioners failed to rebut.
• Section 3, Rule 131, Rules of Court — Invoked for the presumptions (a) that there was sufficient consideration for a contract, and (d) that a person takes ordinary care of his concerns. These presumptions operated against petitioners who merely denied the transactions.
• Section 1, Rule 133, Rules of Court — Preponderance of evidence defined; used as the standard by which PBCom’s evidence was measured and found sufficient.
• Article II, (d) and (e), By-Laws of Mico Metals Corporation — Referenced to show that the board of directors had the power to borrow money and delegate that power to officers or agents, supporting the validity of the board resolution authorising Chua Siok Suy.

Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.