192 - Lee v.

Court of Appeals
375 SCRA 579 (2002)

FACTS:
-Charles Lee, as President of MICO, requested for grant of several discounting loan/ credit line with PBCom secured by
REM which were all granted and availed of and renewed under promissory notes.
-Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a two
Surety Agreements in favor of PBCom whereby 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. MICO
furnished PBCom with a notarized certification issued by its corporate secretary, Atty. P.B. Barrera, that Chua Siok Suy was
duly authorized by the Board of Directors to negotiate on behalf of MICO for loans and other credit availments from PBCom.
-Several applications for domestic as well as foreign letters of credit and availments of the credit line were made by MICO.
-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, private
PBCom extrajudicially foreclosed MICO’s REM and sold the said mortgaged properties in a public auction
sale. PBCom then demanded the settlement of the aforesaid obligations from 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 RTC of Manila alleging that MICO
was no longer in operation and had no properties to answer for its obligations. Petitioners denied having received the loans,
and that, since no loan was ever released or received by MICO, the corresponding real estate mortgage and surety
agreements signed concededly by MICO are null and void.

TC:
-Dismissed the case in favor of MICO, ruling that PBcom failed to adequately prove that the proceeds of the loan were ever
delivered to MICO, no proof has been adduced as to the existence of the goods covered and paid by the said amounts.
Hence, inasmuch as no consideration ever passed from PBcom to MICO, all the documents involved therein, such as the
promissory notes, real estate mortgage, including the suretyship agreements were all void for lack of cause or consideration

CA:
-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 the PBCom made no mention of delivery of cash, it is presumed that said
negotiable instruments were issued for valuable consideration.

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ISSUE:
-Whether or not there is sufficient consideration with respect to the drafts issued in connection with the Letters of Credit.

HELD:
-Letters of Credit and trust receipts are not negotiable instruments. But drafts issued in connection with the letters of credit
are negotiable instruments. Hence, while the presumption of consideration 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
letter of credit have sufficient consideration apply.

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 MICO’s 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 MICO’s 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 secretary’s 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
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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 latter’s contention that
the contracts were executed fraudulently by the unauthorized person Chua Siok Suy. The fact that it was MICO which
furnished PBCom the Secretary’s 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.