Navoa and Navoa vs CA

FACTS: On December 1977 Teresita Domdoma and Eduardo Domdoma filed a case with the RTC for collection
of various sums of money based on loans given by them to Olivia Navoa. They cased was dismissed on the
ground that there was no cause of action and that the Domdomas do not have no capacity to sue. They
appealed to the C.A. and was granted a favourable decision.

There were 6 instances in which the Domdomas gave Olivia Navoa a loan. The first instance is when Teresita
gave Olivia a diamond ring valued at 15,000.00 which was secured by a PCIB check under the condition that if
the ring was not returned within 15 days from August 15, 1977 the ring is considered sold. Teresita attempted
to deposit the check on November 1977 but the check was not honoured for lack of funds. After this instance,
there were other loans of various amounts that were extended by Teresita to Olivia, loans which were secured
by PCIB checks, which were all dated to 1 month after the loan. All these checks were not honoured under the
same reason as the first loan.

ISSUE: Was the decision of the RTC to dismiss the case due to having no cause of action valid?

DOCTRINE: Security- A means of ensuring the enforcement of an obligation or of protecting some interest in
property. It may be personal or property security.
Cause of Action- is the fact or combination of facts which affords a party a right to judicial interference in his
behalf. The requisites for a cause of action are: (a) a right in favour of the plaintiff by whatever means and under
whatever law it arises or created, (b) an obligation on the part of the defendant to respect and not to violate
such right; and, (c) an act or omission on the part of the defendant constituting a violation of the plaintiffs right
or breach of the obligation of the defendant to the plaintiff.

HELD:
- NO, A cause of action is the fact or combination of facts which affords a party a right to judicial interference in
his behalf.
- For the first loan it is a fact, that the ring was considered sold to Olivia Navoa 15 days after August 15, 1977,
and even then, Olivia Navoa failed to pay the price for the ring when the payment was due (check issued was
not honoured. Thus it is confirmed that Teresitas right under the agreement was violated.
- As for the other loans extended by Teresita to Olivia, they were all secured by PCIB checks. It can be inferred
that since the checks were all dated to 1 month after the loan, it follows that the loans are then payable 1 month
after they were contracted, and also these checks were dishonoured by the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make good the checks that were issued as payment for their obligations. Art
1169 of the Civil Code is explicit: those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extra-judicially demands from them the fulfilment of the obligations, the continuing refusal
of Olivia and Ernesto Navoa to comply with the demand of payment shows the existence of a cause of action.

Constantino vs Cuisia

FACTS: During the Aquino regime, her administration came up w/ a scheme to reduce the countrys external
debt. The solution resorted to was to incur foreign debts. Three restructuring programs were sought to initiate
the program for foreign debts they are basically buyback programs & bond-conversion programs). Constantino
as a taxpayer and in behalf of his minor children who are Filipino citizens, together w/ FFDC averred that the
buyback and bond-conversion schemes are onerous and they do not constitute the loan contract or
guarantee contemplated in Sec. 20, Art. 7 of the Constitution. And assuming that the President has such power
unlike other powers which may be validly delegated by the President, the power to incur foreign debts is
expressly reserved by the Constitution in the person of the President. They argue that the gravity by which the
exercise of the power will affect the Filipino nation requires that the President alone must exercise this power.
They argue that the requirement of prior concurrence of an entity specifically named by the Constitutionthe
Monetary Boardreinforces the submission that not respondents but the President alone and personally can
validly bind the country. Hence, they would like Cuisia et al to stop acting pursuant to the scheme.

ISSUE: Whether or not the president can validly delegate her debt power to the respondents.
HELD: There is no question that the president has borrowing powers and that the president may contract or
guarantee foreign loans in behalf of this country w/ prior concurrence of the Monetary Board. It makes no
distinction whatsoever and the fact that a debt or a loan may be onerous is irrelevant. On the other hand, the
president can delegate this power to her direct subordinates. The evident exigency of having the Secretary of
Finance implement the decision of the President to execute the debt-relief contracts is made manifest by the
fact that the process of establishing and executing a strategy for managing the governments debt is deep within
the realm of the expertise of the Department of Finance, primed as it is to raise the required amount of funding,
achieve its risk and cost objectives, and meet any other sovereign debt management goals. If the President were
to personally exercise every aspect of the foreign borrowing power, he/she would have to pause from running
the country long enough to focus on a welter of time-consuming detailed activitiesthe propriety of
incurring/guaranteeing loans, studying and choosing among the many methods that may be taken toward this
end, meeting countless times with creditor representatives to negotiate, obtaining the concurrence of the
Monetary Board, explaining and defending the negotiated deal to the public, and more often than not, flying to
the agreed place of execution to sign the documents. This sort of constitutional interpretation would negate the
very existence of cabinet positions and the respective expertise which the holders thereof are accorded and
would unduly hamper the Presidents effectivity in running the government. The act of the respondents are not
unconstitutional.

Exception
There are certain acts which, by their very nature, cannot be validated by subsequent approval or ratification
by the President. There are certain constitutional powers and prerogatives of the Chief Executive of the Nation
which must be exercised by him in person and no amount of approval or ratification will validate the exercise of
any of those powers by any other person. Such, for instance, in his power to suspend the writ of habeas corpus
and proclaim martial law and the exercise by him of the benign prerogative of pardon (mercy).

There are certain presidential powers which arise out of exceptional circumstances, and if exercised, would
involve the suspension of fundamental freedoms, or at least call for the supersedence of executive prerogatives
over those exercised by co-equal branches of government. The declaration of martial law, the suspension of the
writ of habeas corpus, and the exercise of the pardoning power notwithstanding the judicial determination of
guilt of the accused, all fall within this special class that demands the exclusive exercise by the President of the
constitutionally vested power. The list is by no means exclusive, but there must be a showing that the executive
power in question is of similar gravitas and exceptional import.

ACME Shoe, Rubber and Plastic Corp and Chua Pac vs CA

FACTS: Petitioner Chua Pac, the president and general manager of co-petitioner of ACME, executed on June 27,
1978, for and in behalf of the company, a chattel mortgage in favor of private respondent Producers Bank of
the Philippines. The mortgage stood by way of security for petitioners loan of P3, 000,000.00.
A provision in the chattel mortgage agreement was to this effect
"(c) If the MORTGAGOR, his heirs, executors or administrators shall well and truly perform the full
obligation or obligations above-stated according to the terms thereof, and then this mortgage shall be
null and void. x x x.

"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on
Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind
and nature, whether such obligations have been contracted before, during or after the constitution of
this mortgage."
In due time, the loan was paid by petitioner corporation. In 1981, it obtained from respondent bank additional
financial accommodations totaling P2, 700,000.00. On 1984, the bank extended to petitioner a loan of P1,
000,000.00 covered by four promissory notes for P250, 000.00 each. Due to financial constraints, the loan was
not settled at maturity. Respondent bank applied for the foreclosure of the chattel mortgage, with Sheriff of
Caloocan City, prompting petitioner to file an action for injunction. The Court dismissed the complaint and
ordered foreclosure. Petitioner filed MR to CA, but the latter denied.

ISSUE: Would it be valid and effective to have a clause in a chattel mortgage that purports to likewise extend
its coverage to obligations yet to be contracted or incurred?

DOCTRINE: While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted.

HELD: NO. A mortgage that contains a stipulation in regard to future advances in the credit will take effect only
from the date the same are made and not from the date of the mortgage.

The significance of the ruling to the instant problem would be that since the 1978 chattel mortgage had ceased
to exist coincidentally with the full payment of the P3, 000,000.00 loans, there no longer was any chattel
mortgage that could cover the new loans that were concluded thereafter.

A chattel mortgage can only cover obligations existing at the time the mortgage is constituted. Although a
promise expressed in a chattel mortgage to include debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding
a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law.

In the chattel mortgage here involved, the only obligation specified in the chattel mortgage contract was the
P3,000,000.00 loan which petitioner corporation later fully paid. By virtue of Section 3 of the Chattel Mortgage
Law, the payment of the obligation automatically rendered the chattel mortgage void or terminated.

Selegna Management and Development Corp vs UCPB

FACTS: On September 19, 1995, spouses Edgardo and Zenaida Angeles and Selegna Mgmt. acquired a P70
Million loan from UCPB. As security for the loan, Angeles executed a real estate mortgage of their properties in
Muntinlupa, Antipolo, Las Pias, Quezon and some condo units in Makati. They also executed a promissory
note in favor of UCPB. Later, Angeles increased the loan amount to P103 Million with a 21% interest rate per
annum which was to mature on March 26, 1999.

UCPB and Angeles agreed in their Credit Agreement that failure to pay any availment of the accommodation or
interest or any sum due constitutes a default in payment which would render the loan amount immediately due
in full (this is the Acceleration Clause).

Eventually, in 1999, Angeles went into default and their loan ballooned to P132 M. UCPB sent them demand
letters. In response, Angeles paid about P10 M in interest at the same time they asked for a 60 day period to
restructure the loan.

UCPB accepted the P10 M payment but was unsatisfied hence they filed for extrajudicial foreclosure. Angeles
filed for a TRO to forestall the foreclosure. It was not granted because they failed to show any irreparable
damage that may be caused them by reason of the foreclosure. Upon Motion for Reconsideration, Angeles
petition was granted but was later lifted. The foreclosure went on on some of the properties in Antipolo. Angeles
claimed they were not given by UCPB any clear accounting on these.

The case was re-raffled anew in another RTC which later reinstated the injunction. UCPB filed an appeal with
the CA. The CA affirmed the RTC. UCPB filed for reconsideration which was eventually granted.
In the main, Angeles averred that they have a clear right to injunction based on the fact that UCPB never
explained how the loan went up to P132 M; that UCPB refused to give them a detailed accounting of the partial
foreclosure and that they gave a P10 M payment which prevented the determination of the maturity of the
obligation.

ISSUE: Whether or not Angeles has a right to forestall the foreclosure.

HELD: No. Angeles is clearly in default per provisions laid down in their Credit Agreement with UCPB which is
the binding law between the parties. In fact, the parties stipulated in their credit agreements, mortgage
contracts and promissory notes that respondent was authorized to foreclose on the mortgages, in case of a
default by petitioners. That this authority was granted is not disputed.

There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated;
second, the debtor delays performance; third, the creditor judicially or extrajudicially requires the debtors
performance. All three were present in this case.

The 1st requisite is present notwithstanding a detailed accounting of the partially foreclosed properties. A debt
is liquidated when the amount is known or is determinable by inspection of the terms and conditions of the
relevant promissory notes and related documentation. Failure to furnish a debtor a detailed statement of
account does not ipso facto result in an unliquidated obligation.

It is in fact clear from the agreement of the parties that when the payment is accelerated due to an event of
default, the penalty charge shall be based on the total principal amount outstanding, to be computed from the
date of acceleration until the obligation is paid in full. Their Credit Agreement even provides for the application
of payments. It appears from the agreements that the amount of total obligation is known or, at the very least,
determinable.

Further, in the Real Estate Mortgage agreement between the parties (in the Event of Default clause), Angeles
granted UCPB the right to extrajudicially foreclose the properties mortgaged which secured the loan/obligation.

Transfield Philippines Inc vs Luzon Hydro Corp

FACTS: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp. (LHC).Under
the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos. Transfield was given the
sole responsibility for the design, construction, commissioning, testing and completion of the Project. The
contract provides for a period for which the project is to be completed and also allows for the extension of the
period provided that the extension is based on justifiable grounds such as fortuitous event. In order to guarantee
performance by Transfield, two stand-by letters of credit were required to be opened. During the construction
of the plant, Transfield requested for extension of time citing typhoon and various disputes delaying the
construction. LHC did not give due course to the extension of the period prayed for but referred the matter to
arbitration committee. Because of the delay in the construction of the plant, LHC called on the stand-by letters
of credit because of default. However, the demand was objected by Transfield on the ground that there is still
pending arbitration on their request for extension of time.

ISSUE: Whether or not LHC can collect from the letters of credit despite the pending arbitration case

DOCTRINE: The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement like for
instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial
letter of credit or repayment standby, which is identical with the same obligations under the underlying
agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment
of the credit would constitute fraudulent abuse of the credit.

HELD: Transfields argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would
convert the letter of credit into a mere guarantee.

Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement
of a dispute between the parties is not a pre-requisite for the release of funds under a letter of credit. In other
words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable
only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there
would be no practical and beneficial use for letters of credit in commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the
required documents are presented to it. The so-called independence principle assures the seller or the
beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank
from determining whether the main contract is actually accomplished or not. Under this principle, banks assume
no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any
documents, or for the general and/or particular conditions stipulated in the documents or superimposed
thereon, nor do they assume any liability or responsibility for the description, quantity, weight, quality,
condition, packing, delivery, value or existence of the goods represented by any documents, or for the good
faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers
of the goods, or any other person whomsoever.

Feati Bank and Trust Company vs CA and Villaluz

FACTS: Bernardo Villaluz entered into a contract of sale with Axel Christiansen in which Villaluz agreed to deliver
to Christiansen 2,000 cubic meters of lauan logs at $27.00 per cubic meter FOB. On the arrangements made and
upon the instructions of consignee, Hanmi Trade Development, Ltd., the Security Pacific National Bank of Los
Angeles, California issued an irrevocable letter of credit available at sight in favor of Villaluz for the sum of
$54,000.00, the total purchase price of the lauan logs.

The letter of credit was mailed to the Feati Bank and Trust Company with the instruction to the latter that it
forward the enclosed letter of credit to the beneficiary. The letter of credit also provided that the draft to be
drawn is on Security Pacific National Bank and that it be accompanied by certain documents. The logs were
thereafter loaded on a vessel but Christiansen refused to issue the certification required in paragraph 4 of the
letter of credit, despite repeated requests by the private respondent. The logs however were still shipped and
received by consignee, to whom Christiansen sold the logs. Because of the absence of the certification by
Christiansen, the Feati Bank and Trust company refused to advance the payment on the letter of credit until
such credit lapsed. Since the demands by Villaluz for Christiansen to execute the certification proved futile, he
filed an action for mandamus and specific performance against Christiansen and Feati Bank and Trust Company
before the Court of First Instance of Rizal. Christiansen however left the Philippines and Villaluz filed an amended
complaint making Feati Bank and Trust Company.

ISSUE: Whether or not a correspondent bank is to be held liable under the letter of credit despite the non-
compliance by the beneficiary with the terms thereof.

DOCTRINE: It is settled rule in commercial transactions involving letters of credit that the documents tendered
must strictly conform to the terms of the letter of credit. The tender of documents by the beneficiary (seller)
must include all documents required by the letter of credit. A correspondent bank which departs from what has
been stipulated under the letter of credit, as when it accepts a faulty tender, acts on its own risks and it may not
thereafter be able to recover from the buyer or the issuing bank, as the case may be, the money thus paid to
the beneficiary. Thus, the rule of strict compliance.

The bank may only negotiate, accept or pay, if the documents tendered on it are on their face in accordance
with the terms and conditions of the documentary credit. And since a correspondent bank, like the petitioner,
principally deals only with documents, the absence of any document require in the documentary credit justifies
the refusal by the correspondent bank to negotiate, accept or pay the beneficiary, as it is not its obligation to
look beyond the documents. It merely has to rely on the completeness of the documents tendered by the
beneficiary.

HELD: NO. In commercial transactions involving letters of credit, the functions assumed by a correspondent
bank are classified according to the obligations taken up by it. The correspondent bank may be called a notifying
bank, a negotiating bank, or a confirming bank. In case of a notifying bank, the correspondent bank assumes no
liability except to notify and/or transmit to the beneficiary the existence of the letter of credit.
A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under the letter
of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it has no liability with
respect to the seller but after negotiation, a contractual relationship will then prevail between the negotiating
bank and the seller. In the case of a confirming bank, the correspondent bank assumes a direct obligation to the
seller and its liability is a primary one as if the correspondent bank itself had issued the letter of credit. In this
case, the letter merely provided that the petitioner forward the enclosed original credit to the beneficiary.
Considering the aforesaid instruction to the petitioner by the issuing bank, the Security Pacific National Bank, it
is indubitable that the petitioner is only a notifying bank and not a confirming bank as ruled by the courts below.
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is only
with that of the issuing bank and not with the beneficiary to whom he assumes no liability. It follows therefore
that when the petitioner refused to negotiate with the private respondent, the latter has no cause of action
against the petitioner for the enforcement of his rights under the letter.

Since the Feati was only a notifying bank, its responsibility was solely to notify and/or transmit the documentary
of credit to the private respondent and its obligation ends there. At the most, when the petitioner extended the
loan to the private respondent, it assumed the character of a negotiating bank. Even then, the petitioner will
still not be liable, for a negotiating bank before negotiation has no contractual relationship with the seller.
Whether therefore the petitioner is a notifying bank or a negotiating bank, it cannot be held liable. Absent any
definitive proof that it has confirmed the letter of credit or has actually negotiated with Feati, the refusal by the
petitioner to accept the tender of the private respondent is justified.

Colinares and Velasco vs CA

FACTS: Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of
P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latters convent at Camaman-an,
Cagayan de Oro City. Colinares applied for a commercial letter of credit with the Philippine Banking Corporation,
Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of credit
for P22,389.80 to cover the full invoice value of the goods. Petitioners signed a pro-forma trust receipt as
security.

PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan. After the initial payment,
the spouses defaulted. PBC wrote to Petitioners demanding that the amount be paid within seven days from
notice. Instead of complying with PBCs demand, Veloso confessed that they lost P19,195.83 in the Carmelite
Monastery Project and requested for a grace period of until 15 June 1980 to settle the account. Colinares
proposed that the terms of payment of the loan be modified P2,000 on or before 3 December 1980, and P1,000
per month . Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, and
thereafter P500 on 11 February 1981, 16 March 1981, and 20 April 1981. Concurrently with the separate
demand for attorneys fees by PBCs legal counsel, PBC continued to demand payment of the balance. On 14
January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to
Article 315 of the Revised Penal Code

During trial, petitioner Veloso insisted that the transaction was a clean loan as per verbal guarantee of Cayo
Garcia Tuiza, PBCs former manager. He and petitioner Colinares signed the documents without reading the fine
print, only learning of the trust receipt implication much later. When he brought this to the attention of PBC,
Mr. Tuiza assured him that the trust receipt was a mere formality. The Trust Receipts Law does not seek to
enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money
or goods to the prejudice of another regardless of whether the latter is the owner. Here, it is crystal clear that
on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts
issued by PBC acknowledging payment of the loan.

ISSUE: Whether or not the transaction of Colinares falls within the ambit of the Law on Trust Receipt

DOCTRINE: The ownership of the merchandise continues to be vested in the person who had 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 interest.
HELD: Colinares received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership
over the merchandise was already transferred to Petitioners who were to use the materials for their
construction project. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan to
pay for the merchandise. This situation belies what normally obtains in a pure trust receipt transaction where
goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan.

The bank acquires a security interest in the goods as holder of a security title for the advances it had made to
the entrustee. The ownership of the merchandise continues to be vested in the person who had 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 interest. To secure that
the bank shall be paid, it takes full title to the goods at the very beginning and continues to hold that title as his
indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the
importer has never owned the goods and is not able to deliver possession. In a certain manner, trust receipts
partake of the nature of a conditional sale where the importer becomes absolute owner of the imported
merchandise as soon as he has paid its price. There are two possible situations in a trust receipt transaction. The
first is covered by the provision which refers to money received under the obligation involving the duty to deliver
it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which refers to
merchandise received under the obligation to return it (devolvera) to the owner. Failure of the entrustee to
turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said
goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa
under Article 315 (1) of the Revised Penal Code, without need of proving intent to defraud.

Dinio and Uy vs CA and Metropolitan Bank and Trust Company

FACTS: In 1977, Uy Tiam Enterprises and Freight Services (UTEFS), thru its representative Uy Tiam,
applied for and obtained credit accommodations from Metrobank in the sum of Php700,000. This was
secured by Continuing Suretyships separately executed by petitioners Norberto Uy (who agreed to
payPhp300,000) and Jacinto Dio (who bound himself liable up to Php800,000). UyTiam paid the obligation
under this letter of credit in 1977. UTEFS obtained another credit accommodation in 1978, which was
likewise settled before he applied and obtained another in 1979 in the sum of Php815,600. This
sum covered UTEFS purchase of fertilizers from Planters Producst. Uy and Dio did not sign the application for
this credit and were not asked to execute suretyship or guarantee. UTEFS executed a trust receipt whereby it
agreed to deliver to Metrobank the goods in the event of non-sale, and if sold, the proceeds will be delivered to
Metrobank. However, UTEFS did not comply with its obligation. As a result, Metrobank demanded payment
from UTEFS and the sureties, Uy & Dio.The sureties refused to pay on the ground that the obligation
for which they executed the continuing suretyship agreement has been paid. RTC ruled in favor of the
petitioners, CA affirmed

ISSUE: WON petitioners are liable for payment of the 1979 transaction under thecontinuing suretyship
agreement they executed in 1977. Assuming that they are, what is the extent of their liability

HELD: The Supreme Court held that Uy & Dio are liable. The agreement they executed in 1977 is a continuing
suretyship, one which is not limited to a single transaction but which contemplates a succession of liabilities, for
which, as they accrue, the guarantor becomes liable. The agreement that petitioners signed expressly provided
that it is a continuing guaranty and shall be in full force and effect until written notice to the bank that it has
been revoked by the surety. As to the 2nd issue, petitioners are only liable up to the maximum limit fixed in
the continuing suretyship agreements (Php800,000 for Dio and Php300,000 for Uy). The law is clear that a
guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and
the onerous nature of the conditions (Art. 2054). CA decision ordering petitioners to pay P2,397,883.68 which
represents the amount due inclusive of interest and charges, is modified

Escano and Silas vs Ritague

FACTS: SURETIES hereby irrevocably agree and undertake to assume all of OBLIGORs said guaranties to PDCP
and PAIC

Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming that the
Undertaking did not provide for express solidarity.
 Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for the Undertaking,
as the language used in the agreement clearly shows that it is a surety agreement between the obligors
(Ortigas group) and the sureties (Escao group). Ortigas points out that the Undertaking uses the word
SURETIES in describing the parties.

ISSUE:

HELD: The Undertaking does not contain any express stipulation that the petitioners agreed to bind themselves
jointly and severally in their obligations to the Ortigas group, or any such terms to that effect. Hence, such
obligation established in the Undertaking is presumed only to be joint.

As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal
debtor. Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract.
It appears that Ortigass argument rests solely on the solidary nature of the obligation of the surety under Article
2047.
A suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation
of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does
bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the former to
collect the credit in lieu of proceeding against the principal debtor for the same obligation. At the same time,
there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or
party to. The moment the surety fully answers to the creditor for the obligation created by the principal debtor,
such obligation is extinguished. At the same time, the surety may seek reimbursement from the principal debtor
for the amount paid, for the surety does in fact become subrogated to all the rights and remedies of the
creditor.

Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidary obligations
to suretyship contracts. Article 1217 of the Civil Code thus comes into play, recognizing the right of
reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor of the one who paid (i.e.,
the surety).

Note: A guarantor who binds himself in solidum with the principal debtor under the provisions of the second
paragraph does not become a solidary co-debtor to all intents and purposes.

Tupaz IV and Tupaz vs CA and BPI

FACTS: Jose C. Tupaz IV - VP for Operations and Petronila C. Tupaz -VP/Treasurer of EL ORO Engraver
Corporation, entered into a contract with the AFP - Armed Forces Of The Philippines to supply the latter with
survival bolos.

To finance the purchase of the raw materials for the survival bolos, Jose Tupaz and Petronila Tupaz on behalf of
EL ORO Corporation, applied with respondent bank BPI - Bank of the Philippine Islands for 2 commercial Letters
of Credit. The LCs were in favor of El Oro Corporations suppliers, TANCHAOCO Manufacturing Incorporated.

Simultaneous with the issuance of the LCs, Jose Tupaz and Petronila Tupaz.. petitioners hereto signed TRUST
RECEIPTS in favor of respondent bank BPI.

Now here comes the issue. Jose C. Tupaz IV signed, in his personal capacity, a trust receipt corresponding to a
Letter of Credit for P564,871.

The problem was, petitioners did not comply with their undertaking under the TRUST RECEIPTS. Respondent
bank naturally made several demands for payments but EL ORO Corporation made partial payments only.

So as a consequence, respondent bank BPI sent final demand letters to EL ORO Corporation where EL ORO
replied that it could not fully pay its debt because the AFP (Armed Forces of the Philippines) had delayed paying
for the survival bolos.

ISSUE: Did Petitioners herein stated bind themselves personally with regard to the company debt herein
described when they signed the Trust Receipts?
DOCTRINE: Signing as corporate representative, can it hold you personally liable for the debt you are signing for
in behalf of the company in a commercial credit transaction? Not if it's stipulated.

HELD: A CORPORATE REPRESENTATIVE signing as a solidary guarantee as corporate representative did not
undertake to guarantee personally the payment of the corporations debts.

In the aforementioned trust receipt, petitioners signed below its clause as officers of El Oro Corporation. Thus,
under petitioner Petronila Tupazs signature are the words Vice-PresTreasurer and under petitioner Jose
Tupazs signature are the words Vice-PresOperations. By so signing that trust receipt, PETITIONERS DID NOT
BIND THEMSELVES PERSONALLY LIABLE FOR EL ORO CORPORATIONS OBLIGATION.

In Ong v. Court of Appeals, a corporate representative signed a solidary guarantee clause in two trust receipts
in his capacity as corporate representative. There, the Court held that the corporate representative did not
undertake to guarantee personally the payment of the corporations debts.

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred
by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation
they represent.

As an exception, directors or officers are personally liable for the corporations debts only if they so contractually
agree or stipulate.

Prudential Bank vs IAC

FACTS:
August 8, 1962: Philippine Rayon Mills, Inc.(PRMI) entered into a contract with Nissho Co., Ltd. of Japan
for the importation of textile machineries under a 5-year deferred payment plan
To effect the payment, PRMI applied for a commercial letter of credit with the Prudential Bank and Trust
Company in favor of Nissho.
Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78
Against this letter of credit, drafts were drawn and issued by Nissho, which were all paid by the
Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd.
2 of these drafts were accepted by PRMI through its president, Anacleto R. Chi, while the others were
not
Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the PRMI
which accepted delivery of the same.
To enable PRMI 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 of PRMI
company
At the back of the trust receipt is a printed form to be accomplished by 2 sureties who, by the very terms
and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the PRMI
fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank.
The PRMI was able to take delivery of the textile machineries and installed the same at its factory site
1967: PRMI ceased business operation
December 29, 1969: PRMI's factory was leased by Yupangco Cotton Mills for an annual rental of P200K
T
January 3, 1973: lease was renewed
January 5, 1974: all the textile machineries in PRMI's factory were sold to AIC Development Corporation
for P300K
The PRMI's obligation from the letter of credit and the trust receipt remained unpaid and unliquidated
despite repeated demands
October 3, 1974: present action for the collection of the principal amount of P956,384.95 was filed on
against PRMI and Anacleto R. Chi.
RTC: PRMI ordered to pay for the 2 drafts which were accepted the 10 were not yet accepted and for
Chi it was dismissed
CA: Affirmed
 relationship governed by specific contracts: application for letters of credit, the promissory note, the
drafts and the trust receipt
acceptance of the drafts by Philippine Rayon was indispensable to make the latter liable

ISSUE: W/N presentment for acceptance of the drafts was indispensable to make PRMI liable

HELD: NO. Petition GRANTED. Philippine Rayon Mills, Inc. liable on the 12 drafts. Anacleto R. Chi (as guarantor)
secondarily liable on the trust receipt
letter of credit
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.
Through 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.
affording celerity and certainty of payment
In the instant case
drawee (to whom drafts were presented for payment) = Prudential Bank
no need for acceptance as the issued drafts are sight drafts
NOTE: sight drafts vs. after sight drafts
Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the
Negotiable Instruments Law (NIL).
Sec. 143. When presentment for acceptance must be made. - Presentment for acceptance must be
made:
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
Where the bill expressly stipulates that it shall be presented for acceptance; or
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.
acceptance of a bill
signification by the drawee of his assent to the order of the drawer
may be done in writing by the drawee in:
the bill itself, or
a separate instrument
PRMI immediately became liable upon Prudential Bank's payment - essence of the letter of credit issued
by the Prudential Bank
trust receipt
banker advances money to an intending importer
banker takes the full title to the goods at the very beginning until the goods are sold and the vendee is
called upon to pay for them
any transaction by and between an entruster, and 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