RICHARD GORDON, in his capacity as Chairman,

EN BANC and MEMBERS OF THE COMMITTEE ON

GOVERNMENT CORPORATIONS AND PUBLIC
ENTERPRISES, MEMBERS OF THE COMMITTEE ON
PUBLIC SERVICES, SENATOR JUAN PONCE-ENRILE,
in his capacity as member of both said
IN THE MATTER OF THE PETITION FOR ISSUANCE G.R. No. 174340 Committees, MANUEL VILLAR, Senate President,
OF WRIT OF HABEAS CORPUS OF CAMILO L. THE SENATE SERGEANT-AT-ARMS, and SENATE OF
SABIO, THE PHILIPPINES,
Petitioner, Respondents.
x-------------------------------------------------x
J. ERMIN ERNEST LOUIE R. MIGUEL, PHILCOMSAT HOLDINGS CORPORATIONS, PHILIP
Petitioner-Relator, G. BRODETT, LUIS K. LOKIN, JR., ROBERTO V. SAN
JOSE, DELFIN P. ANGCAO, ROBERTO L. ABAD,
ALMA KRISTINA ALOBBA, and JOHNNY TAN,
- versus - Petitioners,

HONORABLE SENATOR RICHARD GORDON, in his G.R. No. 174177

capacity as Chairman, and the HONORABLE
MEMBERS OF THE COMMITTEE ON - versus - Present:
GOVERNMENT CORPORATIONS AND PUBLIC PANGANIBAN, C.J.
ENTERPRISES and THE COMMITTEE ON PUBLIC PUNO,
SERVICES of the Senate, HONORABLE SENATOR SENATE COMMITTEE ON GOVERNMENT QUISUMBING,
JUAN PONCE-ENRILE, in his official capacity as CORPORATIONS and PUBLIC ENTERPRISES, its YNARES-SANTIAGO,
Member, HONORABLE MANUEL VILLAR, Senate MEMBERS and CHAIRMAN, the HONORABLE SANDOVAL-GUTIERREZ,
President, SENATE SERGEANT-AT-ARMS, and the SENATOR RICHARD GORDON and SENATE CARPIO,
SENATE OF THE PHILIPPINES, COMMITTEE ON PUBLIC SERVICES, its Members AUSTRIA-MARTINEZ,
Respondents. and Chairman, the HONORABLE SENATOR JOKER CORONA,
x ------------------------------------------------ x P. ARROYO, CARPIO MORALES,
PRESIDENTIAL COMMISSION ON GOOD Respondents. CALLEJO, SR.,
GOVERNMENT (PCGG) and CAMILO L. SABIO, AZCUNA,
Chairman, NARCISO S. NARIO, RICARDO M. TINGA,
ABCEDE, TERESO L. JAVIER and NICASIO A. CONTI, NAZARIO,
Commissioners, MANUEL ANDAL and JULIO G.R. No. 174318 GARCIA, and
JALANDONI, PCGG nominees VELASCO,JJ.
to Philcomsat Holdings Corporation,
Petitioners,
Promulgated:
- versus -
 October 17, 2006
x-------------------------------------------------------------------------------------------------------------x WHEREAS, in the last quarter of 2005, the representation and
DECISION
SANDOVAL-GUTIERREZ, J.:
Two decades ago, on February 28, 1986, former President Corazon C.
Aquino installed her regime by issuing Executive Order (E.O.) No.
1,[1] creating the Presidential Commission on Good Government (PCGG). She
entrusted upon this Commission the herculean task of recovering the ill-
gotten wealth accumulated by the deposed President Ferdinand E. Marcos,
his family, relatives, subordinates and close associates.[2] Section 4 (b) of
E.O. No. 1 provides that: No member or staff of the Commission shall be
required to testify or produce evidence in any judicial, legislative or
administrative proceeding concerning matters within its official
cognizance. Apparently, the purpose is to ensure PCGGs unhampered
performance of its task.[3]
Today, the constitutionality of Section 4(b) is being questioned on the
ground that it tramples upon the Senates power to conduct legislative
inquiry under Article VI, Section 21 of the 1987 Constitution, which reads:
The Senate or the House of Representatives or any of its respective
committees may conduct inquiries in aid of legislation in accordance with its
duly published rules of procedure. The rights of persons appearing in or
affected by such inquiries shall be respected.
The facts are undisputed.
On February 20, 2006, Senator Miriam Defensor Santiago introduced
Philippine Senate Resolution No. 455 (Senate Res. No. 455),[4] directing an
inquiry in aid of legislation on the anomalous losses incurred by the
Philippines Overseas Telecommunications Corporation (POTC), Philippine
Communications Satellite Corporation (PHILCOMSAT), and PHILCOMSAT
Holdings Corporation (PHC) due to the alleged improprieties in their
operations by their respective Board of Directors.
The pertinent portions of the Resolution read:
entertainment expense of the PHC skyrocketed to P4.3 million, as compared
to the previous years mere P106 thousand;
WHEREAS, some board members established wholly owned PHC subsidiary
called Telecommunications Center, Inc. (TCI), where PHC funds are allegedly
siphoned; in 18 months, over P73 million had been allegedly advanced to
TCI without any accountability report given to PHC and PHILCOMSAT;
WHEREAS, the Philippine Star, in its 12 February 2002 issue reported that
the executive committee of Philcomsat has precipitately released P265
million and granted P125 million loan to a relative of an executive
committee member; to date there have been no payments given, subjecting
the company to an estimated interest income loss of P11.25 million in 2004;
WHEREAS, there is an urgent need to protect the interest of the Republic of
the Philippines in the PHC, PHILCOMSAT, and POTC from any anomalous
transaction, and to conserve or salvage any remaining value of the
governments equity position in these corporations from any abuses of
power done by their respective board of directors;
WHEREFORE, be it resolved that the proper Senate Committee shall conduct
an inquiry in aid of legislation, on the anomalous losses incurred by the
Philippine Overseas Telecommunications Corporation (POTC), Philippine
Communications Satellite Corporation (PHILCOMSAT),
and Philcomsat Holdings Corporations (PHC) due to the alleged
improprieties in the operations by their respective board of directors.
Adopted.
(Sgd) MIRIAM DEFENSOR SANTIAGO
On the same date, February 20, 2006, Senate Res. No. 455 was submitted to
the Senate and referred to the Committee on Accountability of Public
Officers and Investigations andCommittee on Public Services. However,
on March 28, 2006, upon motion of Senator Francis N. Pangilinan, it was
transferred to the Committee on Government Corporations and Public
Enterprises.[5]
On May 8, 2006, Chief of Staff Rio C. Inocencio, under the authority of
Senator Richard J. Gordon, wrote Chairman Camilo L. Sabio of the PCGG,
one of the herein petitioners, inviting him to be one of the resource persons
in the public meeting jointly conducted by the Committee on Government
Corporations and Public Enterprises and Committee on Public Services. The
purpose of the public meeting was to deliberate on Senate Res. No. 455.[6]
On May 9, 2006, Chairman Sabio declined the invitation because of prior
commitment.[7] At the same time, he invoked Section 4(b) of E.O. No.
1 earlier quoted.
On August 10, 2006, Senator Gordon issued a Subpoena
Ad Testificandum,[8] approved by Senate President Manuel Villar, requiring
Chairman Sabio and PCGG
Commissioners Ricardo Abcede, Nicasio Conti, Tereso Javier and Narciso Nar
io to appear in the public hearing scheduled on August 23, 2006 and testify
on what they know relative to the matters specified in Senate Res. No.
455. Similar subpoenae were issued against the directors and officers
of Philcomsat Holdings Corporation, namely: Benito V. Araneta, Philip
J. Brodett, Enrique L. Locsin, Manuel D. Andal, Roberto L. Abad, Luis
K. Lokin, Jr., Julio J. Jalandoni, Roberto V. San Jose, Delfin P. Angcao, Alma
Kristina Alloba and Johnny Tan.[9]
Again, Chairman Sabio refused to appear. In his letter to Senator Gordon
dated August 18, 2006, he reiterated his earlier position, invoking Section
4(b) of E.O. No. 1. On the other hand, the directors and officers
of Philcomsat Holdings Corporation relied on the position paper they
previously filed, which raised issues on the propriety of legislative inquiry.
Thereafter, Chief of Staff Ma. Carissa O. Coscolluela, under the authority of
Senator Gordon, sent another notice[10] to Chairman Sabio requiring him to
appear and testify on the same subject matter set on September 6,
2006. The notice was issued under the same authority of the Subpoena
Ad Testificandum previously served upon (him) last 16 August 2006.
Once more, Chairman Sabio did not comply with the notice. He sent a
letter[11] dated September 4, 2006 to Senator Gordon reiterating his reason
for declining to appear in the public hearing.
This prompted Senator Gordon to issue an Order dated September 7,
2006 requiring Chairman Sabio and Commissioners Abcede, Conti, Javier
and Nario to show cause why they should not be cited in contempt of the
Senate. On September 11, 2006, they submitted to the Senate their
Compliance and Explanation,[12] which partly reads:
Doubtless, there are laudable intentions of the subject inquiry in aid of
legislation. But the rule of law requires that even the best intentions must
be carried out within the parameters of the Constitution and the law. Verily,
laudable purposes must be carried out by legal methods. (Brillantes, Jr., et
al. v. Commission on Elections, En Banc [G.R. No. 163193, June 15, 2004])
On this score, Section 4(b) of E.O. No. 1 should not be ignored as it explicitly
provides:
No member or staff of the Commission shall be required to testify or
produce evidence in any judicial legislative or administrative proceeding
concerning matters within its official cognizance.
With all due respect, Section 4(b) of E.O. No. 1 constitutes a limitation on
the power of legislative inquiry, and a recognition by the State of the need
to provide protection to the PCGG in order to ensure the unhampered
performance of its duties under its charter. E.O. No. 1 is a law, Section 4(b)
of which had not been amended, repealed or revised in any way.
To say the least, it would require both Houses of Congress and Presidential
fiat to amend or repeal the provision in controversy. Until then, it stands to
be respected as part of the legal system in this jurisdiction. (As held in
People v. Veneracion, G.R. Nos. 119987-88, October 12, 1995: Obedience to
the rule of law forms the bedrock of our system of justice. If judges, under
the guise of religious or political beliefs were allowed to roam unrestricted
beyond boundaries within which they are required by law to exercise the
duties of their office, then law becomes meaningless. A government of laws,
not of men excludes the exercise of broad discretionary powers by those
acting under its authority. Under this system, judges are guided by the Rule
of Law, and ought to protect and enforce it without fear or favor, 4 [Act
of Athens (1955)] resist encroachments by governments, political parties, or
even the interference of their own personal beliefs.)
xxxxxx
Relevantly, Chairman Sabios letter to Sen. Gordon dated August 19, 2006
pointed out that the anomalous transactions referred to in the P.S.
Resolution No. 455 are subject of pending cases before the regular courts,
the Sandiganbayan and the Supreme Court (Pending cases
include: a. Samuel Divina v. Manuel Nieto, Jr., et al., CA-G.R. No.
89102; b. Philippine Communications Satellite Corporation v. Manuel Nieto,
et al.; c. Philippine Communications Satellite Corporation v. Manuel
D. Andal, Civil Case No. 06-095, RTC, Branch 61, Makati City;
d. Philippine Communications Satellite Corporation v. PHILCOMSAT Holdings
Corporation, et al., Civil Case No. 04-1049) for which reason they may not be
able to testify thereon under the principle of sub judice. The laudable
objectives of the PCGGs functions, recognized in several cases decided by
the Supreme Court, of the PCGG will be put to naught if its recovery efforts
will be unduly impeded by a legislative investigation of cases that are
already pending before the Sandiganbayan and trial courts.
In Bengzon v. Senate Blue Ribbon Committee, (203 SCRA 767, 784 [1991])
the Honorable Supreme Court held:
[T]he issues sought to be investigated by the respondent Committee is one
over which jurisdiction had been acquired by the Sandiganbayan. In short,
the issue has been pre-empted by that court. To allow the respondent
Committee to conduct its own investigation of an issue already before
the Sandigabayan would not only pose the possibility of conflicting
judgments between a legislative committee and a judicial tribunal, but if the
Committees judgment were to be reached before that of
the Sandiganbayan, the possibility of its influence being made to bear on
the ultimate judgment of the Sandiganbayan can not be discounted.
xxxxxx
IT IS IN VIEW OF THE FOREGOING CONSIDERATIONS that the Commission
decided not to attend the Senate inquiry to testify and produce evidence
thereat.
Unconvinced with the above Compliance and Explanation, the Committee
on Government Corporations and Public Enterprises and the Committee on
Public Services issued an Order[13] directing Major General
Jose Balajadia (Ret.), Senate Sergeant-At-Arms, to place Chairman Sabio and
his Commissioners under arrest for contempt of the Senate. The Order
bears the approval of Senate President Villar and the majority of the
Committees members.
On September 12, 2006, at around 10:45 a.m., Major
General Balajadia arrested Chairman Sabio in his office at IRC Building, No.
82 EDSA, Mandaluyong City and brought him to the Senate premises where
he was detained.
Hence, Chairman Sabio filed with this Court a petition for habeas
corpus against the Senate Committee on Government Corporations and
Public Enterprises and Committee on Public Services, their Chairmen,
Senators Richard Gordon and Joker P. Arroyo and Members. The case was
docketed as G.R. No. 174340.
Chairman Sabio, Commissioners Abcede, Conti, Nario, and Javier, and
the PCGGs nominees to Philcomsat Holdings Corporation, Manuel Andal and
Julio Jalandoni, likewise filed a petition for certiorari and prohibition against
the same respondents, and also against Senate President Manuel Villar,
Senator Juan Ponce Enrile, the Sergeant-at-Arms, and the entire Senate. The
case was docketed as G.R. No. 174318.
Meanwhile, Philcomsat Holdings Corporation and its officers and directors,
namely: Philip G. Brodett, Luis K. Lokin, Jr., Roberto V. San
Jose, Delfin P. Angcao, Roberto L. Abad, Alma Kristina Alobba and Johnny
Tan filed a petition for certiorari and prohibition against the
Senate Committees on Government Corporations and Public
Enterprises and Public Services, their Chairmen, Senators Gordon and
Arroyo, and Members. The case was docketed as G.R. No. 174177.
In G.R. No. 174340 (for habeas corpus) and G.R. No. 174318 (for certiorari
and prohibition) Chairman Sabio, Commissioners Abcede, Conti, Nario, and
Javier; and
the PCGGs nominees Andal and Jalandoni alleged: first, respondent Senate
Committees disregarded Section 4(b) of E.O. No. 1 without any justifiable
reason; second, the inquiries conducted by respondent Senate Committees
are not in aid of legislation; third, the inquiries were conducted in the
absence of duly published Senate Rules of Procedure Governing Inquiries in
Aid of Legislation; and fourth, respondent Senate Committees are not
vested with the power of contempt.
In G.R. No. 174177, petitioners Philcomsat Holdings Corporation and its
directors and officers alleged: first, respondent Senate Committees have no
jurisdiction over the subject matter stated in Senate Res. No.
455; second, the same inquiry is not in accordance with the Senates Rules of
Procedure Governing Inquiries in Aid of
Legislation; third, the subpoenae against the individual petitioners are void
for having been issued without authority; fourth, the conduct of legislative
inquiry pursuant to Senate Res. No. 455 constitutes undue encroachment by
respondents into justiciable controversies over which several courts and
tribunals have already acquired
jurisdiction; and fifth, the subpoenaeviolated petitioners rights to privacy
and against self-incrimination.
In their Consolidated Comment, the above-named respondents
countered: first, the issues raised in the petitions involve political questions
over which this Court has no jurisdiction; second, Section 4(b) has been
repealed by the Constitution; third, respondent Senate Committees are
vested with contempt power; fourth, Senates Rules of Procedure Governing
Inquiries in Aid of Legislation have been duly published; fifth, respondents
have not violated any civil right of the individual petitioners, such as
their (a) right to privacy; and (b) right against self-incrimination;
and sixth, the inquiry does not constitute undue encroachment
into justiciable controversies.
During the oral arguments held on September 21, 2006, the parties were
directed to submit simultaneously their respective memoranda within a
non-extendible period of fifteen (15) days from date. In the meantime, per
agreement of the parties, petitioner Chairman Sabio was allowed to go
home. Thus, his petition for habeas corpus has become moot. The parties
also agreed that the service of the arrest warrants issued against all
petitioners and the proceedings before the respondent Senate Committees
are suspended during the pendency of the instant cases.[14]
Crucial to the resolution of the present petitions is the fundamental issue of
whether Section 4(b) of E.O. No. 1 is repealed by the 1987 Constitution. On
this lone issue hinges the merit of the contention of Chairman Sabio and his
Commissioners that their refusal to appear before respondent Senate
Committees is justified. With the resolution of this issue, all the other issues
raised by the parties have become inconsequential.
Perched on one arm of the scale of justice is Article VI, Section 21 of the
1987 Constitution granting respondent Senate Committees the power of
legislative inquiry. It reads:
The Senate or the House of Representatives or any of its respective
committees may conduct inquiries in aid of legislation in accordance with its
duly published rules of procedure. The rights of persons appearing in or
affected by such inquiries shall be respected.
On the other arm of the scale is Section 4(b) of E.O. No.1 limiting such
power of legislative inquiry by exempting all PCGG members or staff from
testifying in any judicial, legislative or administrative proceeding, thus:
No member or staff of the Commission shall be required to testify or
produce evidence in any judicial, legislative or administrative proceeding
concerning matters within its official cognizance.
To determine whether there exists a clear and unequivocal repugnancy
between the two quoted provisions that warrants a declaration that Section
4(b) has been repealed by the 1987 Constitution, a brief consideration of
the Congress power of inquiry is imperative.
The Congress power of inquiry has been recognized in foreign jurisdictions
long before it reached our shores through McGrain v. Daugherty,[15] cited
in Arnault v. Nazareno.[16] In those earlier days, American courts considered
the power of inquiry as inherent in the power to legislate. The 1864 case
of Briggs v. MacKellar[17] explains the breath and basis of the power, thus:
Where no constitutional limitation or restriction exists, it is competent for
either of the two bodies composing the legislature to do, in their separate
capacity, whatever may be essential to enable them to legislate.It is well-
established principle of this parliamentary law, that either house may
institute any investigation having reference to its own organization, the
conduct or qualification of its members, its proceedings, rights, or privileges
or any matter affecting the public interest upon which it may be important
that it should have exact information, and in respect to which it would be
competent for it to legislate. The right to pass laws, necessarily implies the
right to obtain information upon any matter which may become the subject
of a law. It is essential to the full and intelligent exercise of the legislative
function.In American legislatures the investigation of public matters before
committees, preliminary to legislation, or with the view of advising the
house appointing the committee is, as a parliamentary usage, well
established as it is in England, and the right of either house to compel
witnesses to appear and testify before its committee, and to punish for
disobedience has been frequently enforced.The right of inquiry, I think,
extends to other matters, in respect to which it may be necessary, or may
be deemed advisable to apply for legislative aid.
Remarkably, in Arnault, this Court adhered to a similar
theory. Citing McGrain, it recognized that the power of inquiry is an
essential and appropriate auxiliary to the legislative function, thus:
Although there is no provision in the Constitution expressly investing either
House of Congress with power to make investigations and exact testimony
to the end that it may exercise its legislative functions advisedly and
effectively, such power is so far incidental to the legislative function as to be
implied. In other words, the power of inquiry with process to enforce it is an
essential and appropriate auxiliary to the legislative function. A legislative
body cannot legislate wisely or effectively in the absence of information
respecting the conditions which the legislation is intended to affect or
change; and where the legislation body does not itself possess the requisite
information which is not infrequently true recourse must be had to others
who possess it.
Dispelling any doubt as to the Philippine Congress power of inquiry,
provisions on such power made their maiden appearance in Article VIII,
Section 12 of the 1973 Constitution.[18] Then came the 1987 Constitution
incorporating the present Article VI, Section 12. What was
therefore implicit under the 1935 Constitution, as influenced by American
jurisprudence, became explicit under the 1973 and 1987 Constitutions.[19]
Notably, the 1987 Constitution recognizes the power of investigation, not
just of Congress, but also of any of its committee. This is significant because
it constitutes a direct conferral of investigatory power upon the committees
and it means that the mechanisms which the Houses can take in order to
effectively perform its investigative function are also available to the
committees.[20]
It can be said that the Congress power of inquiry has gained more solid
existence and expansive construal. The Courts high regard to such power is
rendered more evident in Senate v. Ermita,[21] where it categorically ruled
that the power of inquiry is broad enough to cover officials of the executive
branch. Verily, the Court reinforced the doctrine in Arnault that the
operation of government, being a legitimate subject for legislation, is a
proper subject for investigation and that the power of inquiry is co-
extensive with the power to legislate.
Considering these jurisprudential instructions, we find Section 4(b) directly
repugnant with Article VI, Section 21. Section 4(b) exempts the PCGG
members and staff from the Congress power of inquiry. This cannot be
countenanced. Nowhere in the Constitution is any provision granting such
exemption. The Congress power of inquiry, being broad, encompasses
everything that concerns the administration of existing laws as well as
proposed or possibly needed statutes.[22] It even extends to government
agencies created by Congress and officers whose positions are within the
power of Congress to regulate or even abolish.[23] PCGG belongs to this
class.
Certainly, a mere provision of law cannot pose a limitation to the broad
power of Congress, in the absence of any constitutional basis.
Furthermore, Section 4(b) is also inconsistent with Article XI, Section 1 of
the Constitution stating that: Public office is a public trust. Public officers
and employees must at all times be accountable to the people, serve them
with utmost responsibility, integrity, loyalty, and efficiency, act with
patriotism and justice, and lead modest lives.
The provision presupposes that since an incumbent of a public office is
invested with certain powers and charged with certain duties pertinent to
sovereignty, the powers so delegated to the officer are held in trust for the
people and are to be exercised in behalf of the government or of all citizens
who may need the intervention of the officers. Such trust extends to all
matters within the range of duties pertaining to the office. In other words,
public officers are but the servants of the people, and not their rulers.[24]
Section 4(b), being in the nature of an immunity, is inconsistent with the
principle of public accountability. It places the PCGG members and staff
beyond the reach of courts, Congress and other administrative
bodies. Instead of encouraging public accountability, the same provision
only institutionalizes irresponsibility and non-accountability. In Presidential
Commission on Good Government v. Pea,[25] Justice Florentino P. Feliciano
characterized as obiter the portion of the majority opinion barring, on the
basis of Sections 4(a) and (b) of E.O. No. 1, a civil case for damages filed
against the PCGG and its Commissioners. He eloquently opined:
The above underscored portions are, it is respectfully submitted,
clearly obiter. It is important to make clear that the Court is not here
interpreting, much less upholding as valid and constitutional, the literal
terms of Section 4 (a), (b) of Executive Order No.1. If Section 4 (a) were
given its literal import as immunizing the PCGG or any member thereof from
civil liability for anything done or omitted in the discharge of the task
contemplated by this Order, the constitutionality of Section 4 (a) would, in
my submission, be open to most serious doubt. For so viewed, Section 4 (a)
would institutionalize the irresponsibility and non-accountability of
members and staff of the PCGG, a notion that is clearly repugnant to both
the 1973 and 1987 Constitution and a privileged status not claimed by any
other official of the Republic under the 1987 Constitution. x x x.
xxxxxx
It would seem constitutionally offensive to suppose that a member or staff
member of the PCGG could not be required to testify before
the Sandiganbayan or that such members were exempted from complying
with orders of this Court.
Chavez v. Sandiganbayan[26] reiterates the same view. Indeed, Section 4(b)
has been frowned upon by this Court even before the filing of the present
petitions.
Corollarily, Section 4(b) also runs counter to the following constitutional
provisions ensuring the peoples access to information:
Article II, Section 28
Subject to reasonable conditions prescribed by law, the State adopts and
implements a policy of full public disclosure of all its transactions involving
public interest.
Article III, Section 7
The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers
pertaining to official acts, transactions, or decisions, as well as to
government research data used as basis for policy development, shall be
afforded the citizen, subject to such limitations as may be provided by law.
These twin provisions of the Constitution seek to promote transparency in
policy-making and in the operations of the government, as well as provide
the people sufficient information to enable them to exercise effectively
their constitutional rights. Armed with the right information, citizens can
participate in public discussions leading to the formulation of government
policies and their effective implementation. In Valmonte v. Belmonte,
Jr.[27] the Court explained that an informed citizenry is essential to the
existence and proper functioning of any democracy, thus:
An essential element of these freedoms is to keep open a continuing
dialogue or process of communication between the government and the
people. It is in the interest of the State that the channels for free political
discussion be maintained to the end that the government may perceive and
be responsive to the peoples will. Yet, this open dialogue can be effective
only to the extent that the citizenry is informed and thus able to formulate
its will intelligently. Only when the participants in the discussion are aware
of the issues and have access to information relating thereto can such bear
fruit.
Consequently, the conduct of inquiries in aid of legislation is not only
intended to benefit Congress but also the citizenry. The people are equally
concerned with this proceeding and have the right to participate therein in
order to protect their interests. The extent of their participation will largely
depend on the information gathered and made known to them. In other
words, the right to information really goes hand-in-hand with the
constitutional policies of full public disclosure and honesty in the public
service. It is meant to enhance the widening role of the citizenry in
governmental decision-making as well as in checking abuse in the
government.[28] The cases of Taada v. Tuvera[29] and Legaspi v. Civil Service
Commission[30] have recognized a citizens interest and personality to enforce
a public duty and to bring an action to compel public officials and
employees to perform that duty.
Section 4(b) limits or obstructs the power of Congress to secure from PCGG
members and staff information and other data in aid of its power to
legislate. Again, this must not be countenanced. In Senate v. Ermita,[31] this
Court stressed:
To the extent that investigations in aid of legislation are generally
conducted in public, however, any executive issuance tending to unduly
limit disclosures of information in such investigations necessarily deprives
the people of information which, being presumed to be in aid of legislation,
is presumed to be a matter of public concern. The citizens are thereby
denied access to information which they can use in formulating their own
opinions on the matter before Congress opinions which they can then
communicate to their representatives and other government officials
through the various legal means allowed by their freedom of expression.
A statute may be declared unconstitutional because it is not within the
legislative power to enact; or it creates or establishes methods or forms that
infringe constitutional principles; or its purpose or effect violates the
Constitution or its basic principles.[32] As shown in the above discussion,
Section 4(b) is inconsistent with Article VI, Section 21 (Congress power of
inquiry), Article XI, Section 1 (principle of public accountability), Article II,
Section 28 (policy of full disclosure) and Article III, Section 7 (right to public
information).
Significantly, Article XVIII, Section 3 of the Constitution provides:
All existing laws, decrees, executive orders, proclamations, letters of
instructions, and other executive issuances not inconsistent with this
Constitution shall remain operative until amended, repealed, or revoked.
The clear import of this provision is that all existing laws, executive orders,
proclamations, letters of instructions and other executive issuances
inconsistent or repugnant to the Constitution are repealed.
Jurisprudence is replete with decisions invalidating laws, decrees, executive
orders, proclamations, letters of instructions and other executive issuances
inconsistent with the Constitution. In Pelaez v. Auditor General,[33] the Court
considered repealed Section 68 of the Revised Administrative Code of 1917
authorizing the Executive to change the seat of the government of any
subdivision of local governments, upon the approval of the 1935
Constitution. Section 68 was adjudged incompatible and inconsistent with
the Constitutional grant of limited executive supervision over local
governments. In Islamic Dawah Council of the Philippines, Inc., v. Office of
the Executive Secretary,[34] the Court declared Executive Order No. 46,
entitled Authorizing the Office on Muslim Affairs to Undertake
Philippine Halal Certification, void for encroaching on the religious freedom
of Muslims. In The Province of Batangas v. Romulo,[35] the Court declared
some provisions of the General Appropriations Acts of 1999, 2000 and 2001
unconstitutional for violating the Constitutional precept on local
autonomy. And in Ople v. Torres,[36] the Court likewise declared
unconstitutional Administrative Order No. 308, entitled Adoption of a
National Computerized Identification Reference System, for being violative
of the right to privacy protected by the Constitution.
These Decisions, and many others, highlight that the Constitution is the
highest law of the land. It is the basic and paramount law to which all other
laws must conform and to which all persons, including the highest officials
of the land, must defer. No act shall be valid, however noble its intentions, if
it conflicts with the Constitution.[37] Consequently, this Court has no
recourse but to declare Section 4(b) of E.O. No. 1 repealed by the 1987
Constitution.
Significantly, during the oral arguments on September 21, 2006,
Chairman Sabio admitted that should this Court rule that Section 4(b) is
unconstitutional or that it does not apply to the Senate, he will answer the
questions of the Senators, thus:
CHIEF JUSTICE PANGANIBAN:
Okay. Now, if the Supreme Court rules that Sec. 4(b) is unconstitutional or
that it does not apply to the Senate, will you answer the questions of the
Senators?
CHAIRMAN SABIO:
Your Honor, my father was a judge, died being a judge. I was here in the
Supreme Court as Chief of Staff of Justice Feria. I would definitely honor the
Supreme Court and the rule of law.
CHIEF JUSTICE PANGANIBAN:
You will answer the questions of the Senators if we say that?
CHAIRMAN SABIO:
Yes, Your Honor. That is the law already as far as I am concerned.
With his admission, Chairman Sabio is not fully convinced that he and his
Commissioners are shielded from testifying before respondent Senate
Committees by Section 4(b) of E.O. No. 1. In effect, his argument that the
said provision exempts him and his co-respondent Commissioners from
testifying before respondent Senate Committees concerning Senate Res.
No. 455 utterly lacks merit.
Incidentally, an argument repeated by Chairman Sabio is that respondent
Senate Committees have no power to punish him and his Commissioners for
contempt of the Senate.
The argument is misleading.
Article VI, Section 21 provides:
The Senate or the House of Representatives or any of its respective
committees may conduct inquiries in aid of legislation in accordance with its
duly published rules of procedure. The rights of persons appearing in or
affected by such inquiries shall be respected.
It must be stressed that the Order of Arrest for contempt of Senate
Committees and the Philippine Senate was approved by Senate
President Villar and signed by fifteen (15) Senators. From this, it can be
concluded that the Order is under the authority, not only of the respondent
Senate Committees, but of the entire Senate.
At any rate, Article VI, Section 21 grants the power of inquiry not only to the
Senate and the House of Representatives, but also to any of their respective
committees. Clearly, there is a direct conferral of power to the
committees. Father Bernas, in his Commentary on the 1987 Constitution,
correctly pointed out its significance:
It should also be noted that the Constitution explicitly recognizes the power
of investigation not just of Congress but also of any of its committees. This is
significant because it constitutes a direct conferral of investigatory power
upon the committees and it means that the means which the Houses can
take in order to effectively perform its investigative function are also
available to the Committees.[38]
This is a reasonable conclusion. The conferral of the legislative power of
inquiry upon any committee of Congress must carry with it all powers
necessary and proper for its effective discharge. Otherwise, Article VI,
Section 21 will be meaningless. The indispensability and usefulness of the
power of contempt in a legislative inquiry is underscored in a catena of
cases, foreign and local.
In the 1821 case of Anderson v. Dunn,[39] the function of the Houses of
Congress with respect to the contempt power was likened to that of a court,
thus:
But the court in its reasoning goes beyond this, and though the grounds of
the decision are not very clearly stated, we take them to be: that there is in
some cases a power in each House of Congress to punish for contempt; that
this power is analogous to that exercised by courts of justice, and that it
being the well established doctrine that when it appears that a prisoner is
held under the order of a court of general jurisdiction for a contempt of its
authority, no other court will discharge the prisoner or make further inquiry
into the cause of his commitment. That this is the general ruleas regards the
relation of one court to another must be conceded.
In McGrain,[40] the U.S. Supreme Court held: Experience has shown that
mere requests for such information are often unavailing, and also that
information which is volunteered is not always accurate or complete; so
some means of compulsion is essential to obtain what is needed. The Court,
in Arnault v. Nazareno,[41] sustained the Congress power of contempt on the
basis of this observation.
In Arnault v. Balagtas,[42] the Court further explained that the contempt
power of Congress is founded upon reason and policy and that the power of
inquiry will not be complete if for every contumacious act, Congress has to
resort to judicial interference, thus:
The principle that Congress or any of its bodies has the power to punish
recalcitrant witnesses is founded upon reason and policy. Said power must
be considered implied or incidental to the exercise of legislative power. How
could a legislative body obtain the knowledge and information on which to
base intended legislation if it cannot require and compel the disclosure of
such knowledge and information if it is impotent to punish a defiance of its
power and authority? When the framers of the Constitution adopted the
principle of separation of powers, making each branch supreme within the
realm of its respective authority, it must have intended each departments
authority to be full and complete, independently of the others authority or
power. And how could the authority and power become complete if for
every act of refusal, every act of defiance, every act of contumacy against it,
the legislative body must resort to the judicial department for the
appropriate remedy, because it is impotent by itself to punish or deal
therewith, with the affronts committed against its authority or dignity.[43]
In Negros Oriental II Electric Cooperative, Inc. v.
Sangguniang Panlungsod of Dumaguete,[44] the Court characterized
contempt power as a matter of self-preservation, thus:
The exercise by the legislature of the contempt power is a matter of self-
preservation as that branch of the government vested with the legislative
power, independently of the judicial branch, asserts its authority and
punishes contempts thereof. The contempt power of the legislature is,
therefore, sui generis x x x.
Meanwhile, with respect to G.R. No. 174177, the petition
of Philcomsat Holdings Corporation and its directors and officers, this Court
holds that the respondent Senate Committees inquiry does not violate their
right to privacy and right against self-incrimination.
One important limitation on the Congress power of inquiry is that the rights
of persons appearing in or affected by such inquiries shall be respected. This
is just another way of saying that the power of inquiry must be subject to
the limitations placed by the Constitution on government action. As held
in Barenblatt v. United States,[45] the Congress, in common with all the other
branches of the Government, must exercise its powers subject to the
limitations placed by the Constitution on governmental action, more
particularly in the context of this case, the relevant limitations of the Bill of
Rights.
First is the right to privacy.
Zones of privacy are recognized and protected in our laws.[46] Within these
zones, any form of intrusion is impermissible unless excused by law and in
accordance with customary legal process. The meticulous regard we accord
to these zones arises not only from our conviction that the right to privacy is
a constitutional right and the right most valued by civilized men,[47] but also
from our adherence to the Universal Declaration of Human Rights which
mandates that, no one shall be subjected to arbitrary interference with his
privacy and everyone has the right to the protection of the law against such
interference or attacks.[48]
Our Bill of Rights, enshrined in Article III of the Constitution, provides at
least two guarantees that explicitly create zones of privacy. It highlights a
persons right to be let alone or the right to determine what, how much, to
whom and when information about himself shall be disclosed.[49] Section
2 guarantees the right of the people to be secure in their
persons, houses, papers and effects against unreasonable searches and
seizures of whatever nature and for any purpose. Section
3 renders inviolable the privacyof communication and
correspondence and further cautions that any evidence obtained in
violation of this or the preceding section shall be inadmissible for any
purpose in any proceeding.
In evaluating a claim for violation of the right to privacy, a court must
determine whether a person has exhibited a reasonable expectation of
privacy and, if so, whether that expectation has been violated by
unreasonable government intrusion.[50] Applying this determination to these
cases, the important inquiries are: first, did the directors and officers
of Philcomsat Holdings Corporation exhibit a reasonable expectation of
privacy?; and second, did the government violate such expectation?
The answers are in the negative. Petitioners were invited in the Senates
public hearing to deliberate on Senate Res. No. 455, particularly on the
anomalous losses incurred by the Philippine Overseas Telecommunications
Corporation (POTC), Philippine Communications Satellite Corporation
(PHILCOMSAT), and Philcomsat Holdings Corporations (PHC) due to the
alleged improprieties in the operations by their respective board of
directors. Obviously, the inquiry focus on petitioners acts committed in the
discharge of their duties as officers and directors of the said corporations,
particularly Philcomsat Holdings Corporation. Consequently, they have no
reasonable expectation of privacy over matters involving their offices in a
corporation where the government has interest. Certainly, such matters are
of public concern and over which the people have the right to information.
This goes to show that the right to privacy is not absolute where there is an
overriding compelling state interest. In Morfe v. Mutuc,[51] the Court, in line
with Whalen v. Roe,[52] employed the rational basis relationship test when it
held that there was no infringement of the individuals right to privacy as the
requirement to disclosure information is for a valid purpose, i.e., to curtail
and minimize the opportunities for official corruption, maintain a standard
of honesty in public service, and promote morality in public
administration.[53] In Valmonte v. Belmonte,[54] the Court remarked that as
public figures, the Members of the former Batasang Pambansa enjoy a
more limited right to privacyas compared to ordinary individuals, and their
actions are subject to closer scrutiny. Taking this into consideration, the
Court ruled that the right of the people to access information on matters of
public concern prevails over the right to privacy of financial transactions.
Under the present circumstances, the alleged anomalies in the
PHILCOMSAT, PHC and POTC, ranging in millions of pesos, and the
conspiratorial participation of the PCGG and its officials are compelling
reasons for the Senate to exact vital information from the directors and
officers of Philcomsat Holdings Corporations, as well as from
Chairman Sabio and his Commissioners to aid it in crafting the necessary
legislation to prevent corruption and formulate remedial measures and
policy determination regarding PCGGs efficacy. There being no reasonable
expectation of privacy on the part of those directors and officers over the
subject covered by Senate Res. No. 455, it follows that their right to privacy
has not been violated by respondent Senate Committees.
Anent the right against self-incrimination, it must be emphasized that this
right maybe invoked by the said directors and officers
of Philcomsat Holdings Corporation only when the incriminating question is
being asked, since they have no way of knowing in advance the nature or
effect of the questions to be asked of them.[55] That this right
may possibly be violated or abused is no ground for denying respondent
Senate Committees their power of inquiry. The consolation is that when this
power is abused, such issue may be presented before the courts. At this
juncture, what is important is that respondent Senate Committees have
sufficient Rules to guide them when the right against self-incrimination is directing them to appear and testify in public hearings relative to Senate
invoked. Sec. 19 reads: Resolution No. 455.
WHEREFORE, the petition in G.R. No. 174340 for habeas
Sec. 19. Privilege Against Self-Incrimination corpus is DISMISSED, for being moot. The petitions in G.R Nos. 174318 and
174177 are likewise DISMISSED.
A witness can invoke his right against self-incrimination only when a
question tends to elicit an answer that will incriminate him is propounded Section 4(b) of E.O. No. 1 is declared REPEALED by the 1987
to him. However, he may offer to answer any question in an executive Constitution. Respondent Senate Committees power of inquiry relative to
session. Senate Resolution 455 is upheld.PCGG Chairman Camilo L. Sabio and
No person can refuse to testify or be placed under oath or affirmation or Commissioners Ricardo Abcede, Narciso Nario, Nicasio Conti
answer questions before an incriminatory question is asked. His invocation and Tereso Javier; and Manuel Andal and Julio Jalandoni, PCGGs nominees
of such right does not by itself excuse him from his duty to give testimony. to Philcomsat Holdings Corporation, as well as its directors and officers,
In such a case, the Committee, by a majority vote of the members present petitioners in G.R. No. 174177, are ordered to comply with
there being a quorum, shall determine whether the right has been properly the Subpoenae Ad Testificandumissued by respondent Senate Committees
invoked. If the Committee decides otherwise, it shall resume its directing them to appear and testify in public hearings relative to Senate
investigation and the question or questions previously refused to be Resolution No. 455.
answered shall be repeated to the witness. If the latter continues to refuse
to answer the question, the Committee may punish him for contempt for SO ORDERED.
contumacious conduct.
ANGELINA SANDOVAL-GUTIERREZ
The same directors and officers contend that the Senate is barred from Associate Justice
inquiring into the same issues being litigated before the Court of Appeals
and the Sandiganbayan.Suffice it to state that the Senate Rules of
Procedure Governing Inquiries in Aid of Legislation provide that the filing or WE CONCUR:
pendency of any prosecution of criminal or administrative action should not
stop or abate any inquiry to carry out a legislative purpose.
Let it be stressed at this point that so long as the constitutional rights of ARTEMIO V. PANGANIBAN
witnesses, like Chairman Sabio and his Commissioners, will be respected by Chief Justice
respondent Senate Committees, it their duty to cooperate with them in
their efforts to obtain the facts needed for intelligent legislative action. The
unremitting obligation of every citizen is to respond to subpoenae, to
respect the dignity of the Congress and its Committees, and to testify fully
with respect to matters within the realm of proper investigation. REYNATO S. PUNO LEONARDO A. QUISUMBING
Associate Justice Associate Justice
In fine, PCGG Chairman Camilo Sabio and Commissioners Ricardo Abcede,
Narciso Nario, Nicasio Conti, and Tereso Javier; and Manuel Andal and
Julio Jalandoni, PCGGs nominees to Philcomsat Holdings Corporation, as CONSUELO YNARES-SANTIAGO ANTONIO T. CARPIO
well as its directors and officers, must comply with Associate Justice Associate Justice
the Subpoenae Ad Testificandum issued by respondent Senate Committees
MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA PHILCOMSAT Holdings Corporation (PHC) due to the alleged
Associate Justice Associate Justice improprieties in their operations by their respective Board of
Directors.” Pursuant to this, on May 8, 2006, Senator Richard
Gordon, wrote Chairman Camilo Sabio of the PCGG inviting him to
CONCHITA CARPIO MORALES ROMEO J. CALLEJO, SR. be one of the resource persons in the public meeting jointly
Associate Justice Associate Justice conducted by the Committee on Government Corporations and
Public Enterprises and Committee on Public Services. Chairman
Sabio declined the invitation because of prior commitment. At the
ADOLFO S. AZCUNA MINITA CHICO-NAZARIO same time, he invoked Section 4(b) of E.O. No. 1 “No member or
Associate Justice Associate Justice staff of the Commission shall be required to testify or produce
evidence in any judicial, legislative or administrative proceeding
concerning matters within its official cognizance.” Apparently, the
DANTE O. TINGA CANCIO C. GARCIA purpose is to ensure PCGG’s unhampered performance of its task.
Associate Justice Associate Justice Gordon’s Subpoenae Ad Testificandum was repeatedly ignored by
Sabio hence he threatened Sabio to be cited with contempt.
ISSUE: Whether or not Section 4 of EO No. 1 is constitutional.
HELD: No. It can be said that the Congress’ power of inquiry has
gained more solid existence and expansive construal. The Court’s
high regard to such power is rendered more evident in Senate v.
PRESBITERO J. VELASCO Ermita, where it categorically ruled that “the power of inquiry is
Associate Justice broad enough to cover officials of the executive branch.” Verily,
the Court reinforced the doctrine in Arnault that “the operation of
government, being a legitimate subject for legislation, is a proper
CERTIFICATION subject for investigation” and that “the power of inquiry is co-
extensive with the power to legislate”. Subject to reasonable
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified conditions prescribed by law, the State adopts and implements a
that the conclusions in the above Decision were reached in consultation policy of full public disclosure of all its transactions involving public
before the case was assigned to the writer of the opinion of the Court. interest.
Article III, Section 7
The right of the people to information on matters of public concern shall be
recognized. Access to official records, and to documents, and papers
ARTEMIO V. PANGANIBAN
pertaining to official acts, transactions, or decisions, as well as to
Chief Justice
government research data used as basis for policy development, shall be
afforded the citizen, subject to such limitations as may be provided by law.
Camilo Sabio vs Richard Gordon These twin provisions of the Constitution seek to promote
On February 20, 2006, Senator Miriam Defensor-Santiago transparency in policy-making and in the operations of the
introduced Senate Res. No. 455 “directing an inquiry in aid of government, as well as provide the people sufficient information to
legislation on the anomalous losses incurred by the Philippines enable them to exercise effectively their constitutional rights.
Overseas Telecommunications Corporation (POTC), Philippine Armed with the right information, citizens can participate in public
Communications Satellite Corporation (PHILCOMSAT), and
discussions leading to the formulation of government policies and
their effective implementation.
SABIO VS GORDON
Posted by kaye lee on 9:17 PM
In the Matter of the Petition for Issuance of Writ of
Habeas Corpus of CAMILO L. SABIO v.
HON. SENATOR RICHARD J. GORDON, et al.
G.R. No. 174340 17 October 2006,
Sandoval-Gutierrez, J. (En Banc)
[Congress Power of Inquiry]
FACTS:
Pursuant to Senate Resolution No. 455, Senator Gordon
requested PCGG Chairman Sabio and his Commissioners to
appear as resource persons in the public meeting jointly
conducted by the Committee on Government Corporations
and Public Enterprises and Committee on Public Services.
Chairman Sabio declined the invitation because of prior
commitment, and at the same time invoked Section 4(b) of
EO No. 1: “No member or staff of the Commission shall be
required to testify or produce evidence in any judicial,
legislative or administrative proceeding concerning matters
within its official cognizance.”
ISSUE:
Whether or not Section 4(b) of E.O. No.1 limits power of
legislative inquiry by exempting all PCGG members or staff
from testifying in any judicial, legislative or administrative
proceeding.
RULING:
No. Article VI, Section 21 of the 1987 Constitution grants
the power of inquiry not only to the Senate and the House of
Representatives, but also to any of their respective
committees. Clearly, there is a direct conferral of
investigatory power to the committees and it means that the
mechanism which the Houses can take in order to effectively
perform its investigative functions are also available to the
committees.
It can be said that the Congress’ power of inquiry has gained
more solid existence and expansive construal. The Court’s
high regard to such power is rendered more evident
in Senate v. Ermita, where it categorically ruled that “the
power of inquiry is broad enough to cover officials of the
executive branch.” Verily, the Court reinforced the doctrine
in Arnault that “the operation of government, being a
legitimate subject for legislation, is a proper subject for
investigation” and that “the power of inquiry is co-extensive
with the power to legislate.”
Considering these jurisprudential instructions, Section 4(b)
is directly repugnant with Article VI, Section 21. Section
4(b) exempts the PCGG members and staff from the
Congress’ power of inquiry. This cannot be
countenanced. Nowhere in the Constitution is any provision
granting such exemption. The Congress’ power of inquiry,
being broad, encompasses everything that concerns the
administration of existing laws as well as proposed or
possibly needed statutes. It even extends “to government
agencies created by Congress and officers whose positions
are within the power of Congress to regulate or even
abolish.” PCGG belongs to this class.
A statute may be declared unconstitutional because it is not
within the legislative power to enact; or it creates or
establishes methods or forms that infringe constitutional
principles; or its purpose or effect violates the Constitution
or its basic principles.
Moreover, Sec. 4(b) of E.O. No. 1 has been repealed by the
Constitution because it is inconsistent with the constitutional
provisions on the Congress’ power of inquiry (Art. VI, Sec.
21), the principle of public accountability (Art. XI, Sec. 1),
the policy of full disclosure (Art. II, Sec. 28), and the right
of access to public information (Art. III, Sec. 7).
Certainly, a mere provision of law cannot pose a limitation
to the broad power of Congress, in the absence of any
constitutional basis.
SECOND DIVISION
[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
DE LEON, JR., J:
Before us is the joint and consolidated petition for review of the
Decision[1] dated June 15, 1994 of the Court of Appeals in CA-G.R.
CV No. 27480 entitled, Philippine Bank of Communications
vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which
reversed the decision of the Regional Trial Court (RTC) of Manila,
Branch 55 dismissing the complaint for a sum of money filed by
private respondent Philippine Bank of Communications against herein
petitioners, Mico Metals Corporation (MICO, for brevity), Charles Lee,
Chua Siok Suy,[2] Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co.[3] The dispositive portion of the said Decision of the Court
of Appeals, reads:
WHEREFORE, the decision of the Regional Trial Court is hereby reversed and
in lieu thereof, a new one is entered:
a) Ordering the defendants-appellees jointly and severally to pay
plaintiff PBCom the sum of Five million four hundred fifty-one
thousand six hundred sixty-three pesos and ninety centavos
(P5,451,663.90) representing defendants-appellees unpaid
obligations arising from ordinary loans granted by the plaintiff plus
legal interest until fully paid.
b) Ordering defendants-appellees jointly and severally to
pay PBCom the sum of Four hundred sixty-one thousand six hundred
pesos and sixty-six centavos (P46 1,600.66) representing defendants-
appellees unpaid obligations arising from their letters of credit and
trust receipt transactions with plaintiff PBCom plus legal interest until
fully paid.
c) Ordering defendants-appellees jointly and severally to
pay PBCom the sum of P50,000.00 as attorneys fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, 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 MICOs line of
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.
In connection with the requests for discounting loan/credit
lines, PBCom was furnished by MICO the following resolution which
was adopted unanimously by MICOs Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and
General Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly
authorized and empowered for and in behalf of this Corporation to apply for,
negotiate and secure the approval of commercial loans and other banking
facilities and accommodations, such as, but not limited to discount loans,
letters of credit, trust receipts, lines for marginal deposits on foreign and
domestic letters of credit, negotiate out-of-town checks, etc. from the
Philippine Bank of Communications, 216 Juan Luna, Manila in such sums as
they shall deem advantageous, the principal of all of which shall not exceed
the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine
Currency, plus any interests that may be agreed upon with said Bank in such
loans and other credit lines of the same kind and such further terms and
conditions as may, upon granting of said loans and other banking facilities,
be imposed by the Bank; and to make, execute, sign and deliver any
contracts of mortgage, pledge or sale of one, some or all of the properties of
the Company, or any other agreements or documents of whatever nature or
kind, including the signing, indorsing, cashing, negotiation and execution of
promissory notes, checks, money orders or other negotiable instruments,
which may be necessary and proper in connection with said loans and other
banking facilities, or with their amendments, renewals and extensions of
payment of the whole or any part thereof.[4]
On March 26, 1979, MICO availed of the first loan of One Million
Pesos (P1,000,000.00) from PBCom. Upon maturity of the loan,
MICO caused the same to be renewed, the last renewal of which was
made on May 21, 1982 under Promissory Note BNA No. 26218.[5]
Another loan of One Million Pesos (P1,000,000.00) was availed of by
MICO from PBCom which was likewise later on renewed, the last
renewal of which was made on May 21, 1982 under Promissory Note
BNA No. 26219.[6] To complete MICOs availment of Three Million
Pesos (P3,000,000.00) discounting loan/credit line with PBCom,
MICO availed of another loan from PBCom in the sum of One Million
Pesos (P1,000,000.00) on May 24, 1979. As in previous loans, this
was rolled over or renewed, the last renewal of which was made
on May 25, 1982 under Promissory Note BNA No. 26253.[7]
As security for the loans, MICO through its Vice-President and
General Manager, Mariano Sio, executed on May 16, 1979 a Deed of
Real Estate Mortgage over its properties situated in Pasig, Metro
Manila covered by Transfer Certificates of Title (TCT) Nos. 11248 and
11250.
On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap and Richard Velasco, in their personal capacities
executed a Surety Agreement[8] 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. It was provided, however, that the liability of
the sureties shall not at any one time exceed the principal amount of
Three Million Pesos (P3,000,000.00) plus interest, costs, losses,
charges and expenses including attorneys fees incurred by PBCom in
connection therewith.
On July 14, 1980, petitioner 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 companys machineries. Upon
approval of the said application for loan, MICO availed of the
additional loan of Four Million Pesos (P4,000,000.00) as evidenced by
Promissory Note TA No. 094.[9]
As per agreement, the proceeds of all the loan availments were
credited to MICOs current checking account with PBCom. To induce
the PBCom to increase the credit line of MICO, Charles Lee,
Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co (hereinafter referred to as petitioners-sureties), executed
another surety agreement[10] in favor of PBCom on July 28, 1980,
whereby they 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 all other
obligations of any kind and nature for which MICO may be held
accountable by PBCom. It was provided, however, that their liability
shall not at any one time exceed the sum of Seven Million Five
Hundred Thousand Pesos (P7,500,000.00) including interest, costs,
charges, expenses and attorneys fees incurred by MICO in
connection therewith.
On July 29, 1980, 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. Indicated in the certification was the
following resolution unanimously approved by the Board of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is
hereby authorized and empowered, on behalf of MICO METALS
CORPORATION from time to time, to borrow money and obtain other credit
facilities, with or without security, from the PHILIPPINE BANK OF
COMMUNICATIONS in such amount(s) and under such terms and conditions
as he may determine, with full power and authority to execute, sign and
deliver such contracts, instruments and papers in connection therewith,
including real estate and chattel mortgages, pledges and assignments over
the properties of the Corporation; and to renew and/or extend and/or roll-
over and/or reavail of the credit facilities granted thereunder, either for
lesser or for greater amount(s), the intention being that such credit facilities
and all securities of whatever kind given as collaterals therefor shall be a
continuing security.
RESOLVED FURTHER, That said bank is hereby authorized, empowered and
directed to rely on the authority given hereunder, the same to continue in
full force and effect until written notice of its revocation shall be received by
said Bank.[11]
On July 2, 1981, MICO filed with PBCom an application for a domestic
letter of credit in the sum of Three Hundred Forty-Eight Thousand
Pesos (P348,000.00).[12] The corresponding irrevocable letter of credit
was approved and opened under LC No. L-16060.[13] Thereafter, the
domestic letter of credit was negotiated and accepted by MICO as
evidenced by the corresponding bank draft issued for the
purpose.[14] After the supplier of the merchandise was paid, a trust
receipt upon MICOs own initiative, was executed in favor
of PBCom.[15]
On September 14, 1981, MICO applied for another domestic letter of
credit with PBCom in the sum of Two Hundred Ninety Thousand
Pesos (P290,000.00).[16] The corresponding irrevocable letter of credit
was issued on September 22, 1981 under LC No. L-16334.[17] After
the beneficiary of the said letter of credit was paid by PBCom for the
price of the merchandise, the goods were delivered to MICO which
executed a corresponding trust receipt[18] in favor of PBCom.
On November 10, 1981, MICO applied for authority to open a foreign
letter of credit in favor of Ta Jih Enterprises Co., Ltd.,[19] and thus, the
corresponding letter of credit[20] was then issued by PBCom with a
cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that
said beneficiary may draw funds from the account of PBCom in its
correspondent banks New York Office.[21] PBCom also informed its
corresponding bank in Taiwan, the Irving Trust Company, of the
approved letter of credit. The correspondent bank
acknowledged PBComs advice through a confirmation letter[22] and by
debiting from PBComs account with the said correspondent bank the
sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11
,960.00).[23] As in past transactions, MICO executed in favor
of PBCom a corresponding trust receipt.[24]
On January 4, 1982, MICO applied, for authority to open a foreign
letter of credit in the sum of One Thousand Nine Hundred US Dollars
($1,900.00), with PBCom.[25] Upon approval, the corresponding letter
of credit denominated as LC No. 62293[26] was issued
whereupon PBCom advised its correspondent bank and MICO[27] of
the same. Negotiation and proper acceptance of the letter of credit
were then made by MICO. Again, a corresponding trust receipt[28] was
executed by MICO in favor of PBCom.
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.
On May 21, 1982 MICO obtained from PBCom another loan in the
sum of Three Hundred Seventy-Seven Thousand Pesos
(P377,000.00) covered by Promissory Note BA No. 7458.[29]
Upon maturity of all credit availments obtained by MICO from PBCom,
the latter made a demand for payment.[30] For failure of petitioner
MICO to pay the obligations incurred despite repeated demands,
private respondent PBCom extrajudicially foreclosed MICOs real
estate mortgage and sold the said mortgaged properties in a public
auction sale held on November 23, 1982. Private
respondent PBCom which emerged as the highest bidder in the
auction sale, applied the proceeds of the purchase price at public
auction of Three Million Pesos (P3,000,000.00) to the expenses of the
foreclosure, interest and charges and part of the principal of the loans,
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,
which was raffled to Branch 55, alleging that MICO was no longer in
operation and had no properties to answer for its
obligations. PBCom further alleged that petitioner Charles Lee has
disposed or concealed his properties with intent to defraud his
creditors. Except for MICO and Charles Lee, the sheriff of the RTC
failed to serve the summons on herein petitioners-sureties since they
were all reportedly abroad at the time. An alias summons was later
issued but the sheriff was not able to serve the same to petitioners
Alfonso Co and Chua Siok Suy who was already sickly at the time and
reportedly in Taiwan where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all the
allegations of the complaint filed by respondent PBCom, and alleged
that: a) MICO was not granted the alleged loans and neither did it
receive the proceeds of the aforesaid loans; b) Chua Siok Suy was
never granted any valid Board Resolution to sign for and in behalf of
MICO; c) PBCom acted in bad faith in granting the alleged loans and
in releasing the proceeds thereof; d) petitioners were never advised of
the alleged grant of loans and the subsequent releases therefor, if
any; e) since no loan was ever released to or received by MICO, the
corresponding real estate mortgage and the surety agreements
signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein petitioners
and dismissed the complaint filed by PBCom. The trial court likewise
declared the real estate mortgage and its foreclosure null and void. In
ruling for herein petitioners, the trial court said that PBCom failed to
adequately prove that the proceeds of the loans were ever delivered
to MICO. The trial court pointed out, among others, that
while PBCom claimed that the proceeds of the Four Million Pesos
(P4,000,000.00) loan covered by promissory note TA 094 were
deposited to the current account of petitioner MICO, PBCom failed to
produce the ledger account showing such deposit. The trial court
added that while PBCom may have loaned to MICO the other sums of
Three Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two
Hundred Ninety Thousand Pesos (P290,000.00), 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 surety
agreements were all void or nonexistent for lack of cause or
consideration. The trial court said that the lack of proof as regards the
existence of the merchandise covered by the letters of credit bolstered
the claim of herein petitioners that no purchases of the goods were
really made and that the letters of credit transactions were simply
resorted to by the PBCom and Chua Siok Suy to accommodate the
latter in his financial requirements.
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.
The Court of Appeals also cited the case of Gatmaitanvs. Court of
Appeals[31] which holds that "there is a presumption that an instrument
sets out the true agreement of the parties thereto and that it was
executed for valuable consideration. The appellate court noted and
found that a notarized Certification was issued by MICOs corporate
secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized by
the Board of Directors of MICO to borrow money and obtain credit
facilities from PBCom.
Petitioners filed a motion for reconsideration of the challenged
decision of the Court of Appeals but this was denied in a Resolution
dated November 7, 1994 issued by its Former Second Division.
Petitioners-sureties then filed a petition for review on certiorari with
this Court, docketed as G.R. No. 117913, assailing the decision of the
Court of Appeals. MICO likewise filed a separate petition for review
on certiorari, docketed as G.R. No. 117914, with this Court assailing
the same decision rendered by the Court of Appeals. Upon motion
filed by petitioners, the two (2) petitions were consolidated on January
11, 1995.[32]
Petitioners contend that there was no proof that the proceeds of the
loans or the goods under the trust receipts were ever delivered to and
received by MICO. But the record shows otherwise. Petitioners-
sureties further contend that assuming that there was delivery
by PBCom of the proceeds of the loans and the goods, the contracts
were executed by an unauthorized person, more specifically
Chua Siok Suy who acted fraudulently and in collusion with PBCom to
defraud MICO.
The pertinent issues raised in the consolidated cases at bar are: 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.
In civil cases, the party having the burden of proof must establish his
case by preponderance of evidence.[33] Preponderance of evidence
means evidence which is more convincing to the court as worthy of
belief than that which is offered in opposition thereto. Petitioners
contend that the alleged promissory notes, trust receipts and surety
agreements attached to the complaint filed by PBCom did not ripen
into valid and binding contracts inasmuch as there is no evidence of
the delivery of money or loan proceeds to MICO or to any of the
petitioners-sureties. Petitioners claim that under normal banking
practice, borrowers are required to accomplish promissory notes in
blank even before the grant of the loans applied for and such
documents become valid written contracts only when the loans are
actually released to the borrower.
We are not convinced.
During the trial of an action, the party who has the burden of proof
upon an issue may be aided in establishing his claim or defense by
the operation of a presumption, or, expressed differently, by the
probative value which the law attaches to a specific state of facts. 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. The burden of proof remains
where it is, but by the presumption the one who has that burden is
relieved for the time being from introducing evidence in support of his
averment, because the presumption stands in the place of evidence
unless rebutted.
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 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.
Private respondent PBCom presented the following documentary
evidence to prove petitioners credit availments and liabilities:
1) Promissory Note No. BNA 26218 dated May 21, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum
of P1,000,000.00 executed by MICO in favor of PBCom.
4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum
of P377,000.00 executed by MICO in favor of PBCom.
5) Promissory Note No. TA 094 dated July 29, 1980 in the sum
of P4,000.000.00 executed by MICO in favor of PBCom.
6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in
favor of Perez Battery Center for account of Mico Metals Corp.
7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by
Perez Battery Center, beneficiary of irrevocable Letter of Credit No.
No. L-16060 and accepted by MICO Metals corporation.
8) Letter dated July 2, 1981 from Perez Battery Center addressed to
private respondent PBCom showing that proceeds of the irrevocable
letter of credit No. L- 16060 was received by Mr. MoisesRosete,
representative of Perez Battery Center.
9) Trust receipt dated July 2, 1981 executed by MICO in favor
of PBCom covering the merchandise purchased under Letter of Credit
No. 16060.
10) Irrevocable letter of credit No. L-16334 dated September 22, 1981
issued in favor of Perez Battery Center for account of MICO Metals
Corp.
11) Draft dated September 22, 1981 in the sum
of P290,000.00 issued by Perez Battery Center and accepted by
MICO.
12) Letter dated September 17, 1981 from Perez Battery addressed
to PBCom showing that the proceeds of credit no. L-16344 was
received by Mr. Moises Rosete, a representative
of Perez BatteryCenter.
13) Trust Receipt dated September 22, 1981 executed by MICO in
favor of PBCom covering the merchandise under Letter of Credit
No. L-16334.
14) Irrevocable Letter of Credit no. 61873 dated November 10,
1981 for US$11,960.00 issued by PBCom in favor of TA JIH
Enterprises Co. Ltd., through its correspondent bank, Irving Trust
Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 9181 executed by MICO in
favor of PBCom showing that possession of the merchandise covered
by Irrevocable Letter of Credit no. 61873 was released by PBCom to
MICO.
16) Letters dated March 2, 1979 from MICO signed by its president,
Charles Lee, showing that MICO sought credit line from PBCom in the
form of loans, letters of credit and trust receipt in the sum
of P7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by its president,
Charles Lee, showing that MICO requested for additional financial
assistance in the sum of P4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO authorizing
Charles Lee and Mariano Sio singly or jointly to act and sign for and in
behalf of MICO relative to the obtention of credit facilities
from PBCom.
19) Duly notarized Deed of Mortgage dated May 16, 1979 executed
by MICO in favor of PBCom over MICO s real properties covered by
TCT Nos. 11248 and 11250 located in Pasig.
20) Duly notarized Surety Agreement dated March 26, 1979 executed
by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard
Velasco and Chua Siok Suy in favor of PBCom.
21) Duly notarized Surety Agreement dated July 28, 1980 executed
by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard
Velasco and Chua Siok Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by MICO s
corporate secretary, Mr. P.B. Barrera, attesting to the adoption of a
board resolution authorizing Chua Siok Suy to sign, for and in behalf
of MICO, all the necessary documents including contracts, loan
instruments and mortgages relative to the obtention of various credit
facilities from PBCom.
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
respondent PBCom. 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.
Petitioners-sureties also presented a letter of their counsel
dated October 9, 1982, addressed to private
respondent PBCom purportedly to show that PBCom knew that
Chua Siok Suyallegedly used the credit and good names of the
petitioner-sureties for his benefit, and that petitioner-sureties were
made to sign blank documents and were furnished copies of the
same. The letter, however, is in fact merely a reply of petitioners-
sureties counsel to PBComs demand for payment
of MICOs obligations, and appears to be an inconsequential piece of
self-serving evidence.
In addition to the foregoing, MICO and petitioners-sureties cited the
decision of the trial court which stated that there was no proof that the
proceeds of the loans were ever delivered to MICO. Although the
private respondents witness, Mr. Gardiola, testified that the proceeds
of the loans were deposited in MICOs current account with PBCom,
his testimony was allegedly not supported by any bank record, note or
memorandum. A careful scrutiny of the record including the transcript
of stenographic notes reveals, however, that although private
respondent PBCom was willing to produce the corresponding account
ledger showing that the proceeds of the loans were credited
to MICOs current account with PBCom, MICO in fact vigorously
objected to the presentation of said document. That point is shown in
the testimony of PBComs witness, Gardiola, thus:
Q: Now, all of these promissory note Exhibits I and J which as you
have said previously (sic) availed originally by defendant Mico Metals
Corp. sometime in 1979, my question now is, do you know what
happened to the proceeds of the original availment?
A: Well, it was credited to the current account of Mico Metals Corp.
Q: Why did it was credited to the proceeds to the account
of Mico Metals Corp? (sic)
A: Well, that is our understanding.
ATTY. DURAN:
Your honor, may we be given a chance to object, the best evidence is
the so-called current account...
COURT:
Can you produce the ledger account?
A: Yes, Your Honor, I will bring.
COURT:
The ledger or record of the current account of Mico Metals Corp.
A: Yes, Your Honor.
ATTY. ACEJAS:
Your Honor, these are a confidential record, and they might not be
disclosed without the consent of the person concerned. (sic)
ATTY. SANTOS:
Well, you are the one who is asking that.
ATTY. DURAN:
Your Honor, Im precisely want to show for the ... (sic)
COURT:
But the amount covered by the current account of
defendant Mico Metals Corp. is the subject matter of this case.
xxx xxx xxx
Q: Are those availments were release? (sic)
A: Yes, Your Honor, to the defendant corporation.
Q: By what means?
A: By the credit to their current account.
ATTY. ACEJAS:
We object to that, your Honor, because the disclose is the secrecy of
the bank deposit. (sic)
xxx xxx xxx
Q: Before the recess Mr. Gardiola, you stated that the proceeds of the
three (3) promissory notes were credited to the accounts
of Mico Metals Corporation, now do you know what kind of current
account was that which you are referring to?
ATTY. ACEJAS:
Objection your Honor, that is the disclose of the deposit of
defendant Mico Metals Corporation and it cannot disclosed without
the authority of the depositor. (sic)[37]
That proceeds of the loans which were originally availed of in 1979
were delivered to MICO is bolstered by the fact that more than a year
later, specifically on July 14, 1980, MICO through its president,
petitioner-surety Charles Lee, requested for an additional loan of Four
Million Pesos (P4,000,000.00) from PBCom. The fact that MICO was
requesting for an additional loan implied that it has already availed of
earlier loans from PBCom.
Petitioners allege that PBCom presented no evidence that it remitted
payments to cover the domestic and foreign letters of credit.
Petitioners placed much reliance on the erroneous decision of the trial
court which stated that private respondent PBCom allegedly failed to
prove that it actually made payments under the letters of credit since
the bank drafts presented as evidence show that they were made in
favor of the Bank of Taiwan and First Commercial Bank.
Petitioners allegations are untenable.
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 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. As
explained by respondent bank, a draft was drawn on the Bank of
Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the
goods covered by the foreign letter of credit. Having paid the supplier,
the Bank of Taiwan then presented the bank draft for reimbursement
by PBComscorrespondent bank in Taiwan, the Irving Trust Company
which explains the reason why on its face, the draft was made
payable to the Bank of Taiwan. Irving Trust Company accepted and
endorsed the draft to PBCom. The draft was later transmitted
to PBCom to support the latters claim for payment from MICO. MICO
accepted the draft upon presentment and negotiated it to PBCom.
Petitioners further aver that MICO never requested that legal
possession of the merchandise be transferred to PBCom by way of
trust receipts. Petitioners insist that assuming that MICO transferred
possession of the merchandise to PBCom by way of trust receipts, the
same would be illegal since PBCom, being a banking institution, is not
authorized by law to engage in the business of importing and selling
goods.
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.
Petitioners averments with regard to the second issue are no less
incredulous. Petitioners contend 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 Suywas 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.
It has not escaped our notice that it was petitioner-surety Charles Lee,
as president of MICO Metals Corporation, who first requested for a
discounting loan of Three Million Pesos (P3,000,000.00)
from PBCom as evidenced by his letter dated March 2, 1979.[40] On
the same day, Charles Lee, as President of MICO, requested for a
Letter of Credit and Trust Receipt line in the sum of Three Million
Pesos (P3,000,000.00).[41] Still, on the same day, Charles Lee again
as President of MICO, wrote another letter to PBCOM requesting for a
financing line in the sum of One Million Five Hundred Thousand
Pesos (P1,500,000.00) to be used exclusively as marginal deposit for
the opening of MICOs foreign and local letters of credit
with PBCom.[42] More than a year later, it was also Charles Lee, again
in his capacity as president of MICO, who asked for an additional loan
in the sum of Four Million Pesos (P4,000,000.00). The claim therefore
of petitioners that it was Chua Siok Suy, in connivance with the
respondent PBCom, who applied for and obtained the loan
transactions and letters of credit strains credulity considering that
even the Deed of the Real Estate Mortgage in favor of PBCom was
executed by petitioner-surety Mariano Sio in his capacity as general
manager of MICO[43] to secure the loan accommodations obtained by
MICO from PBCom.
Petitioners-sureties allege that they were made to sign the surety
agreements in blank by Chua Siok Suy. Petitioner Alfonso Yap, the
corporate treasurer, for his part testified that he signed booklets of
checks, surety agreements and promissory notes in blank; that he
signed the documents in blank despite his misgivings since
Chua Siok Suy assured him that the transaction can easily be taken
cared of since Chua Siok Suy personally knew the Chairman of the
Board of PBCom; that he was not receiving salary as treasurer
of Mico Metals and since Chua Siok Suy had a direct hand in the
management of Malayan Sales Corporation, of which Yap is an
employee, he (Yap) signed the documents in blank as consideration
for his continued employment in Malayan Sales Corporation.
Petitioner Antonio Co testified that he worked as office manager for
MICO from 1978-1982. As office manager, he was the one in charge
of transacting business like purchasing, selling and paying the salary
of the employees. He was also in charge of the handling of
documents pertaining to surety agreements, trust receipts and
promissory notes;[44] that when he first joined MICO Metals
Corporation, he was able to read the by-laws of the corporation and
he came to know that only the chairman and the president can borrow
money in behalf of the corporation; that Chua Siok Suy once called
him up and told him to secure an invoice so that a credit line can be
opened in the bank with a local letter of credit; that when the invoice
was secured, he (Co) brought it together with the application for a
credit line to Chua Siok Suy, and that he questioned the authority of
Chua SiokSuy pointing out that he (Co) is not empowered to sign the
document inasmuch as only the latter, as president, was authorized to
do so. However, Chua Siok Suy allegedly just said that he had
already talked with the Chairman of the Board of PBCom; and that
Chua Siok Suy reportedly said that he needed the money to finance a
project that he had with the Taipeigovernment. Co also testified that
he knew of the application for domestic letter of credit in the sum of
Three Hundred Forty-Eight Thousand Pesos (P348,000.00); and that
a certain MoisesRosete was authorized to claim the check covering
the Three Hundred Forty-Eight Thousand Pesos (P348,000.00)
from PBCom; and that after claiming the check Rosete brought it to
Perez Battery Center for indorsement after which the same was
deposited to the personal account of Chua Siok Suy.[45]
We consider as incredible and unacceptable the claim of petitioners-
sureties that the Board of Directors of MICO was so careless about
the business affairs of MICO as well as about their own personal
reputation and money that they simply relied on the say so of
Chua Siok Suy on matters involving millions of pesos. Under Section
3 (d), Rule 131 of the Rules of Court, it is presumed that a person
takes ordinary care of his concerns. Hence, the natural presumption is
that one does not sign a document without first informing himself of its
contents and consequences. Said presumption acquires greater force
in the case at bar where not only one but several documents were
executed at different times and at different places by the petitioner
sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was
not duly authorized to negotiate for loans in behalf of MICO
from PBCom. Petitioners allegation, however, is belied by the July 28,
1980 Certification issued by the corporate secretary of PBCom, Atty.
P.B. Barrera, that MICO's Board of Directors gave Chua Siok Suy full
authority to negotiate for loans in behalf of MICO with PBCom. In fact,
the Certification even provided that Chua Siok Suys authority
continues until and unless PBCom is notified in writing of the
withdrawal thereof by the said Board. Notably, petitioners failed to
contest the genuineness of the said Certification which is notarized
and to show any written proof of any alleged withdrawal of the said
authority given by the Board of Directors to Chua Siok Suy to
negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the petitioners-
sureties individually about the terms of the loans, letters of credit and
other loan documents. The petitioners-sureties themselves happen to
comprise the Board of Directors of MICO, which gave full authority to
Chua Siok Suy to negotiate for loans in behalf of MICO. Notice
to MICOs authorized representative, Chua Siok Suy, was notice to
MICO. The Certification issued by PBComs corporate secretary, Atty.
P.B. Barrera, indicated that Chua Siok Suy had full authority to
negotiate and sign the necessary documents, in behalf of MICO for
loans from PBCom. Respondent PBCom therefore had the right to
rely on the said notarized Certification of MICOs Corporate Secretary.
Anent petitioners-sureties contention that they obtained no
consideration whatsoever on the surety agreements, we need only
point out that the consideration for the sureties is the very
consideration for the principal obligor, MICO, in the contracts of loan.
In the case of Willex Plastic Industries Corporation vs. Court of
Appeals,[46] we 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.
Petitioners placed too much reliance on the rule in evidence that the
burden of proof does not shift whereas the burden of going forward
with the evidence does pass from party to party. It is true that said rule
is not changed by the fact that the party having the burden of proof
has introduced evidence which established prima facie his assertion
because such evidence does not shift the burden of proof; it merely
puts the adversary to the necessity of producing evidence to meet
the prima facie case. Where the defendant merely denies, either
generally or otherwise, the allegations of the plaintiffs pleadings, the
burden of proof continues to rest on the plaintiff throughout the trial
and does not shift to the defendant until the plaintiffs evidence has
been presented and duly offered. The defendant has then no burden
except to produce evidence sufficient to create a state of equipoise
between his proof and that of the plaintiff to defeat the latter, whereas
the plaintiff has the burden, as in the beginning, of establishing his
case by a preponderance of evidence.[47] But where the defendant has
failed to present and marshall evidence sufficient to create a state of
equipoise between his proof and that of plaintiff, the prima facie case
presented by the plaintiff will prevail.
In the case at bar, respondent PBCom, as plaintiff in the trial court,
has in fact presented sufficient documentary and testimonial evidence
that proved by preponderance of evidence its subject collection case
against the defendants who are the petitioners herein. In view of all
the foregoing, the Court of Appeals committed no reversible error in
its appealed Decision.
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, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, is
AFFIRMED in toto.
Costs against the petitioners.
SO ORDERED.
Bellosillo, (Chairman),
Mendoza, Quisumbing, and Buena, JJ., concur.
Lee v Court of Appeals G.R. NO. 117913.
February 1, 2002
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.
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 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. 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.
Issue:
1) whether or not the proceeds of the loans and letters of credit
transactions were ever delivered to MICO
2) whether or not the individual petitioners, as sureties, may be held
liable under the two (2) Surety Agreements
Held:
1) whether or not the proceeds of the loans and letters of credit
transactions were ever delivered to MICO
The letter of credita, as well as the security agreements, 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 respondent PBCom. 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.
2) whether or not the individual petitioners, as sureties, may be
held liable under the two (2) Surety Agreements
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.
Wednesday, December 19, 2012
Lee vs. CA Case Digest
Lee vs. Court of Appeals
[GR 93695, 4 February 1992]
Facts: On 15 November 1985, a complainant for sum of money was filed
by the International Corporate Bank, Inc. against Sacoba Manufacturing
Corp., Pablo Gonzales Jr., and Tomas Gonzales who, in turn, filed a third
party complaint against Alfa Integrated Textile Mills (ALFA), Ramon C.
Lee (ALFA's president) and Antonio DM. Lacdao (ALFA's vice president)
on 17 March 1986. On 17 September 1987, Lee and Lacdao filed a
motion to dismiss the third party complaint which the Regional Trial Court
of Makati, Branch 58 denied in an Order dated 27 June 1988. On 18 July
1988, Lee and Lacdao filed their answer to the third party complaint.
Meanwhile, on 12 July 1988, the trial issued an order requiring the
issuance of an alias summons upon ALFA through the DBP as a
consequence of Lee and Lacdao's letter informing the court that the
summons for ALFA was erroneously served upon them considering that
the management of ALFA had been transferred to the DBP. In a
manifestation dated 22 July 1988, the DBP claimed that it was not
authorized to receive summons on behalf of ALFA since the DBP had not
taken over the company which has a separate and distinct corporate
personality and existence. On 4 August 1988, the trial court issued an
order advising Sacoba Manufacturing, et. al. to take the appropriate steps
to serve the summons to ALFA. On 16 August 1988, Sacoba
Manufacturing, et. al. filed a Manifestation and Motion for the Declaration
of Proper Service of Summons which the trial court granted on 17 August
1988.
On 12 September 1988, Lee and Lacdao filed a motion for
reconsideration submitting that the Rule 14, section 13 of the Revised
Rules of Court is not applicable since they were no longer officers of
ALFA and Sacoba Manufacturing, et. al. should have availed of another
mode of service under Rule 14, Section 16 of the said Rules, i.e., through
publication to effect proper service upon ALFA. On 2 January 1989, the
trial court upheld the validity of the service of summons on ALFA through
Lee and Lacdao, thus, denying the latter's motion for reconsideration and
requiring ALFA to file its answer through Lee and Lacdao as its corporate
officers. On 19 January 1989, a second motion for reconsideration was
filed by Lee and Lacdao reiterating their stand that by virtue of the voting
trust agreement they ceased to be officers and directors of ALFA, hence,
they could no longer receive summons or any court processes for or on
behalf of ALFA. In support of their second motion for reconsideration, Lee
and Lacdao attached thereto a copy of the voting trust agreement
between all the stockholders of ALFA (Lee and Lacdao included), on the
one hand, and the DBP, on the other hand, whereby the management
and control of ALFA became vested upon the DBP. On 25 April 1989, the
trial court reversed itself by setting aside its previous Order dated 2
January 1989 and declared that service upon Lee and Lacdao who were
no longer corporate officers of ALFA cannot be considered as proper
service of summons on ALFA. On 15 May 1989, Sacoba Manufacturing,
et. al. moved for a reconsideration of the Order which was affirmed by the
court in is Order dated 14 August 1989 denying Sacoba Manufacturing,
et. al.'s motion for reconsideration.
On 18 September 1989, a petition for certiorari was belatedly submitted
by Sacoba Manufacturing, et. al. before the Court of Appeals which,
nonetheless, resolved to give due course thereto on 21 September 1989.
On 17 October 1989, the trial court, not having been notified of the
pending petition for certiorari with the appellate court issued an Order
declaring as final the Order dated 25 April 1989. Sacoba Manufacturing,
et. al. in the said Order were required to take positive steps in
prosecuting the third party complaint in order that the court would not be
constrained to dismiss the same for failure to prosecute. Subsequently,
on 25 October 1989 Sacoba Manufacturing, et. al. filed a motion for
reconsideration on which the trial court took no further action. On 19
March 1990, after Lee and Lacdao filed their answer to Sacoba
Manufacturing, et. al.'s petition for certiorari, the appellate court rendered
its decision, setting aside the orders of trial court judge dated 25 April
1989 and 14 August 1989. On 11 April 1990, Lee and Lacdao moved for
a reconsideration of the decision of the appellate court which resolved to
deny the same on 10 May 1990. Lee and Lacdao filed the petition for
certiorari. In the meantime, the appellate court inadvertently made an
entry of judgment on 16 July 1990 erroneously applying the rule that the
period during which a motion for reconsideration has been pending must
be deducted from the 15-day period to appeal. However, in its Resolution
dated 3 January 1991, the appellate court set aside the aforestated entry
of judgment after further considering that the rule it relied on applies to
appeals from decisions of the Regional Trial Courts to the Court of
Appeals, not to appeals from its decision to the Supreme Court pursuant
to the Supreme Court's ruling in the case of Refractories Corporation of
the Philippines v. Intermediate Appellate Court, 176 SCRA 539 [1989].
Issue:
Whether the execution of the voting trust agreement by Lee and Lacdao
whereby all their shares to the corporation have been transferred to the
trustee deprives the stockholder of their positions as directors of the
corporation.
Whether the five-year period of the voting trust agreement in question
had lapsed in 1986 so that the legal title to the stocks covered by the said
voting trust agreement ipso facto reverted to Lee and Lacdao as
beneficial owners pursuant to the 6th paragraph of section 59 of the new
Corporation Code.
Whether there was proper service of summons on ALFA through Lee and
Lacdao, to bind ALFA.
Held:
1. Lee and Lacdao, by virtue of the voting trust agreement executed in
1981 disposed of all their shares through assignment and delivery in
favor of the DBP, as trustee. Consequently, Lee and Lacdao ceased to
own at least one share standing in their names on the books of ALFA as
required under Section 23 of the new Corporation Code. They also
ceased to have anything to do with the management of the enterprise.
Lee and Lacdao ceased to be directors. Hence, the transfer of their
shares to the DBP created vacancies in their respective positions as
directors of ALFA. The transfer of shares from the stockholders of ALFA
to the DBP is the essence of the subject voting trust agreement.
Considering that the voting trust agreement between ALFA and the DBP
transferred legal ownership of the stocks covered by the agreement to
the DBP as trustee, the latter because the stockholder of record with
respect to the said shares of stocks. In the absence of a showing that the
DBP had caused to be transferred in their names one share of stock for
the purpose of qualifying as directors of ALFA, Lee and Lacdao can no
longer be deemed to have retained their status as officers of ALFA which
was the case before the execution of the subject voting trust agreement.
There is no dispute from the records that DBP has taken over full control
and management of the firm.
2. The 6th paragraph of section 59 of the new Corporation Code reads
that "Unless expressly renewed, all rights granted in a voting trust
agreement shall automatically expire at the end of the agreed period, and
the voting trust certificates as well as the certificates of stock in the name
of the trustee or trustees shall thereby be deemed cancelled and new
certificates of stock shall be reissued in the name of the transferors."
However, it is manifestly clear from the terms of the voting trust
agreement between ALFA and the DBP that the duration of the
agreement is contingent upon the fulfillment of certain obligations of
ALFA with the DBP. Had the five-year period of the voting trust
agreement expired in 1986, the DBP would not have transferred an its
rights, titles and interests in ALFA "effective June 30, 1986" to the
national government through the Asset Privatization Trust (APT) as
attested to in a Certification dated 24 January 1989 of the Vice President
of the DBP's Special Accounts Department II. In the same certification, it
is stated that the DBP, from 1987 until 1989, had handled s account
which included ALFA's assets pursuant to a management agreement by
and between the DBP and APT. Hence, there is evidence on record that
at the time of the service of summons on ALFA through Lee and Lacdao
on 21 August 1987, the voting trust agreement in question was not yet
terminated so that the legal title to the stocks of ALFA, then, still
belonged to the DBP.
3. It is a basic principle in Corporation Law that a corporation has a
personality separate and distinct from the officers or members who
compose it. Thus, the role on service of processes on a corporation
enumerates the representatives of a corporation who can validly receive
court processes on its behalf. Not every stockholder or officer can bind
the corporation considering the existence of a corporate entity separate
from those who compose it. The rationale of the rule is that service must
be made on a representative so integrated with the corporation sued as
to make it a priori supposable that he will realize his responsibilities and
know what he should do with any legal papers served on him. Herein,
Lee and Lacdao do not fall under any of the enumerated officers. The
service of summons upon ALFA, through Lee and Lacdao, therefore, is
not valid. To rule otherwise will contravene the general principle that a
corporation can only be bound by such acts which are within the scope of
the officer's or agent's authority.
SECOND DIVISION
[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
DE LEON, JR., J:
Before us is the joint and consolidated petition for review of
the Decision[1] dated June 15, 1994 of the Court of Appeals in
CA-G.R. CV No. 27480 entitled, Philippine Bank of
Communications vs. Mico Metals Corporation, Charles Lee,
Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co, which reversed the decision of the Regional Trial
Court (RTC) of Manila, Branch 55 dismissing the complaint for
a sum of money filed by private respondent Philippine Bank of
Communications against herein petitioners, Mico Metals
Corporation (MICO, for brevity), Charles Lee,
Chua Siok Suy,[2] Mariano Sio, Alfonso Yap, Richard Velasco
and Alfonso Co.[3] The dispositive portion of the said Decision of
the Court of Appeals, reads:
WHEREFORE, the decision of the Regional Trial Court is
hereby reversed and in lieu thereof, a new one is entered:
a) Ordering the defendants-appellees jointly and severally to
pay plaintiff PBCom the sum of Five million four hundred
fifty-one thousand six hundred sixty-three pesos and
ninety centavos (P5,451,663.90) representing defendants-
appellees unpaid obligations arising from ordinary loans
granted by the plaintiff plus legal interest until fully paid.
b) Ordering defendants-appellees jointly and severally to
pay PBCom the sum of Four hundred sixty-one thousand
six hundred pesos and sixty-six centavos (P46 1,600.66)
representing defendants-appellees unpaid obligations
arising from their letters of credit and trust receipt
transactions with plaintiff PBCom plus legal interest until
fully paid.
c) Ordering defendants-appellees jointly and severally to
pay PBCom the sum of P50,000.00 as attorneys fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, 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 MICOs line of 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.
In connection with the requests for discounting loan/credit
lines, PBCom was furnished by MICO the following resolution
which was adopted unanimously by MICOs Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and the
Vice-President and General Manager, Mr. Mariano A. Sio,
singly or jointly, be and they are duly authorized and
empowered for and in behalf of this Corporation to apply for,
negotiate and secure the approval of commercial loans and
other banking facilities and accommodations, such as, but not
limited to discount loans, letters of credit, trust receipts, lines
for marginal deposits on foreign and domestic letters of credit,
negotiate out-of-town checks, etc. from the Philippine Bank of
Communications, 216 Juan Luna, Manila in such sums as they
shall deem advantageous, the principal of all of which shall
not exceed the total amount of TEN MILLION PESOS
(P10,000,000.00), Philippine Currency, plus any interests that
may be agreed upon with said Bank in such loans and other
credit lines of the same kind and such further terms and
conditions as may, upon granting of said loans and other
banking facilities, be imposed by the Bank; and to make,
execute, sign and deliver any contracts of mortgage, pledge or
sale of one, some or all of the properties of the Company, or
any other agreements or documents of whatever nature or
kind, including the signing, indorsing, cashing, negotiation
and execution of promissory notes, checks, money orders or
other negotiable instruments, which may be necessary and
proper in connection with said loans and other banking
facilities, or with their amendments, renewals and extensions
of payment of the whole or any part thereof. [4]
On March 26, 1979, MICO availed of the first loan of One
Million Pesos (P1,000,000.00) from PBCom. Upon maturity of
the loan, MICO caused the same to be renewed, the last
renewal of which was made on May 21, 1982 under Promissory
Note BNA No. 26218.[5]
Another loan of One Million Pesos (P1,000,000.00) was
availed of by MICO from PBCom which was likewise later on
renewed, the last renewal of which was made on May 21,
1982 under Promissory Note BNA No. 26219.[6] To
complete MICOs availment of Three Million Pesos
(P3,000,000.00) discounting loan/credit line with PBCom, MICO
availed of another loan from PBCom in the sum of One Million
Pesos (P1,000,000.00) on May 24, 1979. As in previous loans,
this was rolled over or renewed, the last renewal of which was
made on May 25, 1982 under Promissory Note BNA No.
26253.[7]
As security for the loans, MICO through its Vice-President
and General Manager, Mariano Sio, executed on May 16,
1979 a Deed of Real Estate Mortgage over its properties
situated in Pasig, Metro Manila covered by Transfer Certificates
of Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap and Richard Velasco, in their personal
capacities executed a Surety Agreement[8] 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. It was provided, however, that the liability of the
sureties shall not at any one time exceed the principal amount
of Three Million Pesos (P3,000,000.00) plus interest, costs,
losses, charges and expenses including attorneys fees incurred
by PBCom in connection therewith.
On July 14, 1980, petitioner 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
companys machineries. Upon approval of the said application
for loan, MICO availed of the additional loan of Four Million
Pesos (P4,000,000.00) as evidenced by Promissory Note TA
No. 094.[9]
As per agreement, the proceeds of all the
loan availments were credited to MICOs current checking
account with PBCom. To induce the PBCom to increase the
credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio,
Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter
referred to as petitioners-sureties), executed another surety
agreement[10] in favor of PBCom on July 28, 1980, whereby they
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 all
other obligations of any kind and nature for which MICO may be
held accountable by PBCom. It was provided, however, that
their liability shall not at any one time exceed the sum of Seven
Million Five Hundred Thousand Pesos (P7,500,000.00)
including interest, costs, charges, expenses and attorneys fees
incurred by MICO in connection therewith.
On July 29, 1980, 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. Indicated in the certification was
the following resolution unanimously approved by the Board
of Directors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr.
Chua Siok Suy be, as he is hereby authorized and empowered,
on behalf of MICO METALS CORPORATION from time to
time, to borrow money and obtain other credit facilities, with
or without security, from the PHILIPPINE BANK OF
COMMUNICATIONS in such amount(s) and under such terms
and conditions as he may determine, with full power and
authority to execute, sign and deliver such contracts,
instruments and papers in connection therewith, including real
estate and chattel mortgages, pledges and assignments over
the properties of the Corporation; and to renew and/or extend
and/or roll-over and/or reavail of the credit facilities
granted thereunder, either for lesser or for greater amount(s),
the intention being that such credit facilities and all securities
of whatever kind given as collaterals therefor shall be a
continuing security.
RESOLVED FURTHER, That said bank is hereby authorized,
empowered and directed to rely on the authority given
hereunder, the same to continue in full force and effect until
written notice of its revocation shall be received by said
Bank. [11]
On July 2, 1981, MICO filed with PBCom an application for
a domestic letter of credit in the sum of Three Hundred Forty-
Eight Thousand Pesos (P348,000.00).[12] The corresponding
irrevocable letter of credit was approved and opened under LC
No. L-16060.[13] Thereafter, the domestic letter of credit was
negotiated and accepted by MICO as evidenced by the
corresponding bank draft issued for the purpose.[14] After the
supplier of the merchandise was paid, a trust receipt
upon MICOs own initiative, was executed in favor of PBCom.[15]
On September 14, 1981, MICO applied for another
domestic letter of credit with PBCom in the sum of Two Hundred
Ninety Thousand Pesos (P290,000.00).[16] The corresponding
irrevocable letter of credit was issued on September 22,
1981 under LC No. L-16334.[17] After the beneficiary of the said
letter of credit was paid by PBCom for the price of the
merchandise, the goods were delivered to MICO which
executed a corresponding trust receipt[18] in favor of PBCom.
On November 10, 1981, MICO applied for authority to open
a foreign letter of credit in favor of Ta Jih Enterprises Co.,
Ltd.,[19] and thus, the corresponding letter of credit[20] was then
issued by PBCom with a cable sent to the beneficiary,
Ta Jih Enterprises Co., Ltd. advising that said beneficiary may
draw funds from the account of PBCom in its correspondent
banks New York Office.[21] PBCom also informed its
corresponding bank in Taiwan, the Irving Trust Company, of the
approved letter of credit. The correspondent bank
acknowledged PBComs advice through a confirmation
letter[22] and by debiting from PBComs account with the said
correspondent bank the sum of Eleven Thousand Nine Hundred
Sixty US Dollars ($11 ,960.00).[23] As in past transactions, MICO
executed in favor of PBCom a corresponding trust receipt.[24]
On January 4, 1982, MICO applied, for authority to open a
foreign letter of credit in the sum of One Thousand Nine
Hundred US Dollars ($1,900.00), with PBCom.[25] Upon approval,
the corresponding letter of credit denominated as LC No.
62293[26] was issued whereupon PBCom advised its
correspondent bank and MICO of the same. Negotiation and
[27]
proper acceptance of the letter of credit were then made by
MICO. Again, a corresponding trust receipt[28] was executed by
MICO in favor of PBCom.
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.
On May 21, 1982 MICO obtained from PBCom another loan
in the sum of Three Hundred Seventy-Seven Thousand Pesos
(P377,000.00) covered by Promissory Note BA No. 7458.[29]
Upon maturity of all credit availments obtained by MICO
from PBCom, the latter made a demand for payment.[30] For
failure of petitioner MICO to pay the obligations incurred despite
repeated demands, private
respondent PBCom extrajudicially foreclosed MICOs real estate
mortgage and sold the said mortgaged properties in a public
auction sale held on November 23, 1982. Private
respondent PBCom which emerged as the highest bidder in the
auction sale, applied the proceeds of the purchase price at
public auction of Three Million Pesos (P3,000,000.00) to the
expenses of the foreclosure, interest and charges and part of
the principal of the loans, 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, which was raffled to Branch
55, alleging that MICO was no longer in operation and had no
properties to answer for its obligations. PBCom further alleged
that petitioner Charles Lee has disposed or concealed his
properties with intent to defraud his creditors. Except for MICO
and Charles Lee, the sheriff of the RTC failed to serve the
summons on herein petitioners-sureties since they were all
reportedly abroad at the time. An alias summons was later
issued but the sheriff was not able to serve the same to
petitioners Alfonso Co and Chua Siok Suy who was already
sickly at the time and reportedly in Taiwan where he later died.
Petitioners (MICO and herein petitioners-sureties) denied all
the allegations of the complaint filed by respondent PBCom, and
alleged that: a) MICO was not granted the alleged loans and
neither did it receive the proceeds of the aforesaid loans; b)
Chua Siok Suy was never granted any valid Board Resolution to
sign for and in behalf of MICO; c) PBCom acted in bad faith in
granting the alleged loans and in releasing the proceeds
thereof; d) petitioners were never advised of the alleged grant of
loans and the subsequent releases therefor, if any; e) since no
loan was ever released to or received by MICO, the
corresponding real estate mortgage and the surety agreements
signed concededly by the petitioners-sureties are null and void.
The trial court gave credence to the testimonies of herein
petitioners and dismissed the complaint filed by PBCom. The
trial court likewise declared the real estate mortgage and its
foreclosure null and void. In ruling for herein petitioners, the trial
court said that PBCom failed to adequately prove that the
proceeds of the loans were ever delivered to MICO. The trial
court pointed out, among others, that while PBCom claimed that
the proceeds of the Four Million Pesos (P4,000,000.00) loan
covered by promissory note TA 094 were deposited to the
current account of petitioner MICO, PBCom failed to produce
the ledger account showing such deposit. The trial court added
that while PBCom may have loaned to MICO the other sums of
Three Hundred Forty-Eight Thousand Pesos (P348,000.00) and
Two Hundred Ninety Thousand Pesos (P290,000.00), 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 surety agreements were all void or nonexistent for
lack of cause or consideration. The trial court said that the lack
of proof as regards the existence of the merchandise covered
by the letters of credit bolstered the claim of herein petitioners
that no purchases of the goods were really made and that the
letters of credit transactions were simply resorted to by
the PBCom and Chua Siok Suy to accommodate the latter in his
financial requirements.
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. The Court of Appeals also cited the case
of Gatmaitanvs. Court of Appeals[31] which holds that "there is a
presumption that an instrument sets out the true agreement
of the parties thereto and that it was executed for valuable
consideration. The appellate court noted and found that a
notarized Certification was issued by MICOs corporate
secretary, P.B. Barrera, that Chua Siok Suy, was duly
authorized by the Board of Directors of MICO to borrow money
and obtain credit facilities from PBCom.
Petitioners filed a motion for reconsideration of the
challenged decision of the Court of Appeals but this was denied
in a Resolution dated November 7, 1994 issued by its Former
Second Division. Petitioners-sureties then filed a petition for
review on certiorari with this Court, docketed as G.R. No.
117913, assailing the decision of the Court of Appeals. MICO
likewise filed a separate petition for review on certiorari,
docketed as G.R. No. 117914, with this Court assailing the
same decision rendered by the Court of Appeals. Upon motion
filed by petitioners, the two (2) petitions were consolidated
on January 11, 1995.[32]
Petitioners contend that there was no proof that the
proceeds of the loans or the goods under the trust receipts were
ever delivered to and received by MICO. But the record shows
otherwise. Petitioners-sureties further contend that assuming
that there was delivery by PBCom of the proceeds of the loans
and the goods, the contracts were executed by an unauthorized
person, more specifically Chua Siok Suy who acted fraudulently
and in collusion with PBCom to defraud MICO.
The pertinent issues raised in the consolidated cases at bar
are: 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.
In civil cases, the party having the burden of proof must
establish his case by preponderance of
evidence. Preponderance of evidence means evidence which
[33]
is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. Petitioners contend that
the alleged promissory notes, trust receipts and surety
agreements attached to the complaint filed by PBCom did not
ripen into valid and binding contracts inasmuch as there is no
evidence of the delivery of money or loan proceeds to MICO or
to any of the petitioners-sureties. Petitioners claim that under
normal banking practice, borrowers are required to accomplish
promissory notes in blank even before the grant of the loans
applied for and such documents become valid written contracts promissory notes, bills of exchange and checks. Letters of credit
only when the loans are actually released to the borrower. and trust receipts are, however, not negotiable instruments. But
drafts issued in connection with letters of credit are negotiable
We are not convinced.
instruments.
During the trial of an action, the party who has the burden of
Private respondent PBCom presented the following
proof upon an issue may be aided in establishing his claim or
documentary evidence to prove petitioners
defense by the operation of a presumption, or, expressed
credit availments and liabilities:
differently, by the probative value which the law attaches to a
specific state of facts. A presumption may operate against his 1) Promissory Note No. BNA 26218 dated May 21, 1982 in
adversary who has not introduced proof to rebut the the sum of P1,000,000.00 executed by MICO in favor
presumption. The effect of a legal presumption upon a burden of of PBCom.
proof is to create the necessity of presenting evidence to meet 2) Promissory Note No. BNA 26219 dated May 21, 1982 in
the legal presumption or the prima facie case created thereby, the sum of P1,000,000.00 executed by MICO in favor
and which if no proof to the contrary is presented and offered, of PBCom.
will prevail. The burden of proof remains where it is, but by the
3) Promissory Note No. BNA 26253 dated May 25, 1982 in
presumption the one who has that burden is relieved for the the sum of P1,000,000.00 executed by MICO in favor
time being from introducing evidence in support of his averment, of PBCom.
because the presumption stands in the place of evidence unless
rebutted. 4) Promissory Note No. BNA 7458 dated May 21, 1982 in the
sum of P377,000.00 executed by MICO in favor
Under Section 3, Rule 131 of the Rules of Court the of PBCom.
following presumptions, among others, are satisfactory
5) Promissory Note No. TA 094 dated July 29, 1980 in the
if uncontradicted: a) That there was a sufficient consideration for sum of P4,000.000.00 executed by MICO in favor
a contract and b) That a negotiable instrument was given or of PBCom.
indorsed for sufficient consideration. As observed by the Court
of Appeals, a similar presumption is found in Section 24 of the 6) Irrevocable letter of credit No. L-16060 dated July
Negotiable Instruments Law which provides that every 2,1981 issued in favor of Perez Battery Center for account
negotiable instrument is deemed prima facie to have been of Mico Metals Corp.
issued for valuable consideration and every person whose 7) Draft dated July 2, 1981 in the sum of P348,000.00 issued
signature appears thereon to have become a party for value. by Perez Battery Center, beneficiary of irrevocable Letter
Negotiable instruments which are meant to be substitutes for of Credit No. No. L-16060 and accepted by MICO Metals
money, must conform to the following requisites to be corporation.
considered as such a) it must be in writing; b) it must be signed 8) Letter dated July 2,
by the maker or drawer; c) it must contain an unconditional 1981 from Perez Battery Center addressed to private
promise or order to pay a sum certain in money; d) it must be respondent PBCom showing that proceeds of the
payable on demand or at a fixed or determinable future time; e) irrevocable letter of credit No. L- 16060 was received by
it must be payable to order or bearer; and f) where it is a bill of Mr. MoisesRosete, representative
exchange, the drawee must be named or otherwise indicated of Perez Battery Center.
with reasonable certainty. Negotiable instruments include
9) Trust receipt dated July 2, 1981 executed by MICO in
favor of PBCom covering the merchandise purchased
under Letter of Credit No. 16060.
10) Irrevocable letter of credit No. L-16334 dated September
22, 1981 issued in favor of Perez Battery Center for
account of MICO Metals Corp.
11) Draft dated September 22, 1981 in the sum
of P290,000.00 issued by Perez Battery Center and
accepted by MICO.
12) Letter dated September 17, 1981 from
Perez Battery addressed to PBCom showing that the
proceeds of credit no. L-16344 was received by
Mr. Moises Rosete, a representative
of Perez BatteryCenter.
13) Trust Receipt dated September 22, 1981 executed by
MICO in favor of PBCom covering the merchandise under
Letter of Credit No. L-16334.
14) Irrevocable Letter of Credit no. 61873 dated November
10, 1981 for US$11,960.00 issued by PBCom in favor of
TA JIH Enterprises Co. Ltd., through its correspondent
bank, Irving Trust Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 9181 executed by
MICO in favor of PBCom showing that possession of the
merchandise covered by Irrevocable Letter of Credit no.
61873 was released by PBCom to MICO.
16) Letters dated March 2, 1979 from MICO signed by its
president, Charles Lee, showing that MICO sought credit
line from PBCom in the form of loans, letters of credit and
trust receipt in the sum of P7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by its
president, Charles Lee, showing that MICO requested for
additional financial assistance in the sum
of P4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO
authorizing Charles Lee and Mariano Sio singly or jointly
to act and sign for and in behalf of MICO relative to
the obtention of credit facilities from PBCom.
19) Duly notarized Deed of Mortgage dated May 16,
1979 executed by MICO in favor of PBCom over MICO
s real properties covered by TCT Nos. 11248 and 11250
located in Pasig.
20) Duly notarized Surety Agreement dated March 26, 1979
executed by herein petitioners Charles Lee, Mariano Sio,
Alfonso Yap, Richard Velasco and Chua Siok Suy in favor
of PBCom.
21) Duly notarized Surety Agreement dated July 28, 1980
executed by herein petitioners Charles Lee, Mariano Sio,
Alfonso Yap, Richard Velasco and Chua Siok Suy in favor
of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by
MICO s corporate secretary, Mr. P.B. Barrera, attesting to
the adoption of a board resolution authorizing
Chua Siok Suy to sign, for and in behalf of MICO, all the
necessary documents including contracts, loan
instruments and mortgages relative to the obtention of
various credit facilities from PBCom.
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
respondent PBCom. 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.
Petitioners-sureties also presented a letter of their counsel
dated October 9, 1982, addressed to private
respondent PBCom purportedly to show that PBCom knew that
Chua Siok Suyallegedly used the credit and good names of the
petitioner-sureties for his benefit, and that petitioner-
sureties were made to sign blank documents and were
furnished copies of the same. The letter, however, is in fact
merely a reply of petitioners-sureties counsel
to PBComs demand for payment of MICOs obligations, and
appears to be an inconsequential piece of self-serving evidence.
In addition to the foregoing, MICO and petitioners-sureties
cited the decision of the trial court which stated that there was
no proof that the proceeds of the loans were ever delivered to
MICO. Although the private respondents witness, Mr. Gardiola,
testified that the proceeds of the loans were deposited
in MICOs current account with PBCom, his testimony was
allegedly not supported by any bank record, note or
memorandum. A careful scrutiny of the record including the
transcript of stenographic notes reveals, however, that although
private respondent PBCom was willing to produce the
corresponding account ledger showing that the proceeds of the
loans were credited to MICOs current account with PBCom,
MICO in fact vigorously objected to the presentation of said
document. That point is shown in the testimony
of PBComs witness, Gardiola, thus:
Q: Now, all of these promissory note Exhibits I and J which
as you have said previously (sic) availed originally by
defendant Mico Metals Corp. sometime in 1979, my
question now is, do you know what happened to the
proceeds of the original availment?
A: Well, it was credited to the current account of Mico Metals
Corp.
Q: Why did it was credited to the proceeds to the account
of Mico Metals Corp? (sic)
A: Well, that is our understanding.
ATTY. DURAN:
Your honor, may we be given a chance to object, the
best evidence is the so-called current account...
COURT:
Can you produce the ledger account?
A: Yes, Your Honor, I will bring.
COURT:
The ledger or record of the current account
of Mico Metals Corp.
A: Yes, Your Honor.
ATTY. ACEJAS:
Your Honor, these are a confidential record, and they
might not be disclosed without the consent of the person
concerned. (sic)
ATTY. SANTOS:
Well, you are the one who is asking that.
ATTY. DURAN:
Your Honor, Im precisely want to show for the ... (sic)
COURT:
But the amount covered by the current account of
defendant Mico Metals Corp. is the subject matter of this
case.
xxx xxx xxx
Q: Are those availments were release? (sic)
A: Yes, Your Honor, to the defendant corporation.
Q: By what means?
A: By the credit to their current account.
ATTY. ACEJAS:
We object to that, your Honor, because the disclose is
the secrecy of the bank deposit. (sic)
xxx xxx xxx
Q: Before the recess Mr. Gardiola, you stated that the
proceeds of the three (3) promissory notes were credited
to the accounts of Mico Metals Corporation, now do you
know what kind of current account was that which you
are referring to?
ATTY. ACEJAS:
Objection your Honor, that is the disclose of the deposit
of defendant Mico Metals Corporation and it cannot
disclosed without the authority of the depositor. (sic)[37]
That proceeds of the loans which were originally availed of
in 1979 were delivered to MICO is bolstered by the fact that
more than a year later, specifically on July 14, 1980, MICO
through its president, petitioner-surety Charles Lee, requested
for an additional loan of Four Million Pesos (P4,000,000.00)
from PBCom. The fact that MICO was requesting for an
additional loan implied that it has already availed of earlier loans
from PBCom.
Petitioners allege that PBCom presented no evidence that it
remitted payments to cover the domestic and foreign letters of
credit. Petitioners placed much reliance on the erroneous
decision of the trial court which stated that private
respondent PBCom allegedly failed to prove that it actually
made payments under the letters of credit since the bank drafts
presented as evidence show that they were made in favor of the
Bank of Taiwan and First Commercial Bank.
Petitioners allegations are untenable.
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 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. As explained by respondent bank, a
draft was drawn on the Bank of Taiwan by Ta Jih Enterprises
Co., Ltd. of Taiwan, supplier of the goods covered by the foreign
letter of credit. Having paid the supplier, the Bank of Taiwan
then presented the bank draft for reimbursement
by PBComscorrespondent bank in Taiwan, the Irving Trust
Company which explains the reason why on its face, the draft
was made payable to the Bank of Taiwan. Irving Trust Company
accepted and endorsed the draft to PBCom. The draft was later
transmitted to PBCom to support the latters claim for payment
from MICO. MICO accepted the draft upon presentment and
negotiated it to PBCom.
Petitioners further aver that MICO never requested that
legal possession of the merchandise be transferred
to PBCom by way of trust receipts. Petitioners insist that
assuming that MICO transferred possession of the merchandise
to PBCom by way of trust receipts, the same would be illegal
since PBCom, being a banking institution, is not authorized by
law to engage in the business of importing and selling goods.
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.
Petitioners averments with regard to the second issue are
no less incredulous. Petitioners contend 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 Suywas 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.
It has not escaped our notice that it was petitioner-surety
Charles Lee, as president of MICO Metals Corporation, who first
requested for a discounting loan of Three Million Pesos
(P3,000,000.00) from PBCom as evidenced by his letter
dated March 2, 1979.[40] On the same day, Charles Lee, as
President of MICO, requested for a Letter of Credit and Trust
Receipt line in the sum of Three Million Pesos
(P3,000,000.00).[41] Still, on the same day, Charles Lee again as
President of MICO, wrote another letter to PBCOM requesting
for a financing line in the sum of One Million Five Hundred
Thousand Pesos (P1,500,000.00) to be used exclusively as
marginal deposit for the opening of MICOs foreign and local
letters of credit with PBCom.[42] More than a year later, it was
also Charles Lee, again in his capacity as president of MICO,
who asked for an additional loan in the sum of Four Million
Pesos (P4,000,000.00). The claim therefore of petitioners that it
was Chua Siok Suy, in connivance with the respondent PBCom,
who applied for and obtained the loan transactions and letters of
credit strains credulity considering that even the Deed of the
Real Estate Mortgage in favor of PBCom was executed by
petitioner-surety Mariano Sio in his capacity as general
manager of MICO[43] to secure the loan accommodations
obtained by MICO from PBCom.
Petitioners-sureties allege that they were made to sign the
surety agreements in blank by Chua Siok Suy. Petitioner
Alfonso Yap, the corporate treasurer, for his part testified that he
signed booklets of checks, surety agreements and promissory
notes in blank; that he signed the documents in blank despite
his misgivings since Chua Siok Suy assured him that the
transaction can easily be taken cared of since
Chua Siok Suy personally knew the Chairman of the Board
of PBCom; that he was not receiving salary as treasurer
of Mico Metals and since Chua Siok Suy had a direct hand in
the management of Malayan Sales Corporation, of which Yap is
an employee, he (Yap) signed the documents in blank as
consideration for his continued employment in Malayan Sales
Corporation. Petitioner Antonio Co testified that he worked as
office manager for MICO from 1978-1982. As office manager,
he was the one in charge of transacting business like
purchasing, selling and paying the salary of the employees. He
was also in charge of the handling of documents pertaining to
surety agreements, trust receipts and promissory notes;[44] that
when he first joined MICO Metals Corporation, he was able to
read the by-laws of the corporation and he came to know that
only the chairman and the president can borrow money in behalf
of the corporation; that Chua Siok Suy once called him up and
told him to secure an invoice so that a credit line can be opened
in the bank with a local letter of credit; that when the invoice was
secured, he (Co) brought it together with the application for a
credit line to Chua Siok Suy, and that he questioned the
authority of Chua SiokSuy pointing out that he (Co) is not
empowered to sign the document inasmuch as only the latter,
as president, was authorized to do so. However,
Chua Siok Suy allegedly just said that he had already talked
with the Chairman of the Board of PBCom; and that
Chua Siok Suy reportedly said that he needed the money to
finance a project that he had with the Taipeigovernment. Co
also testified that he knew of the application for domestic letter
of credit in the sum of Three Hundred Forty-Eight Thousand
Pesos (P348,000.00); and that a certain MoisesRosete was
authorized to claim the check covering the Three Hundred
Forty-Eight Thousand Pesos (P348,000.00) from PBCom; and
that after claiming the check Rosete brought it to Perez Battery
Center for indorsement after which the same was deposited to
the personal account of Chua Siok Suy.[45]
We consider as incredible and unacceptable the claim of
petitioners-sureties that the Board of Directors of MICO was so
careless about the business affairs of MICO as well as about
their own personal reputation and money that they simply relied
on the say so of Chua Siok Suy on matters involving millions of
pesos. Under Section 3 (d), Rule 131 of the Rules of Court, it is
presumed that a person takes ordinary care of his concerns.
Hence, the natural presumption is that one does not sign a
document without first informing himself of its contents and
consequences. Said presumption acquires greater force in the
case at bar where not only one but several documents were
executed at different times and at different places by the
petitioner sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that
Chua Siok Suy was not duly authorized to negotiate for loans in
behalf of MICO from PBCom. Petitioners allegation, however, is
belied by the July 28, 1980 Certification issued by the corporate
secretary of PBCom, Atty. P.B. Barrera, that MICO's Board of
Directors gave Chua Siok Suy full authority to negotiate for
loans in behalf of MICO with PBCom. In fact, the Certification
even provided that Chua Siok Suys authority continues until and
unless PBCom is notified in writing of the withdrawal thereof by
the said Board. Notably, petitioners failed to contest the
genuineness of the said Certification which is notarized and to
show any written proof of any alleged withdrawal of the said
authority given by the Board of Directors to Chua Siok Suy to
negotiate for loans in behalf of MICO.
There was no need for PBCom to personally inform the
petitioners-sureties individually about the terms of the loans,
letters of credit and other loan documents. The petitioners-
sureties themselves happen to comprise the Board of Directors
of MICO, which gave full authority to Chua Siok Suy to negotiate as in the beginning, of establishing his case by a preponderance
for loans in behalf of MICO. Notice to MICOs authorized of evidence.[47] But where the defendant has failed to present
representative, Chua Siok Suy, was notice to MICO. The and marshall evidence sufficient to create a state of equipoise
Certification issued by PBComs corporate secretary, Atty. P.B. between his proof and that of plaintiff, the prima facie case
Barrera, indicated that Chua Siok Suy had full authority to presented by the plaintiff will prevail.
negotiate and sign the necessary documents, in behalf of MICO
In the case at bar, respondent PBCom, as plaintiff in the trial
for loans from PBCom. Respondent PBCom therefore had the
court, has in fact presented sufficient documentary and
right to rely on the said notarized Certification
testimonial evidence that proved by preponderance of evidence
of MICOs Corporate Secretary.
its subject collection case against the defendants who are the
Anent petitioners-sureties contention that they obtained no petitioners herein. In view of all the foregoing, the Court of
consideration whatsoever on the surety agreements, we need Appeals committed no reversible error in its appealed Decision.
only point out that the consideration for the sureties is the very
WHEREFORE, the assailed Decision of the Court of
consideration for the principal obligor, MICO, in the contracts of
Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of
loan. In the case of Willex Plastic Industries Corporation vs.
Communications vs. Mico Metals Corporation, Charles Lee,
Court of Appeals,[46] we ruled that the consideration necessary to
Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and
support a surety obligation need not pass directly to the surety,
Alfonso Co, is AFFIRMED in toto.
a consideration moving to the principal alone being
sufficient. For a guarantor or surety is bound by the same Costs against the petitioners.
consideration that makes the contract effective between the
SO ORDERED.
parties thereto. It is not necessary that a guarantor or surety
should receive any part or benefit, if such there be, accruing to Bellosillo, (Chairman),
his principal. Mendoza, Quisumbing, and Buena, JJ., concur.
Petitioners placed too much reliance on the rule in evidence
that the burden of proof does not shift whereas the burden of
going forward with the evidence does pass from party to party. It
is true that said rule is not changed by the fact that the party
having the burden of proof has introduced evidence which
established prima facie his assertion because such evidence
does not shift the burden of proof; it merely puts the adversary
to the necessity of producing evidence to meet the prima
facie case. Where the defendant merely denies, either generally
or otherwise, the allegations of the plaintiffs pleadings, the
burden of proof continues to rest on the plaintiff throughout the
trial and does not shift to the defendant until the plaintiffs
evidence has been presented and duly offered. The defendant
has then no burden except to produce evidence sufficient to
create a state of equipoise between his proof and that of the
plaintiff to defeat the latter, whereas the plaintiff has the burden,