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People vs Nitafan Digest

Facts:

Private respondent K.T. Lim was charged with violation of B.P. 22. He moved to quash the
Information of the ground that the facts charged did not constitute a felony as B.P. 22 was
unconstitutional and that the check he issued was a memorandum check which was in the
nature of a promissory note, perforce, civil in nature. Judge Nitafan, ruling that B.P. 22 on
which the Information was based was unconstitutional, issued the questioned Order
quashing the Information. Hence, the appeal.

Issue:

Whether a memorandum check is within the coverage of B.P. 22

Held:

A memorandum check is in the form of an ordinary check, with the word "memorandum",
"memo" or "mem" written across its face, signifying that the maker or drawer engages to
pay the bona fide holder absolutely, without any condition concerning its presentment.
Such a check is an evidence of debt against the drawer, and although may not be intended
to be presented, has the same effect as an ordinary check, and if passed to the third
person, will be valid in his hands like any other check.

A memorandum check comes within the meaning of Sec. 185 of the Negotiable Instruments
Law which defines a check as "a bill of exchange drawn on a bank payable on demand. A
memorandum check, upon presentment, is generally accepted by the bank. Hence it does
not matter whether the check issued is in the nature of a memorandum as evidence of
indebtedness or whether it was issued is partial fulfillment of a pre-existing obligation,
for what the law punishes is the issuance itselfof a bouncing check and not the purpose for
which it was issuance. The mere act of issuing a worthless check, whether as a deposit, as
a guarantee, or even as an evidence of a pre-existing debt, is malum prohibitum.

A memorandum check may carry with it the understanding that it is not be presented at
the bank but will be redeemed by the maker himself when the loan fall due. However, with
the promulgation of B.P. 22, such understanding or private arrangement may no longer
prevail to exempt it from penal sanction imposed by the law. To require that the agreement
surrounding the issuance of check be first looked into and thereafter exempt such issuance
from the punitive provision of B.P. 22 on the basis of such agreement or understanding
would frustrate the very purpose for which the law was enacted — to stem
the proliferation of unfunded checks. After having effectively reduced the incidence of
worthless checks changing hands, the country will once again experience the limitless
circulation of bouncing checks in the guise of memorandum checks if such checks will be
considered exempt from the operation of B.P. 22. It is common practice in commercial
transactions to requiredebtors to issue checks on which creditors must rely as guarantee of
payment. To determine the reasons for which checks are issued, or the terms and
conditions for their issuance, will greatly erode the faith the public responses in the
stability and commercial value of checks as currency substitutes, and bring about havoc in
trade and in banking communities. (People vs. Judge Nitafan, G.R. No. 75954, October
22, 1992)

Philippine Airlines, Inc. vs Court of Appeals, 181 SCRA 557, GR No. 49188, January 30,
1990,

THE FACTS:

1
Amelia Tan commenced a complaint for damages before the Court of First Instance against
Philippine Airlines, Inc. (PAL). The Court rendered a judgment in favor of the former and
against the latter.
PAL filed its appeal with the Court of Appeals (CA), and the appellate court affirmed the
judgment of the lower court with the modification that PAL is condemned to pay the latter
the sum of P25, 000.00 as damages and P5, 000.00 as attorney’s fee.

Judgment became final and executory and was correspondingly entered in the case, which
was remanded to the trial court for execution. The trial court upon the motion of Amelia
Tan issued an order of execution with the corresponding writ in favor of the respondent.
Said writ was duly referred to Deputy Sheriff Reyes for enforcement.

Four months later, Amelia Tan moved for the issuance of an alias writ of execution, stating
that the judgment rendered by the lower court, and affirmed with modification by the CA,
remained unsatisfied. PAL opposed the motion, stating that it had already fully paid its
obligation to plaintiff through the issuance of checks payable to the deputy sheriff who later
did not appear with his return and instead absconded.

The CA denied the issuance of the alias writ for being premature. After two months the CA
granted her an alias writ of execution for the full satisfaction of the judgment rendered,
when she filed another motion. Deputy Sheriff del Rosario is appointed special sheriff for
enforcement thereof.

PAL filed an urgent motion to quash the alias writ of execution stating that no return of the
writ had as yet been made by Deputy Sheriff Reyes and that judgment debt had already
been fully satisfied by the former as evidenced by the cash vouchers signed and received by
the executing sheriff.

Deputy Sheriff del Rosario served a notice of garnishment on the depository bank of PAL,
through its manager and garnished the latter’s deposit. Hence, PAL brought the case to the
Supreme Court and filed a petition for certiorari.

THE ISSUES:

WON an alias writ of execution can be issued without prior return of the original writ by the
implementing officer.
WON payment of judgment to the implementing officer as directed in the writ of execution
constitutes satisfaction of judgment.
WON payment made in checks to the sheriff and under his name is a valid payment to
extinguish judgment of debt.
THE RULING:

1. Affirmative. Technicality cannot be countenanced to defeat the execution of a judgment

for execution is the fruit and end of the suit and is very aptly called the life of the law. A
judgment cannot be rendered nugatory by unreasonable application of a strict rule of
procedure. Vested right were never intended to rest on the requirement of a return. So long
as judgment is not satisfied, a plaintiff is entitled to other writs of execution.

2. Negative. In general, a payment, in order to be effective to discharge an obligation, must

be made to the proper person. Article 1240 of the Civil Code provides:

“Payment made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it.”

Under ordinary circumstances, payment by the judgment debtor in the case at bar, to the
sheriff should be valid payment to extinguish judgment of debt.

However, under the peculiar circumstances of this case, the payment to the absconding
sheriff by check in his name did not operate as a satisfaction of the judgment debt.
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3. Negative. Article 1249 of the Civil Code provides:

“The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the
Philippines”.

Unless authorized to do so by law or by consent of the obligee, a public officer has no

authority to accept anything other than money in payment of an obligation under a
judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner’s
checks does not, per se, operate as a discharge of the judgment of debt.
A check, whether manager’s check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender or payment and may be refused receipt by
the oblige or creditor. Hence, the obligation is not extinguished.

Philippine Airlines V. CA (1990)

G.R. No. L-49188 January 30, 1990

FACTS:
November 8, 1967: Amelia Tan, under the name and style of Able Printing Press
commenced a complaint for damages before the CFI

CFI: favored Amelia Tan against Philippine Airlines Inc. (PAL)

CA affirmed with mod

May 18, 1978: PAL received a copy of the first alias writ of execution issued on the same
day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan
made an extra-judicial demand through a letter

May 23, 1978: PAL filed an urgent motion to quash the alias writ of execution stating that
no return of the writ had as yet been made and that the judgment debt had already been
fully satisfied as evidenced by the cash vouchers signed and received by Deputy Sheriff
Reyes who absconded

May 26,1978: served a notice of garnishment on the depository bank of PAL

ISSUE: W/N payment made to the absconding sheriff by check in his name operate to
satisfy the judgment debt

HELD: NO. CA affirmed.

payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment

The receipt of money due on ajudgment by an officer authorized by law to accept it will,
therefore, satisfy the debt

Since a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment

The payment made by the PAL to the absconding sheriff was not in cash or legal tender but
in checks

Article 1249 of the Civil Code provides:

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The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
As between two innocent persons, one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of confidence must bear the loss.

PAL without prudence, departed from what is generally observed and done, and placed as
payee in the checks the name of the errant Sheriff and not the name of the rightful payee .

THE TWIST: Payment in

cash is logical, but it was not proper.

Payment in cash to the implementing officer may be deemed absolute payment of judgment
debt but the Court has never, in the least bit, suggested that judgment debtors should
settle their obligations by turning over huge amounts of cash or legal tender to the
executing officers. Payment in cash would result in damage or endless litigations each time
a sheriff with huge amounts of cash in his hands decides to abscond.

As a protective measure, the courts encourage the practice of payment of check provided
adequate controls are instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds.

However, in the case at bar, it is out of the ordinary that checks intended for a particular
payee are made out in the name of another. The issuance of the checks in the name of the
sheriff clearly made possible the misappropriation of the funds that were withdrawn.

The Court of Appeals explained:

“Knowing as it does that the intended payment was for the respondent Amelia Tan, the
petitioner corporation, utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedure and resulting consequences of the checks
drawn, nevertheless, in this instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the name of the errant Sheriff and
not the name of the rightful payee. Petitioner thereby created a situation which permitted
the said Sheriff to personally encash said checks and misappropriate the proceeds thereof
to his exclusive benefit. For the prejudice that resulted, the petitioner himself must bear
the fault…”

Having failed to employ the proper safeguards to protect itself, the judgment debtor whose
act made possible the loss had but itself to blame.

Philippine Airlines v. Court of Appeals

[G.R. No. L-49188. January 30, 1990]
24MAR
FACTS
Amelia Tan was found to have been wronged by Philippine Air Lines (PAL). She filed her
complaint in 1967. After ten (10) years of protracted litigation in the Court of First Instance
and the Court of Appeals, Ms. Tan won her case. Almost twenty-two (22) years later, Ms.
Tan has not seen a centavo of what the courts have solemnly declared as rightfully hers.
Through absolutely no fault of her own, Ms. Tan has been deprived of what, technically,
she should have been paid from the start, before 1967, without need of her going to court to

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enforce her rights. And all because PAL did not issue the checks intended for her, in her
name. Petitioner PAL filed a petition for review on certiorari the decision of Court of Appeals
dismissing the petition for certiorari against the order of the Court of First Instance (CFI)
which issued an alias writ of execution against them. Petitioner alleged that the payment in
check had already been effected to the absconding sheriff, satisfying the judgment.
ISSUE
Whether or not payment by check to the sheriff extinguished the judgment debt.

RULING
NO. The payment made by the petitioner to the absconding sheriff was not in cash or legal
tender but in checks. The checks were not payable to Amelia Tan or Able Printing Press but
to the absconding sheriff.In the absence of an agreement, either express or implied,
payment means the discharge of a debt or obligation in money and unless the parties so
agree, a debtor has no rights, except at his own peril, to substitute something in lieu of
cash as medium of payment of his debt. Strictly speaking, the acceptance by the sheriff of
the petitioner’s checks, in the case at bar, does not, per se, operate as a discharge of the
judgment debt. The check as a negotiable instrument is only a substitute for money and
not money, the delivery of such an instrument does not, by itself, operate as payment. A
check, whether a manager’s check or ordinary cheek, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of payment and may be refused receipt by
the obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code, par. 3).

Pio Barretto Realty Development Corporation vs Court of Appeals

360 SCRA 127

Facts: Honor Moslares and Pio Barretto Realty Development Corporation are disputing over
the estate of Nicolai Drepin, represented by Atty. Tomas Trinidad. To settle the dispute, and
while the case was in court, they entered into a Compromise Agreement by which they
agreed to have the estate in dispute be sold; that in case Moslares was able to buy the
property first, he should pay P3,000,000.00 to Barretto Realty (representing the amount of
investments by Barretto Realty in the estate); that should Barretto Realty buy the property
first, it should pay P1,000,000.00 to Moslares (representing interest). The compromise
agreement was approved by the judge (Judge Perfecto Laguio).

Barretto Realty was able to buy the property first hence it delivered a manager’s check
worth P1,000,000.00 to Moslares but the latter refused to accept the same. Barretto Realty
filed a petition before the trial court to direct Moslares to comply with the Compromise
Agreement. Barretto Realty also consigned the check payment with the court. The judge
issued a writ of execution against Moslares and the sheriff also delivered the check to
Moslares which the latter accepted. However, three years later, Moslares filed a motion for
reconsideration alleging that the check payment did not amount to legal tender and that he
never even encashed the check. The judge agreed with Moslares.

ISSUE: Whether or not the judge was correct.

HELD: No. There was already a final and executory order issued by the same judge three
years prior. The same may no longer be amended regardless of any claim or error or
incorrectness (save for clerical errors only). It is true that a check is not a legal tender and
while delivery of a check produces the effect of payment only when it is encashed, the rule
is otherwise if the debtor (Barretto Realty) was prejudiced by the creditor’s (Moslares’)
unreasonable delay in presentment. Acceptance of a check implies an undertaking of due
diligence in presenting it for payment. If no such presentment was made, the drawer
cannot be held liable irrespective of loss or injury sustained by the payee. Payment will be
deemed effected and the obligation for which the check was given as conditional payment
will be discharged.

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 [G.R. No. 138510. October 10, 2002]
TRADERS ROYAL BANK, petitioner, vs. RADIO PHILIPPINES NETWORK, INC.,
INTERCONTINENTAL BROADCASTING CORPORATION and BANAHAW
BROADCASTING CORPORATION, through the BOARD OF ADMINISTRATORS, and
SECURITY BANK AND TRUST COMPANY, respondents.
DECISION
Facts:
On April 15, 1985, the Bureau of Internal Revenue (BIR) assessed plaintiffs Radio
Philippines Network (RPN), Intercontinental Broadcasting Corporation (IBC), and Banahaw
Broadcasting Corporation (BBC) of their tax obligations for the taxable years 1978 to 1983.
On March 25, 1987, Mrs. Lourdes C. Vera, plaintiffs comptroller, sent a letter to the BIR
requesting settlement of plaintiffs tax obligations.
The BIR granted the request and accordingly, on June 26, 1986, plaintiffs purchased from
defendant Traders Royal Bank (TRB) three (3) managers checks to be used as payment for
their tax liabilities, to wit:
Check Number Amount
30652 P4,155.835.00
30650 3,949,406.12
30796 1,685,475.75
Defendant TRB, through Aida Nuez, TRB Branch Manager at Broadcast City Branch,
turned over the checks to Mrs. Vera who was supposed to deliver the same to the BIR in
payment of plaintiffs taxes.
Sometime in September, 1988, the BIR again assessed plaintiffs for their tax liabilities for
the years 1979-82. It was then they discovered that the three (3) managers checks (Nos.
30652, 30650 and 30796) intended as payment for their taxes were never delivered nor
paid to the BIR by Mrs. Vera. Instead, the checks were presented for payment by unknown
persons to defendant Security Bank and Trust Company (SBTC), Taytay Branch as shown
by the banks routing symbol transit number (BRSTN 01140027) or clearing code stamped
on the reverse sides of the checks.
Meanwhile, for failure of the plaintiffs to settle their obligations, the BIR issued warrants of
levy, distraint and garnishment against them. Thus, they were constrained to enter into a
compromise and paid BIR P18,962,225.25 in settlement of their unpaid deficiency taxes.
Thereafter, plaintiffs sent letters to both defendants, demanding that the amounts covered
by the checks be reimbursed or credited to their account. The defendants refused, hence,
the instant suit.[3]
On February 17, 1985, the trial court rendered its decision in favor of the plaintiffs and
against the defendants.
Defendants Traders Royal Bank and Security Bank and Trust Company, Inc. both appealed
the trial courts decision to the Court of Appeals. However, as quoted in the beginning
hereof, the appellate court absolved defendant SBTC from any liability and held TRB solely
liable to respondent networks for damages and costs of suit.
Issue: whether or not TRB should be held solely liable when it paid the amount of the
checks in question to a person other than the payee indicated on the face of the check, the
Bureau of Internal Revenue.
Held: When a signature is forged or made without the authority of the person whose
signature it purports to be, it is wholly inoperative, and no right to retain the instrument,
or to give a discharge therefor, or to enforce payment thereof against any party thereto, can
be acquired through or under such signature.[5] Consequently, if a bank pays a forged
check, it must be considered as paying out of its funds and cannot charge the amount so
paid to the account of the depositor.
In the instant case, the 3 checks were payable to the BIR. It was established, however, that
said checks were never delivered or paid to the payee BIR but were in fact presented for
payment by some unknown persons who, in order to receive payment therefor, forged the
name of the payee. Despite this fraud, petitioner TRB paid the 3 checks in the total amount
of P9,790,716.87.
Petitioner ought to have known that, where a check is drawn payable to the order of one
person and is presented for payment by another and purports upon its face to have been
duly indorsed by the payee of the check, it is the primary duty of petitioner to know that
the check was duly indorsed by the original payee and, where it pays the amount of the
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check to a third person who has forged the signature of the payee, the loss falls upon
petitioner who cashed the check. Its only remedy is against the person to whom it paid the
money.[6]
It should be noted further that one of the subject checks was crossed. The crossing of one
of the subject checks should have put petitioner on guard; it was duty-bound to ascertain
the indorsers title to the check or the nature of his possession. Petitioner should have
known the effects of a crossed check: (a) the check may not be encashed but only deposited
in the bank; (b) the check may be negotiated only once to one who has an account with a
bank and (c) the act of crossing the check serves as a warning to the holder that the check
has been issued for a definite purpose so that he must inquire if he has received the check
pursuant to that purpose, otherwise, he is not a holder in due course.[7]
By encashing in favor of unknown persons checks which were on their face payable to the
BIR, a government agency which can only act only through its agents, petitioner did so at
its peril and must suffer the consequences of the unauthorized or wrongful
endorsement.[8] In this light, petitioner TRB cannot exculpate itself from liability by claiming
that respondent networks were themselves negligent.
A bank is engaged in a business impressed with public interest and it is its duty to protect
its many clients and depositors who transact business with it. It is under the obligation to
treat the accounts of the depositors and clients with meticulous care, whether such
accounts consist only of a few hundreds or millions of pesos.[9]
Petitioner argues that respondent SBTC, as the collecting bank and indorser, should be
held responsible instead for the amount of the checks.
Section 3 of the Negotiable Instruments Law reads:
SECTION 63. When person deemed indorser. - A person placing his signature upon an
instrument otherwise than as maker, drawer, or acceptor, is deemed to be an indorser
unless he clearly indicates by appropriate words his intention to be bound in some other
capacity.
Upon the other hand, the Philippine Clearing House Corporation (PCHC) rules provide:
Sec. 17.- BANK GUARANTEE. All checks cleared through the PCHC shall bear the
guarantee affixed thereto by the Presenting Bank/Branch which shall read as follows:
Cleared thru the Philippine Clearing House Corporation. All prior endorsements and/or
lack of endorsement guaranteed. NAME OF BANK/BRANCH BRSTN (Date of clearing).
Here, not one of the disputed checks bears the requisite endorsement of appellant
SBTC. What appears to be a guarantee stamped at the back of the checks is that of the
Philippine National Bank, Buendia Branch, thereby indicating that it was the latter Bank
which received the same.
A collecting bank which indorses a check bearing a forged indorsement and presents it to
the drawee bank guarantees all prior indorsements, including the forged indorsement itself,
and ultimately should be held liable therefor. However, it is doubtful if the subject checks
were ever presented to and accepted by SBTC so as to hold it liable as a collecting bank, as
held by the Court of Appeals.
Since TRB did not pay the rightful holder or other person or entity entitled to receive
payment, it has no right to reimbursement. Petitioner TRB was remiss in its duty and
obligation, and must therefore suffer the consequences of its own negligence and disregard
of established banking rules and procedures.

AFFIRMED WITH MODIFICATIONS.

[G.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.
DECISION
Facts: 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 MICO’s line of
7
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. nother loan of
One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise
later on renewed. Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard
Velasco, in their personal capacities executed a Surety Agreement in favor of
PBComwhereby 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. 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
company’s machineries. Upon approval of the said application for loan, MICO availed of the
additional loan of Four Million Pesos (P4,000,000.00).
To secure the trust receipts transactions, MICO and Lee executed a real estate mortgage in
favor of PBCOM over several properties it owns. Upon maturity of all credit availments
obtained by MICO from PBCom, the latter made a demand for payment. For failure of
petitioner MICO to pay the obligations incurred despite repeated demands, PBCom
extrajudicially foreclosed MICO’s real estate mortgage and sold the said mortgaged
properties in a public auction sale. 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.
Lee contends that the letters of credit, surety agreements and loan transactions did not
ripen into valid and binding contracts since no part of the proceeds of the loan transactions
were delivered to MICO or to any of the petitioners-sureties. Petitioners-sureties allege that
Chua Siok Suy was the beneficiary of the proceeds of the loans and that the latter made
them sign the surety agreements in blank. Thus, they maintain that they should not be
held accountable for any liability that might arise therefrom.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.
The trial court gave credence to the testimonies of herein petitioners and dismissed the
complaint filed by PBCom. 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 deemed prima 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 thePBCom made no mention of delivery of
cash, it is presumed that said negotiable instruments were issued for valuable
consideration.
Hence, this Petition.
Issues: 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.
Held: Under Section 3, Rule 131 of the Rules of Court the following presumptions, among
others, are satisfactory if uncontradicted: a) That there was a sufficient consideration for a
contract and b) That a negotiable instrument was given or indorsed for sufficient
consideration. As observed by the Court of Appeals, a similar presumption is found in
Section 24 of the Negotiable Instruments Law which provides that every negotiable
8
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. Negotiable
instruments which are meant to be substitutes for money, must conform to the following
requisites to be considered as such a) it must be in writing; b) it must be signed by the
maker or drawer; c) it must contain an unconditional promise or order to pay a sum certain
in money; d) it must be payable on demand or at a fixed or determinable future time; e) it
must be payable to order or bearer; and f) where it is a bill of exchange, the drawee must be
named or otherwise indicated with reasonable certainty. 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.
The above-cited documents presented have not merely created a prima facie case but have
actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in
favor of respondent PBCom. 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. Under Section 3(r), Rule 131 of the Rules of Court there is also a
presumption that sufficient consideration was given in a contract. Hence, petitioners
should have presented credible evidence to rebut that presumption as well as the evidence
presented by private respondentPBCom. The letters of credit show that the pertinent
materials/merchandise have been received by MICO. The drafts signed by the
beneficiary/suppliers in connection with the corresponding letters of credit proved that said
suppliers were paid by PBCom for the account of MICO. On the other hand, aside from
their bare denials petitioners did not present sufficient and competent evidence to rebut the
evidence of private respondent PBCom. Petitioner MICO did not proffer a single piece of
evidence, apart from its bare denials, to support its allegation that the loan transactions,
real estate mortgage, letters of credit and trust receipts were issued allegedly without any
consideration.
Petitioners-sureties, for their part, presented the By-Laws[34] of Mico Metals Corporation
(MICO) to prove that only the president of MICO is authorized to borrow money, arrange
letters of credit, execute trust receipts, and promissory notes and consequently, that the
loan transactions, letters of credit, promissory notes and trust receipts, most of which were
executed by Chua Siok Suy in representation of MICO were not allegedly authorized and
hence, are not binding upon MICO. A perusal of the By-Laws of MICO, however, shows that
the power to borrow money for the company and issue mortgages, bonds, deeds of trust
and negotiable instruments or securities, secured by mortgages or pledges of property
belonging to the company is not confined solely to the president of the corporation. The
Board of Directors of MICO can also borrow money, arrange letters of credit, execute trust
receipts and promissory notes on behalf of the corporation.[35] Significantly, this power of
the Board of Directors according to the by-laws of MICO, may be delegated to any of its
standing committee, officer or agent.[36] Hence, PBCom had every right to rely on the
Certification issued by MICO's corporate secretary, P.B. Barrera, that Chua Siok Suy was
duly authorized by its Board of Directors to borrow money and obtain credit facilities in
behalf of MICO from PBCom.
Modern letters of credit are usually not made between natural persons. They involve bank
to bank transactions. Historically, the letter of credit was developed to facilitate the sale of
goods between, distant and unfamiliar buyers and sellers. It was an arrangement under
which a bank, whose credit was acceptable to the seller, would at the instance of the buyer
agree to pay drafts drawn on it by the seller, provided that certain documents are presented
such as bills of lading accompanied the corresponding drafts. Expansion in the use of
letters of credit was a natural development in commercial banking.[38] Parties to a
commercial letter of credit include (a) the buyer or the importer, (b) the seller, also referred
to as beneficiary, (c) the opening bank which is usually the buyers bank which actually
issues the letter of credit, (d) the notifying bank which is the correspondent bank of the
opening bank through which it advises the beneficiary of the letter of credit, (e) negotiating
bank which is usually any bank in the city of the beneficiary. The services of the notifying
bank must always be utilized if the letter of credit is to be advised to the beneficiary
through cable, (f) the paying bank which buys or discounts the drafts contemplated by the
letter of credit, if such draft is to be drawn on the opening bank or on another designated
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bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank
are used, the beneficiary is supposed to present his drafts to the notifying bank for
negotiation and (g) the confirming bank which, upon the request of the beneficiary,
confirms the letter of credit issued by the opening bank.
From the foregoing, it is clear that letters of credit, being usually bank to bank
transactions, involve more than just one bank. Consequently, there is nothing unusual in
the fact that the drafts presented in evidence by respondent bank were not made payable
to PBCom.
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.[39] A trust
receipt, therefor, is a document of security pursuant to which a bank acquires a security
interest in the goods under trust receipt. Under a letter of credit-trust receipt arrangement,
a bank extends a loan covered by a letter of credit, with the trust receipt as a security for
the loan. The transaction involves a loan feature represented by a letter of credit, and a
security feature which is in the covering trust receipt which secures an indebtedness.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480
entitled, Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee,
ChuaSiok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, is
AFFIRMED in toto.
Costs against the petitioners.
SO ORDERED.

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