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.

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G.R. NO. 117914

MICO METALS CORPORATION, petitioner,

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

 MICO Metals Corporation, through its President, Chares Lee requested from Philippine Bank of
Communication a discounting loan/credit line in the amount of P3,000,000.000 for the purpose of carrying out
MICO’s line of business as well as to maintain its volume of business, and another discounting loan/credit line
for the purpose of opening letters of credit and trust receipts.
 Both requests were supported by a resolution that the President, Charles Lee, and the Vice President and
General Manager, Mr. Mariano Sio, are authorized and empowered to apply for, negotiate and secure the
approval of commercial loans x x x x x but not limited to discount loans, letters of credit, trust receipts, lines
for marginal deposits on foreign and domestic letters of credit x x x x for a total amount of not to exceed
P10,000,000.00.
 The request was approved by the Bank – PBCom, and first availment in the amount of P1,000,000.00 was
made on March 26, 1979. Total availment has reached P3,000,000.00, which upon maturity, were rolled-over
or renewed.
 As security to the loan, a Real Estate Mortgage over MICO’s properties was executed by its VP Mariano Sio.
Further, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, executed in their
personal capacity a Surety Agreement in favor of PBCom in the amount of P3,000,000.00.
 Another P4,0000,000.00 was requested by the President Charles Lee from PBCom for the purpose of
expansion and modernization of the companies machineries. The request was consequently approved and
availed in full. Another surety agreement was executed by the same set of officers-persons in favor of PBCom
and their liability shall not at any one time exceed the sum of P7,500,000.00
 MICO furnished PBCom a copy of its notarized certification issued by its corporate secretary stating therein
that Chio Siok Suy was the duly authorized person, unanimously approved by the Board of Directors, to
negotiate with PBCom on behalf of MICO for loans and other credit availments.
 After the receipt of this secretary’s certificate, foreign letters of credits, domestic letter of credits and loans
were further requested, approved and availed. Upon maturity of all the credit availments, PBCom demanded
for payment but MICO failed to settle despite repeated demands, reason for the Bank to foreclose
extrajudicially the properties, and later sold them in public auction. The price however, was not sufficient to
fully pay the total outstanding.
 PBCom demanded from the petitioners-sureties the deficiency, which the latter refused to acknowledge. Thus,
the filing with the court of the complaint and for attachment on the properties of the petitioners-sureties
contending that MICO is no longer in operation and it has no other properties to settle for the deficiency.
 RTC denied the complaint for failure on the part of the Bank to prove that the proceeds of the loans were ever
delivered to MICO
 CA reversed, hence this petition.
HELD:
The SC AFFIRMED in toto the decision of the Court Appeals.In civil cases, the party having the burden of proof must
establish his case by preponderance of evidence, which can be established by the operation of presumption or by the
probative value, which the law attaches to a specific state of facts, thereby creating a prima facie case. If there is no
proof to the contrary, the prima facie case or evidence will prevail.

The Negotiable Instruments Law clearly provides that every negotiable instrument is deemed prima facie to have been
issued for valuable consideration and every person whose signature appears thereon are also presumed to have
become a party for value. 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.
All documents presented by PBCom have not merely created a prima facie case but have actually proved the solidary
obligation of MICO and the petitioners-sureties. 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. The fact that the letters of credit show that the
pertinent materials/merchandise have been received by MICO and with drafts signed by the beneficiary/suppliers
proved that there was a consideration for value.

Therefore, the contention of the petitioner that the contracts on loans and letters of credits were not binding on the
premise that there were no consideration for value and if there was, the Bank failed to present evidence as to the
crediting of the proceeds to its account is untenable. It was the petitioner who has been preventing the Bank in
presenting the evidence. But from the fact itself that MICO has requested for an additional loan of P4M, impliedly, is
a prima facie case which showed that the proceeds of the earlier loans were delivered to MICO. The court also found
no merits on the latter’s contention that the contracts were executed fraudulently by the unauthorized person Chua
Siok Suy. The fact that it was MICO which furnished PBCom the Secretary’s Certificate, notarized by its own corporate
secretary suffices for the PBCom to believe that it was valid and binding, hence the granting of the request for further
availments.

Anent petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements, the
Court pointed out that the consideration for the surety is the very consideration for the principal obligor, MICO, in the
contracts of loan. In the case of Willex Plastic Industries Corporation vs. CA, it 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.
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.