Manlar Rice Mill, Inc. vs. Deyto

Solidary liability cannot be lightly inferred and contracts bind only the parties thereto; a person who is not a party to a contract cannot be held liable thereunder based solely on familial relationship or unwritten guarantees, and the burden of proving participation in a contract rests upon the party alleging such participation.

Manlar Rice Mill, Inc. (Manlar) engaged in the business of rice milling and grain sales. Lourdes L. Deyto operated JD Grains Center, a rice milling business. Her daughter, Jennelita Deyto Ang (Janet Ang), operated a separate rice trading business under "Janet Commercial Store." In October 2000, Ang contracted with Manlar for rice supplies totaling ₱3,843,220.00, payment for which was secured by nine postdated checks drawn from Ang's personal Chinabank account. Upon presentment, the checks were dishonored—two for insufficient funds and seven for being drawn against a closed account.

• The Rice Supply Transaction: In October 2000, Jennelita Deyto Ang entered into a rice supply contract with Manlar Rice Mill, Inc. for the purchase of rice valued at ₱3,843,220.00. Ang issued nine postdated checks drawn from her personal account with Chinabank del Monte branch to cover the purchase price. Upon presentment, all checks were dishonored—Checks Nos. 146514 and 146552 for insufficient funds, and the remaining seven for being drawn against a closed account.

• Demand and Complaint: Manlar made oral and written demands upon both Deyto and Ang for payment, which were unheeded. During these demands, Deyto allegedly informed Manlar's Sales Manager Pablo Pua that Ang could not be located. On November 24, 2000, Manlar filed a complaint for sum of money against both mother and daughter before the RTC of Quezon City, seeking to hold them solidarily liable.

• Deyto's Defense: Deyto denied any participation in the transaction. She claimed that JD Grains Center was solely owned by her, that Ang had no participation in that business, and that JD Grains Center was engaged in rice milling, not buying and selling rice. She asserted that Ang operated her own separate business, "Janet Commercial Store," and that any obligation incurred was purely Ang's personal liability.

• Trial Evidence: Manlar presented Pablo Pua as its sole witness. Pua testified that he knew both Deyto and Ang since 1995; that Ang was the Operations Manager of JD Grains Center; that they purchased rice on "cash on delivery" basis from 1995 to 2000, then shifted to postdated checks in 2000; that Deyto allegedly induced Pua to deliver rice by assuring him of her extensive assets and providing copies of JD Grains Center's registration, business permits, and certificates of title; and that deliveries were made to Deyto's Bulusan Street residence. However, on cross-examination, Pua admitted that no deliveries were actually made at Deyto's residence, that Deyto's guarantee was verbal only, and that deliveries ended up at Ang's Sabucoy residence.

• Defense Evidence: Deyto testified that she did not know Pua prior to November/December 2000 when he came looking for Ang; that she resided in Santiago City, Isabela, not at the Bulusan Street address; that she and Ang were not on speaking terms as of June 2000 due to Ang's activities; and that Ang had been removed as an agent of JD Grains Center in 1997 for failure to remit collections. Jose D. Ang (Deyto's son) testified that he managed JD Grains Center, not Deyto, and that Ang was removed as agent in 1997. Homer Petallano, Chinabank Operations Head, testified that Ang was the sole owner of the account from which the checks were drawn.

• Authority to Sue: Manlar argued that the subsequent submission of a notarized board resolution on June 7, 2001—six months after filing the complaint—cured any defect in Pablo Pua's authority to sign the verification and certification against forum shopping. It maintained that the trial court's resolution on this matter had become final and executory as Deyto did not appeal it.

• Substantive Liability: Manlar contended that both Deyto and Ang contracted with it for rice deliveries, asserting that Deyto induced the transactions by representing her creditworthiness and providing business documents. It argued that the issuance of postdated checks by respondents established the obligation and that Deyto's possession of some of Ang's negotiated checks proved conspiracy to defraud. Manlar claimed that Deyto guaranteed Ang's checks and disposed of assets in fraud of creditors.

• Conspiracy and Solidary Liability: Petitioner maintained that the mother and daughter conspired to defraud Manlar, and that Deyto should be held solidarily liable for Ang's obligation based on their collaborative efforts and Deyto's verbal guarantee.

• Lack of Participation: Deyto countered that she did not contract with Manlar and had no participation in the transactions between Manlar and Ang. She asserted that Ang operated a separate business (Janet Commercial Store) and incurred the obligation in her personal capacity.

• Insufficient Evidence: Respondent argued that Manlar failed to present documentary evidence proving deliveries to her, and that Pua's testimony regarding deliveries to her Bulusan residence was hearsay based on drivers' accounts, not personal knowledge. She pointed out inconsistencies in Pua's testimony, rendering him unreliable.

• Procedural Defect: Deyto reiterated that the complaint was defective for lack of the required board resolution authorizing Pua to sign the verification and certification against forum shopping at the time of filing, and that the belated submission could not cure this fatal defect under Revised Supreme Court Circular No. 28-91.

• Procedural Validity: Whether the complaint was validly filed despite the lack of board resolution authorizing Pablo Pua to sign the verification and certification against forum shopping at the time of filing.

• Solidary Liability: Whether Lourdes Deyto may be held solidarily liable with Jennelita Deyto Ang for the latter's obligation under the rice supply contract.

• Burden of Proof: Whether Manlar discharged its burden of proving Deyto's participation in the contract and her assumption of solidary liability.

• Procedural Validity: The Court found no need to resolve the procedural issue regarding the board resolution, the resolution of the case on substantive grounds being sufficient to dispose of the petition.

• Solidary Liability: Solidary liability was not established. The Court emphasized that solidary obligation cannot be lightly inferred; it exists only when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires. The evidence showed that Ang alone entered into the contract with Manlar. The checks were drawn from Ang's personal account, not a joint account with Deyto. Pua admitted that Deyto was not present during deliveries and that the alleged guarantee was merely verbal. No written contract bound Deyto as solidary debtor.

• Burden of Proof: Manlar failed to discharge its burden of proving Deyto's participation in the contract. The preponderance of evidence indicated that Ang contracted in her personal capacity. Pua's testimony that deliveries were made to Deyto was contradicted by his admission that deliveries actually ended up at Ang's residence and that he had no personal knowledge of deliveries to Deyto. The claim that Deyto induced the contract by providing business documents was implausible, as these were public records Manlar could obtain independently. The totality of evidence suggested an attempt to implicate Deyto to recover losses from Ang, who had absconded.

• Relativity of Contracts: Applying Article 1311 of the Civil Code, the Court held that contracts affect only the parties thereto. Deyto, not being a party to the rice supply contract between Manlar and Ang, cannot be enforced against under said contract.

• Relativity of Contracts (Article 1311, Civil Code) — Contracts produce effect only between the parties, their assigns, and heirs. A contract cannot be enforced against a person who is not a party thereto, even if such person is related to one of the contracting parties. In this case, the Court applied this principle to exclude the mother from liability for her daughter's contractual obligation, absent any showing that the mother was a party to the contract or assumed liability therefor.

• Solidary Liability (Article 1207, Civil Code) — Solidary obligation cannot be lightly inferred. It arises only when: (1) the obligation expressly so states; (2) the law so provides; or (3) the nature of the obligation so requires. A verbal assurance of payment does not suffice to create solidary liability; the assumption must be clear and unequivocal, preferably in writing.

• Burden of Proof in Civil Cases — He who alleges must prove his case by preponderance of evidence. If the plaintiff fails to show satisfactorily the facts upon which he bases his claim, the defendant is under no obligation to prove his exceptions or defenses (Ei incumbit probatio qui dicit, non qui negat).

• "As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party thereto." — This encapsulates the principle of relativity of contracts applied by the Court to exclude Deyto from liability.

• "Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires." — The Court's citation of this rule underscores the strict requirements for establishing solidary liability.

• "What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that the former may recover its losses, since it could no longer recover them from Ang as a result of her absconding; this conclusion is indeed consistent with what the totality of the evidence on record appears to show." — The Court's observation on the petitioner's motive in impleading Deyto.

• "It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person." — Reinforcing the application of Article 1311 of the Civil Code.

• Martin v. Court of Appeals, G.R. No. 82248, January 30, 1992 — Cited for the evidentiary rule that the burden of proof rests upon the plaintiff, and if the plaintiff fails to prove his case, the defendant need not prove his defenses.

• Industrial Management International Development Corporation (INIMACO) v. National Labor Relations Commission, 387 Phil. 659 (2000) — Cited for the rule that solidary obligation cannot be lightly inferred.

• Visayan Surety and Insurance Corporation v. Court of Appeals, 417 Phil. 110 (2001) — Cited for the principle that contracts can bind only the parties who entered into it and cannot prejudice third persons.

• Article 1311, Civil Code — Establishes the principle of relativity of contracts, providing that contracts take effect only between the parties, their assigns and heirs. The Court applied this provision to hold that Deyto, not being a party to the rice supply contract, cannot be held liable thereunder.

• Article 1207, Civil Code — (Implied in the discussion) Provides that there is solidary liability only when the obligation expressly so states, when the law so provides, or when the nature of the obligation so requires. The Court cited this principle to reject the imposition of solidary liability based on mere verbal guarantees.

Antonio T. Carpio (Chairperson), Arturo D. Brion, Jose Portugal Perez, Estela M. Perlas-Bernabe