THIRD DIVISION
G.R. No. 105774 April 25, 2002GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners,
vs.
THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari
under Rule 45 of the Revised Rules on Civil Procedure assailing the June
9, 1992 Decision1 of the Court of Appeals2 in CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26, 1988 Decision3 of the Regional Trial Court of Manila, Branch 52,4
ordering petitioners Great Asian Sales Center Corporation ("Great
Asian" for brevity) and Tan Chong Lin to pay, solidarily, respondent
Bancasia Finance and Investment Corporation ("Bancasia" for brevity) the
amount of P1,042,005.00. The Court of Appeals affirmed the trial
court’s award of interest and costs of suit but deleted the award of
attorney’s fees.
The Facts
Great Asian is engaged in the business of buying and
selling general merchandise, in particular household appliances. On
March 17, 1981, the board of directors of Great Asian approved a
resolution authorizing its Treasurer and General Manager, Arsenio Lim
Piat, Jr. ("Arsenio" for brevity) to secure a loan from Bancasia in an
amount not to exceed P1.0 million. The board resolution also authorized
Arsenio to sign all papers, documents or promissory notes necessary to
secure the loan. On February 10, 1982, the board of directors of Great
Asian approved a second resolution authorizing Great Asian to secure a
discounting line with Bancasia in an amount not exceeding P2.0 million.
The second board resolution also designated Arsenio as the authorized
signatory to sign all instruments, documents and checks necessary to
secure the discounting line.
On March 4, 1981, Tan Chong Lin signed a Surety
Agreement in favor of Bancasia to guarantee, solidarily, the debts of
Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a
Comprehensive and Continuing Surety Agreement in favor of Bancasia to
guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan
Chong Lin signed two surety agreements ("Surety Agreements" for brevity)
in favor of Bancasia.
Great Asian, through its Treasurer and General
Manager Arsenio, signed four (4) Deeds of Assignment of Receivables
("Deeds of Assignment" for brevity), assigning to Bancasia fifteen (15)
postdated checks. Nine of the checks were payable to Great Asian, three
were payable to "New Asian Emp.", and the last three were payable to
cash. Various customers of Great Asian issued these postdated checks in
payment for appliances and other merchandise.
Great Asian and Bancasia signed the first Deed of
Assignment on January 12, 1982 covering four postdated checks with a
total face value of P244,225.82, with maturity dates not later than
March 17, 1982. Of these four postdated checks, two were dishonored.
Great Asian and Bancasia signed the second Deed of Assignment also on
January 12, 1982 covering four postdated checks with a total face value
of P312,819.00, with maturity dates not later than April 1, 1982. All
these four checks were dishonored. Great Asian and Bancasia signed the
third Deed of Assignment on February 11, 1982 covering eight postdated
checks with a total face value of P344,475.00, with maturity dates not
later than April 30, 1982. All these eight checks were dishonored.
Great Asian and Bancasia signed the fourth Deed of Assignment on March
5, 1982 covering one postdated check with a face value of P200,000.00,
with maturity date on March 18, 1982. This last check was also
dishonored. Great Asian assigned the postdated checks to Bancasia at a
discount rate of less than 24% of the face value of the checks.
Arsenio endorsed all the fifteen dishonored checks by
signing his name at the back of the checks. Eight of the dishonored
checks bore the endorsement of Arsenio below the stamped name of "Great
Asian Sales Center", while the rest of the dishonored checks just bore
the signature of Arsenio. The drawee banks dishonored the fifteen
checks on maturity when deposited for collection by Bancasia, with any
of the following as reason for the dishonor: "account closed", "payment
stopped", "account under garnishment", and "insufficiency of funds".
The total amount of the fifteen dishonored checks is P1,042,005.00.
Below is a table of the fifteen dishonored checks:
|
Drawee Bank
|
Check No.
|
Amount
|
Maturity Date
|
|
1st Deed
|
|||
| Solid Bank | C-A097480 |
P137,500.00
|
March 16, 1982
|
| Pacific Banking Corp. | 23950 |
P47,211.00
|
March 17, 1982
|
|
2nd Deed
|
|||
| Metrobank | 030925 |
P68,722.00
|
March 19, 1982
|
| 030926 |
P45,230.00
|
March 19, 1982
|
|
| Solidbank | C-A097478 |
P140,000.00
|
March 23, 1982
|
| Pacific Banking Corp. | CC 769910 |
P58,867.00
|
April 1, 1982
|
|
3rd Deed
|
|||
| Phil. Trust Company | 060835 |
P21,228.00
|
April 21, 1982
|
| 060836 |
P22,187.00
|
April 28, 1982
|
|
| Allied Banking Corp. | 11251624 |
P41,773.00
|
April 22, 1982
|
| 11251625 |
P38,592.00
|
April 29, 1982
|
|
| Pacific Banking Corp. | 237984 |
P37,886.00
|
April 23, 1982
|
| 237988 |
P47,385.00
|
April 28, 1982
|
|
| 237985 |
P46,748.00
|
April 30, 1982
|
|
| Security Bank & Trust Co. | 22061 |
P88,676.00
|
April 30, 1982
|
|
4th Deed
|
|||
| Pacific Banking Corp. | 860178 |
P200,000.00
|
March 18, 1982
|
After the drawee bank dishonored Check No. 097480
dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty.
Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter
dated March 18, 1982, notifying him of the dishonor and demanding
payment from him. Subsequently, Bancasia sent by personal delivery a
letter dated June 16, 1982 to Tan Chong Lin, notifying him of the
dishonor of the fifteen checks and demanding payment from him. Neither
Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.
On May 21, 1982, Great Asian filed with the then
Court of First Instance of Manila a petition for insolvency, verified
under oath by its Corporate Secretary, Mario Tan. Attached to the
verified petition was a "Schedule and Inventory of Liabilities and
Creditors of Great Asian Sales Center Corporation," listing Bancasia as
one of the creditors of Great Asian in the amount of P1,243,632.00.
On June 23, 1982, Bancasia filed a complaint for
collection of a sum of money against Great Asian and Tan Chong Lin.
Bancasia impleaded Tan Chong Lin because of the Surety Agreements he
signed in favor of Bancasia. In its answer, Great Asian denied the
material allegations of the complaint claiming it was unfounded,
malicious, baseless, and unlawfully instituted since there was already a
pending insolvency proceedings, although Great Asian subsequently
withdrew its petition for voluntary insolvency. Great Asian further
raised the alleged lack of authority of Arsenio to sign the Deeds of
Assignment as well as the absence of consideration and consent of all
the parties to the Surety Agreements signed by Tan Chong Lin.
Ruling of the Trial Court
The trial court rendered its decision on January 26, 1988 with the following findings and conclusions:
"From the foregoing facts and circumstances, the
Court finds that the plaintiff has established its causes of action
against the defendants. The Board Resolution (Exh. "T"), dated March
17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and
treasurer of the defendant Great Asian to apply and negotiate for a loan
accommodation or credit line with the plaintiff Bancasia in an amount
not exceeding One Million Pesos (P1,000,000.00), and the other Board
Resolution approved on February 10, 1982, authorizing Arsenio Lim Piat,
Jr., to obtain for defendant Asian Center a discounting line with
Bancasia at prevailing discounting rates in an amount not to exceed Two
Million Pesos (P2,000,000.00), both of which were intended to secure
money from the plaintiff financing firm to finance the business
operations of defendant Great Asian, and pursuant to which Arsenio Lim
Piat, Jr. was able to have the aforementioned fifteen (15) checks
totaling P1,042,005.00 discounted with the plaintiff, which transactions
were obviously known by the beneficiary thereof, defendant Great Asian,
as in fact, in its aforementioned Schedule and Inventory of Liabilities
and Creditors (Exh. DD, DD-1) attached to its Verified Petition for
Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian
admitted an existing liability to the plaintiff, in the amount of
P1,243,632.00, secured by it, by way of ‘financing accommodation,’ from
the said financing institution Bancasia Finance and Investment
Corporation, plaintiff herein, sufficiently establish the liability of
the defendant Great Asian to the plaintiff for the amount of
P1,042,005.00 sought to be recovered by the latter in this case.5
xxx
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the two (2) defendants ordering the latter,
jointly and severally, to pay the former:
(a) The amount of P1,042,005.00, plus interest
thereon at the legal rate from the filing of the complaint until the
same is fully paid;
(b) Attorney’s fees equivalent to twenty per cent (20%) of the total amount due; and
(c) The costs of suit.
SO ORDERED."6
Ruling of the Court of Appeals
On appeal, the Court of Appeals sustained the
decision of the lower court, deleting only the award of attorney’s fees,
as follows:
"As against appellants’ bare denial of it, the Court
is more inclined to accept the appellee’s version, to the effect that
the subject deeds of assignment are but individual transactions which --
being collectively evidentiary of the loan accommodation and/or credit
line it granted the appellant corporation -- should not be taken singly
and distinct therefrom. In addition to its plausibility, the
proposition is, more importantly, adequately backed by the documentary
evidence on record. Aside from the aforesaid Deeds of Assignment (Exhs.
"A", "D", "I", and "R") and the Board Resolutions of the appellant
corporation’s Board of Directors (Exhs. "T", "U" and "V"), the appellee
-- consistent with its theory -- interposed the Surety Agreements the
appellant Tan Chong Lin executed (Exhs. "W" and "X"), as well as the
demand letters it served upon the latter as surety (Exhs. "Y" and "Z").
It bears emphasis that the second Resolution of the appellant
corporation’s Board of Directors (Exh. "V") even closely coincides with
the execution of the February 11, 1982 and March 5, 1982 Deeds of
Assignment (Exhs. "I" and "R"). Were the appellants’ posturings true,
it seems rather strange that the appellant Tan Chong Lin did not even
protest or, at least, make known to the appellee what he -- together
with the appellant corporation -- represented to be a corporate larceny
to which all of them supposedly fell prey. In the petition for
voluntary insolvency it filed, the appellant corporation, instead,
indirectly acknowledged its indebtedness in terms of financing
accommodations to the appellee, in an amount which, while not exactly
matching the sum herein sought to be collected, approximates the same
(Exhs. "CC", "DD" and "DD-1").7
xxx
The appellants contend that the foregoing warranties
enlarged or increased the surety’s risk, such that appellant Tan Chong
Lin should be released from his liabilities (pp. 37-44, Appellant’s
Brief). Without saying more, the appellants’ position is, however,
soundly debunked by the undertaking expressed in the Comprehensive and
Continuing Surety Agreements (Exhs. "W" and "X"), to the effect that the
"xxx surety/ies, jointly and severally among themselves and likewise
with the principal, hereby agree/s and bind/s himself to pay at maturity
all the notes, drafts, bills of exchange, overdrafts and other
obligations which the principal may now or may hereafter owe the
creditor xxx." With the possible exception of the fixed ceiling for the
amount of loan obtainable, the surety undertaking in the case at bar is
so comprehensive as to contemplate each and every condition, term or
warranty which the principal parties may have or may be minded to agree
on. Having affixed his signature thereto, the appellant Tan Chong Lin
is expected to have, at least, read and understood the same.
xxx
With the foregoing disquisition, the Court sees
little or no reason to go into the appellants’ remaining assignments of
error, save the matter of attorney’s fees. For want of a statement of
the rationale therefore in the body of the challenged decision, the
trial court’s award of attorney’s fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).
WHEREFORE, the decision appealed from is MODIFIED, to delete the trial court’s award of attorney’s fees. The rest is AFFIRMED in toto.
SO ORDERED."8
The Issues
The petition is anchored on the following assigned errors:
"1. The respondent Court erred in not holding that
the proper parties against whom this action for collection should be
brought are the drawers and indorser of the checks in question, being
the real parties in interest, and not the herein petitioners.
2. The respondent Court erred in not holding that
the petitioner-corporation is discharged from liability for failure of
the private respondent to comply with the provisions of the Negotiable
Instruments Law on the dishonor of the checks.
3. The respondent Court erred in its appreciation
and interpretation of the effect and legal consequences of the signing
of the deeds of assignment and the subsequent indorsement of the checks
by Arsenio Lim Piat, Jr. in his individual and personal capacity and
without stating or indicating the name of his supposed principal.
4. The respondent Court erred in holding that the
assignment of the checks is a loan accommodation or credit line accorded
by the private respondent to petitioner-corporation, and not a purchase
and sale thereof.
5. The respondent Court erred in not holding that
there was a material alteration of the risk assumed by the
petitioner-surety under his surety agreement by the terms, conditions,
warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr.
under the deeds of assignment or receivables.
6. The respondent Court erred in holding that the
petitioner-corporation impliedly admitted its liability to private
respondent when the former included the latter as one of its creditors
in its petition for voluntary insolvency, although no claim was filed
and proved by the private respondent in the insolvency court.
7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question."9
The issues to be resolved in this petition can be summarized into three:
1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN;
2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER
THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL
CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;
3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS.
The Court’s Ruling
The petition is bereft of merit.
First Issue: Authority of Arsenio to Sign the Deeds of Assignment
Great Asian asserts that Arsenio signed the Deeds of
Assignment and indorsed the checks in his personal capacity. The
primordial question that must be resolved is whether Great Asian
authorized Arsenio to sign the Deeds of Assignment. If Great Asian so
authorized Arsenio, then Great Asian is bound by the Deeds of Assignment
and must honor its terms.
The Corporation Code of the Philippines vests in the
board of directors the exercise of the corporate powers of the
corporation, save in those instances where the Code requires
stockholders’ approval for certain specific acts. Section 23 of the
Code provides:
"SEC. 23. The Board of Directors or Trustees.
Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by
the board of directors or trustees x x x."
In the ordinary course of business, a corporation can
borrow funds or dispose of assets of the corporation only on authority
of the board of directors. The board of directors normally designates
one or more corporate officers to sign loan documents or deeds of
assignment for the corporation.
To secure a credit accommodation from Bancasia, the
board of directors of Great Asian adopted two board resolutions on
different dates, the first on March 17, 1981, and the second on February
10, 1982. These two board resolutions, as certified under oath by
Great Asian’s Corporate Secretary Mario K. Tan, state:
First Board Resolution
"RESOLVED, that the Treasurer of the corporation, Mr.
Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for
and negotiate for a loan accommodation or credit line in the
amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia
Finance and Investment Corporation, and likewise to sign any and all
papers, documents, and/or promissory notes in connection with said loan
accommodation or credit line, including the power to mortgage such
properties of the corporation as may be needed to effectuate the same."10 (Emphasis supplied)
Second Board Resolution
"RESOLVED that Great Asian Sales Center Corp. obtain a
discounting line with BANCASIA FINANCE & INVESTMENT CORPORATION,
at prevailing discounting rates, in an amount not to exceed** TWO
MILLION PESOS ONLY (P2,000,000),** Philippine Currency.
RESOLVED FURTHER, that the corporation secure such
other forms of credit lines with BANCASIA FINANCE & INVESTMENT
CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY
(P2,000,000.00),** PESOS, under such terms and conditions as the
signatories may deem fit and proper.
RESOLVED FURTHER, that the following persons be
authorized individually, jointly or collectively to sign, execute and
deliver any and all instruments, documents, checks, sureties, etc.
necessary or incidental to secure any of the foregoing obligation:
|
(signed)
Specimen Signature |
1. ARSENIO LIM PIAT, JR.
2. _______________________
3. _______________________
4. _______________________
PROVIDED FINALLY that this authority shall be valid,
binding and effective until revoked by the Board of Directors in the
manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT
CORPORATION shall not be bound by any such revocation until such time as
it is noticed in writing of such revocation."11 (Emphasis supplied)
The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a "loan accommodation or credit line"
with Bancasia for not more than P1.0 million. Also, the first
resolution explicitly authorizes Arsenio to sign any document, paper or
promissory note, including mortgage deeds over properties of Great
Asian, to secure the loan or credit line from Bancasia.
The second board resolution expressly authorizes Great Asian to secure a "discounting line"
from Bancasia for not more than P2.0 million. The second board
resolution also expressly empowers Arsenio, as the authorized signatory
of Great Asian, "to sign, execute and deliver any and all documents, checks x x x necessary or incidental to secure" the discounting line. The second board resolution specifically authorizes Arsenio to secure the discounting line "under such terms and conditions as (he) x x x may deem fit and proper."
As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting line
from Bancasia. The two board resolutions also categorically designate
Arsenio as the authorized signatory to sign and deliver all the
implementing documents, including checks, for Great Asian. There is no
iota of doubt whatsoever about the purpose of the two board resolutions,
and about the authority of Arsenio to act and sign for Great Asian.
The second board resolution even gave Arsenio full authority to
agree with Bancasia on the terms and conditions of the discounting line.
Great Asian adopted the correct and proper board resolutions to secure
a loan or discounting line from Bancasia, and Bancasia had a right to
rely on the two board resolutions of Great Asian. Significantly, the
two board resolutions specifically refer to Bancasia as the financing
institution from whom Great Asian will secure the loan accommodation or
discounting line.
Armed with the two board resolutions, Arsenio signed
the Deeds of Assignment selling, and endorsing, the fifteen checks of
Great Asian to Bancasia. On the face of the Deeds of Assignment, the
contracting parties are indisputably Great Asian and Bancasia as the
names of these entities are expressly mentioned therein as the assignor
and assignee, respectively. Great Asian claims that Arsenio signed the
Deeds of Assignment in his personal capacity because Arsenio signed
above his printed name, below which was the word "Assignor", thereby
making Arsenio the assignor. Great Asian conveniently omits to state
that the first paragraph of the Deeds expressly contains the following
words: "the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr."
The assignor is undoubtedly Great Asian, represented by its Treasurer,
Arsenio. The only issue to determine is whether the Deeds of Assignment
are indeed the transactions the board of directors of Great Asian
authorized Arsenio to sign under the two board resolutions.
Under the Deeds of Assignment, Great Asian sold
fifteen postdated checks at a discount, over three months, to Bancasia.
The Deeds of Assignment uniformly state that Great Asian, –
"x x x for valuable consideration received, does
hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA
FINANCE & INVESTMENT CORP., a domestic corporation x x x, the
following ACCOUNTS RECEIVABLES due and payable to it, having an
aggregate face value of x x x."
The Deeds of Assignment enabled Great Asian to
generate instant cash from its fifteen checks, which were still not due
and demandable then. In short, instead of waiting for the maturity
dates of the fifteen postdated checks, Great Asian sold the checks to
Bancasia at less than the total face value of the checks. In exchange
for receiving an amount less than the face value of the checks, Great
Asian obtained immediately much needed cash. Over three months, Great
Asian entered into four transactions of this nature with Bancasia,
showing that Great Asian availed of a discounting line with Bancasia.
In the financing industry, the term "discounting
line" means a credit facility with a financing company or bank, which
allows a business entity to sell, on a continuing basis, its accounts
receivable at a discount.12
The term "discount" means the sale of a receivable at less than its
face value. The purpose of a discounting line is to enable a business
entity to generate instant cash out of its receivables which are still
to mature at future dates. The financing company or bank which buys the
receivables makes its profit out of the difference between the face
value of the receivable and the discounted price. Thus, Section 3 (a)
of the Financing Company Act of 1998 provides:
"Financing companies" are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property." (Emphasis supplied)
This definition of "financing companies" is
substantially the same definition as in the old Financing Company Act
(R.A. No. 5980).13
Moreover, Section 1 (h) of the New Rules and
Regulations adopted by the Securities and Exchange Commission to
implement the Financing Company Act of 1998 states:
"Discounting" is a type of receivables financing
whereby evidences of indebtedness of a third party, such as installment
contracts, promissory notes and similar instruments, are purchased by,
or assigned to, a financing company in an amount or for a consideration less than their face value." (Emphasis supplied)
Likewise, this definition of "discounting" is an
exact reproduction of the definition of "discounting" in the
implementing rules of the old Finance Company Act.
Clearly, the discounting arrangements entered into by
Arsenio under the Deeds of Assignment were the very transactions
envisioned in the two board resolutions of Great Asian to raise funds
for its business. Arsenio acted completely within the limits of his
authority under the two board resolutions. Arsenio did exactly what the
board of directors of Great Asian directed and authorized him to do.
Arsenio had all the proper and necessary authority
from the board of directors of Great Asian to sign the Deeds of
Assignment and to endorse the fifteen postdated checks. Arsenio signed
the Deeds of Assignment as agent and authorized signatory of Great Asian
under an authority expressly granted by its board of directors. The
signature of Arsenio on the Deeds of Assignment is effectively also the
signature of the board of directors of Great Asian, binding on the board
of directors and on Great Asian itself. Evidently, Great Asian shows
its bad faith in disowning the Deeds of Assignment signed by its own
Treasurer, after receiving valuable consideration for the checks
assigned under the Deeds.
Second Issue: Breach of Contract by Great Asian
Bancasia’s complaint against Great Asian is founded
on the latter’s breach of contract under the Deeds of Assignment. The
Deeds of Assignment uniformly stipulate14 as follows:
"If for any reason the receivables or any part
thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally
and irrevocably agrees to pay the same, assuming the liability to
pay, by way of penalty three per cent (3%) of the total amount unpaid,
for the period of delay until the same is fully paid.
In case of any litigation which the ASSIGNEE may
institute to enforce the terms of this agreement, the ASSIGNOR shall be
liable for all the costs, plus attorney’s fees equivalent to twenty-five
(25%) per cent of the total amount due. Further thereto, the ASSIGNOR
agrees that any and all actions which may be instituted relative hereto
shall be filed before the proper courts of the City of Manila, all other
appropriate venues being hereby waived.
The last Deed of Assignment15 contains the following added stipulation:
"xxx Likewise, it is hereby understood that the
warranties which the ASSIGNOR hereby made are deemed part of the
consideration for this transaction, such that any violation of any one,
some, or all of said warranties shall be deemed as deliberate
misrepresentation on the part of the ASSIGNOR. In such event, the
monetary obligation herein conveyed unto the ASSIGNEE shall be
conclusively deemed defaulted, giving rise to the immediate
responsibility on the part of the ASSIGNOR to make good said obligation,
and making the ASSIGNOR liable to pay the penalty stipulated
hereinabove as if the original obligor/s of the receivables actually
defaulted. xxx"
Obviously, there is one vital suspensive condition in
the Deeds of Assignment. That is, in case the drawers fail to pay the
checks on maturity, Great Asian obligated itself to pay Bancasia the
full face value of the dishonored checks, including penalty and
attorney’s fees. The failure of the drawers to pay the checks is a
suspensive condition,16
the happening of which gives rise to Bancasia’s right to demand payment
from Great Asian. This conditional obligation of Great Asian arises
from its written contracts with Bancasia as embodied in the Deeds of
Assignment. Article 1157 of the Civil Code provides that -
"Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts."
By express provision in the Deeds of Assignment,
Great Asian unconditionally obligated itself to pay Bancasia the full
value of the dishonored checks. In short, Great Asian sold the
postdated checks on with recourse basis against itself. This is
an obligation that Great Asian is bound to faithfully comply because it
has the force of law as between Great Asian and Bancasia. Article 1159
of the Civil Code further provides that -
"Obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good
faith."
Great Asian and Bancasia agreed on this specific with recourse
stipulation, despite the fact that the receivables were negotiable
instruments with the endorsement of Arsenio. The contracting parties
had the right to adopt the with recourse stipulation which is
separate and distinct from the warranties of an endorser under the
Negotiable Instruments Law. Article 1306 of the Civil Code provides
that –
"The contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public
order, or public policy."
The explicit with recourse stipulation against
Great Asian effectively enlarges, by agreement of the parties, the
liability of Great Asian beyond that of a mere endorser of a negotiable
instrument. Thus, whether or not Bancasia gives notice of dishonor to
Great Asian, the latter remains liable to Bancasia because of the with recourse stipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law.
There is nothing in the Negotiable Instruments Law or
in the Financing Company Act (old or new), that prohibits Great Asian
and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned.17
Assignment of a negotiable instrument is actually the principal mode of
conveying accounts receivable under the Financing Company Act. Since
in discounting of receivables the assignee is subrogated as creditor of
the receivable, the endorsement of the negotiable instrument becomes
necessary to enable the assignee to collect from the drawer. This is
particularly true with checks because collecting banks will not accept
checks unless endorsed by the payee. The purpose of the endorsement is
merely to facilitate collection of the proceeds of the checks.
The purpose of the endorsement is not to make the
assignee finance company a holder in due course because policy
considerations militate against according finance companies the rights
of a holder in due course.18
Otherwise, consumers who purchase appliances on installment, giving
their promissory notes or checks to the seller, will have no defense
against the finance company should the appliances later turn out to be
defective. Thus, the endorsement does not operate to make the finance
company a holder in due course. For its own protection, therefore, the
finance company usually requires the assignor, in a separate and
distinct contract, to pay the finance company in the event of dishonor
of the notes or checks.
As endorsee of Great Asian, Bancasia had the option
to proceed against Great Asian under the Negotiable Instruments Law.
Had it so proceeded, the Negotiable Instruments Law would have governed
Bancasia’s cause of action. Bancasia, however, did not choose this
route. Instead, Bancasia decided to sue Great Asian for breach of
contract under the Civil Code, a right that Bancasia had under the
express with recourse stipulation in the Deeds of Assignment.
The exercise by Bancasia of its option to sue for
breach of contract under the Civil Code will not leave Great Asian
holding an empty bag. Great Asian, after paying Bancasia, is subrogated
back as creditor of the receivables. Great Asian can then proceed
against the drawers who issued the checks. Even if Bancasia failed to
give timely notice of dishonor, still there would be no prejudice
whatever to Great Asian. Under the Negotiable Instruments Law, notice
of dishonor is not required if the drawer has no right to expect or
require the bank to honor the check, or if the drawer has countermanded
payment.19
In the instant case, all the checks were dishonored for any of the
following reasons: "account closed", "account under garnishment",
insufficiency of funds", or "payment stopped". In the first three
instances, the drawers had no right to expect or require the bank to
honor the checks, and in the last instance, the drawers had
countermanded payment.
Moreover, under common law, delay in notice of
dishonor, where such notice is required, discharges the drawer only to
the extent of the loss caused by the delay.20
This rule finds application in this jurisdiction pursuant to Section
196 of the Negotiable Instruments Law which states, "Any case not
provided for in this Act shall be governed by the provisions of existing
legislation, or in default thereof, by the rules of the Law Merchant."
Under Section 186 of the Negotiable Instruments Law, delay in the
presentment of checks discharges the drawer. However, Section 186
refers only to delay in presentment of checks but is silent on delay in
giving notice of dishonor. Consequently, the common law or Law Merchant
can supply this gap in accordance with Section 196 of the Negotiable
Instruments Law.
One other issue raised by Great Asian, that of lack
of consideration for the Deeds of Assignment, is completely
unsubstantiated. The Deeds of Assignment uniformly provide that the
fifteen postdated checks were assigned to Bancasia "for valuable
consideration." Moreover, Article 1354 of the Civil Code states that,
"Although the cause is not stated in the contract, it is presumed that
it exists and is lawful, unless the debtor proves the contrary." The
record is devoid of any showing on the part of Great Asian rebutting
this presumption. On the other hand, Bancasia’s Loan Section Manager,
Cynthia Maclan, testified that Bancasia paid Great Asian a consideration
at the discount rate of less than 24% of the face value of the
postdated checks.21
Moreover, in its verified petition for voluntary insolvency, Great
Asian admitted its debt to Bancasia when it listed Bancasia as one of
its creditors, an extra-judicial admission that Bancasia proved when it
formally offered in evidence the verified petition for insolvency.22
The Insolvency Law requires the petitioner to submit a schedule of
debts that must "contain a full and true statement of all his debts and
liabilities."23
The Insolvency Law even requires the petitioner to state in his
verification that the schedule of debts contains "a full, correct and
true discovery of all my debts and liabilities x x x."24
Great Asian cannot now claim that the listing of Bancasia as a creditor
was not an admission of its debt to Bancasia but merely an
acknowledgment that Bancasia had sent a demand letter to Great Asian.
Great Asian, moreover, claims that the assignment of
the checks is not a loan accommodation but a sale of the checks. With
the sale, ownership of the checks passed to Bancasia, which must now,
according to Great Asian, sue the drawers and indorser of the check who
are the parties primarily liable on the checks. Great Asian forgets
that under the Deeds of Assignment, Great Asian expressly undertook to
pay the full value of the checks in case of dishonor. Again, we
reiterate that this obligation of Great Asian is separate and distinct
from its warranties as indorser under the Negotiable Instruments Law.
Great Asian is, however, correct in saying that the
assignment of the checks is a sale, or more properly a discounting, of
the checks and not a loan accommodation. However, it is precisely
because the transaction is a sale or a discounting of receivables,
embodied in separate Deeds of Assignment, that the relevant provisions
of the Civil Code are applicable and not the Negotiable Instruments Law.
At any rate, there is indeed a fine distinction
between a discounting line and a loan accommodation. If the accounts
receivable, like postdated checks, are sold for a consideration less
than their face value, the transaction is one of discounting, and is
subject to the provisions of the Financing Company Act. The assignee is
immediately subrogated as creditor of the accounts receivable.
However, if the accounts receivable are merely used as collateral for
the loan, the transaction is only a simple loan, and the lender is not
subrogated as creditor until there is a default and the collateral is
foreclosed.
In summary, Great Asian’s four contracts assigning
its fifteen postdated checks to Bancasia expressly stipulate the
suspensive condition that in the event the drawers of the checks fail to
pay, Great Asian itself will pay Bancasia. Since the common condition
in the contracts had transpired, an obligation on the part of Great
Asian arose from the four contracts, and that obligation is to pay
Bancasia the full value of the checks, including the stipulated penalty
and attorney’s fees.
Third Issue: The liability of surety Tan Chong Lin
Tan Chong Lin, the President of Great Asian, is being
sued in his personal capacity based on the Surety Agreements he signed
wherein he solidarily held himself liable with Great Asian for the
payment of its debts to Bancasia. The Surety Agreements contain the
following common condition:
"Upon failure of the Principal to pay at maturity,
with or without demand, any of the obligations above mentioned, or in
case of the Principal’s failure promptly to respond to any other lawful
demand made by the Creditor, its successors, administrators or assigns,
both the Principal and the Surety/ies shall be considered in default and
the Surety/ies agree/s to pay jointly and severally to the Creditor all
outstanding obligations of the Principal, whether due or not due, and
whether held by the Creditor as Principal or agent, and it is agreed
that a certified statement by the Creditor as to the amount due from the
Principal shall be accepted by the Surety/ies as correct and final for
all legal intents and purposes."
Indisputably, Tan Chong Lin explicitly and
unconditionally bound himself to pay Bancasia, solidarily with Great
Asian, if the drawers of the checks fail to pay on due date. The
condition on which Tan Chong Lin’s obligation hinged had happened. As
surety, Tan Chong Lin automatically became liable for the entire
obligation to the same extent as Great Asian.
Tan Chong Lin, however, contends that the following
warranties in the Deeds of Assignment enlarge or increase his risks
under the Surety Agreements:
"The ASSIGNOR warrants:
1. the soundness of the receivables herein assigned;
2. that said receivables are duly noted in its books and are supported by appropriate documents;
3. that said receivables are genuine, valid and subsisting;
4. that said receivables represent bona fide sale of
goods, merchandise, and/or services rendered in the ordinary course of
its business transactions;
5. that the obligors of the receivables herein assigned are solvent;
6. that it has valid and genuine title to and indefeasible right to dispose of said accounts;
7. that said receivables are free from all liens and encumbrances;
8. that the said receivables are freely and legally
transferable, and that the obligor/s therein will not interpose any
objection to this assignment, and has in fact given his/their consent
hereto."
Tan Chong Lin maintains that these warranties in the
Deeds of Assignment materially altered his obligations under the Surety
Agreements, and therefore he is released from any liability to Bancasia.
Under Article 1215 of the Civil Code, what releases a solidary debtor
is a "novation, compensation, confusion or remission of the debt" made
by the creditor with any of the solidary debtors. These warranties,
however, are the usual warranties made by one who discounts receivables
with a financing company or bank. The Surety Agreements, written on the
letter head of "Bancasia Finance & Investment Corporation,"
uniformly state that "Great Asian Sales Center x x x has obtained and/or
desires to obtain loans, overdrafts, discounts and/or other forms of credits
from" Bancasia. Tan Chong Lin was clearly on notice that he was
holding himself as surety of Great Asian which was discounting postdated
checks issued by its buyers of goods and merchandise. Moreover, Tan
Chong Lin, as President of Great Asian, cannot feign ignorance of Great
Asian’s business activities or discounting transactions with Bancasia.
Thus, the warranties do not increase or enlarge the risks of Tan Chong
Lin under the Surety Agreements. There is, moreover, no novation of the
debt of Great Asian that would warrant release of the surety.
In any event, the provisions of the Surety Agreements
are broad enough to include the obligations of Great Asian to Bancasia
under the warranties. The first Surety Agreement states that:
"x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s
and bind/s himself/themselves to pay at maturity all the notes, drafts,
bills of exchange, overdraft and other obligations of every kind which
the Principal may now or may hereafter owe the Creditor, including
extensions or renewals thereof in the sum *** ONE MILLION ONLY*** PESOS
(P1,000,000.00), Philippine Currency, plus stipulated interest thereon
at the rate of sixteen percent (16%) per annum, or at such increased
rate of interest which the Creditor may charge on the Principal’s
obligations or renewals or the reduced amount thereof, plus all the
costs and expenses which the Creditor may incur in connection therewith.
x x x
Upon failure of the Principal to pay at maturity,
with or without demand, any of the obligations above mentioned, or in
case of the Principal’s failure promptly to respond to any other lawful
demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal,
whether due or not due, and whether held by the Creditor as Principal
or agent, and it is agreed that a certified statement by the Creditor as
to the amount due from the Principal shall be accepted by the
Surety/ies as correct and final for all legal intents and purposes.
(Emphasis supplied)
The second Surety Agreement contains the following provisions:
"x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree
and bind themselves to pay at maturity all the notes, drafts, bills of
exchange, overdraft and other obligations of every kind which the
PRINCIPAL may now or may hereafter owe the Creditor, including
extensions and/or renewals thereof in the principal sum not to exceed
TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus
stipulated interest thereon, or such increased or decreased rate of
interest which the Creditor may charge on the principal sum outstanding
pursuant to the rules and regulations which the Monetary Board may from
time to time promulgate, together with all the cost and expenses which
the CREDITOR may incur in connection therewith.
If for any reason whatsoever, the PRINCIPAL should
fail to pay at maturity any of the obligations or amounts due to the
CREDITOR, or if for any reason whatsoever the PRINCIPAL fails to
promptly respond to and comply with any other lawful demand made by the
CREDITOR, or if for any reason whatsoever any obligation of the
PRINCIPAL in favor of any person or entity should be considered as
defaulted, then both the PRINCIPAL and the SURETY/IES shall be
considered in default under the terms of this Agreement. Pursuant
thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR,
whether due or not due, and whether owing to the PRINCIPAL in its
personal capacity or as agent of any person, endorsee, assignee or
transferee. x x x. (Emphasis supplied)
Article 1207 of the Civil Code provides, "xxx There
is a solidary liability only when the obligation expressly so states, or
when the law or nature of the obligation requires solidarity." The
stipulations in the Surety Agreements undeniably mandate the solidary
liability of Tan Chong Lin with Great Asian. Moreover, the stipulations
in the Surety Agreements are sufficiently broad, expressly encompassing
"all the notes, drafts, bills of exchange, overdraft and other
obligations of every kind which the PRINCIPAL may now or may hereafter
owe the Creditor". Consequently, Tan Chong Lin must be held
solidarily liable with Great Asian for the nonpayment of the fifteen
dishonored checks, including penalty and attorney’s fees in accordance
with the Deeds of Assignment.
The Deeds of Assignment stipulate that in case of
suit Great Asian shall pay attorney’s fees equivalent to 25% of the
outstanding debt. The award of attorney’s fees in the instant case is
justified,25
not only because of such stipulation, but also because Great Asian and
Tan Chong Lin acted in gross and evident bad faith in refusing to pay
Bancasia’s plainly valid, just and demandable claim. We deem it just
and equitable that the stipulated attorney’s fee should be awarded to
Bancasia.
The Deeds of Assignment also provide for a 3% penalty
on the total amount due in case of failure to pay, but the Deeds are
silent on whether this penalty is a running monthly or annual penalty.
Thus, the 3% penalty can only be considered as a one-time penalty.
Moreover, the Deeds of Assignment do not provide for interest if Great
Asian fails to pay. We can only award Bancasia legal interest at 12%
interest per annum, and only from the time it filed the complaint
because the records do not show that Bancasia made a written demand on
Great Asian prior to filing the complaint.26 Bancasia made an extrajudicial demand on Tan Chong Lin, the surety, but not on the principal debtor, Great Asian.
WHEREFORE, the assailed Decision of the Court of
Appeals in CA-G.R. CV No. 20167 is AFFIRMED with MODIFICATION.
Petitioners are ordered to pay, solidarily, private respondent the
following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b)
interest on the total outstanding amount in item (a) at the legal rate
of 12% per annum from the filing of the complaint until the same is
fully paid, (c) attorney’s fees equivalent to 25% of the total amount in
item (a), including interest at 12% per annum on the outstanding amount
of the attorney’s fees from the finality of this judgment until the
same is fully paid, and (c) costs of suit.
SO ORDERED.
Vitug, (Acting Chairman), and Panganiban, JJ., concur.
Melo, (Chairman), J., on leave.
Sandoval-Gutierrez, J., no part.
Melo, (Chairman), J., on leave.
Sandoval-Gutierrez, J., no part.
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