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G.R. No.


August 29, 1936

WISE & CO., INC., plaintiff-appellee, vs.

DIONISIO P. TANGLAO, defendant-appellant.
In the Court of First Instance of Manila, Wise & Co.
instituted civil case No. 41129 against Cornelio C.
David for the recovery of a certain sum of money
David was an agent of Wise & Co. and the
amount claimed from him was the result of a
liquidation of accounts showing that he was
indebted in said amount. In said case Wise & Co.
asked and obtained a preliminary attachment of
David's property. To avoid the execution of said
attachment, David succeeded in having his
Attorney Tanglao execute on January 16, 1932, a
power of attorney (Exhibit A) in his favor, with the
following clause:
To sign for me as guarantor for himself in his
indebtedness to Wise & Company of Manila,
which indebtedness appears in civil case No.
41129, of the Court of First Instance of Manila,
and to mortgage my lot (No. 517-F of the
subdivision plan Psd-20, being a portion of lot
No. 517 of the cadastral survey of Angeles, G. L.
R. O. Cad. Rec. No. 124), to guarantee the said
obligations to the Wise & Company, Inc., of
On the 18th of said month David subscribed and
on the 23d thereof, filed in court, the following
document (Exhibit B):
Come now the parties, plaintiff by the
undersigned attorneys and defendants in his
own behalf and respectfully state:
I. That the defendant confesses judgment for
the sum of six hundred forty pesos (P640),
payable at the rate of eighty pesos (P80) per
month, the first payment to be made on
February 15, 1932 and successively
thereafter until the full amount is paid; the
plaintiff accepts this stipulation.
II. That as security for the payment of said
sum of P640, defendant binds in favor of, and
pledges to the plaintiff, the following real

1. House of light materials described under tax

declaration No. 9650 of the municipality of
Angeles, Province of Pampanga, assessed at
2. Accesoria apartments with a ground floor of
180 sq. m. with the first story of cement and
galvanized of iron roofing located on the lot
belonging to Mariano Tablante Geronimo, said
accesoria is described under tax declaration
No. 11164 of the municipality of Angeles,
Province of Pampanga, assessed at P800.
3. Parcel of land described under Transfer
Certificate of Title No. 2307 of the Province of
Pampanga recorded in the name of Dionisio
Tanglao of which defendant herein holds a
special power of attorney to pledge the same in
favor of Wise & Co., Inc., as a guarantee for the
payment of the claim against him in the above
entitled cause. The said parcel of land is
bounded as follows: NE. lot No. 517 "Part" de
Narciso Garcia; SE. Calle Rizal; SW. lot No. 517
"Part" de Bernardino Tiongco; NW. lot No. 508
de Clemente Dayrit; containing 431 sq. m. and
described in tax declaration No. 11977 of the
municipality of Angeles, Pampanga, assessed
at P423.

That this guaranty is attached to the

properties above mentioned as first lien and
for this reason the parties agree to register this
compromise with the Register of Deeds of
Pampanga, said lien to be cancelled only on
the payment of the full amount of the
judgment in this case.
Wherefore, the parties pray that the above
compromise be admitted and that an order
issue requiring the register of Deeds of
Pampanga to register this compromise
previous to the filing of the legal fees.
David paid the sum of P343.47 to Wise & Co., on
account of the P640 which he bound himself to
pay under Exhibit B, leaving an unpaid balance of
Wise & Co. now institutes this case against
Tanglao for the recovery of said balance of
There is no doubt that under Exhibit, A, Tanglao
empowered David, in his name, to enter into a
contract of suretyship and a contract of mortgage

of the property described in the document, with

Wise & Co. However, David used said power of
attorney only to mortgage the property and did
not enter into contract of suretyship. Nothing is
stated in Exhibit B to the effect that Tanglao
became David's surety for the payment of the
sum in question. Neither is this inferable from any
of the clauses thereof, and even if this inference
might be made, it would be insufficient to create
an obligation of suretyship which, under the law,
must be express and cannot be presumed.
It appears from the foregoing that defendant,
Tanglao could not have contracted any personal
responsibility for the payment of the sum of P640.
The only obligation which Exhibit B, in connection
with Exhibit A, has created on the part of Tanglao,
is that resulting from the mortgage of a property
belonging to him to secure the payment of said
P640. However, a foreclosure suit is not instituted
in this case against Tanglao, but a purely personal
action for the recovery of the amount still owed
by David.
At any rate, even granting that defendant Tanglao
may be considered as a surety under Exhibit B,
the action does not yet lie against him on the
ground that all the legal remedies against the
debtor have not previously been exhausted (art.
1830 of the Civil Code, and decision of the
Supreme Court of Spain of March 2, 1891). The
plaintiff has in its favor a judgment against debtor
David for the payment of debt. It does not appear
that the execution of this judgment has been
asked for and Exhibit B, on the other hand, shows
that David has two pieces of property the value of
which is in excess of the balance of the debt the
payment of which is sought of Tanglao in his
alleged capacity as surety.
For the foregoing considerations, the appealed
judgment is reversed and the defendant is
absolved from the complaint, with the costs to
the plaintiff. So ordered.
G.R. No. 92067

March 22, 1991


This petition seeks the reversal of the Court of

Appeals' decision affirming the earlier decision of
the Regional Trial Court of Makati, Branch 150 in
Civil Case No. 7889 dismissing petitioner
Philippine Bank of Communications' (PBCOM)
complaint for annulment of a Deed of Exchange
executed by respondent Joseph L.G. Chua in favor
of Jaleco Development, Inc. (JALECO). The deed of
exchange was alleged to be in fraud of PBCOM as
creditor of Chua who previously signed as one of
the sureties in three (3) Surety Agreements
executed in favor of PBCOM. It involved a transfer
by Chua of his real property in exchange for
shares of stocks of JALECO.
The facts of the case as summarized by the
appellate court are not in dispute, to wit:
On April 14, 1976, Fortune Motors (Phils.),
Inc. executed a Surety Agreement in favor
of Philippine Bank of Communications
(PBCOM for short) with defendant-appellee
Joseph L.G. Chua, as one of the sureties
(Exh. "A"). Again, on October 1, 1981,
Fortune Motors (Phils.), Inc. executed
another Surety Agreement in favor of
PBCOM with Chua likewise acting as one of
the sureties (Exh. "A-1").
From March 7, 1983 to May 3, 1983
Fortune Motors, (Phils.) thru its authorized
officers and/or representatives executed
several trust receipts (Exhibits "B", "B-1",
"B-2", "B-3", "B-4", "B-5" and "B-6") in
favor of PBCOM, the total principal amount
of which was P2,492,543.00.
On March 6, 1981, Forte Merchant Finance,
Inc., executed a Surety Agreement in favor
of PBCOM with Joseph L.G. Chua as one of
the sureties (Exh. "A-2").
On May 13, 1983 to March 16, 1984, Forte
Merchant Finance, Inc. obtained credit
accommodations from PBCOM in the form
of trust receipt (Exh. "B-7") and loans
represented by promissory notes (Exhibits
"C", "C-1", "C-2", and "C-3") in the total
amount of P2,609,862.00.
On October 24, 1983 Chua executed a
Deed of Exchange (Exh. "F") transferring a
parcel of land with improvements thereon
covered by TCT No. S-52808 (343721) to
JALECO Development, Inc., in exchange for
12,000 shares of said Corporation with a
par value of P1,200,000.00. As a result,
TCT No. 126573 of the Register of Deeds
of Rizal covering the aforementioned
parcel of land was issued in the name of

JALECO Development, Inc., on November

24, 1983.
On November 2, 1983, Chua sold 6,000
shares of JALECO Development, Inc., to Mr.
Chua Tiong King for P600,000.00 (Exh.
"10"-Chua; Exh. "3"-JALECO) and another
6,000 shares of JALECO Development, Inc.
to Guillermo Jose, Jr. also for P600,000.00
(Exh. "5"-JALECO) and Caw Le Ja Chua,
wife of Chua sold the 6,000 share of
JALECO Development, Inc., to Chua Tiong
King for P200,000.00 (Exh. "11"-Chua).
In the meanwhile, for failure of both
Fortune Motors (Phils.), Inc. and Forte
Merchant Finance, Inc. to meet their
respective financial obligations with
PBCOM, the latter filed Civil Case No. 8425159 against Fortune Motors (Phils.), Inc.,
Joseph L. G. Chua, George D. Tan, Edgar L.
Rodriguez and Jose C. Alcantara and Civil
Case No. 84-25160 against Forte Merchant
Finance, Inc., Joseph L. G. Chua, George O.
Tan and Edgar L. Rodriguez with the
Regional Trial Court of Manila, both for
Sum of Money with Writ of Preliminary
Attachment where PBCOM was able to
obtain a notice of levy on the properties of
Fortune Motors (Phils.) covered by TCT No.
S-41915 (Makati, MM IV) and S-54185 to
86 (Province of Rizal). When plaintiff was
able to locate Chua's former property
situated in Dasmarias, Makati, Metro
Manila, covered by TCT No. S-52808
containing an area of 1,541 square meters
which was already transferred to JALECO
Development, Inc., under TCT No. 126573
by virtue of the Deed of Exchange dated
October 24, 1983, PBCOM filed Civil Case
No. 7889 for annulment of Deed of
Exchange with the Regional Trial Court of
Makati, Metro Manila.
In due course, a decision was rendered on
September 18, 1986 dismissing said case.
(Rollo, pp. 37-39)
In affirming the dismissal of the complaint, the
appellate court stated: The Deed of Exchange
was neither submitted nor offered as evidence
rendering the petitioner's cause of action
untenable. Furthermore, the appellate court
stated that the case for annulment of the deed of
exchange was filed at a time when two (2) other
cases for sums of money were filed against the
respondent as one of the sureties of Fortune
Motors (Phils.), Inc. (Civil Case No. 84-25159) and
of Forte Merchant Finance, Inc. (Civil Case No. 8425160) which are both pending. Hence, the

annulment case which was filed in the hope of

receiving favorable judgments in the two (2)
other cases in the future is premature. Finally, the
appellate court stated that the petitioner's
interests in the meantime are sufficiently
protected by a writ of preliminary attachment on
several properties of one of the principal debtors.
The petition is impressed with merit.
The records reveal the following:
In its petition filed with the lower court, the
petitioner alleged among others:



12. That plaintiff was able to locate a

parcel of land with buildings and
improvements thereon situated in
Dasmarias Village, Makati, Metro Manila,
with T.C.T. No. S-52808, containing an area
of 1,514 square meters, but the said
property was transferred to the name of a
corporation named Jaleco Development
Inc., pursuant to the Deed of Exchange
executed between Defendant Joseph L. G.
Chua and Jaleco Development, Inc., dated
October 24, 1983, photocopy of T.C.T. No.
S-52808, the Deed of Exchange, and T.C.T.
No. 126573 are hereto attached as
Annexes E, F, and G; and made integral
part hereof; (Rollo, pp. 95-96)



In his answer, respondent Chua stated:




That paragraph 12, is admitted; the said

Deed of Exchange (Annex "F") was done in
good faith, was done in accordance with
law and same is valid; (Rollo, p. 44)



Chua's admission of the existence of the Deed of

Exchange, attached to the "Petition as Annex "F"
falls squarely within the scope of Judicial
Admissions under Section 4, Rule 129 of the Rules
of Court. The rule provides:
Judicial Admissions. An admission,
verbal or written, made by a party in the
course of the proceeding in the same
case, does not require proof. The
admission may be contradicted only by
showing that it was made through

palpable mistake or that no such

admission was made.
As early as 1925 in the case of Asia Banking
Corporation v. Walter E. Olsen & Co. (48 Phil.
529), we have ruled that documents attached to
the complaint are considered a part thereof and
may be considered as evidence although they
were not introduced as such. We said:
Another error assigned by the appellant is
the fact that the lower court took into
consideration the documents attached to
the complaint as a part thereof, without
having been expressly introduced in
evidence, This was no error. In the answer
of the defendants, there was no denial
under oath of the authenticity of these
documents. Under section 103 of the Code
of Civil Procedure, the authenticity and
due execution of these documents must,
in that case, be deemed admitted. The
effect of this is to relieve the plaintiff from
the duty of expressly presenting such
documents as evidence. The court, for the
proper decision of the case, may and
should consider, without the introduction
of evidence, the facts admitted by the
parties. (at p. 532)
We reiterated this principle in the later case
of Bravo Jr. v. Borja (134 SCRA 466 [1985]). In
that case we said:
But respondent judge claims that
petitioner has not proved his minority. This
is inaccurate. In the motion for bail,
petitioner alleged that he was a minor of
16 and this averment was never
challenged by the prosecution.
Subsequently, in his memorandum in
support of the motion for bail, petitioner
attached a copy of his birth certificate.
And finally, after respondent Judge had
denied the motion for bail, petitioner filed
a motion for reconsideration, attaching
thereto a certified true copy of his birth
certificate. Respondent Judge however
refused to take cognizance of petitioner's
unchallenged minority allegedly because
the certificate of birth was not offered in
evidence. This was error because evidence
of petitioner's minority was already a part
of the record of the case. It was properly
filed in support of a motion. It would be a
needless formality to offer it in evidence.
Respondent Judge therefore acted with
grave abuse of discretion in disregarding

For its part, JALECO stated in its Answer:




2. That it has no knowledge or information

sufficient to form a belief as to the truth of
the allegation contained in pars. 3, 4, 5, 6,
7, 8, 9, 10, 11 and 12 of the Petitioner;
(Emphasis supplied)
Paragraph 12 refers to the deed of exchange in
the petition.
The Deed of Exchange was attached to the
petition. Necessarily, JALECO's contention that it
has no knowledge or information sufficient to
form a belief as to the truth of the deed of
exchange becomes an invalid or ineffective denial
pursuant to the Rules of Court. Under the
circumstances, the petitioner could have easily
asserted whether or not it executed the deed of
exchange. The ruling in Capitol Motors
Corporations vs. Yabut (32 SCRA 1 [1970])
We agree with defendant-appellant that
one of the modes of specific denial
contemplated in Section 10, Rule 8, is a
denial by stating that the defendant is
without knowledge or information
sufficient to form a belief as to the truth of
a material averment in the complaint. The
question, however, is whether paragraph 2
of the defendant-appellant's answer
constitutes a specific denial under the said
rule. We do not think so. In Warner Barnes
& Co., Ltd. vs. Reyes, et al. G.R. No. L9531, May 14, 1958 (103 Phil. 662), this
Court said that the rule authorizing an
answer to the effect that the defendant
has no knowledge or information sufficient
to form a belief as to the truth of an
averment and giving such answer the
effect of a denial, does not apply where
the fact as to which want of knowledge is
asserted, is so plainly and necessarily
within the defendant's knowledge that his
averment of ignorance must be palpably
untrue. In said case, the suit was one for
foreclosure of mortgage, and a copy of the
deed of mortgage was attached to the
complaint thus; according to this Court, it
would have been easy for the defendants
to specifically allege in their answer
whether or not they had executed the
alleged mortgage. The same thing can be
said in the present case, where a copy of
the promissory note sued upon was
attached to the complaint. . . .

Considering the admission by Chua and the nondenial by JALECO of the document forming part of
the petition, the appellate court committed
reversible error in not admitting the deed of
exchange as evidence.
Furthermore, we find as not well-taken the
appellate court's ruling that the pendency of two
(2) other cases for collection of money against
respondent Chua, among others as surety of
Fortune Motors (Phils.), Inc. and Forte Merchant
Finance, Inc., renders the petition for annulment
of deed of exchange premature.
For failure of both Fortune Motors (Phils), Inc. and
Forte Merchant Finance, Inc. to pay their
obligations with the petitioner, the latter filed the
two civil cases against Fortune Motors (Phils.),
Inc. and Forte Merchant Finance, Inc. and
respondent Chua, among others with the Regional
Trial Court of Manila. The petitioner was granted a
writ of attachment as a result of which properties
belonging to Fortune Motors (Phils.) were
attached. It turned out, however, that the
attached properties of Fortune Motors (Phils.), Inc.
were already previously attached/mortgaged to
prior lien holders in the amount of about
P70,000,000.00. As regards Forte Merchant
Finance, Inc., it appears that it has no property to
satisfy the debts it incurred with PBCOM. The
record further shows that as regards Chua, the
property subject of the Deed of Exchange
between him and JALECO was his only property.
Under these circumstances, the petitioner's
petition for annulment of the deed of exchange
on the ground that the deed was executed in
fraud of creditors, despite the pendency of the
two (2) other civil cases is well-taken.
As surety for the financial obligations of Fortune
Motors (Phils.), Inc. and the Forte Merchant
Finance, Inc., with the petitioner, respondent
Chua bound himself solidarily liable with the two
(2) principal debtors. (Article 2047, Civil Code)
The petitioner may therefore demand payment of
the whole financial obligations of Fortune Motors
(Phils.), Inc. and Forte Finance, Inc., from Chua, if
the petitioner chooses to go directly after him.
Hence, since the only property of Chua was sold
to JALECO after the debts became due, the
petitioner has the right to file an annulment of
the deed of exchange between Chua and JALECO
wherein Chua sold his only property to JALECO to
protect his interests and so as not to make the
judgments in the two (2) cases illusory:
Rescission requires the existence of
creditors at the time of the fraudulent
alienation, and this must be proved as one

of the bases of the judicial pronouncement

setting aside the contract; without prior
existing debts, there can be neither injury
nor fraud. The credit must be existing at
the time of the fraudulent alienation, even
if it is not yet due. But at the time
the accion pauliana is brought, the credit
must already be due. Therefore, credits
with suspensive term or condition are
excluded, because the accion
pauliana presupposes a judgment and
unsatisfied execution, which cannot exist
when the debt is not demandable at the
time the rescissory action is brought.
Rescission is a subsidiary action, which
presupposes that the creditor has
exhausted the property of the debtor,
which is impossible in credits which cannot
be enforced because of the term or
While it is necessary that the credit of the
plaintiff in the accion pauliana must be
prior to the fraudulent alienation, the date
of the judgment enforcing it is
immaterial. Even if the judgment be
subsequent to the alienation, it is merely
declaratory, with retroactive effect to the
date when the credit was constituted. . . .
(Emphasis Supplied) (Tolentino, Civil Code
of the Philippines, Vol. IV Ed. pp. 578-579)
Parenthetically, the appellate court's observation
that the petitioner's interests are sufficiently
protected by a writ of attachment on the
properties of Fortune Finance (Phils.), Inc. has
neither legal nor factual basis.
One other point.
The trial court disregarded the ex-parte evidence
adduced by the petitioner against JALECO when
the latter was declared in default on the ground
that the ex-parte proceedings were conducted by
the Deputy Clerk of Court which is not allowed in
accordance with the ruling in the case of Lim
Tanhu vs. Ramolete (66 SCRA 425 [1975]). That
ruling has already been overruled in the later
case of Gochangco vs. CFI of Negros
Occidental (157 SCRA 40 [1988]), wherein we
The respondent Court also declared null
and void "the reception of evidence ex
parte before . . (the) deputy clerk of
court." It invoked what it termed the
doctrinal rule laid down in the recent case
of Lim Tan Hu vs.Ramolete, 66 SCRA 430,
promulgated on August 29, 1975 (inter
alia declaring that) a Clerk of Court is not

legally authorized to receive evidence exparte.

Now, that declaration does not reflect long
observed and established judicial practice
with respect to default cases. It is not
quite consistent, too, with the several
explicitly authorized instances under the
Rules where the function of receiving
evidence and even of making
recommendatory findings of facts on the
basis thereof may be delegated to
commissioners, inclusive of the Clerk of
Court. These instances are set out in Rule
33, treating of presentation of evidence
before commissioners, etc., in particular
situations, such as when the trial of an
issue of fact requires the examination of a
long account, or when the taking of an
account is necessary for the information of
the court, or when issues of fact arise
otherwise than upon the pleadings or
while carrying a judgment or order into
effect; Rules 67 and 69, dealing with
submission of evidence also before
commissioners in special civil actions of
eminent domain and partition,
respectively; Rule 86 regarding trials of
contested claims in judicial proceedings
for the settlement of a decedent's estate;
Rule 136 empowering the clerk of court,
directed by the judge inter alia to receive
evidence relating to the accounts of
executors, administrators, guardians,
trustees and receivers, or relative to the
settlement of the estates of deceased
persons, or to guardianships, trusteeships,
or receiverships. In all these instances, the
competence of the clerk of court is
assumed. Indeed, there would seem, to be
sure, nothing intrinsically wrong in
allowing presentation of evidence ex
parte before a Clerk of Court. Such a
procedure certainly does not foreclose
relief to the party adversely affected who,
for valid cause and upon appropriate and
seasonable application, may bring about
the undoing thereof or the elimination of
prejudice thereby caused to him; and it is,
after all, the Court itself which is duty
bound and has the ultimate responsibility
to pass upon the evidence received in this
manner, discarding in the process such
proofs as are incompetent and then
declare what facts have thereby been
established. In considering and analyzing
the evidence preparatory to rendition of
judgment on the merits, it may not
unreasonably be assumed that any serious
error in the ex parte presentation of
evidence, prejudicial to any absent party,

will be detected and duly remedied by the

Court, and/or may always, in any event be
drawn to its attention by any interested
party. . . .
Consequently, there is no legal impediment to the
admissibility of the evidence presented by the
petitioner against JALECO.
These findings pave the way to the resolution of
the case on its merits.
Respondent Chua admitted his liability under the
various Surety Agreements executed on several
dates by Fortune Motors (Phils.), Inc. and Forte
Merchants Finance, Inc. as principal debtors,
respondent Chua, among others, as surety and
the petitioner as creditor. He also admitted in the
Pre-Trial Order that he has no other properties
sufficient to cover the claims of the petitioner
except for the Dasmarias property, subject
matter of the Deed of Exchange.
During the above-mentioned proceedings, the
petitioner established the following:
After the petitioner attached the properties of
Fortune Motors (Phils.), Inc. by virtue of the writ
of attachment filed in the two (2) civil cases, it
found out the same properties were previously
mortgaged and/or attached in the amount of
about P70,000,000.00. Thereafter, the petitioner
was able to locate a property in the name of
respondent Chua. This property was, however
already sold to JALECO on November 24, 1983
pursuant to a Deed of Exchange and the Register
of Deeds of Makati had already issued T.C.T. No.
126573 covering the property in the name of
Upon investigation with the Securities and
Exchange Commission (SEC), the petitioner
gathered the following facts based on the SEC
records: a) JALECO was organized on November 2,
1982 with a capital stock of P5,000,000.00; b) the
stockholders of said corporation were mostly
members of the immediate family of Joseph L. G.
Chua; c) on April 4, 1983, a Board Resolution was
passed authorizing the issuance of 12,000 shares
of stocks worth Pl,200,000.00 to a new subscriber
and non-stockholder Joseph L. G. Chua; and d)
prior to the acquisition by the corporation of the
property located at Dasmarias Village, Makati,
the percentage of the shareholding of the
members of the family of Joseph L. G. Chua was
88% while after the acquisition of the property
and the issuance of the shares to Chua, they
owned 94% of the corporation.

The evidence on record also shows that despite

the "sale" of the Dasmarias property,
respondent Chua continued to stay in the said
The well-settled principle is that a corporation "is
invested by law with a separate personality,
separate and distinct from that of the person
composing it as well as from any other legal
entity to which it may be related." (Tan Boon
Been & Co., Inc. vs. Jarencio, 163 SCRA 205
[1988] citing Yutivo and Sons Hardware Company
vs. Court of Tax Appeals, 1 SCRA 160 [1961];
Emilio Cano Enterprises, Inc. vs. Court of
Industrial Relations, 13 SCRA 290 [1965]; and
Western Agro Industrial Corporation and Antonio
Rodriguez vs. Court of Appeals, and Sia's
Automotive and Diesel Parts, Inc., G.R. No. 82558,
August 20, 1990) However, the separate
personality of the corporation may be
disregarded, or the veil of corporate fiction
pierced when the corporation is used "as a cloak
or cover for fraud or illegality, or to work an
injustice, or where necessary to achieve equity or
when necessary for the protection of creditors."
(Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA
347 [1976] cited in Tan Boon Bee & Co., Inc. vs.
Jarencio, supra; Western Agro Industrial
Corporation, et al. vs. Court of Appeals, supra.)
In the instant case, the evidence clearly shows
that Chua and his immediate family control
JALECO. The Deed of Exchange executed by Chua
and JALECO had for its subject matter the sale of
the only property of Chua at the time when
Chua's financial obligations became due and
demandable. The records also show that despite
the "sale", respondent Chua continued to stay in
the property, subject matter of the Deed of
These circumstances tend to show that the Deed
of Exchange was not what it purports to
be.1wphi1 Instead, they tend to show that the
Deed of Exchange was executed with the sole
intention to defraud Chua's creditorthe
petitioner. It was not a bona fide
transaction between JALECO and Chua. Chua
entered a sham or simulated transaction with
JALECO for the sole purpose of transferring the
title of the property to JALECO without really
divesting himself of the title and control of the
said property.
Hence, JALECO's separate personality should be
disregarded and the corporation veil pierced. In
this regard, the transaction leading to the
execution of the Deed of Exchange between Chua
and JALECO must be considered a transaction
between Chua and himself and not between Chua

and JALECO. Indeed, Chua took advantage of his

control over JALECO to execute the Deed of
Exchange to defraud his creditor, the petitioner
herein. JALECO was but a mere alter ego of Chua.
(See Tan Boon Bee & Co., Inc. vs. Jarencio, supra)
WHEREFORE, the instant petition is GRANTED,
The questioned decision dated February 8, 1990
of the Court of Appeals is REVERSED and SET
ASIDE. The Deed of Exchange executed by and
between Joseph L. G. Chua and JALECO
Development, Inc., and the title issued in the
name of JALECO on the basis thereof are declared
NULL and VOID. Costs against the private
respondents.SO ORDERED.
G.R. No. 74886 December 8, 1992
PRUDENTIAL BANK, petitioner,
ANACLETO R. CHI, respondents.


Petitioner seeks to review and set aside the
decision 1 of public respondent; Intermediate
Appellate Court (now Court of Appeals), dated 10
March 1986, in AC-G.R. No. 66733 which
affirmed in toto the 15 June 1978 decision of
Branch 9 (Quezon City) of the then Court of First
Instance (now Regional Trial Court) of Rizal in Civil
Case No. Q-19312. The latter involved an action
instituted by the petitioner for the recovery of a
sum of money representing the amount paid by it
to the Nissho Company Ltd. of Japan for textile
machinery imported by the defendant, now
private respondent, Philippine Rayon Mills, Inc.
(hereinafter Philippine Rayon), represented by codefendant Anacleto R. Chi.
The facts which gave rise to the instant
controversy are summarized by the public
respondent as follows:
On August 8, 1962, defendant-appellant
Philippine Rayon Mills, Inc. entered into a
contract with Nissho Co., Ltd. of Japan for the
importation of textile machineries under a fiveyear deferred payment plan (Exhibit B,
Plaintiff's Folder of Exhibits, p 2). To effect
payment for said machineries, the defendant-

appellant applied for a commercial letter of

credit with the Prudential Bank and Trust
Company in favor of Nissho. By virtue of said
application, the Prudential Bank opened Letter
of Credit No. DPP-63762 for $128,548.78
(Exhibit A, Ibid., p. 1). Against this letter of
credit, drafts were drawn and issued by Nissho
(Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76),
which were all paid by the Prudential Bank
through its correspondent in Japan, the Bank of
Tokyo, Ltd. As indicated on their faces, two of
these drafts (Exhibit X and X-1, Ibid., pp. 6566) were accepted by the defendant-appellant
through its president, Anacleto R. Chi, while
the others were not (Exhibits X-2 to X-11, Ibid.,
pp. 66 to 76).
Upon the arrival of the machineries, the
Prudential Bank indorsed the shipping
documents to the defendant-appellant which
accepted delivery of the same. To enable the
defendant-appellant to take delivery of the
machineries, it executed, by prior arrangement
with the Prudential Bank, a trust receipt which
was signed by Anacleto R. Chi in his capacity
as President (sic) of defendant-appellant
company (Exhibit C, Ibid., p. 13).
At the back of the trust receipt is a printed
form to be accomplished by two sureties who,
by the very terms and conditions thereof, were
to be jointly and severally liable to the
Prudential Bank should the defendantappellant fail to pay the total amount or any
portion of the drafts issued by Nissho and paid
for by Prudential Bank. The defendantappellant was able to take delivery of the
textile machineries and installed the same at
its factory site at 69 Obudan Street, Quezon
Sometime in 1967, the defendant-appellant
ceased business operation (sic). On December
29, 1969, defendant-appellant's factory was
leased by Yupangco Cotton Mills for an annual
rental of P200,000.00 (Exhibit I, Ibid., p. 22).
The lease was renewed on January 3, 1973
(Exhibit J, Ibid., p. 26). On January 5, 1974, all
the textile machineries in the defendantappellant's factory were sold to AIC
Development Corporation for P300,000.00
(Exhibit K, Ibid., p. 29).

The obligation of the defendant-appellant

arising from the letter of credit and the trust
receipt remained unpaid and unliquidated.
Repeated formal demands (Exhibits U, V, and
W, Ibid., pp. 62, 63, 64) for the payment of the
said trust receipt yielded no result Hence, the
present action for the collection of the
principal amount of P956,384.95 was filed on
October 3, 1974 against the defendantappellant and Anacleto R. Chi. In their
respective answers, the defendants interposed
identical special defenses, viz., the complaint
states no cause of action; if there is, the same
has prescribed; and the plaintiff is guilty of
laches. 2
On 15 June 1978, the trial court rendered its
decision the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered
sentencing the defendant Philippine Rayon
Mills, Inc. to pay plaintiff the sum of
P153,645.22, the amounts due under Exhibits
"X" & "X-1", with interest at 6% per annum
beginning September 15, 1974 until fully paid.
Insofar as the amounts involved in drafts Exhs.
"X" (sic) to "X-11", inclusive, the same not
having been accepted by defendant Philippine
Rayon Mills, Inc., plaintiff's cause of action
thereon has not accrued, hence, the instant
case is premature.
Insofar as defendant Anacleto R. Chi is
concerned, the case is dismissed. Plaintiff is
ordered to pay defendant Anacleto R. Chi the
sum of P20,000.00 as attorney's fees.
With costs against defendant Philippine Rayon
Mills, Inc.

Petitioner appealed the decision to the then

Intermediate Appellate Court. In urging the said
court to reverse or modify the decision, petitioner
alleged in its Brief that the trial court erred in (a)
disregarding its right to reimbursement from the
private respondents for the entire unpaid balance
of the imported machines, the total amount of
which was paid to the Nissho Company Ltd.,
thereby violating the principle of the third party
payor's right to reimbursement provided for in

the second paragraph of Article 1236 of the Civil

Code and under the rule against unjust
enrichment; (b) refusing to hold Anacleto R. Chi,
as the responsible officer of defendant
corporation, liable under Section 13 of P.D No 115
for the entire unpaid balance of the imported
machines covered by the bank's trust receipt
(Exhibit "C"); (c) finding that the solidary
guaranty clause signed by Anacleto R. Chi is not a
guaranty at all; (d) controverting the judicial
admissions of Anacleto R. Chi that he is at least a
simple guarantor of the said trust receipt
obligation; (e) contravening, based on the
assumption that Chi is a simple guarantor,
Articles 2059, 2060 and 2062 of the Civil Code
and the related evidence and jurisprudence which
provide that such liability had already attached;
(f) contravening the judicial admissions of
Philippine Rayon with respect to its liability to pay
the petitioner the amounts involved in the drafts
(Exhibits "X", "X-l" to "X-11''); and (g) interpreting
"sight" drafts as requiring acceptance by
Philippine Rayon before the latter could be held
liable thereon. 4
In its decision, public respondent sustained the
trial court in all respects. As to the first and last
assigned errors, it ruled that the provision on
unjust enrichment, Article 2142 of the Civil Code,
applies only if there is no express contract
between the parties and there is a clear showing
that the payment is justified. In the instant case,
the relationship existing between the petitioner
and Philippine Rayon is governed by specific
contracts, namely the application for letters of
credit, the promissory note, the drafts and the
trust receipt. With respect to the last ten (10)
drafts (Exhibits "X-2" to "X-11") which had not
been presented to and were not accepted by
Philippine Rayon, petitioner was not justified in
unilaterally paying the amounts stated therein.
The public respondent did not agree with the
petitioner's claim that the drafts were sight drafts
which did not require presentment for acceptance
to Philippine Rayon because paragraph 8 of the
trust receipt presupposes prior acceptance of the
drafts. Since the ten (10) drafts were not
presented and accepted, no valid demand for
payment can be made.
Public respondent also disagreed with the
petitioner's contention that private respondent
Chi is solidarily liable with Philippine Rayon

pursuant to Section 13 of P.D. No. 115 and based

on his signature on the solidary guaranty clause
at the dorsal side of the trust receipt. As to the
first contention, the public respondent ruled that
the civil liability provided for in said Section 13
attaches only after conviction. As to the second, it
expressed misgivings as to whether Chi's
signature on the trust receipt made the latter
automatically liable thereon because the socalled solidary guaranty clause at the dorsal
portion of the trust receipt is to be signed not by
one (1) person alone, but by two (2) persons; the
last sentence of the same is incomplete and
unsigned by witnesses; and it is not
acknowledged before a notary public. Besides,
even granting that it was executed and
acknowledged before a notary public, Chi cannot
be held liable therefor because the records fail to
show that petitioner had either exhausted the
properties of Philippine Rayon or had resorted to
all legal remedies as required in Article 2058 of
the Civil Code. As provided for under Articles
2052 and 2054 of the Civil Code, the obligation of
a guarantor is merely accessory and subsidiary,
respectively. Chi's liability would therefore arise
only when the principal debtor fails to comply
with his obligation. 5
Its motion to reconsider the decision having been
denied by the public respondent in its Resolution
of 11 June 1986,6 petitioner filed the instant
petition on 31 July 1986 submitting the following
legal issues:
(EXH. C);



In the Resolution of 12 March 1990, 8 this Court

gave due course to the petition after the filing of
the Comment thereto by private respondent
Anacleto Chi and of the Reply to the latter by the
petitioner; both parties were also required to
submit their respective memoranda which they
subsequently complied with.
As We see it, the issues may be reduced as
1. Whether presentment for acceptance of
the drafts was indispensable to make
Philippine Rayon liable thereon;
2. Whether Philippine Rayon is liable on the
basis of the trust receipt;
3. Whether private respondent Chi is jointly
and severally liable with Philippine Rayon for
the obligation sought to be enforced and if
not, whether he may be considered a
guarantor; in the latter situation, whether the
case should have been dismissed on the
ground of lack of cause of action as there was
no prior exhaustion of Philippine Rayon's
Both the trial court and the public respondent
ruled that Philippine Rayon could be held liable
for the two (2) drafts, Exhibits "X" and "X-1",
because only these appear to have been
accepted by the latter after due presentment.
The liability for the remaining ten (10) drafts
(Exhibits "X-2" to "X-11" inclusive) did not arise

because the same were not presented for

acceptance. In short, both courts concluded that
acceptance of the drafts by Philippine Rayon was
indispensable to make the latter liable thereon.
We are unable to agree with this proposition. The
transaction in the case at bar stemmed from
Philippine Rayon's application for a commercial
letter of credit with the petitioner in the amount
of $128,548.78 to cover the former's contract to
purchase and import loom and textile machinery
from Nissho Company, Ltd. of Japan under a fiveyear deferred payment plan. Petitioner approved
the application. As correctly ruled by the trial
court in its Order of 6 March 1975: 9
. . . By virtue of said Application and
Agreement for Commercial Letter of Credit,
plaintiff bank 10 was under obligation to pay
through its correspondent bank in Japan the
drafts that Nisso (sic) Company, Ltd.,
periodically drew against said letter of credit
from 1963 to 1968, pursuant to plaintiff's
contract with the defendant Philippine Rayon
Mills, Inc. In turn, defendant Philippine Rayon
Mills, Inc., was obligated to pay plaintiff bank
the amounts of the drafts drawn by Nisso (sic)
Company, Ltd. against said plaintiff bank
together with any accruing commercial
charges, interest, etc. pursuant to the terms
and conditions stipulated in the Application
and Agreement of Commercial Letter of Credit
Annex "A".
A letter of credit is defined as an engagement by
a bank or other person made at the request of a
customer that the issuer will honor drafts or other
demands for payment upon compliance with the
conditions specified in the credit. 11Through a
letter of credit, the bank merely substitutes its
own promise to pay for one of its customers who
in return promises to pay the bank the amount of
funds mentioned in the letter of credit plus credit
or commitment fees mutually agreed upon. 12In
the instant case then, the drawee was necessarily
the herein petitioner. It was to the latter that the
drafts were presented for payment. In fact, there
was no need for acceptance as the issued drafts
are sight drafts. Presentment for acceptance is
necessary only in the cases expressly provided
for in Section 143 of the Negotiable Instruments
Law (NIL). 13 The said section reads:

Sec. 143. When presentment for acceptance

must be made. Presentment for acceptance
must be made:
(a) Where the bill is payable after sight, or
in any other case, where presentment for
acceptance is necessary in order to fix the
maturity of the instrument; or
(b) Where the bill expressly stipulates that it
shall be presented for acceptance; or
(c) Where the bill is drawn payable
elsewhere than at the residence or place of
business of the drawee. In no other case is
presentment for acceptance necessary in
order to render any party to the bill liable.
Obviously then, sight drafts do not require
presentment for acceptance.
The acceptance of a bill is the signification by the
drawee of his assent to the order of the
drawer; 14 this may be done in writing by the
drawee in the bill itself, or in a separate
instrument. 15
The parties herein agree, and the trial court
explicitly ruled, that the subject, drafts are sight
drafts. Said the latter:
. . . In the instant case the drafts being at
sight, they are supposed to be payable upon
acceptance unless plaintiff bank has given the
Philippine Rayon Mills Inc. time within which to
pay the same. The first two drafts (Annexes C
& D, Exh. X & X-1) were duly accepted as
indicated on their face (sic), and upon such
acceptance should have been paid forthwith.
These two drafts were not paid and although
Philippine Rayon Mills
ought to have paid the same, the fact remains
that until now they are still unpaid. 16
Corollarily, they are, pursuant to Section 7 of the
NIL, payable on demand. Section 7 provides:
Sec. 7. When payable on demand. An
instrument is payable on demand
(a) When so it is expressed to be payable on
demand, or at sight, or on presentation; or

(b) In which no time for payment in expressed.

Where an instrument is issued, accepted, or
indorsed when overdue, it is, as regards the
person so issuing, accepting, or indorsing it,
payable on demand. (emphasis supplied)
Paragraph 8 of the Trust Receipt which reads:
"My/our liability for payment at maturity of any
accepted draft, bill of exchange or indebtedness
shall not be extinguished or modified" 17 does
not, contrary to the holding of the public
respondent, contemplate prior acceptance by
Philippine Rayon, but by the petitioner.
Acceptance, however, was not even necessary
in the first place because the drafts which were
eventually issued were sight drafts And even if
these were not sight drafts, thereby
necessitating acceptance, it would be the
petitioner and not Philippine Rayon which
had to accept the same for the latter was not
the drawee. Presentment for acceptance is
defined an the production of a bill of exchange
to a drawee for acceptance. 18 The trial court
and the public respondent, therefore, erred in
ruling that presentment for acceptance was an
indispensable requisite for Philippine Rayon's
liability on the drafts to attach. Contrary to both
courts' pronouncements, Philippine Rayon
immediately became liable thereon upon
petitioner's payment thereof. Such is the
essence of the letter of credit issued by the
petitioner. A different conclusion would violate
the principle upon which commercial letters of
credit are founded because in such a case, both
the beneficiary and the issuer, Nissho Company
Ltd. and the petitioner, respectively, would be
placed at the mercy of Philippine Rayon even if
the latter had already received the imported
machinery and the petitioner had fully paid for
it. The typical setting and purpose of a letter of
credit are described in Hibernia Bank and Trust
Co. vs. J. Aron & Co., Inc., 19 thus:
Commercial letters of credit have come into
general use in international sales
transactions where much time necessarily
elapses between the sale and the receipt by
a purchaser of the merchandise, during
which interval great price changes may
occur. Buyers and sellers struggle for the
advantage of position. The seller is desirous
of being paid as surely and as soon as

possible, realizing that the vendee at a

distant point has it in his power to reject on
trivial grounds merchandise on arrival, and
cause considerable hardship to the shipper.
Letters of credit meet this condition by
affording celerity and certainty of payment.
Their purpose is to insure to a seller
payment of a definite amount upon
presentation of documents. The bank deals
only with documents. It has nothing to do
with the quality of the merchandise.
Disputes as to the merchandise shipped
may arise and be litigated later between
vendor and vendee, but they may not
impede acceptance of drafts and payment
by the issuing bank when the proper
documents are presented.
The trial court and the public respondent likewise
erred in disregarding the trust receipt and in not
holding that Philippine Rayon was liable thereon.
In People vs. Yu Chai Ho, 20 this Court explains the
nature of a trust receipt by quoting In re Dunlap
Carpet Co., 21 thus:
By this arrangement a banker advances money
to an intending importer, and thereby lends
the aid of capital, of credit, or of business
facilities and agencies abroad, to the
enterprise of foreign commerce. Much of this
trade could hardly be carried on by any other
means, and therefore it is of the first
importance that the fundamental factor in the
transaction, the banker's advance of money
and credit, should receive the amplest
protection. Accordingly, in order to secure that
the banker shall be repaid at the critical point
that is, when the imported goods finally
reach the hands of the intended vendee the
banker takes the full title to the goods at the
very beginning; he takes it as soon as the
goods are bought and settled for by his
payments or acceptances in the foreign
country, and he continues to hold that title as
his indispensable security until the goods are
sold in the United States and the vendee is
called upon to pay for them. This security is
not an ordinary pledge by the importer to the
banker, for the importer has never owned the
goods, and moreover he is not able to deliver
the possession; but the security is the
complete title vested originally in the bankers,
and this characteristic of the transaction has

again and again been recognized and

protected by the courts. Of course, the title is
at bottom a security title, as it has sometimes
been called, and the banker is always under
the obligation to reconvey; but only after his
advances have been fully repaid and after the
importer has fulfilled the other terms of the
As further stated in National Bank vs. Viuda e
Hijos de Angel Jose, 22 trust receipts:
. . . [I]n a certain manner, . . . partake of the
nature of a conditional sale as provided by the
Chattel Mortgage Law, that is, the importer
becomes absolute owner of the imported
merchandise as soon an he has paid its price.
The ownership of the merchandise continues
to be vested in the owner thereof or in the
person who has advanced payment, until he
has been paid in full, or if the merchandise has
already been sold, the proceeds of the sale
should be turned over to him by the importer
or by his representative or successor in
Under P.D. No. 115, otherwise known an the Trust
Receipts Law, which took effect on 29 January
1973, a trust receipt transaction is defined as
"any transaction by and between a person
referred to in this Decree as the entruster, and
another person referred to in this Decree as the
entrustee, whereby the entruster, who owns or
holds absolute title or security interests' over
certain specified goods, documents or
instruments, releases the same to the possession
of the entrustee upon the latter's execution and
delivery to the entruster of a signed document
called the "trust receipt" wherein the entrustee
binds himself to hold the designated goods,
documents or instruments in trust for the
entruster and to sell or otherwise dispose of the
goods, documents or instruments with the
obligation to turn over to the entruster the
proceeds thereof to the extent of the amount
owing to the entruster or as appears in the trust
receipt or the goods, instruments themselves if
they are unsold or not otherwise disposed of, in
accordance with the terms and conditions
specified in the trusts receipt, or for other
purposes substantially equivalent to any one of
the following: . . ."

It is alleged in the complaint that private

respondents "not only have presumably put said
machinery to good use and have profited by its
operation and/or disposition but very recent
information that (sic) reached plaintiff bank that
defendants already sold the machinery covered
by the trust receipt to Yupangco Cotton Mills,"
and that "as trustees of the property covered by
the trust receipt, . . . and therefore acting in
fiduciary (sic) capacity, defendants have willfully
violated their duty to account for the
whereabouts of the machinery covered by the
trust receipt or for the proceeds of any lease, sale
or other disposition of the same that they may
have made, notwithstanding demands therefor;
defendants have fraudulently misapplied or
converted to their own use any money realized
from the lease, sale, and other disposition of said
machinery." 23 While there is no specific prayer for
the delivery to the petitioner by Philippine Rayon
of the proceeds of the sale of the machinery
covered by the trust receipt, such relief is covered
by the general prayer for "such further and other
relief as may be just and equitable on the
premises." 24 And although it is true that the
petitioner commenced a criminal action for the
violation of the Trust Receipts Law, no legal
obstacle prevented it from enforcing the civil
liability arising out of the trust, receipt in a
separate civil action. Under Section 13 of the
Trust Receipts Law, the failure of an entrustee to
turn over the proceeds of the sale of goods,
documents or instruments covered by a trust
receipt to the extent of the amount owing to the
entruster or as appear in the trust receipt or to
return said goods, documents or instruments if
they were not sold or disposed of in accordance
with the terms of the trust receipt shall constitute
the crime of estafa, punishable under the
provisions of Article 315, paragraph 1(b) of the
Revised Penal Code. 25 Under Article 33 of the
Civil Code, a civil action for damages, entirely
separate and distinct from the criminal action,
may be brought by the injured party in cases of
defamation, fraud and physical injuries. Estafa
falls under fraud.
We also conclude, for the reason hereinafter
discussed, and not for that adduced by the public
respondent, that private respondent Chi's
signature in the dorsal portion of the trust receipt
did not bind him solidarily with Philippine Rayon.
The statement at the dorsal portion of the said

trust receipt, which petitioner describes as a

"solidary guaranty clause", reads:
In consideration of the PRUDENTIAL BANK AND
TRUST COMPANY complying with the
foregoing, we jointly and severally agree and
undertake to pay on demand to the
sums of money which the said PRUDENTIAL
BANK AND TRUST COMPANY may call upon us
to pay arising out of or pertaining to, and/or in
any event connected with the default of and/or
non-fulfillment in any respect of the
undertaking of the aforesaid:
We further agree that the PRUDENTIAL BANK
AND TRUST COMPANY does not have to take
any steps or exhaust its remedy against
before making demand on me/us.
(Sgd.) Anacleto R. Chi
Petitioner insists that by virtue of the clear
wording of the statement, specifically the clause
". . . we jointly and severally agree and undertake
. . .," and the concluding sentence on exhaustion,
Chi's liability therein is solidary.
In holding otherwise, the public respondent
ratiocinates as follows:
With respect to the second argument, we have
our misgivings as to whether the mere
signature of defendant-appellee Chi of (sic) the
guaranty agreement, Exhibit "C-1", will make it
an actionable document. It should be noted
that Exhibit "C-1" was prepared and printed by
the plaintiff-appellant. A perusal of Exhibit "C1" shows that it was to be signed and executed
by two persons. It was signed only by
defendant-appellee Chi. Exhibit "C-1" was to
be witnessed by two persons, but no one
signed in that capacity. The last sentence of
the guaranty clause is incomplete.
Furthermore, the plaintiff-appellant also failed
to have the purported guarantee clause
acknowledged before a notary public. All these

show that the alleged guaranty provision was

disregarded and, therefore, not consummated.
But granting arguendo that the guaranty
provision in Exhibit "C-1" was fully executed
and acknowledged still defendant-appellee Chi
cannot be held liable thereunder because the
records show that the plaintiff-appellant had
neither exhausted the property of the
defendant-appellant nor had it resorted to all
legal remedies against the said defendantappellant as provided in Article 2058 of the
Civil Code. The obligation of a guarantor is
merely accessory under Article 2052 of the
Civil Code and subsidiary under Article 2054 of
the Civil Code. Therefore, the liability of the
defendant-appellee arises only when the
principal debtor fails to comply with his
obligation. 27
Our own reading of the questioned solidary
guaranty clause yields no other conclusion than
that the obligation of Chi is only that of
a guarantor. This is further bolstered by the last
sentence which speaks of waiver of exhaustion,
which, nevertheless, is ineffective in this case
because the space therein for the party whose
property may not be exhausted was not filled up.
Under Article 2058 of the Civil Code, the defense
of exhaustion (excussion) may be raised by a
guarantor before he may be held liable for the
obligation. Petitioner likewise admits that the
questioned provision is a solidary guaranty
clause, thereby clearly distinguishing it from a
contract of surety. It, however, described the
guaranty as solidary between the guarantors; this
would have been correct if two (2) guarantors had
signed it. The clause "we jointly and severally
agree and undertake" refers to the undertaking of
the two (2) parties who are to sign it or to the
liability existing between themselves. It does not
refer to the undertaking between either one or
both of them on the one hand and the petitioner
on the other with respect to the liability described
under the trust receipt. Elsewise stated, their
liability is not divisible as between them, i.e., it
can be enforced to its full extent against any one
of them.
Furthermore, any doubt as to the import, or true
intent of the solidary guaranty clause should be
resolved against the petitioner. The trust receipt,
together with the questioned solidary guaranty

clause, is on a form drafted and prepared solely

by the petitioner; Chi's participation therein is
limited to the affixing of his signature thereon. It
is, therefore, a contract of adhesion; 28 as such, it
must be strictly construed against the party
responsible for its preparation.29
Neither can We agree with the reasoning of the
public respondent that this solidary guaranty
clause was effectively disregarded simply
because it was not signed and witnessed by two
(2) persons and acknowledged before a notary
public. While indeed, the clause ought to have
been signed by two (2) guarantors, the fact that it
was only Chi who signed the same did not make
his act an idle ceremony or render the clause
totally meaningless. By his signing, Chi became
the sole guarantor. The attestation by witnesses
and the acknowledgement before a notary public
are not required by law to make a party liable on
the instrument. The rule is that contracts shall be
obligatory in whatever form they may have been
entered into, provided all the essential requisites
for their validity are present; however, when the
law requires that a contract be in some form in
order that it may be valid or enforceable, or that
it be proved in a certain way, that requirement is
absolute and indispensable. 30 With respect to a
guaranty, 31 which is a promise to answer for the
debt or default of another, the law merely
requires that it, or some note or memorandum
thereof, be in writing. Otherwise, it would be
unenforceable unless ratified. 32 While the
acknowledgement of a surety before a notary
public is required to make the same a public
document, under Article 1358 of the Civil Code, a
contract of guaranty does not have to appear in a
public document.
And now to the other ground relied upon by the
petitioner as basis for the solidary liability of Chi,
namely the criminal proceedings against the
latter for the violation of P.D. No. 115. Petitioner
claims that because of the said criminal
proceedings, Chi would be answerable for the
civil liability arising therefrom pursuant to Section
13 of P.D. No. 115. Public respondent rejected this
claim because such civil liability presupposes
prior conviction as can be gleaned from the
phrase "without prejudice to the civil liability
arising from the criminal offense." Both are
wrong. The said section reads:

Sec. 13. Penalty Clause. The failure of an

entrustee to turn over the proceeds of the
sale of the goods, documents or instruments
covered by a trust receipt to the extent of the
amount owing to the entruster or as appears
in the trust receipt or to return said goods,
documents or instruments if they were not
sold or disposed of in accordance with the
terms of the trust receipt shall constitute the
crime of estafa, punishable under the
provisions of Article Three hundred and
fifteen, paragraph one (b) of Act Numbered
Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised
Penal Code. If the violation or offense is
committed by a corporation, partnership,
association or other juridical entities, the
penalty provided for in this Decree shall be
imposed upon the directors, officers,
employees or other officials or persons
therein responsible for the offense, without
prejudice to the civil liabilities arising from
the criminal offense.
A close examination of the quoted provision
reveals that it is the last sentence which provides
for the correct solution. It is clear that if the
violation or offense is committed by a
corporation, partnership, association or other
juridical entities, the penalty shall be imposed
upon the directors, officers, employees or other
officials or persons therein responsible for the
offense. The penalty referred to is imprisonment,
the duration of which would depend on the
amount of the fraud as provided for in Article 315
of the Revised Penal Code. The reason for this is
obvious: corporations, partnerships, associations
and other juridical entities cannot be put in jail.
However, it is these entities which are made
liable for the civil liability arising from the criminal
offense. This is the import of the clause "without
prejudice to the civil liabilities arising from the
criminal offense." And, as We stated earlier, since
that violation of a trust receipt constitutes fraud
under Article 33 of the Civil Code, petitioner was
acting well within its rights in filing an
independent civil action to enforce the civil
liability arising therefrom against Philippine
The remaining issue to be resolved concerns the
propriety of the dismissal of the case against
private respondent Chi. The trial court based the

dismissal, and the respondent Court its

affirmance thereof, on the theory that Chi is not
liable on the trust receipt in any capacity either
as surety or as guarantor because his
signature at the dorsal portion thereof was
useless; and even if he could be bound by such
signature as a simple guarantor, he cannot,
pursuant to Article 2058 of the Civil Code, be
compelled to pay until
after petitioner has exhausted and resorted to all
legal remedies against the principal debtor,
Philippine Rayon. The records fail to show that
petitioner had done so 33 Reliance is thus placed
on Article 2058 of the Civil Code which provides:
Art. 2056. The guarantor cannot be
compelled to pay the creditor
unless the latter has exhausted all
the property of the debtor, and has
resorted to all the legal remedies
against the debtor.
Simply stated, there is as yet no cause of action
against Chi.
We are not persuaded. Excussion is not a
condition sine qua non for the institution of an
action against a guarantor. In Southern Motors,
Inc. vs. Barbosa, 34 this Court stated:
4. Although an ordinary personal
guarantor not a mortgagor or
pledgor may demand the
aforementioned exhaustion, the
creditor may, prior thereto, secure
a judgment against said guarantor,
who shall be entitled, however, to a
deferment of the execution of said
judgment against him until after
the properties of the principal
debtor shall have been exhausted
to satisfy the obligation involved in
the case.
There was then nothing procedurally
objectionable in impleading private respondent
Chi as a co-defendant in Civil Case No. Q-19312
before the trial court. As a matter of fact, Section
6, Rule 3 of the Rules of Court on permissive
joinder of parties explicitly allows it. It reads:
Sec. 6. Permissive joinder of
parties. All persons in whom or

against whom any right to relief in

respect to or arising out of the
same transaction or series of
transactions is alleged to exist,
whether jointly, severally, or in the
alternative, may, except as
otherwise provided in these rules,
join as plaintiffs or be joined as
defendants in one complaint,
where any question of law or fact
common to all such plaintiffs or to
all such defendants may arise in
the action; but the court may make
such orders as may be just to
prevent any plaintiff or defendant
from being embarrassed or put to
expense in connection with any
proceedings in which he may have
no interest.
This is the equity rule relating to multifariousness.
It is based on trial convenience and is designed to
permit the joinder of plaintiffs or defendants
whenever there is a common question of law or
fact. It will save the parties unnecessary work,
trouble and expense. 35
However, Chi's liability is limited to the principal
obligation in the trust receipt plus all the
accessories thereof including judicial costs; with
respect to the latter, he shall only be liable for
those costs incurred after being judicially required
to pay. 36 Interest and damages, being
accessories of the principal obligation, should
also be paid; these, however, shall run only from
the date of the filing of the complaint. Attorney's
fees may even be allowed in appropriate cases.37
In the instant case, the attorney's fees to be paid
by Chi cannot be the same as that to be paid by
Philippine Rayon since it is only the trust receipt
that is covered by the guaranty and not the full
extent of the latter's liability. All things
considered, he can be held liable for the sum of
P10,000.00 as attorney's fees in favor of the
Thus, the trial court committed grave abuse of
discretion in dismissing the complaint as against
private respondent Chi and condemning
petitioner to pay him P20,000.00 as attorney's

In the light of the foregoing, it would no longer

necessary to discuss the other issues raised by
the petitioner
WHEREFORE, the instant Petition is hereby
The appealed Decision of 10 March 1986 of the
public respondent in AC-G.R. CV No. 66733 and,
necessarily, that of Branch 9 (Quezon City) of
the then Court of First Instance of Rizal in Civil
Case No. Q-19312 are hereby REVERSED and
SET ASIDE and another is hereby entered:
1. Declaring private respondent Philippine
Rayon Mills, Inc. liable on the twelve drafts in
question (Exhibits "X", "X-1" to "X-11",
inclusive) and on the trust receipt (Exhibit
"C"), and ordering it to pay petitioner: (a) the
amounts due thereon in the total sum of
P956,384.95 as of 15 September 1974, with
interest thereon at six percent (6%) per
annum from 16 September 1974 until it is
fully paid, less whatever may have been
applied thereto by virtue of foreclosure of
mortgages, if any; (b) a sum equal to ten
percent (10%) of the aforesaid amount as
attorney's fees; and (c) the costs.
2. Declaring private respondent Anacleto R.
Chi secondarily liable on the trust receipt and
ordering him to pay the face value thereof,
with interest at the legal rate, commencing
from the date of the filing of the complaint in
Civil Case No. Q-19312 until the same is fully
paid as well as the costs and attorney's fees
in the sum of P10,000.00 if the writ of
execution for the enforcement of the above
awards against Philippine Rayon Mills, Inc. is
returned unsatisfied.
Costs against private respondents.

G.R. No. 185945


December 05,

FIDELIZA J. AGLIBOT, Petitioner, vs.

Before the Court is a Petition for Review
on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure seeking to annul and set aside the
Decision1 dated March I 8, 2008 of the Court of
Appeals (CA) in CA-G.R. SP No. 100021, which
reversed the Decision2 dated April 3, 2007 of the
Regional Trial Court (RTC) of Dagupan City,
Branch 40, in Criminal Case Nos. 2006-0559-D to
2006-0569-D and entered a new judgment.
The fallo reads as follows:
WHEREFORE, the instant petition
is GRANTED and the assailed Joint Decision
dated April 3, 2007 of the RTC of Dagupan City,
Branch 40, and its Order dated June 12, 2007
are REVERSED AND SET ASIDE and a new one
is entered ordering private respondent Fideliza J.
Aglibot to pay petitioner the total amount
of P3,000,000.00 with 12% interest per annum
from the filing of the Informations until the finality
of this Decision, the sum of which, inclusive of
interest, shall be subject thereafter to 12% annual
interest until fully paid.
On December 23, 2008, the appellate court
denied herein petitioners motion for
Antecedent Facts
Private respondent-complainant Engr. Ingersol L.
Santia (Santia) loaned the amount
of P2,500,000.00 to Pacific Lending & Capital
Corporation (PLCC), through its Manager,
petitioner Fideliza J. Aglibot (Aglibot). The loan
was evidenced by a Promissory Note dated July 1,
2003, issued by Aglibot in behalf of PLCC, payable
in one year subject to interest at 24% per annum.
Allegedly as a guaranty or security for the
payment of the note, Aglibot also issued and
delivered to Santia eleven (11) post-dated

personal checks drawn from her own demand

account maintained at Metrobank, Camiling
Branch. Aglibot is a major stockholder of PLCC,
with headquarters at 27 Casimiro Townhouse,
Casimiro Avenue, Zapote, Las Pias, Metro
Manila, where most of the stockholders also
Upon presentment of the aforesaid checks for
payment, they were dishonored by the bank for
having been drawn against insufficient funds or
closed account. Santia thus demanded payment
from PLCC and Aglibot of the face value of the
checks, but neither of them heeded his demand.
Consequently, eleven (11) Informations for
violation of Batas Pambansa Bilang 22 (B.P. 22),
corresponding to the number of dishonored
checks, were filed against Aglibot before the
Municipal Trial Court in Cities (MTCC), Dagupan
City, Branch 3, docketed as Criminal Case Nos.
47664 to 47674. Each Information, except as to
the amount, number and date of the checks, and
the reason for the dishonor, uniformly alleged, as
That sometime in the month of September, 2003
in the City of Dagupan, Philippines and within the
jurisdiction of this Honorable Court, the abovenamed accused, FIDELIZA J. AGLIBOT, did then
and there, willfully, unlawfully and criminally,
draw, issue and deliver to one Engr. Ingersol L.
Santia, a METROBANK Check No. 0006766,
Camiling Tarlac Branch, postdated November 1,
2003, in the amount of P50,000.00, Philippine
Currency, payable to and in payment of an
obligation with the complainant, although the
said accused knew fully well that she did not have
sufficient funds in or credit with the said bank for
the payment of such check in full upon its
presentment, such that when the said check was
presented to the drawee bank for payment within
ninety (90) days from the date thereof, the same
was dishonored for reason "DAIF", and returned to
the complainant, and despite notice of dishonor,
accused failed and/or refused to pay and/or make
good the amount of said check within five (5)
days banking days [sic], to the damage and
prejudice of one Engr. Ingersol L. Santia in the
aforesaid amount of P50,000.00 and other
consequential damages.5
Aglibot, in her counter-affidavit, admitted that she
did obtain a loan from Santia, but claimed that

she did so in behalf of PLCC; that before granting

the loan, Santia demanded and obtained from her
a security for the repayment thereof in the form
of the aforesaid checks, but with the
understanding that upon remittance in cash of
the face amount of the checks, Santia would
correspondingly return to her each check so paid;
but despite having already paid the said checks,
Santia refused to return them to her, although he
gave her assurance that he would not deposit
them; that in breach of his promise, Santia
deposited her checks, resulting in their dishonor;
that she did not receive any notice of dishonor of
the checks; that for want of notice, she could not
be held criminally liable under B.P. 22 over the
said checks; and that the reason Santia filed the
criminal cases against her was because she
refused to agree to his demand for higher
On August 18, 2006, the MTCC in its Joint
Decision decreed as follows:
WHEREFORE, in view of the foregoing, the
accused, FIDELIZA J. AGLIBOT, is
hereby ACQUITTED of all counts of the crime of
violation of the bouncing checks law on
reasonable doubt. However, the said accused is
ordered to pay the private complainant the sum
of P3,000,000.00 representing the total face
value of the eleven checks plus interest of 12%
per annum from the filing of the cases on
November 2, 2004 until fully paid, attorneys fees
ofP30,000.00 as well as the cost of suit.
On appeal, the RTC rendered a Decision dated
April 3, 2007 in Criminal Case Nos. 2006-0559-D
to 2006-0569-D, which further absolved Aglibot of
any civil liability towards Santia, to wit:
WHEREFORE, premises considered, the Joint
Decision of the court a quo regarding the civil
aspect of these cases is reversed and set aside
and a new one is entered dismissing the said civil
aspect on the ground of failure to fulfill, a
condition precedent of exhausting all means to
collect from the principal debtor.

Santias motion for reconsideration was denied in

the RTCs Order dated June 12, 2007.8 On petition
for review to the CA docketed as CA-G.R. SP No.
100021, Santia interposed the following
assignment of errors, to wit:
"In brushing aside the law and jurisprudence on
the matter, the Regional Trial Court seriously
1. In reversing the joint decision of the
trial court by dismissing the civil aspect of
these cases;
2. In concluding that it is the Pacific
Lending and Capital Corporation and not
the private respondent which is principally
responsible for the amount of the checks
being claimed by the petitioner;
3. In finding that the petitioner failed to
exhaust all available legal remedies
against the principal debtor Pacific
Lending and Capital Corporation;
4. In finding that the private respondent is
a mere guarantor and not an
accommodation party, and thus, cannot
be compelled to pay the petitioner unless
all legal remedies against the Pacific
Lending and Capital Corporation have
been exhausted by the petitioner;
5. In denying the motion for
reconsideration filed by the petitioner."9
In its now assailed decision, the appellate court
rejected the RTCs dismissal of the civil aspect of
the aforesaid B.P. 22 cases based on the ground it
cited, which is that the "failure to fulfill a
condition precedent of exhausting all means to
collect from the principal debtor." The appellate
court held that since Aglibots acquittal by the
MTCC in Criminal Case Nos. 47664 to 47674 was
upon a reasonable doubt10 on whether the
prosecution was able to satisfactorily establish
that she did receive a notice of dishonor, a
requisite to hold her criminally liable under B.P.
22, her acquittal did not operate to bar Santias
recovery of civil indemnity.

It is axiomatic that the "extinction of penal action
does not carry with it the eradication of civil

liability, unless the extinction proceeds from a

declaration in the final judgment that the fact
from which the civil liability might arise did not
exist. Acquittal will not bar a civil action in the
following cases: (1) where the acquittal is based
on reasonable doubt as only preponderance of
evidence is required in civil cases; (2) where the
court declared the accuseds liability is not
criminal but only civil in nature[;] and (3) where
the civil liability does not arise from or is not
based upon the criminal act of which the accused
was acquitted."11 (Citation omitted)
The CA therefore ordered Aglibot to personally
pay Santia P3,000,000.00 with interest at
12% per annum, from the filing of the
Informations until the finality of its decision.
Thereafter, the sum due, to be compounded with
the accrued interest, will in turn be subject to
annual interest of 12% from the finality of its
judgment until full payment. It thus modified the
MTCC judgment, which simply imposed a straight
interest of 12% per annum from the filing of the
cases on November 2, 2004 until
the P3,000,000.00 due is fully paid, plus
attorneys fees of P30,000.00 and the costs of the
Now before the Court, Aglibot maintains that it
was error for the appellate court to adjudge her
personally liable for issuing her own eleven (11)
post-dated checks to Santia, since she did so in
behalf of her employer, PLCC, the true borrower
and beneficiary of the loan. Still maintaining that
she was a mere guarantor of the said debt of
PLCC when she agreed to issue her own checks,
Aglibot insists that Santia failed to exhaust all
means to collect the debt from PLCC, the
principal debtor, and therefore he cannot now be
permitted to go after her subsidiary liability.
Ruling of the Court
The petition is bereft of merit.
Aglibot cannot invoke the benefit of
The RTC in its decision held that, "It is obvious,
from the face of the Promissory Note x x x that
the accused-appellant signed the same on behalf

of PLCC as Manager thereof and nowhere does it

appear therein that she signed as an
accommodation party."12 The RTC further ruled
that what Aglibot agreed to do by issuing her
personal checks was merely to guarantee the
indebtedness of PLCC. So now petitioner Aglibot
reasserts that as a guarantor she must be
accorded the benefit of excussion prior
exhaustion of the property of the debtor as
provided under Article 2058 of the Civil Code, to
Art. 2058. The guarantor cannot be compelled to
pay the creditor unless the latter has exhausted
all the property of the debtor, and has resorted to
all the legal remedies against the debtor.
It is settled that the liability of the guarantor is
only subsidiary, and all the properties of the
principal debtor, the PLCC in this case, must first
be exhausted before the guarantor may be held
answerable for the debt.13 Thus, the creditor may
hold the guarantor liable only after judgment has
been obtained against the principal debtor and
the latter is unable to pay, "for obviously the
exhaustion of the principals property the
benefit of which the guarantor claims cannot
even begin to take place before judgment has
been obtained."14 This rule is contained in Article
206215 of the Civil Code, which provides that the
action brought by the creditor must be filed
against the principal debtor alone, except in some
instances mentioned in Article 205916 when the
action may be brought against both the guarantor
and the principal debtor.
The Court must, however, reject Aglibots claim
as a mere guarantor of the indebtedness of PLCC
to Santia for want of proof, in view of Article
1403(2) of the Civil Code, embodying the Statute
of Frauds, which provides:
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing,
and subscribed by the party charged, or by his

agent; evidence, therefore, of the agreement

cannot be received without the writing, or a
secondary evidence of its contents:
a) An agreement that by its terms is not to be
performed within a year from the making
b) A special promise to answer for the debt,
default, or miscarriage of another;
c) An agreement made in consideration of
marriage, other than a mutual promise to
d) An agreement for the sale of goods, chattels
or things in action, at a price not less than five
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
evidences, or some of them, or such things in
action, or pay at the time some part of the
purchase money; but when a sale is made by
auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the
amount and kind of property sold, terms of
sale, price, names of purchasers and person on
whose account the sale is made, it is a
sufficient memorandum;
e) An agreement for the leasing of a longer
period than one year, or for the sale of real
property or of an interest therein;
f) A representation to the credit of a third
person. (Italics ours)
Under the above provision, concerning a guaranty
agreement, which is a promise to answer for the
debt or default of another,17 the law clearly
requires that it, or some note or memorandum
thereof, be in writing. Otherwise, it would be
unenforceable unless ratified,18 although under
Article 135819 of the Civil Code, a contract of
guaranty does not have to appear in a public
document.20 Contracts are generally obligatory in
whatever form they may have been entered into,
provided all the essential requisites for their
validity are present, and the Statute of Frauds
simply provides the method by which the
contracts enumerated in Article 1403(2) may be
proved, but it does not declare them invalid just
because they are not reduced to writing. Thus,

the form required under the Statute is for

convenience or evidentiary purposes only.21
On the other hand, Article 2055 of the Civil Code
also provides that a guaranty is not presumed,
but must be express, and cannot extend to more
than what is stipulated therein. This is the
obvious rationale why a contract of guarantee is
unenforceable unless made in writing or
evidenced by some writing. For as pointed out by
Santia, Aglibot has not shown any proof, such as
a contract, a secretarys certificate or a board
resolution, nor even a note or memorandum
thereof, whereby it was agreed that she would
issue her personal checks in behalf of the
company to guarantee the payment of its debt to
Santia. Certainly, there is nothing shown in the
Promissory Note signed by Aglibot herself
remotely containing an agreement between her
and PLCC resembling her guaranteeing its debt to
Santia. And neither is there a showing that PLCC
thereafter ratified her act of "guaranteeing" its
indebtedness by issuing her own checks to
Thus did the CA reject the RTCs ruling that
Aglibot was a mere guarantor of the indebtedness
of PLCC, and as such could not "be compelled to
pay [Santia], unless the latter has exhausted all
the property of PLCC, and has resorted to all the
legal remedies against PLCC x x x."22
Aglibot is an accommodation party and
therefore liable to Santia
Section 185 of the Negotiable Instruments Law
defines a check as "a bill of exchange drawn on a
bank payable on demand," while Section 126 of
the said law defines a bill of exchange as "an
unconditional order in writing addressed by one
person to another, signed by the person giving it,
requiring the person to whom it is addressed to
pay on demand or at a fixed or determinable
future time a sum certain in money to order or to
The appellate court ruled that by issuing her own
post-dated checks, Aglibot thereby bound herself
personally and solidarily to pay Santia, and
dismissed her claim that she issued her said
checks in her official capacity as PLCCs manager
merely to guarantee the investment of Santia. It
noted that she could have issued PLCCs checks,

but instead she chose to issue her own checks,

drawn against her personal account with
Metrobank. It concluded that Aglibot intended to
personally assume the repayment of the loan,
pointing out that in her Counter-Affidavit, she
even admitted that she was personally indebted
to Santia, and only raised payment as her
defense, a clear admission of her liability for the
said loan.
The appellate court refused to give credence to
Aglibots claim that she had an understanding
with Santia that the checks would not be
presented to the bank for payment, but were to
be returned to her once she had made cash
payments for their face values on maturity. It
noted that Aglibot failed to present any proof that
she had indeed paid cash on the above checks as
she claimed. This is precisely why Santia decided
to deposit the checks in order to obtain payment
of his loan.
The facts below present a clear situation where
Aglibot, as the manager of PLCC, agreed to
accommodate its loan to Santia by issuing her
own post-dated checks in payment thereof. She is
what the Negotiable Instruments Law calls an
accommodation party.23 Concerning the liability of
an accommodation party, Section 29 of the said
law provides:
Sec. 29. Liability of an accommodation party.
An accommodation party is one who has signed
the instrument as maker, drawer, acceptor, or
indorser, without receiving value therefor, and for
the purpose of lending his name to some other
person. Such a person is liable on the instrument
to a holder for value notwithstanding such holder
at the time of taking the instrument knew him to
be only an accommodation party.
As elaborated in The Phil. Bank of Commerce v.
An accommodation party is one who has signed
the instrument as maker, drawer, indorser,
without receiving value therefor and for the
purpose of lending his name to some other
person. Such person is liable on the instrument to
a holder for value, notwithstanding such holder,
at the time of the taking of the instrument knew
him to be only an accommodation party. In
lending his name to the accommodated party, the

accommodation party is in effect a surety for the

latter. He lends his name to enable the
accommodated party to obtain credit or to raise
money. He receives no part of the consideration
for the instrument but assumes liability to the
other parties thereto because he wants to
accommodate another. x x x.25 (Citation omitted)
The relation between an accommodation party
and the party accommodated is, in effect, one of
principal and surety the accommodation party
being the surety. It is a settled rule that a surety
is bound equally and absolutely with the principal
and is deemed an original promisor and debtor
from the beginning. The liability is immediate and
direct.26 It is not a valid defense that the
accommodation party did not receive any
valuable consideration when he executed the
instrument; nor is it correct to say that the holder
for value is not a holder in due course merely
because at the time he acquired the instrument,
he knew that the indorser was only an
accommodation party.271wphi1
Moreover, it was held in Aruego that unlike in a
contract of suretyship, the liability of the
accommodation party remains not only primary
but also unconditional to a holder for value, such
that even if the accommodated party receives an
extension of the period for payment without the
consent of the accommodation party, the latter is
still liable for the whole obligation and such
extension does not release him because as far as
a holder for value is concerned, he is a solidary
The mere fact, then, that Aglibot issued her own
checks to Santia made her personally liable to the
latter on her checks without the need for Santia
to first go after PLCC for the payment of its
loan.28 It would have been otherwise had it been
shown that Aglibot was a mere guarantor, except
that since checks were issued ostensibly in
payment for the loan, the provisions of the
Negotiable Instruments Law must take primacy in
WHEREFORE, premises considered, the Petition
for Review on Certiorari is DENIED and the
Decision dated March 18, 2008 of the Court of
Appeals in CA-G.R. SP No. I 00021 is
hereby AFFIRMED.

Branch 96, of Quezon City, in Civil Case No. Q-0145041, granting the motion for summary
judgment filed by respondent Pyramid
Construction and Engineering Corporation and
declaring petitioner Benjamin Bitanga and his
wife, Marilyn Bitanga (Marilyn), solidarily liable to
pay P6,000,000.000 to respondent; and (2) the
Resolution4 dated 5 July 2006 of the appellate
court in the same case denying petitioners
Motion for Reconsideration.
The generative facts are:
On 6 September 2001, respondent filed with the
RTC a Complaint for specific performance and
damages with application for the issuance of a
writ of preliminary attachment against the
petitioner and Marilyn. The Complaint was
docketed as Civil Case No. Q-01-45041.

G.R. No. 173526

August 28, 2008

BENJAMIN BITANGA, petitioner, vs.

CORPORATION, respondent.
Assailed in this Petition for Review under Rule
451 of the Revised Rules of Court are: (1) the
Decision2 dated 11 April 2006 of the Court of
Appeals in CA-G.R. CV No. 78007 which affirmed
with modification the partial Decision3 dated 29
November 2002 of the Regional Trial Court (RTC),

Respondent alleged in its Complaint that on 26

March 1997, it entered into an agreement with
Macrogen Realty, of which petitioner is the
President, to construct for the latter the Shoppers
Gold Building, located at Dr. A. Santos Avenue
corner Palayag Road, Sucat, Paraaque City.
Respondent commenced civil, structural, and
architectural works on the construction project by
May 1997. However, Macrogen Realty failed to
settle respondents progress billings. Petitioner,
through his representatives and agents, assured
respondent that the outstanding account of
Macrogen Realty would be paid, and requested
respondent to continue working on the
construction project. Relying on the assurances
made by petitioner, who was no less than the
President of Macrogen Realty, respondent
continued the construction project.
In August 1998, respondent suspended work on
the construction project since the conditions that
it imposed for the continuation thereof, including
payment of unsettled accounts, had not been
complied with by Macrogen Realty. On 1
September 1999, respondent instituted with the
Construction Industry Arbitration Commission
(CIAC) a case for arbitration against Macrogen
Realty seeking payment by the latter of its unpaid
billings and project costs. Petitioner, through
counsel, then conveyed to respondent his
purported willingness to amicably settle the
arbitration case. On 17 April 2000, before the
arbitration case could be set for trial, respondent

and Macrogen Realty entered into a Compromise

Agreement,5 with petitioner acting as signatory
for and in behalf of Macrogen Realty. Under the
Compromise Agreement, Macrogen Realty agreed
to pay respondent the total amount
ofP6,000,000.00 in six equal monthly
installments, with each installment to be
delivered on the 15th day of the month, beginning
15 June 2000. Macrogen Realty also agreed that if
it would default in the payment of two successive
monthly installments, immediate execution could
issue against it for the unpaid balance, without
need of judgment or decree from any court or
tribunal. Petitioner guaranteed the obligations of
Macrogen Realty under the Compromise
Agreement by executing a Contract of
Guaranty6 in favor of respondent, by virtue of
which he irrevocably and unconditionally
guaranteed the full and complete payment of the
principal amount of liability of Macrogen Realty in
the sum ofP6,000,000.00. Upon joint motion of
respondent and Macrogen Realty, the CIAC
approved the Compromise Agreement on 25 April
However, contrary to petitioners assurances,
Macrogen Realty failed and refused to pay all the
monthly installments agreed upon in the
Compromise Agreement. Hence, on 7 September
2000, respondent moved for the issuance of a
writ of execution8 against Macrogen Realty, which
CIAC granted.
On 29 November 2000, the sheriff9 filed a return
stating that he was unable to locate any property
of Macrogen Realty, except its bank deposit
of P20,242.33, with the Planters Bank, Buendia
Respondent then made, on 3 January 2001, a
written demand10 on petitioner, as guarantor of
Macrogen Realty, to pay the P6,000,000.00, or to
point out available properties of the Macrogen
Realty within the Philippines sufficient to cover
the obligation guaranteed. It also made verbal
demands on petitioner. Yet, respondents
demands were left unheeded.
Thus, according to respondent, petitioners
obligation as guarantor was already due and
demandable. As to Marilyns liability, respondent
contended that Macrogen Realty was owned and
controlled by petitioner and Marilyn and/or by

corporations owned and controlled by them.

Macrogen Realty is 99% owned by the Asian
Appraisal Holdings, Inc. (AAHI), which in turn is
99% owned by Marilyn. Since the completion of
the construction project would have redounded to
the benefit of both petitioner and Marilyn and/or
their corporations; and considering, moreover,
Marilyns enormous interest in AAHI, the
corporation which controls Macrogen Realty,
Marilyn cannot be unaware of the obligations
incurred by Macrogen Realty and/or petitioner in
the course of the business operations of the said
Respondent prayed in its Complaint that the RTC,
after hearing, render a judgment ordering
petitioner and Marilyn to comply with their
obligation under the Contract of Guaranty by
paying respondent the amount of P6,000,000.000
(less the bank deposit of Macrogen Realty with
Planters Bank in the amount of P20,242.23)
and P400,000.000 for attorneys fees and
expenses of litigation. Respondent also sought
the issuance of a writ of preliminary attachment
as security for the satisfaction of any judgment
that may be recovered in the case in its favor.
Marilyn filed a Motion to Dismiss,11 asserting that
respondent had no cause of action against her,
since she did not co-sign the Contract of
Guaranty with her husband; nor was she a party
to the Compromise Agreement between
respondent and Macrogen Realty. She had no part
at all in the execution of the said contracts. Mere
ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock
of another corporation is not by itself a sufficient
ground for disregarding the separate personality
of the latter corporation. Respondent misread
Section 4, Rule 3 of the Revised Rules of Court.
The RTC denied Marilyns Motion to Dismiss for
lack of merit, and in its Order dated 24 January
2002 decreed that:
The Motion To Dismiss Complaint Against
Defendant Marilyn Andal Bitanga filed on
November 12, 2001 is denied for lack of
merit considering that Sec. 4, Rule 3, of
the Rules of Court (1997) specifically
provides, as follows:

"SEC. 4. Spouses as parties.

Husband and wife shall sue or be
sued jointly, except as provided by
and that this case does not come within
the exception.12
Petitioner filed with the RTC on 12 November
2001, his Answer13 to respondents Complaint
averring therein that he never made
representations to respondent that Macrogen
Realty would faithfully comply with its obligations
under the Compromise Agreement. He did not
offer to guarantee the obligations of Macrogen
Realty to entice respondent to enter into the
Compromise Agreement but that, on the contrary,
it was respondent that required Macrogen Realty
to offer some form of security for its obligations
before agreeing to the compromise. Petitioner
further alleged that his wife Marilyn was not
aware of the obligations that he assumed under
both the Compromise Agreement and the
Contract of Guaranty as he did not inform her
about said contracts, nor did he secure her
consent thereto at the time of their execution.
As a special and affirmative defense, petitioner
argued that the benefit of excussion was still
available to him as a guarantor since he had set it
up prior to any judgment against him. According
to petitioner, respondent failed to exhaust all
legal remedies to collect from Macrogen Realty
the amount due under the Compromise
Agreement, considering that Macrogen Realty still
had uncollected credits which were more than
enough to pay for the same. Given these premise,
petitioner could not be held liable as guarantor.
Consequently, petitioner presented his
counterclaim for damages.
At the pre-trial held on 5 September 2002, the
parties submitted the following issues for the
resolution of the RTC:
(1) whether the defendants were liable
under the contract of guarantee dated
April 17, 2000 entered into between
Benjamin Bitanga and the plaintiff;
(2) whether defendant wife Marilyn
Bitanga is liable in this action;

(3) whether the defendants are entitled to

the benefit of excussion, the plaintiff on
the one hand claiming that it gave due
notice to the guarantor, Benjamin Bitanga,
and the defendants contending that no
proper notice was received by Benjamin
(4) if damages are due, which party is
liable; and
(5) whether the benefit of excussion can
still be invoked by the defendant
guarantor even after the notice has been
allegedly sent by the plaintiff although
proper receipt is denied.14
On 20 September 2002, prior to the trial proper,
respondent filed a Motion for Summary
Judgment.15Respondent alleged therein that it
was entitled to a summary judgment on account
of petitioners admission during the pre-trial of
the genuineness and due execution of the
Contract of Guaranty. The contention of petitioner
and Marilyn that they were entitled to the benefit
of excussion was not a genuine issue. Respondent
had already exhausted all legal remedies to
collect from Macrogen Realty, but its efforts
proved unsuccessful. Given that the inability of
Macrogen Realty as debtor to pay the amount of
its debt was already proven by the return of the
writ of execution to CIAC unsatisfied, the liability
of petitioner as guarantor already arose.16 In any
event, petitioner and Marilyn were deemed to
have forfeited their right to avail themselves of
the benefit of excussion because they failed to
comply with Article 206017 of the Civil Code when
petitioner ignored respondents demand letter
dated 3 January 2001 for payment of the amount
he guaranteed.18 The duty to collect the supposed
receivables of Macrogen Realty from its creditors
could not be imposed on respondent, since
petitioner and Marilyn never informed respondent
about such uncollected credits even after receipt
of the demand letter for payment. The allegation
of petitioner and Marilyn that they could not
respond to respondents demand letter since they
did not receive the same was unsubstantiated
and insufficient to raise a genuine issue of fact
which could defeat respondents Motion for
Summary Judgment. The claim that Marilyn never
participated in the transactions that culminated in

petitioners execution of the Contract of Guaranty

was nothing more than a sham.

which the RTC denied in an Order dated 26

January 2003.21

In opposing respondents foregoing Motion for

Summary Judgment, petitioner and Marilyn
countered that there were genuinely disputed
facts that would require trial on the merits. They
appended thereto an affidavit executed by
petitioner, in which he declared that his spouse
Marilyn could not be held personally liable under
the Contract of Guaranty or the Compromise
Agreement, nor should her share in the conjugal
partnership be made answerable for the guaranty
petitioner assumed, because his undertaking of
the guaranty did not in any way redound to the
benefit of their family. As guarantor, petitioner
was entitled to the benefit of excussion, and he
did not waive his right thereto. He never received
the respondents demand letter dated 3 January
2001, as Ms. Dette Ramos, the person who
received it, was not an employee of Macrogen
Realty nor was she authorized to receive the
letter on his behalf. As a guarantor, petitioner
could resort to the benefit of excussion at any
time before judgment was rendered against
him.19 Petitioner reiterated that Macrogen Realty
had uncollected credits which were more than
sufficient to satisfy the claim of respondent.

In time, petitioner and Marilyn filed an appeal

with the Court of Appeals, docketed as CA-G.R.
CV 78007. In its Decision dated 11 April 2006, the
appellate court held:

On 29 November 2002, the RTC rendered a partial

Decision, the dispositive portion of which
WHEREFORE, summary judgment is
rendered ordering defendants SPOUSES
BITANGA to pay the [herein respondent],
jointly and severally, the amount
of P6,000,000.00, less P20,242.23
(representing the amount garnished bank
deposit of MACROGEN in the Planters
Bank, Buendia Branch); and the costs of
Within 10 days from receipt of this partial
decision, the [respondent] shall inform the
Court whether it shall still pursue the rest
of the claims against the defendants.
Otherwise, such claims shall be considered
Petitioner and Marilyn filed a Motion for
Reconsideration of the afore-quoted Decision,


THUS, the judgment appealed from must
be, as it hereby is, MODIFIED to the effect
that defendant-appellant Marilyn Bitanga
is adjudged not liable, whether solidarily
or otherwise, with her husband the
defendant-appellant Benjamin Bitanga,
under the compromise agreement or the
contract of guaranty. No costs in this
In holding that Marilyn Bitanga was not liable, the
Court of Appeals cited Ramos v. Court of
Appeals,23 in which it was declared that a contract
cannot be enforced against one who is not a
party to it. The Court of Appeals stated further
that the substantial ownership of shares in
Macrogen Realty by Marilyn Bitanga was not
enough basis to hold her liable.
The Court of Appeals, in its Resolution dated 5
July 2006, denied petitioners Motion for
Reconsideration24 of its earlier Decision.
Petitioner is now before us via the present
Petition with the following assignment of errors:


2060, 2061, AND 2062 OF THE CIVIL CODE
As in the two courts below, it is petitioners
position that summary judgment is improper in
Civil Case No. Q-01-45041 because there are
genuine issues of fact which have to be threshed
out during trial, to wit:
(A) Whether or not there was proper
service of notice to petitioner considering
the said letter of demand was allegedly
received by one Dette Ramos at Macrogen
office and not by him at his residence.
(B) Whether or not petitioner is entitled to
the benefit of excussion?26
We are not persuaded by petitioners arguments.
Rule 35 of the Revised Rules of Civil Procedure
Section 1. Summary judgment for
claimant. A party seeking to recover
upon a claim, counterclaim, or cross-claim
or to obtain a declaratory relief may, at
any time after the pleading in answer
thereto has been served, move with
supporting affidavits, depositions or
admissions for a summary judgment in his
favor upon all or any part thereof.
For a summary judgment to be proper, the
movant must establish two requisites: (a) there
must be no genuine issue as to any material fact,
except for the amount of damages; and (b) the
party presenting the motion for summary
judgment must be entitled to a judgment as a
matter of law. Where, on the basis of the
pleadings of a moving party, including documents
appended thereto, no genuine issue as to a
material fact exists, the burden to produce a
genuine issue shifts to the opposing party. If the
opposing party fails, the moving party is entitled
to a summary judgment.27
In a summary judgment, the crucial question is:
are the issues raised by the opposing party not
genuine so as to justify a summary judgment?28

First off, we rule that the issue regarding the

propriety of the service of a copy of the demand
letter on the petitioner in his office is a sham
issue. It is not a bar to the issuance of a summary
judgment in respondents favor.
A genuine issue is an issue of fact which requires
the presentation of evidence as distinguished
from an issue which is a sham, fictitious,
contrived or false claim. To forestall summary
judgment, it is essential for the non-moving party
to confirm the existence of genuine issues, as to
which he has substantial, plausible and fairly
arguable defense, i.e.,29 issues of fact calling for
the presentation of evidence upon which
reasonable findings of fact could return a verdict
for the non-moving party, although a mere
scintilla of evidence in support of the party
opposing summary judgment will be insufficient
to preclude entry thereof.
Significantly, petitioner does not deny the receipt
of the demand letter from the respondent. He
merely raises a howl on the impropriety of service
thereof, stating that "the address to which the
said letter was sent was not his residence but the
office of Macrogen Realty, thus it cannot be
considered as the correct manner of conveying a
letter of demand upon him in his personal
Section 6, Rule 13 of the Rules of Court states:
SEC. 6. Personal service. Service of the
papers may be made by delivering
personally a copy to the party or his
counsel, or by leaving it in his office
with his clerk or with a person having
charge thereof. If no person is found in
his office, or his office is not known, or he
has no office, then by leaving the copy,
between the hours of eight in the morning
and six in the evening, at the partys or
counsels residence, if known, with a
person of sufficient age and discretion
then residing therein.
The affidavit of Mr. Robert O. Pagdilao, messenger
of respondents counsel states in part:
2. On 4 January 2001, Atty. Jose Vicente B.
Salazar, then one of the Associates of the
ACCRA Law Offices, instructed me to

deliver to the office of Mr. Benjamin

Bitanga a letter dated 3 January 2001,
pertaining to Construction Industry
Arbitration Commission (hereafter, "CIAC")
Case No. 99-56, entitled "Pyramid
Construction Engineering Corporation vs.
Macrogen Realty Corporation."

Moreover, under Section 6, Rule 13 of the Rules of

Court, there is sufficiency of service when the
papers, or in this case, when the demand letter is
personally delivered to the party or his counsel,
or by leaving it in his office with his clerk or
with a person having charge thereof, such as
what was done in this case.

3. As instructed, I immediately proceeded

to the office of Mr. Bitanga located at the
12th Floor, Planters Development Bank
Building, 314 Senator Gil Puyat
Avenue, Makati City. I delivered the said
letter to Ms. Dette Ramos, a person of
sufficient age and discretion, who
introduced herself as one of the
employees of Mr. Bitanga and/or of the
latters companies.31 (Emphasis supplied.)

We have consistently expostulated that in

summary judgments, the trial court can
determine a genuine issue on the basis of the
pleadings, admissions, documents, affidavits or
counter affidavits submitted by the parties. When
the facts as pleaded appear uncontested or
undisputed, then there is no real or genuine issue
or question as to any fact, and summary
judgment is called for.35
The Court of Appeals was correct in holding that:

We emphasize that when petitioner signed the

Contract of Guaranty and assumed obligation as
guarantor, his address in the said contract was
the same address where the demand letter was
served.32 He does not deny that the said place of
service, which is the office of Macrogen, was also
the address that he used when he signed as
guarantor in the Contract of Guaranty. Nor does
he deny that this is his office address; instead, he
merely insists that the person who received the
letter and signed the receiving copy is not an
employee of his company. Petitioner could have
easily substantiated his allegation by a
submission of an affidavit of the personnel
manager of his office that no such person is
indeed employed by petitioner in his office, but
that evidence was not submitted.33All things are
presumed to have been done correctly and with
due formality until the contrary is proved.
This juris tantum presumption stands even
against the most well-reasoned allegation
pointing to some possible irregularity or
anomaly.34 It is petitioners burden to overcome
the presumption by sufficient evidence, and so
far we have not seen anything in the record to
support petitioners charges of anomaly beyond
his bare allegation. Petitioner cannot now be
heard to complain that there was an irregular
service of the demand letter, as it does not
escape our attention that petitioner himself
indicated "314 Sen. Gil Puyat Avenue, Makati
City" as his office address in the Contract of

Here, the issue of non-receipt of the letter

of demand is a sham or pretended issue,
not a genuine and substantial issue.
Indeed, against the positive assertion of
Mr. Roberto O. Pagdilao (the private
courier) in his affidavit that he delivered
the subject letter to a certain Ms. Dette
Ramos who introduced herself as one of
the employees of [herein petitioner] Mr.
Benjamin Bitanga and/or of the latters
companies, said [petitioner] merely
offered a bare denial. But bare denials,
unsubstantiated by facts, which would be
admissible in evidence at a hearing, are
not sufficient to raise a genuine issue of
fact sufficient to defeat a motion for
summary judgment.36
We further affirm the findings of both the RTC and
the Court of Appeals that, given the settled facts
of this case, petitioner cannot avail himself of the
benefit of excussion.
Under a contract of guarantee, the guarantor
binds himself to the creditor to fulfill the
obligation of the principal debtor in case the
latter should fail to do so. The guarantor who
pays for a debtor, in turn, must be indemnified by
the latter. However, the guarantor cannot be
compelled to pay the creditor unless the latter
has exhausted all the property of the debtor and
resorted to all the legal remedies against the

debtor. This is what is otherwise known as the

benefit of excussion.37

Art. 2059. This excussion shall not take


Article 2060 of the Civil Code reads:


Art. 2060. In order that the guarantor may

make use of the benefit of excussion, he
must set it up against the creditor upon
the latters demand for payment from him,
and point out to the creditor available
property of the debtor within Philippine
territory, sufficient to cover the amount of
the debt.38
The afore-quoted provision imposes a condition
for the invocation of the defense of excussion.
Article 2060 of the Civil Code clearly requires that
in order for the guarantor to make use of the
benefit of excussion, he must set it up against the
creditor upon the latters demand for payment
and point out to the creditor available property of
the debtor within the Philippines sufficient to
cover the amount of the debt.39
It must be stressed that despite having been
served a demand letter at his office, petitioner
still failed to point out to the respondent
properties of Macrogen Realty sufficient to cover
its debt as required under Article 2060 of the Civil
Code. Such failure on petitioners part forecloses
his right to set up the defense of excussion.
Worthy of note as well is the Sheriffs return
stating that the only property of Macrogen Realty
which he found was its deposit of P20,242.23 with
the Planters Bank.
Article 2059(5) of the Civil Code thus finds
application and precludes petitioner from
interposing the defense of excussion. We quote:

(5) If it may be presumed that an

execution on the property of the principal
debtor would not result in the satisfaction
of the obligation.
As the Court of Appeals correctly ruled:
We find untenable the claim that the
[herein petitioner] Benjamin Bitanga
cannot be compelled to pay Pyramid
because the Macrogen Realty has
allegedly sufficient assets. Reason: The
said [petitioner] had not genuinely
controverted the return made by Sheriff
Joseph F. Bisnar, who affirmed that, after
exerting diligent efforts, he was not able to
locate any property belonging to the
Macrogen Realty, except for a bank
deposit with the Planters Bank at
Buendia, in the amount of P20,242.23. It is
axiomatic that the liability of the
guarantor arises when the insolvency or
inability of the debtor to pay the amount
of debt is proven by the return of the writ
of execution that had not been
WHEREFORE, premises considered, the instant
petition is DENIED for lack of merit. The Decision
of the Court of Appeals dated 11 April 2006 and
its Resolution dated 5 July 2006 are AFFIRMED.
Costs against petitioner.