CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, interest, costs, charges, expenses and attorney’s

s, expenses and attorney’s fees incurred by MICO

RICHARD VELASCO and ALFONSO CO, Petitioners, v. COURT OF in connection therewith.
APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, Respondents. 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
G.R. No. 117913. February 1, 2002 (₱348,000). The corresponding irrevocable letter of credit was approved
and opened under LC No. L-16060. Thereafter, the domestic letter of
MICO METALS CORPORATION, Petitioner, v. COURT OF credit was negotiated and accepted by MICO as evidenced by the
APPEALS and PHILIPPINE BANK OF corresponding bank draft issued for the purpose. After the supplier of
COMMUNICATIONS, Respondents. the merchandise was paid, a trust receipt upon MICO’s own initiative,
was executed in favor of PBCom.
G.R. No. 117914. February 1, 2002
On September 14, 1981, MICO applied for another domestic letter of
FACTS: credit with PBCom in the sum of Two Hundred Ninety Thousand Pesos
Charles Lee, as President of MICO wrote private respondent Philippine (₱290,000.00). The corresponding irrevocable letter of credit was issued
Bank of Communications (PBCom) requesting for a grant of a on September 22, 1981 under LC No. L-16334. After the beneficiary of
discounting loan/credit line in the sum of Three Million Pesos the said letter of credit was paid by PBCom for the price of the
(₱3,000,000.00) for the purpose of carrying out MICO’s line of business merchandise, the goods were delivered to MICO which executed a
as well as to maintain its volume of business. corresponding trust receipt in favor of PBCom.

On the same day, Charles Lee requested for another discounting MICO applied for authority to open a foreign letter of credit in favor of Ta
loan/credit line of Three Million Pesos (₱3,000,000.00) from PBCom for Jih Enterprises Co., Ltd., and thus, the corresponding letter of credit was
the purpose of opening letters of credit and trust receipts. then issued by PBCom with a cable sent to the beneficiary, Ta Jih
Enterprises Co., Ltd. advising that said beneficiary may draw funds from
In connection with the requests for discounting loan/credit lines, PBCom the account of PBCom in its correspondent bank’s New York Office.
was furnished by MICO a resolution duly authorizing and empowering PBCom also informed its corresponding bank in Taiwan, the Irving Trust
Mr. Charles Lee and Mariano A. Sio to apply for, negotiate, and secure Company, of the approved letter of credit. The correspondent bank
approval of commerce loans such as letters of credits and trust receipts acknowledged PBCom’s advice through a confirmation letter and by
in behalf of the corporation which was adopted unanimously by MICO’s debiting from PBCom’s account with the said correspondent bank the
Board of Directors. sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11 ,960.00).
As in past transactions, MICO executed in favor of PBCom a
MICO availed of the first loan of One Million Pesos (₱1,000,000.00) from corresponding trust receipt.
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 MICO applied, for authority to open a foreign letter of credit in the sum
Promissory Note BNA No. 26218. of One Thousand Nine Hundred US Dollars ($1,900.00), with
PBCom. Upon approval, the corresponding letter of credit denominated
Another loan of One Million Pesos (₱1,000,000.00) was availed of by as LC No. 62293 was issued whereupon PBCom advised its
MICO from PBCom which was likewise later on renewed, the last correspondent bank and MICO of the same. Negotiation and proper
renewal of which was. To complete MICO’s availment of Three Million acceptance of the letter of credit were then made by MICO. Again, a
Pesos (₱3,000,000.00) discounting loan/credit line with PBCom, MICO corresponding trust receipt was executed by MICO in favor of PBCom.
availed of another loan from PBCom in the sum of One Million Pesos In all the transactions involving foreign letters of credit, PBCom turned
(₱1,000,000.00) on May 24, 1979. As in previous loans, this was rolled over to MICO the necessary documents such as the bills of lading and
over or renewed, the last renewal of which was made on May 25, 1982 commercial invoices to enable the latter to withdraw the goods from the
under Promissory Note BNA No. 26253. port of Manila.

As security for the loans, MICO through its Vice-President and General MICO obtained from PBCom another loan in the sum of Three Hundred
Manager, Mariano Sio, executed on May 16, 1979 a Deed of Real Estate Seventy-Seven Thousand Pesos (₱377,000.00) covered by Promissory
Mortgage over its properties situated in Pasig, Metro Manila covered by Note BA No. 7458.
Transfer Certificates of Title (TCT) Nos. 11248 and 11250.
Upon maturity of all credit availments obtained by MICO from PBCom,
Charles Lee, Chua SiokSuy, Mariano Sio, Alfonso Yap and Richard the latter made a demand for payment. For failure of petitioner MICO to
Velasco, in their personal capacities executed a Surety Agreement in pay the obligations incurred despite repeated demands, private
favor of PBCom whereby the petitioners jointly and severally, respondent PBComextrajudicially foreclosed MICO’s real estate
guaranteed the prompt payment on due dates or at maturity of mortgage and sold the said mortgaged properties in a public auction sale
overdrafts, letters of credit, trust receipts, and other obligations of every held on November 23, 1982. Private respondent PBCom which emerged
kind and nature, for which MICO may be held accountable by PBCom. as the highest bidder in the auction sale, applied the proceeds of the
It was provided, however, that the liability of the sureties shall not at any purchase price at public auction of Three Million Pesos (₱3,000,000.00)
one time exceed the principal amount of Three Million Pesos to the expenses of the foreclosure, interest and charges and part of the
(₱3,000,000.00) plus interest, costs, losses, charges and expenses principal of the loans, leaving an unpaid balance of Five Million Four
including attorney’s fees incurred by PBCom in connection therewith. Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and
Ninety Centavos (₱5,441,663.90) exclusive of penalty and interest
On July 14, 1980, petitioner Charles Lee, in his capacity as president of charges. Aside from the unpaid balance of Five Million Four Hundred
MICO, wrote PBCom and applied for an additional loan in the sum of Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety
Four Million Pesos (₱4,000,000.00). The loan was intended for the Centavos (₱5,441,663.90), MICO likewise had another standing
expansion and modernization of the company’s machineries. obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred
Pesos and Six Centavos (₱461,600.06) representing its trust receipts
As per agreement, the proceeds of all the loan availments were credited liabilities to private respondent.
to MICO’s current checking account with PBCom. To induce the PBCom
to increase the credit line of MICO, Charles Lee, Chua SiokSuy, Mariano PBCom then demanded the settlement of the aforesaid obligations from
Sio, Alfonso Yap, Richard Velasco and Alfonso Co executed another herein petitioners-sureties who, however, refused to acknowledge their
surety agreement in favor of PBCom whereby they jointly and severally obligations to PBCom under the surety agreements.
guaranteed the prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts, letters of credit, bills of RTC: Complaint dismissed
exchange, trust receipts and all other obligations of any kind and nature  PBCom filed a complaint with prayer for writ of preliminary
for which MICO may be held accountable by PBCom. It was provided, attachment before the Regional Trial Court of Manila, which was
however, that their liability shall not at any one time exceed the sum of raffled to Branch 55, alleging that MICO was no longer in operation
Seven Million Five Hundred Thousand Pesos (₱7,500,000.00) including and had no properties to answer for its obligations. PBCom further
 alleged that petitioner Charles Lee has disposed or concealed his was given in a contract. Hence, petitioners should have presented
properties with intent to defraud his creditors. credible evidence to rebut that presumption as well as the evidence
presented by private respondent PBCom.
 Petitioners (MICO and herein petitioners-sureties) denied all the
allegations of the complaint filed by respondent PBCom, and The letters of credit show that the pertinent materials/merchandise
alleged that: a) MICO was not granted the alleged loans and neither have been received by MICO. The drafts signed by the
did it receive the proceeds of the aforesaid loans; b) Chua SiokSuy beneficiary/suppliers in connection with the corresponding letters
was never granted any valid Board Resolution to sign for and in of credit proved that said suppliers were paid by PBCom for the
behalf of MICO; c) PBCom acted in bad faith in granting the alleged account of MICO. On the other hand, aside from their bare denials
loans and in releasing the proceeds thereof; d) petitioners were petitioners did not present sufficient and competent evidence to
never advised of the alleged grant of loans and the subsequent rebut the evidence of private respondent PBCom.
releases therefor, if any; e) since no loan was ever released to or
received by MICO, the corresponding real estate mortgage and the Petitioners-sureties, for their part, presented the By-Laws of Mico
surety agreements signed concededly by the petitioners-sureties Metals Corporation (MICO) to prove that only the president of
are null and void. MICO is authorized to borrow money, arrange letters of credit,
execute trust receipts, and promissory notes and consequently,
 The trial court gave credence to the testimonies of herein that the loan transactions, letters of credit, promissory notes and
petitioners and dismissed the complaint filed by PBCom. The trial trust receipts, most of which were executed by Chua SiokSuy in
court likewise declared the real estate mortgage and its foreclosure representation of MICO were not allegedly authorized and hence,
null and void. are not binding upon MICO. A perusal of the By-Laws of MICO,
however, shows that the power to borrow money for the company
CA: Reversed RTC and issue mortgages, bonds, deeds of trust and negotiable
 The Court of Appeals reversed the ruling of the trial court, saying instruments or securities, secured by mortgages or pledges of
that the latter committed an erroneous application and appreciation property belonging to the company is not confined solely to the
of the rules governing the burden of proof. Citing Section 24 of the president of the corporation. The Board of Directors of MICO can
Negotiable Instruments Law which provides that "Every negotiable also borrow money, arrange letters of credit, execute trust receipts
instrument is deemed prima facie to have been issued for valuable and promissory notes on behalf of the corporation. Significantly,
consideration and every person whose signature appears thereon this power of the Board of Directors according to the by-laws of
to have become a party thereto for value", the Court of Appeals MICO, may be delegated to any of its standing committee, officer
said that while the subject promissory notes and letters of credit or agent. Hence, PBCom had every right to rely on the Certification
issued by the PBCom made no mention of delivery of cash, it is issued by MICO's corporate secretary, P.B. Barrera, that Chua
presumed that said negotiable instruments were issued for SiokSuy was duly authorized by its Board of Directors to borrow
valuable consideration. money and obtain credit facilities in behalf of MICO from PBCom.
 The Court of Appeals also cited the case of Gatmaitan vs. Court of
Appeals which holds that "there is a presumption that an instrument Modern letters of credit are usually not made between natural
sets out the true agreement of the parties thereto and that it was persons. They involve bank to bank transactions. Historically, the
executed for valuable consideration". letter of credit was developed to facilitate the sale of goods
between, distant and unfamiliar buyers and sellers. It was an
ISSUES: arrangement under which a bank, whose credit was acceptable to
1. Whether the proceeds of the loans and letters of credit transactions the seller, would at the instance of the buyer agree to pay drafts
were ever delivered to MICO drawn on it by the seller, provided that certain documents are
2. Whether the individual petitioners, as sureties, may be held liable presented such as bills of lading accompanied the corresponding
under the two (2) Surety Agreements executed on March 26, 1979 drafts. Expansion in the use of letters of credit was a natural
and July 28, 1980. development in commercial banking. Parties to a commercial letter
of credit include (a) the buyer or the importer, (b) the seller, also
RULING: referred to as beneficiary, (c) the opening bank which is usually the
1. Under Section 3, Rule 131 of the Rules of Court the following buyer’s bank which actually issues the letter of credit, (d) the
presumptions, among others, are satisfactory if uncontradicted: a) notifying bank which is the correspondent bank of the opening bank
That there was a sufficient consideration for a contract and b) That through which it advises the beneficiary of the letter of credit, (e)
a negotiable instrument was given or indorsed for sufficient negotiating bank which is usually any bank in the city of the
consideration. As observed by the Court of Appeals, a similar beneficiary. The services of the notifying bank must always be
presumption is found in Section 24 of the Negotiable Instruments utilized if the letter of credit is to be advised to the beneficiary
Law which provides that every negotiable instrument is through cable, (f) the paying bank which buys or discounts the
deemed prima facie to have been issued for valuable consideration drafts contemplated by the letter of credit, if such draft is to be
and every person whose signature appears thereon to have drawn on the opening bank or on another designated bank not in
become a party for value. Negotiable instruments which are meant the city of the beneficiary. As a rule, whenever the facilities of the
to be substitutes for money, must conform to the following opening bank are used, the beneficiary is supposed to present his
requisites to be considered as such a) it must be in writing; b) it drafts to the notifying bank for negotiation and (g) the confirming
must be signed by the maker or drawer; c) it must contain an bank which, upon the request of the beneficiary, confirms the letter
unconditional promise or order to pay a sum certain in money; d) it of credit issued by the opening bank.
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 From the foregoing, it is clear that letters of credit, being usually
bill of exchange, the drawee must be named or otherwise indicated bank to bank transactions, involve more than just one bank.
with reasonable certainty. Negotiable instruments include Consequently, there is nothing unusual in the fact that the drafts
promissory notes, bills of exchange and checks. Letters of credit presented in evidence by respondent bank were not made payable
and trust receipts are, however, not negotiable instruments. But to PBCom. As explained by respondent bank, a draft was drawn on
drafts issued in connection with letters of credit are negotiable the Bank of Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan,
instruments. supplier of the goods covered by the foreign letter of credit. Having
paid the supplier, the Bank of Taiwan then presented the bank draft
The private respondents presented documents which have not for reimbursement by PBCom’s correspondent bank in Taiwan, the
merely created a prima facie case but have actually proved the Irving Trust Company — which explains the reason why on its face,
solidary obligation of MICO and the petitioners, as sureties of the draft was made payable to the Bank of Taiwan. Irving Trust
MICO, in favor of respondent PBCom. While the presumption found Company accepted and endorsed the draft to PBCom. The draft
under the Negotiable Instruments Law may not necessarily be was later transmitted to PBCom to support the latter’s claim for
applicable to trust receipts and letters of credit, the presumption payment from MICO. MICO accepted the draft upon presentment
that the drafts drawn in connection with the letters of credit have and negotiated it to PBCom.
sufficient consideration. Under Section 3(r), Rule 131 of the Rules
of Court there is also a presumption that sufficient consideration
 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. 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.

2. MICO and herein petitioners-sureties insist that Chua SiokSuy 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
SiokSuy full authority to negotiate for loans in behalf of MICO with
PBCom. In fact, the Certification even provided that Chua
SiokSuy’s 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 SiokSuy 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 SiokSuy to negotiate for loans in behalf of
MICO. Notice to MICO’s authorized representative, Chua SiokSuy,
was notice to MICO. The Certification issued by PBCom’s
corporate secretary, Atty. P.B. Barrera, indicated that Chua
SiokSuy 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 MICO’s 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, 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.

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 SiokSuy, Mariano Sio, Alfonso
Yap, Richard Velasco and Alfonso Co," is AFFIRMED in toto.