G.R. No.

117913 February 1, 2002

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO
CO, petitioners,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

x-----------------------x

G.R. NO. 117914

MICO METALS CORPORATION, petitioner,

vs.
COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

DECISION

DE LEON, JR., J:

Before us is the joint and consolidated petition for review of the Decision1 dated June 15, 1994
of the Court of Appeals in CA-G.R. CV No. 27480 entitled, "Philippine Bank of Communications
vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co," which reversed the decision of the Regional Trial Court (RTC) of
Manila, Branch 55 dismissing the complaint for a sum of money filed by private respondent
Philippine Bank of Communications against herein petitioners, Mico Metals Corporation (MICO,
for brevity), Charles Lee, Chua Siok Suy,2 Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso
Co.3 The dispositive portion of the said Decision of the Court of Appeals, reads:

WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a
new one is entered:

a) Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the sum of
Five million four hundred fifty-one thousand six hundred sixty-three pesos and ninety centavos
(₱5,451,663.90) representing defendants-appellees unpaid obligations arising from ordinary
loans granted by the plaintiff plus legal interest until fully paid.

b) Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four hundred
sixty-one thousand six hundred pesos and sixty-six centavos (₱46 1,600.66) representing
defendants-appellees unpaid obligations arising from their letters of credit and trust receipt
transactions with plaintiff PBCom plus legal interest until fully paid.

c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of ₱50,000.00 as
attorney’s fees.
No pronouncement as to costs.

The facts of the case are as follows:

On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank
of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum
of Three Million Pesos (₱3,000,000.00) for the purpose of carrying out MICO’s line of business
as well as to maintain its volume of business.

On the same day, Charles Lee requested for another discounting loan/credit line of Three
Million Pesos (₱3,000,000.00) from PBCom for the purpose of opening letters of credit and trust
receipts.

In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO
the following resolution which was adopted unanimously by MICO’s Board of Directors:

RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager,
Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and empowered for and in
behalf of this Corporation to apply for, negotiate and secure the approval of commercial loans
and other banking facilities and accommodations, such as, but not limited to discount loans,
letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of
credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications, 216 Juan
Luna, Manila in such sums as they shall deem advantageous, the principal of all of which shall
not exceed the total amount of TEN MILLION PESOS (₱10,000,000.00), Philippine Currency, plus
any interests that may be agreed upon with said Bank in such loans and other credit lines of the
same kind and such further terms and conditions as may, upon granting of said loans and other
banking facilities, be imposed by the Bank; and to make, execute, sign and deliver any contracts
of mortgage, pledge or sale of one, some or all of the properties of the Company, or any other
agreements or documents of whatever nature or kind, including the signing, indorsing, cashing,
negotiation and execution of promissory notes, checks, money orders or other negotiable
instruments, which may be necessary and proper in connection with said loans and other
banking facilities, or with their amendments, renewals and extensions of payment of the whole
or any part thereof.4

On March 26, 1979, MICO availed of the first loan of One Million Pesos (₱1,000,000.00) from
PBCom. Upon maturity of the loan, MICO caused the same to be renewed, the last renewal of
which was made on May 21, 1982 under Promissory Note BNA No. 26218.5

Another loan of One Million Pesos (₱1,000,000.00) was availed of by MICO from PBCom which
was likewise later on renewed, the last renewal of which was made on May 21, 1982 under
Promissory Note BNA No. 26219.6 To complete MICO’s availment of Three Million Pesos
(₱3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from
PBCom in the sum of One Million Pesos (₱1,000,000.00) on May 24, 1979. As in previous loans,
this was rolled over or renewed, the last renewal of which was made on May 25, 1982 under
Promissory Note BNA No. 26253.7

As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio,
executed on May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig,
Metro Manila covered by Transfer Certificates of Title (TCT) Nos. 11248 and 11250.

On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in
their personal capacities executed a Surety Agreement8 in favor of PBCom whereby the
petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts,
and other obligations of every kind and nature, for which MICO may be held accountable by
PBCom. It was provided, however, that the liability of the sureties shall not at any one time
exceed the principal amount of Three Million Pesos (₱3,000,000.00) plus interest, costs, losses,
charges and expenses including attorney’s fees incurred by PBCom in connection therewith.

On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom and
applied for an additional loan in the sum of Four Million Pesos (₱4,000,000.00). The loan was
intended for the expansion and modernization of the company’s machineries. Upon approval of
the said application for loan, MICO availed of the additional loan of Four Million Pesos
(₱4,000,000.00) as evidenced by Promissory Note TA No. 094.9

As per agreement, the proceeds of all the loan availments were credited to MICO’s current
checking account with PBCom. To induce the PBCom to increase the credit line of MICO, Charles
Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter
referred to as petitioners-sureties), executed another surety agreement10 in favor of PBCom on
July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates
or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of
exchange, trust receipts and all other obligations of any kind and nature for which MICO may be
held accountable by PBCom. It was provided, however, that their liability shall not at any one
time exceed the sum of Seven Million Five Hundred Thousand Pesos (₱7,500,000.00) including
interest, costs, charges, expenses and attorney’s fees incurred by MICO in connection therewith.

On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate
secretary, Atty. P.B. Barrera, that Chua Siok Suy was duly authorized by the Board of Directors to
negotiate on behalf of MICO for loans and other credit availments from PBCom. Indicated in the
certification was the following resolution unanimously approved by the Board of Directors:

RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby authorized
and empowered, on behalf of MICO METALS CORPORATION from time to time, to borrow money
and obtain other credit facilities, with or without security, from the PHILIPPINE BANK OF
COMMUNICATIONS in such amount(s) and under such terms and conditions as he may
determine, with full power and authority to execute, sign and deliver such contracts,
instruments and papers in connection therewith, including real estate and chattel mortgages,
pledges and assignments over the properties of the Corporation; and to renew and/or extend
and/or roll-over and/or reavail of the credit facilities granted thereunder, either for lesser or for
greater amount(s), the intention being that such credit facilities and all securities of whatever
kind given as collaterals therefor shall be a continuing security.

RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely on
the authority given hereunder, the same to continue in full force and effect until written notice
of its revocation shall be received by said Bank.11

On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum
of Three Hundred Forty-Eight Thousand Pesos (₱348,000.00).12 The corresponding irrevocable
letter of credit was approved and opened under LC No. L-16060.13 Thereafter, the domestic
letter of credit was negotiated and accepted by MICO as evidenced by the corresponding bank
draft issued for the purpose.14 After the supplier of the merchandise was paid, a trust receipt
upon MICO’s own initiative, was executed in favor of PBCom.15

On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the
sum of Two Hundred Ninety Thousand Pesos (₱290,000.00).16 The corresponding irrevocable
letter of credit was issued on September 22, 1981 under LC No. L-16334.17 After the beneficiary
of the said letter of credit was paid by PBCom for the price of the merchandise, the goods were
delivered to MICO which executed a corresponding trust receipt18 in favor of PBCom.

On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of
Ta Jih Enterprises Co., Ltd.,19 and thus, the corresponding letter of credit20 was then issued by
PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said
beneficiary may draw funds from the account of PBCom in its correspondent bank’s New York
Office.21 PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of
the approved letter of credit. The correspondent bank acknowledged PBCom’s advice through a
confirmation letter22 and by debiting from PBCom’s account with the said correspondent bank
the sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11 ,960.00).23 As in past
transactions, MICO executed in favor of PBCom a corresponding trust receipt.24

On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of
One Thousand Nine Hundred US Dollars ($1,900.00), with PBCom.25 Upon approval, the
corresponding letter of credit denominated as LC No. 6229326 was issued whereupon PBCom
advised its correspondent bank and MICO27 of the same. Negotiation and proper acceptance of
the letter of credit were then made by MICO. Again, a corresponding trust receipt28 was
executed by MICO in favor of PBCom.

In all the transactions involving foreign letters of credit, PBCom turned over to MICO the
necessary documents such as the bills of lading and commercial invoices to enable the latter to
withdraw the goods from the port of Manila.

On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred
Seventy-Seven Thousand Pesos (₱377,000.00) covered by Promissory Note BA No. 7458.29

Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a
demand for payment.30 For failure of petitioner MICO to pay the obligations incurred despite
repeated demands, private respondent PBCom extrajudicially foreclosed MICO’s real estate
mortgage and sold the said mortgaged properties in a public auction sale held on November 23,
1982. Private respondent PBCom which emerged as the highest bidder in the auction sale,
applied the proceeds of the purchase price at public auction of Three Million Pesos
(₱3,000,000.00) to the expenses of the foreclosure, interest and charges and part of the
principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One
Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (₱5,441,663.90) exclusive of
penalty and interest charges. Aside from the unpaid balance of Five Million Four Hundred Forty-
One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (₱5,441,663.90), MICO
likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six
Hundred Pesos and Six Centavos (₱461,600.06) representing its trust receipts liabilities to
private respondent. PBCom then demanded the settlement of the aforesaid obligations from
herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom
under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of
preliminary attachment before the Regional Trial Court of Manila, which was raffled to Branch
55, alleging that MICO was no longer in operation and had no properties to answer for its
obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his
properties with intent to defraud his creditors. Except for MICO and Charles Lee, the sheriff of
the RTC failed to serve the summons on herein petitioners-sureties since they were all
reportedly abroad at the time. An alias summons was later issued but the sheriff was not able to
serve the same to petitioners Alfonso Co and Chua Siok Suy who was already sickly at the time
and reportedly in Taiwan where he later died.

Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint
filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and
neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted
any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in
granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never
advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no
loan was ever released to or received by MICO, the corresponding real estate mortgage and the
surety agreements signed concededly by the petitioners-sureties are null and void.

The trial court gave credence to the testimonies of herein petitioners and dismissed the
complaint filed by PBCom. The trial court likewise declared the real estate mortgage and its
foreclosure null and void. In ruling for herein petitioners, the trial court said that PBCom failed
to adequately prove that the proceeds of the loans were ever delivered to MICO. The trial court
pointed out, among others, that while PBCom claimed that the proceeds of the Four Million
Pesos (₱4,000,000.00) loan covered by promissory note TA 094 were deposited to the current
account of petitioner MICO, PBCom failed to produce the ledger account showing such deposit.
The trial court added that while PBCom may have loaned to MICO the other sums of Three
Hundred Forty-Eight Thousand Pesos (₱348,000.00) and Two Hundred Ninety Thousand Pesos
(₱290,000.00), no proof has been adduced as to the existence of the goods covered and paid by
the said amounts. Hence, inasmuch as no consideration ever passed from PBCom to MICO, all
the documents involved therein, such as the promissory notes, real estate mortgage including
the surety agreements were all void or nonexistent for lack of cause or consideration. The trial
court said that the lack of proof as regards the existence of the merchandise covered by the
letters of credit bolstered the claim of herein petitioners that no purchases of the goods were
really made and that the letters of credit transactions were simply resorted to by the PBCom
and Chua Siok Suy to accommodate the latter in his financial requirements.

The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an
erroneous application and appreciation of the rules governing the burden of proof. Citing
Section 24 of the Negotiable Instruments Law which provides that "Every negotiable
instrument is deemed prima facie to have been issued for valuable consideration and every
person whose signature appears thereon to have become a party thereto for value", the Court
of Appeals said that while the subject promissory notes and letters of credit issued by the
PBCom made no mention of delivery of cash, it is presumed that said negotiable instruments
were issued for valuable consideration. The Court of Appeals also cited the case of Gatmaitan
vs. Court of Appeals31 which holds that "there is a presumption that an instrument sets out the
true agreement of the parties thereto and that it was executed for valuable consideration".
The appellate court noted and found that a notarized Certification was issued by MICO’s
corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized by the Board of
Directors of MICO to borrow money and obtain credit facilities from PBCom.

Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals
but this was denied in a Resolution dated November 7, 1994 issued by its Former Second
Division. Petitioners-sureties then filed a petition for review on certiorari with this Court,
docketed as G.R. No. 117913, assailing the decision of the Court of Appeals. MICO likewise filed
a separate petition for review on certiorari, docketed as G.R. No. 117914, with this Court
assailing the same decision rendered by the Court of Appeals. Upon motion filed by petitioners,
the two (2) petitions were consolidated on January 11, 1995.32

Petitioners contend that there was no proof that the proceeds of the loans or the goods under
the trust receipts were ever delivered to and received by MICO. But the record shows
otherwise. Petitioners-sureties further contend that assuming that there was delivery by PBCom
of the proceeds of the loans and the goods, the contracts were executed by an unauthorized
person, more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to
defraud MICO.

The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds
of the loans and letters of credit transactions were ever delivered to MICO, and b) whether or
not the individual petitioners, as sureties, may be held liable under the two (2) Surety
Agreements executed on March 26, 1979 and July 28, 1980.

In civil cases, the party having the burden of proof must establish his case by preponderance of
evidence.33 Preponderance of evidence means evidence which is more convincing to the court
as worthy of belief than that which is offered in opposition thereto. Petitioners contend that the
alleged promissory notes, trust receipts and surety agreements attached to the complaint filed
by PBCom did not ripen into valid and binding contracts inasmuch as there is no evidence of the
delivery of money or loan proceeds to MICO or to any of the petitioners-sureties. Petitioners
claim that under normal banking practice, borrowers are required to accomplish promissory
notes in blank even before the grant of the loans applied for and such documents become valid
written contracts only when the loans are actually released to the borrower.

We are not convinced.

During the trial of an action, the party who has the burden of proof upon an issue may be aided
in establishing his claim or defense by the operation of a presumption, or, expressed differently,
by the probative value which the law attaches to a specific state of facts. A presumption may
operate against his adversary who has not introduced proof to rebut the presumption. The
effect of a legal presumption upon a burden of proof is to create the necessity of presenting
evidence to meet the legal presumption or the prima facie case created thereby, and which if
no proof to the contrary is presented and offered, will prevail. The burden of proof remains
where it is, but by the presumption the one who has that burden is relieved for the time being
from introducing evidence in support of his averment, because the presumption stands in the
place of evidence unless rebutted.

Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are
satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b)
That a negotiable instrument was given or indorsed for sufficient consideration. As observed by
the Court of Appeals, a similar presumption is found in Section 24 of the Negotiable
Instruments Law which provides that every negotiable instrument is deemed prima facie to
have been issued for valuable consideration and every person whose signature appears thereon
to have become a party for value. Negotiable instruments which are meant to be substitutes for
money, must conform to the following requisites to be considered as such a) it must be in
writing; b) it must be signed by the maker or drawer; c) it must contain an unconditional
promise or order to pay a sum certain in money; d) it must be payable on demand or at a fixed
or determinable future time; e) it must be payable to order or bearer; and f) where it is a bill of
exchange, the drawee must be named or otherwise indicated with reasonable certainty.
Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit
and trust receipts are, however, not negotiable instruments. But drafts issued in connection
with letters of credit are negotiable instruments.

Private respondent PBCom presented the following documentary evidence to prove petitioners’
credit availments and liabilities:

1) Promissory Note No. BNA —26218 dated May 21, 1982 in the sum of ₱1,000,000.00 executed
by MICO in favor of PBCom.

2) Promissory Note No. BNA —26219 dated May 21, 1982 in the sum of ₱1,000,000.00 executed
by MICO in favor of PBCom.

3) Promissory Note No. BNA —26253 dated May 25, 1982 in the sum of ₱1,000,000.00 executed
by MICO in favor of PBCom.

4) Promissory Note No. BNA —7458 dated May 21, 1982 in the sum of ₱377,000.00 executed by
MICO in favor of PBCom.

5) Promissory Note No. TA — 094 dated July 29, 1980 in the sum of ₱4,000.000.00 executed by
MICO in favor of PBCom.

6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor of Perez Battery
Center for account of Mico Metals Corp.

7) Draft dated July 2, 1981 in the sum of ₱348,000.00 issued by Perez Battery Center, beneficiary
of irrevocable Letter of Credit No. No. L-16060 and accepted by MICO Metals corporation.

8) Letter dated July 2, 1981 from Perez Battery Center addressed to private respondent PBCom
showing that proceeds of the irrevocable letter of credit No. L- 16060 was received by Mr.
Moises Rosete, representative of Perez Battery Center.
9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the
merchandise purchased under Letter of Credit No. 16060.

10) Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of Perez
Battery Center for account of MICO Metals Corp.

11) Draft dated September 22, 1981 in the sum of ₱290,000.00 issued by Perez Battery Center
and accepted by MICO.

12) Letter dated September 17, 1981 from Perez Battery addressed to PBCom showing that the
proceeds of credit no. L-16344 was received by Mr. Moises Rosete, a representative of Perez
Battery Center.

13) Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering the
merchandise under Letter of Credit No. L-16334.

14) Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00 issued by
PBCom in favor of TA JIH Enterprises Co. Ltd., through its correspondent bank, Irving Trust
Company of Taipei, Taiwan.

15) Trust Receipt dated December 15, 9181 executed by MICO in favor of PBCom showing that
possession of the merchandise covered by Irrevocable Letter of Credit no. 61873 was released by
PBCom to MICO.

16) Letters dated March 2, 1979 from MICO signed by its president, Charles Lee, showing that
MICO sought credit line from PBCom in the form of loans, letters of credit and trust receipt in
the sum of ₱7,500,000.00.

17) Letter dated July 14, 1980 from MICO signed by its president, Charles Lee, showing that
MICO requested for additional financial assistance in the sum of ₱4,000,000.00.

18) Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and Mariano Sio
singly or jointly to act and sign for and in behalf of MICO relative to the obtention of credit
facilities from PBCom.

19) Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor of PBCom
over MICO ‘s real properties covered by TCT Nos. 11248 and 11250 located in Pasig.

20) Duly notarized Surety Agreement dated March 26, 1979 executed by herein petitioners
Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.

21) Duly notarized Surety Agreement dated July 28, 1980 executed by herein petitioners Charles
Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980 issued by MICO ‘s corporate secretary, Mr.
P.B. Barrera, attesting to the adoption of a board resolution authorizing Chua Siok Suy to sign,
for and in behalf of MICO, all the necessary documents including contracts, loan instruments
and mortgages relative to the obtention of various credit facilities from PBCom.

The above-cited documents presented have not merely created a prima facie case but have
actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor
of respondent PBCom. While the presumption found under the Negotiable Instruments Law
may not necessarily be applicable to trust receipts and letters of credit, the presumption that
the drafts drawn in connection with the letters of credit have sufficient consideration. Under
Section 3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient
consideration was given in a contract. Hence, petitioners should have presented credible
evidence to rebut that presumption as well as the evidence presented by private respondent
PBCom. The letters of credit show that the pertinent materials/merchandise have been received
by MICO. The drafts signed by the beneficiary/suppliers in connection with the corresponding
letters of credit proved that said suppliers were paid by PBCom for the account of MICO. On the
other hand, aside from their bare denials petitioners did not present sufficient and competent
evidence to rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer a
single piece of evidence, apart from its bare denials, to support its allegation that the loan
transactions, real estate mortgage, letters of credit and trust receipts were issued allegedly
without any consideration.

Petitioners-sureties, for their part, presented the By-Laws34 of Mico Metals Corporation (MICO)
to prove that only the president of MICO is authorized to borrow money, arrange letters of
credit, execute trust receipts, and promissory notes and consequently, that the loan
transactions, letters of credit, promissory notes and trust receipts, most of which were executed
by Chua Siok Suy in representation of MICO were not allegedly authorized and hence, are not
binding upon MICO. A perusal of the By-Laws of MICO, however, shows that the power to
borrow money for the company and issue mortgages, bonds, deeds of trust and negotiable
instruments or securities, secured by mortgages or pledges of property belonging to the
company is not confined solely to the president of the corporation. The Board of Directors of
MICO can also borrow money, arrange letters of credit, execute trust receipts and promissory
notes on behalf of the corporation.35 Significantly, this power of the Board of Directors according
to the by-laws of MICO, may be delegated to any of its standing committee, officer or
agent.36 Hence, PBCom had every right to rely on the Certification issued by MICO's corporate
secretary, P.B. Barrera, that Chua Siok Suy was duly authorized by its Board of Directors to
borrow money and obtain credit facilities in behalf of MICO from PBCom.

Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to
private respondent PBCom purportedly to show that PBCom knew that Chua Siok Suy allegedly
used the credit and good names of the petitioner-sureties for his benefit, and that petitioner-
sureties were made to sign blank documents and were furnished copies of the same. The letter,
however, is in fact merely a reply of petitioners-sureties’ counsel to PBCom’s demand for
payment of MICO’s obligations, and appears to be an inconsequential piece of self-serving
evidence.

In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court
which stated that there was no proof that the proceeds of the loans were ever delivered to
MICO. Although the private respondent’s witness, Mr. Gardiola, testified that the proceeds of
the loans were deposited in MICO’s current account with PBCom, his testimony was allegedly
not supported by any bank record, note or memorandum. A careful scrutiny of the record
including the transcript of stenographic notes reveals, however, that although private
respondent PBCom was willing to produce the corresponding account ledger showing that the
proceeds of the loans were credited to MICO’s current account with PBCom, MICO in fact
vigorously objected to the presentation of said document. That point is shown in the testimony
of PBCom’s witness, Gardiola, thus:

Q: Now, all of these promissory note Exhibits "I" and "J" which as you have said previously (sic)
availed originally by defendant Mico Metals Corp. sometime in 1979, my question now is, do
you know what happened to the proceeds of the original availment?

A: Well, it was credited to the current account of Mico Metals Corp.

Q: Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic)

A: Well, that is our understanding.

ATTY. DURAN:

Your honor, may we be given a chance to object, the best evidence is the so-called current
account...

COURT:

Can you produce the ledger account?

A: Yes, Your Honor, I will bring.

COURT:

The ledger or record of the current account of Mico Metals Corp.

A: Yes, Your Honor.

ATTY. ACEJAS:
Your Honor, these are a confidential record, and they might not be disclosed without the
consent of the person concerned. (sic)

ATTY. SANTOS:

Well, you are the one who is asking that.

ATTY. DURAN:

Your Honor, I’m precisely want to show for the ... (sic)

COURT:

But the amount covered by the current account of defendant Mico Metals Corp. is the subject
matter of this case.

xxx xxx xxx

Q: Are those availments were release? (sic)

A: Yes, Your Honor, to the defendant corporation.

Q: By what means?

A: By the credit to their current account.

ATTY. ACEJAS:

We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic)

xxx xxx xxx

Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory
notes were credited to the accounts of Mico Metals Corporation, now do you know what kind of
current account was that which you are referring to?

ATTY. ACEJAS:

Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation
and it cannot disclosed without the authority of the depositor. (sic)37

That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is
bolstered by the fact that more than a year later, specifically on July 14, 1980, MICO through its
president, petitioner-surety Charles Lee, requested for an additional loan of Four Million Pesos
(₱4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied
that it has already availed of earlier loans from PBCom.
Petitioners allege that PBCom presented no evidence that it remitted payments to cover the
domestic and foreign letters of credit. Petitioners placed much reliance on the erroneous
decision of the trial court which stated that private respondent PBCom allegedly failed to prove
that it actually made payments under the letters of credit since the bank drafts presented as
evidence show that they were made in favor of the Bank of Taiwan and First Commercial Bank.

Petitioners’ allegations are untenable.

Modern letters of credit are usually not made between natural persons. They involve bank to
bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods
between, distant and unfamiliar buyers and sellers. It was an arrangement under which a bank,
whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts
drawn on it by the seller, provided that certain documents are presented such as bills of lading
accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural
development in commercial banking.38 Parties to a commercial letter of credit include (a) the
buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which
is usually the buyer’s bank which actually issues the letter of credit, (d) the notifying bank which
is the correspondent bank of the opening bank through which it advises the beneficiary of the
letter of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The
services of the notifying bank must always be utilized if the letter of credit is to be advised to
the beneficiary through cable, (f) the paying bank which buys or discounts the drafts
contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on
another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of
the opening bank are used, the beneficiary is supposed to present his drafts to the notifying
bank for negotiation and (g) the confirming bank which, upon the request of the beneficiary,
confirms the letter of credit issued by the opening bank.

From the foregoing, it is clear that letters of credit, being usually bank to bank transactions,
involve more than just one bank. Consequently, there is nothing unusual in the fact that the
drafts presented in evidence by respondent bank were not made payable to PBCom. As
explained by respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih Enterprises
Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit. Having paid the
supplier, the Bank of Taiwan then presented the bank draft for reimbursement by PBCom’s
correspondent bank in Taiwan, the Irving Trust Company — which explains the reason why on
its face, the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and
endorsed the draft to PBCom. The draft was later transmitted to PBCom to support the latter’s
claim for payment from MICO. MICO accepted the draft upon presentment and negotiated it to
PBCom.
Petitioners further aver that MICO never requested that legal possession of the merchandise be
transferred to PBCom by way of trust receipts. Petitioners insist that assuming that MICO
transferred possession of the merchandise to PBCom by way of trust receipts, the same would
be illegal since PBCom, being a banking institution, is not authorized by law to engage in the
business of importing and selling goods.

A trust receipt is considered as a security transaction intended to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the importation or
purchase of merchandise, and who may not be able to acquire credit except through utilization,
as collateral of the merchandise imported or purchased.39 A trust receipt, therefor, is a
document of security pursuant to which a bank acquires a "security interest" in the goods under
trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered
by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a
loan feature represented by a letter of credit, and a security feature which is in the covering
trust receipt which secures an indebtedness.

Petitioners’ averments with regard to the second issue are no less

incredulous.1âwphi1 Petitioners’ contend that the letters of credit, surety agreements and loan
transactions did not ripen into valid and binding contracts since no part of the proceeds of the
loan transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-
sureties allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and that the
latter made them sign the surety agreements in blank. Thus, they maintain that they should not
be held accountable for any liability that might arise therefrom.

It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO
Metals Corporation, who first requested for a discounting loan of Three Million Pesos
(₱3,000,000.00) from PBCom as evidenced by his letter dated March 2, 1979.40 On the same day,
Charles Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt line in the
sum of Three Million Pesos (₱3,000,000.00).41 Still, on the same day, Charles Lee again as
President of MICO, wrote another letter to PBCOM requesting for a financing line in the sum of
One Million Five Hundred Thousand Pesos (₱1,500,000.00) to be used exclusively as marginal
deposit for the opening of MICO’s foreign and local letters of credit with PBCom.42 More than a
year later, it was also Charles Lee, again in his capacity as president of MICO, who asked for an
additional loan in the sum of Four Million Pesos (₱4,000,000.00). The claim therefore of
petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom, who applied
for and obtained the loan transactions and letters of credit strains credulity considering that
even the Deed of the Real Estate Mortgage in favor of PBCom was executed by petitioner-surety
Mariano Sio in his capacity as general manager of MICO43 to secure the loan accommodations
obtained by MICO from PBCom.
Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua
Siok Suy. Petitioner Alfonso Yap, the corporate treasurer, for his part testified that he signed
booklets of checks, surety agreements and promissory notes in blank; that he signed the
documents in blank despite his misgivings since Chua Siok Suy assured him that the transaction
can easily be taken cared of since Chua Siok Suy personally knew the Chairman of the Board of
PBCom; that he was not receiving salary as treasurer of Mico Metals and since Chua Siok Suy
had a direct hand in the management of Malayan Sales Corporation, of which Yap is an
employee, he (Yap) signed the documents in blank as consideration for his continued
employment in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked as
office manager for MICO from 1978-1982. As office manager, he was the one in charge of
transacting business like purchasing, selling and paying the salary of the employees. He was also
in charge of the handling of documents pertaining to surety agreements, trust receipts and
promissory notes;44 that when he first joined MICO Metals Corporation, he was able to read the
by-laws of the corporation and he came to know that only the chairman and the president can
borrow money in behalf of the corporation; that Chua Siok Suy once called him up and told him
to secure an invoice so that a credit line can be opened in the bank with a local letter of credit;
that when the invoice was secured, he (Co) brought it together with the application for a credit
line to Chua Siok Suy, and that he questioned the authority of Chua Siok Suy pointing out that
he (Co) is not empowered to sign the document inasmuch as only the latter, as president, was
authorized to do so. However, Chua Siok Suy allegedly just said that he had already talked with
the Chairman of the Board of PBCom; and that Chua Siok Suy reportedly said that he needed
the money to finance a project that he had with the Taipei government. Co also testified that he
knew of the application for domestic letter of credit in the sum of Three Hundred Forty-Eight
Thousand Pesos (₱348,000.00); and that a certain Moises Rosete was authorized to claim the
check covering the Three Hundred Forty-Eight Thousand Pesos (₱348,000.00) from PBCom; and
that after claiming the check Rosete brought it to Perez Battery Center for indorsement after
which the same was deposited to the personal account of Chua Siok Suy.45

We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of
Directors of MICO was so careless about the business affairs of MICO as well as about their own
personal reputation and money that they simply relied on the say so of Chua Siok Suy on
matters involving millions of pesos. Under Section 3 (d), Rule 131 of the Rules of Court, it is
presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is
that one does not sign a document without first informing himself of its contents and
consequences. Said presumption acquires greater force in the case at bar where not only one
but several documents were executed at different times and at different places by the petitioner
sureties and Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to
negotiate for loans in behalf of MICO from PBCom. Petitioners’ allegation, however, is belied by
the July 28, 1980 Certification issued by the corporate secretary of PBCom, Atty. P.B. Barrera,
that MICO's Board of Directors gave Chua Siok Suy full authority to negotiate for loans in behalf
of MICO with PBCom. In fact, the Certification even provided that Chua Siok Suy’s authority
continues until and unless PBCom is notified in writing of the withdrawal thereof by the said
Board. Notably, petitioners failed to contest the genuineness of the said Certification which is
notarized and to show any written proof of any alleged withdrawal of the said authority given
by the Board of Directors to Chua Siok Suy to negotiate for loans in behalf of MICO.

There was no need for PBCom to personally inform the petitioners-sureties individually about
the terms of the loans, letters of credit and other loan documents. The petitioners-sureties
themselves happen to comprise the Board of Directors of MICO, which gave full authority to
Chua Siok Suy to negotiate for loans in behalf of MICO. Notice to MICO’s authorized
representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBCom’s
corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok Suy had full authority to
negotiate and sign the necessary documents, in behalf of MICO for loans from PBCom.
Respondent PBCom therefore had the right to rely on the said notarized Certification of MICO’s
Corporate Secretary.

Anent petitioners-sureties contention that they obtained no consideration whatsoever on the

surety agreements, we need only point out that the consideration for the sureties is the very
consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex
Plastic Industries Corporation vs. Court of Appeals,46 we ruled that the consideration necessary
to support a surety obligation need not pass directly to the surety, a consideration moving to
the principal alone being sufficient. For a guarantor or surety is bound by the same
consideration that makes the contract effective between the parties thereto. It is not necessary
that a guarantor or surety should receive any part or benefit, if such there be, accruing to his
principal.

Petitioners placed too much reliance on the rule in evidence that the burden of proof does not
shift whereas the burden of going forward with the evidence does pass from party to party. It is
true that said rule is not changed by the fact that the party having the burden of proof has
introduced evidence which established prima facie his assertion because such evidence does
not shift the burden of proof; it merely puts the adversary to the necessity of producing
evidence to meet the prima facie case. Where the defendant merely denies, either generally or
otherwise, the allegations of the plaintiff’s pleadings, the burden of proof continues to rest on
the plaintiff throughout the trial and does not shift to the defendant until the plaintiff’s
evidence has been presented and duly offered. The defendant has then no burden except to
produce evidence sufficient to create a state of equipoise between his proof and that of the
plaintiff to defeat the latter, whereas the plaintiff has the burden, as in the beginning, of
establishing his case by a preponderance of evidence.47 But where the defendant has failed to
present and marshall evidence sufficient to create a state of equipoise between his proof and
that of plaintiff, the prima facie case presented by the plaintiff will prevail.

In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented
sufficient documentary and testimonial evidence that proved by preponderance of evidence its
subject collection case against the defendants who are the petitioners herein. In view of all the
foregoing, the Court of Appeals committed no reversible error in its appealed Decision.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled,
"Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co," is AFFIRMED in toto.

Costs against the petitioners.

SO ORDERED.