OL. 375, FEBRUARY 1, 2002579Lee vs. Court of AppealsG.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.G.R. No. 117914. February 1, 2002.*MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents._______________

8 Rollo, pp. 460-461.* SECOND DIVISION.580

580SUPREME COURT REPORTS ANNOTATEDLee vs. Court of AppealsCivil Procedure; 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.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.Commercial Law; Negotiable Instruments Law; Essential Requisites of a Negotiable Instrument; Letters of credit and trust receipts are not negotiable instruments.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.Same; Same; Same; A trust receipt is a document of security pursuant to which a bank acquires a security interest in the goods under trust receipt.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. 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 letter581

VOL. 375, FEBRUARY 1, 2002581Lee vs. Court of Appealsof credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, a security feature which is in the covering trust receipt which secures an indebtedness.PETITIONS for review of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.Lim, Duran & Associates for petitioner C. Lee.Silvestre J. Acejas & Associates for petitioner Mico Metals Corp.Laogan, Silva, Baeza & Llantino Law Office for private respondent PBCOM.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:_______________

1 Penned by Associate Justice Corona Ibay-Somera and concurred in by Associate Justices Fidel P. Purisima and Asaali S. Isnani, Second Division; Rollo, G.R. No. 117913, pp. 57-84.2 Should not have been included as petitioner since the RTC granted the motion of private respondent to drop his name as one of the defendants inasmuch as he was in Taiwan where he later died when the RTC issued the summons and alias summons for service, to petitioner Suy.3 Should not have been included as petitioner since the RTC granted the motion of private respondent to drop his name as one of the defendants, without prejudice, since the summons and the alias service of sum-582

582SUPREME COURT REPORTS ANNOTATEDLee vs. Court of AppealsWHEREFORE, 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 (P5,451,663.90) 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 (P461,600.66) 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 P50,000.00 as attorneys 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 (P3,000,000.00) for the purpose of carrying out MICOs 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 (P3,000,000.00) 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 MICOs Board of Directors:RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager, Mr. Mariana 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_______________

mons could not be served on him inasmuch as his whereabouts are unknown.583

VOL. 375, FEBRUARY 1, 2002583Lee vs. Court of Appealslimited 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 (P10,000,000.00), 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.4On March 26, 1979, MICO availed of the first loan of One Million Pesos (P1,000,000.00) 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. 26218.5Another loan of One Million Pesos (P1,000,000.00) 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 MICOs availment of Three Million Pesos (P3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from PBCom in the sum of One Million Pesos (P1,000,000.00) 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. 26253.7As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed on May 16, 1979 a Deed_______________

4 Exhibit E, Records, p. 372.5 Exhibit I, Records, p. 383.6 Exhibit J, Records, p. 384.7 Exhibit K, Records, p. 385.584

584SUPREME COURT REPORTS ANNOTATEDLee vs. Court of Appealsof 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 (P3,000,000.00) plus interest, costs, losses, charges and expenses including attorneys 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 (P4,000,000.00). The loan was intended for the expansion and modernization of the companys machineries. Upon approval of the said application for loan, MICO availed of the additional loan of Four Million Pesos (P4,000,000.00) as evidenced by Promissory Note TA No. 094.9As per agreement, the proceeds of all the loan availments were credited to MICOs 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_______________

8 Exhibit G, Records, pp. 377-378.9 Exhibit N, Records, pp. 389-390.10 Exhibit H, Records, pp. 380-381.585

VOL. 375, FEBRUARY 1, 2002585Lee vs. Court of AppealsSeven Million Five Hundred Thousand Pesos (P7,500,000.00) including interest, costs, charges, expenses and attorneys 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.11On 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 (P348,000.00).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_______________

11 Exhibit L, Records, p. 386.12 Exhibit O, Records, p. 391.13 Exhibit O-1, Records, p. 392.14 Exhibit O-2, Records, p. 393.586

SUPREME COURT REPORTS ANNOTATED586Lee vs. Court of Appealspaid, a trust receipt upon MICOs own initiative, was executed in favor of PBCom.15On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the sum of Two Hundred Ninety Thousand Pesos (P290,000.00).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 banks 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 PBComs advice through a confirmation letter22 and by debiting from PBComs 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.24On 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 corre-_______________

15 Exhibit O-4, Records, p. 395.16 Exhibit P, Records, p. 396.17 Exhibit P-1, Records, p. 397.18 Exhibit P-4, Records, p. 400.19 Exhibit Q, Records, p. 401.20 Exhibit Q-1, Records, p. 405.21 Exhibit Q-2, Records, p. 406.22 Exhibit Q-3, Records, p. 407.23 Exhibit Q-4, Records, p. 408.24 Exhibit Q-7, Records, p. 411.25 Exhibit R, Records, p. 412.587

VOL. 375, FEBRUARY 1, 2002587Lee vs. Court of Appealssponding 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 (P377,000.00) covered by Promissory Note BA No. 7458.29Upon 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 MICOs 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 (P3,000,000.00) 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 (P5,441,663.90) 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 (P5,441,663.90), MICO likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos (P461, 600.06) representing its trust receipts liabilities to private respondent. PBCom then demanded the settlement of the aforesaid obligations from herein_______________

26 Exhibit R-1, Records, p. 416.27 Exhibit R-3, Records, p. 418.28 Exhibit R-5, Records, p. 420.29 Records, p. 440.30 Exhibit T, Records, p. 422.588

588SUPREME COURT REPORTS ANNOTATEDLee vs. Court of Appealspetitioners-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 (P4,000,000.00) 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 (P348,000.00) and Two Hundred Ninety Thousand Pesos589

VOL. 375, FEBRUARY 1, 2002589Lee vs. Court of Appeals(P290,000.00), 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 MICOs 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 peti-_______________

31 200 SCRA 37, 44 (1991).590

590SUPREME COURT REPORTS ANNOTATEDLee vs. Court of Appealstion 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, 1995.32Petitioners 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 de-_______________

32 G.R. No. 117913, Rollo, p. 9.33 Section 1, Rule 133 Rules of Court.591

VOL. 375, FEBRUARY 1, 2002591Lee vs. Court of Appealsfense 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 P1,000,000.00 executed by MICO in favor of PBCom.592

592SUPREME COURT REPORTS ANNOTATEDLee vs. Court of Appeals2) Promissory Note No. BNA -26219 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom.3) Promissory Note No. BNA -26253 dated May 25, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom.4) Promissory Note No. BNA -7458 dated May 21, 1982 in the sum of P377,000.00 executed by MICO in favor of PBCom.5) Promissory Note No. TA -094 dated July 29, 1980 in the sum of P4,000,000.00 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 P348,000.00 issued by Perez Battery Center, beneficiary of irrevocable Letter of Credit 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 P290,000.00 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, 1981 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 in593

VOL. 375, FEBRUARY 1, 2002593Lee vs. Court of Appealsthe form of loans, letters of credit and trust receipt in the sum of P7,500,000.00.17) 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 P4,000,000.00.18) 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 MICOs 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 MICOs 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 from594

594SUPREME COURT REPORTS ANNOTATEDLee vs. Court of Appealstheir 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 MICOs 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 PBComs_______________

34 Exhibit 1, Records, p. 641.35 By-laws, Article II (d), Records, p. 642.36 By-laws, Article II (e), Records, p. 642.595

VOL. 375, FEBRUARY 1, 2002595Lee vs. Court of Appealsdemand for payment of MICOs 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 respondents witness, Mr. Gardiola, testified that the proceeds of the loans were deposited in MICOs 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 MICOs current account with PBCom, MICO in fact vigorously objected to the presentation of said document. That point is shown in the testimony of PBComs 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:596

596SUPREME COURT REPORTS ANNOTATEDLee vs. Court of AppealsYour 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, Im 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.x x x x x x x x xQ: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)x x x x x x x x xQ: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)37That 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 (P4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied that it has already availed of earlier loans from PBCom._______________

37 TSN, November 15, 1983, pp. 24-25, 27, 28.597

VOL. 375, FEBRUARY 1, 2002597Lee vs. Court of AppealsPetitioners 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 buyers 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._______________

38 50 AM JUR 2d, Letters of Credit 1.598

598SUPREME COURT REPORTS ANNOTATEDLee vs. Court of AppealsFrom 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 PBComs correspondent bank in Taiwan, the Irving Trust Companywhich 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 latters 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, a security feature which is in the covering trust receipt which secures an indebtedness._______________

39 Vintola v. Insular Bank of Asia and America, 150 SCRA 578, 583-584 (1987) citing Samo v. People, 5 SCRA 354, 356-357 (1962).599

VOL. 375, FEBRUARY 1, 2002599Lee vs. Court of AppealsPetitioners averments with regard to the second issue are no less incredulous. 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 (P3,000,000.00) 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 (P3,000,000.00).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 (P1,500,000.00) to be used exclusively as marginal deposit for the opening of MICOs 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 (P4,000,000.00). 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_______________

40 Exhibit A, Records, p. 368.41 Exhibit B, Records, p. 369.42 Exhibit C, Records, p. 370.43 Exhibit F, Records, pp. 373-376.600

600SUPREME COURT REPORTS ANNOTATEDLee vs. Court of AppealsYap, 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 (P348,000.00); and that a certain Moises Rosete was authorized to claim the check covering the Three Hundred Forty-Eight Thousand Pesos (P348,000.00) from PBCom; and that after claiming the check Rosete brought it_______________

44 TSN, June 25, 1985, pp. 25-26.601

VOL. 375, FEBRUARY 1, 2002601Lee vs. Court of Appealsto Perez Battery Center for indorsement after which the same was deposited to the personal account of Chua Siok Suy.45We 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 MICOs 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 Suys 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 MICOs authorized representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBComs corporate secretary, Atty. P.B. Barrera, indicated that_______________

45 TSN, June 25, 1985, pp. 30-34.602

602SUPREME COURT REPORTS ANNOTATEDLee vs. Court of AppealsChua 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 MICOs 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 plaintiffs pleadings, the burden of proof continues to rest on the plaintiff throughout the trial and does not shift to the defendant until the plaintiffs 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 states of equipoise between his_______________

46 256 SCRA 478, 486 (1996).47 I.B. JONES, THE LAW ON EVIDENCE IN CIVIL CASES 313-314 178 (4TH ed., 1938).603

VOL. 375, FEBRUARY 1, 2002603Lee vs. Court of Appealsproof 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.Bellosillo (Chairman), Mendoza, Quisumbing and Buena, JJ., concur.Judgment affirmed in toto.Note.In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer and the seller; (2) the contract of the buyer with the issuing bank; and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. (Keng Hua Paper Products Co., Inc. vs. Court of Appeals, 286 SCRA 257 [1998])o0o

604

Copyright 2014 Central Book Supply, Inc. All rights reserved. [Lee vs. Court of Appeals, 375 SCRA 579(2002)]

Sesbreo vs. Court of AppealsG.R. No. 89252. May 24, 1993.*RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION and PILIPINAS BANK, respondents.Commercial Law; Non-negotiable Promissory Notes; An instrument though marked non-negotiable, may nevertheless be assigned or transferred.A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: The words not negotiable, stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties. DMC PN No. 2731, while marked non-negotiable, was not at the same time stamped non-transferrable or non-assignable. It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note.Same; Assignment of Credit; Debtors consent not needed to effectuate assignment.Apropos Deltas complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without the consent of Delta, we note that such consent was not necessary for the validity and enforceability of the assignment in favor of petitioner. Deltas argument that Philfinances sale or assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Deltas) consent, is quite mistaken.Same; Same; Agreement prohibiting transfer cannot be invoked against assignee who, without notice parted with valuable consideration in good faith.We find nothing in his Letter of Agreement which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add that, even had this Letter of Agreement set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that_______________

* THIRD DIVISION.467

VOL. 222, MAY 24, 1993467Sesbreo vs. Court of Appealspetitioner was such an assignee or transferee.Same; Corporations; Grounds for piercing the veil of corporate fiction.Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only to cite the presence of a common DirectorMr. Ricardo Silverio, Sr., sitting on the Boards of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate affairs of the other two (2) were administered and managed for the benefit of one. There is simply not enough evidence of record to justify disregarding the separate corporate personalities of Delta and Pilipinas and to hold them liable for any assumed or undetermined liability of Philfinance to petitioner.Same; Civil Law; For the protection of investors, depositary or custodianship agreements made an integral part of money market transactions.We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depositary was owed, however, to petitioner Sesbreo as beneficiary of the custodianship or depositary agreement. We do not consider that this is a simple case of a stipulation pour autri. The custodianship or depositary agreement was established as an integral part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing sold would be placed outside the control of the vendor.Same; Same; Extinguishment of Obligation; Compensation may defeat assignees rights before notice of the assignment is given to the debtor.In other words, petitioner notified Delta of his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an assignee are not any greater than the rights of the assignor, since the assignee is merely substituted in the place of the assignor and that the assignee acquires his rights subject to the equitiesi.e., the defenseswhich the debtor could have set up against the original assignor before notice of the assignment was given to the debtor. At the time that Delta was first put to notice of the assignment in petitioners favor on 14 July 1981, DMC PN No. 2731 had already been discharged by compensation. Since the assignor468

468SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of AppealsPhilfinance could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfmance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.Same; Same; Solidary Liability.The solidary liability that petitioner seeks to impute to Pilipinas cannot, however, be lightly inferred. Under Article 1207 of the Civil Code, there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. The record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarity liable with Philfinance and private respondent Delta under DMC PN No. 2731.PETITION for review on certiorari of the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.Salva, Villanueva & Associates for Delta Motors Corporation.Reyes, Salazar & Associates for Pilipinas Bank.FELICIANO, J.:

On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation (Philfinance), Cebu Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 1981. Philfinance, also on 9 February 1981, issued the following documents to petitioner:(a) the Certificate of Confirmation of Sale, without recourse, No. 20496 of one (1) Delta Motors Corporation Promissory Note (DMC PN) No. 2731 for a term of 32 days at 17.0% per annum;(b) the Certificate of Securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per469

VOL. 222, MAY 24, 1993469Sesbreo vs. Court of AppealsDenominated Custodian Receipt (DCR) No. 10805 dated 9 February 1981; and(c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioners investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33.On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds.On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas Bank (Pilipinas). It read as follows:PILIPINAS BANK Makati Stock Exchange Bldg., Ayala Avenue, Makati, Metro Manila

February 9, 1991VALUE DATETO Raul SesbreoApril 6, 1981MATURITY DATENO. 10805DENOMINATED CUSTODIAN RECEIPT

This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITERS FINANCE CORPORATION, we have in our custody the following securities to you [sic] the extent herein indicated.SERIALMAT.FACEISSUEDREGISTEREDAMOUNTNUMBERDATEVALUEBYHOLDER PAYEE27314-6-812,300,833.34DMCPHIL. UNDERWRITERS FINANCE CORP.307,933.33470

470SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of AppealsWe further certify that these securities may be inspected by you or your duly authorized representative at any time during regular banking hours.Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after its maturity.PILIPINAS BANK (By Elizabeth De Villa Illegible Signature)1On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and handed to her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with Philfinance as payee and private respondent Delta Motors Corporation (Delta) as maker; and that on face of the promissory note was stamped NON-NEGOTIABLE. Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to petitioner.Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981,2 again asking private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all of petitioners demand letters to Philfinance for written instructions, as had been supposedly agreed upon in a Securities Custodianship Agreement between Pilipinas and Philfinance. Philfinance never did provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner.______________

1 Exhibit C, Folder of Exhibits, p. 3; TSN, 14 June 1983, p. 41.2 Records, p. 441; Plaintiffs Memorandum, p. 3.471

VOL. 222, MAY 24, 1993471Sesbreo vs. Court of AppealsPetitioner also made a written demand on 14 July 19813 upon private respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta.In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and Exchange Commission (SEC) and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date apparently remains in the custody of the SEC.4As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court (RTC) of Cebu City, Branch 21, against private respondents Delta and Pilipinas.5 The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner.Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a decision dated 21 March 1989, the Court of Appeals denied the appeal and held: 6Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of plaintiff-appellant, it is Philfinance. As correctly observed by the trial court:This act of Philfinance in accepting the investment of plaintiff and charging it against DMC P.N. No. 2731 when its entire face value was already obligated or earmarked for set-off or compensation is difficult to comprehend and may have been_______________

3 Id., p. 451; Plaintiffs Memorandum, p. 13.4 TSN, 14 June 1983, p. 35.5 Petitioner explained that he did not implead Philfinance as party defendant because the latter was under rehabilitation by the Securities and Exchange Commission (TSN of the Pre-trial Conference, pp. 6 and 30, dated 04 March 1983).6 Court of Appeals Decision, p. 8; Rollo, p. 90.472

472SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of Appealsmotivated with bad faith. Philfinance, therefore, is solely and legally obligated to return the investment of plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants in this case at bar; hence, this Court is without jurisdiction to pronounce judgment against it. (p. 11, Decision).WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto. Cost against plaintiff-appellant.Petitioner moved for reconsideration of the above Decision, without success.Hence, this Petition for Review on Certiorari.After consideration of the allegations contained and issues raised in the Pleadings, the Court resolved to give due course to the petition and required the parties to file their respective memoranda.7Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondent Court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarity liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor of petitioner; and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong to the Silverio Group of Companies under the leadership of Mr. Ricardo Silverio, Sr.8There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitioner vis-a-vis Delta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor the Court of Appeals acquired jurisdic-_______________

7 Private respondent Delta adopted as its own the Memorandum filed by private respondent Pilipinas (Rollo, pp. 269-73).8 Rollo, p. 6.; Petition, p. 5.473

VOL. 222, MAY 24, 1993473Sesbreo vs. Court of Appealstion over the person of Philfinance. It is, consequently, not necessary for present purposes to deal with this third relationship, except to the extent it necessarily impinges upon or intersects the first and second relationships.IWe consider first the relationship between petitioner and Delta.The Court of Appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold without recourse to petitioner, to the extent of P304,533.33. The Court of Appeals said on this point:Nor could plaintiff-appellant have acquired any right over DMC P.N. No. 2731 as the same is non-negotiable as stamped on its face (Exhibit 6), negotiation being defined as the transfer of an instrument from one person to another so as to constitute the transferee the holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the instrument in his own name and cannot demand or receive payment (Section 51, id.).9Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that that Note had been validly transferred, in part, to him by assignment and that as a result of such transfer, Delta as debtor-maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance.Delta, however, disputes petitioners contention and argues:(1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by Philfinance as manifested by the word non-negotiable stamp across the face of the Note10 and because maker Delta and payee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;(2) that the assignment of DMC PN No. 2731 by Philfinance was without Deltas consent, if not against its instructions; and_______________

9 Id., p. 88.10 TSN, 17 August 1983, p. 36.474

474SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of Appeals(3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took that Note subject to the defenses available to Delta, in particular, the offsetting of DMC PN No. 2731 against Philfmance PN No. 143-A.11We consider Deltas arguments seriatim.Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non-negotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument:The words not negotiable, stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable, may be transferred by assignment; the assignee taking subject to the equities between the original parties.12 (Italics added)DMC PN No. 2731, while marked non-negotiable, was not at the same time stamped non-transferrable or non-assignable. It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note.Delta adduced the Letter of Agreement which it had entered into with Philfinance and which should be quoted in full:_______________

11 Records, pp. 36-37.12 National Bank of Bristol v. Baltimore & O.R. Co., 59 A. 134, 138. See also, in this connection, Consolidated Plywood v. IFC Leasing, 149 SCRA 449 (1987).475

VOL. 222, MAY 24, 1993475Sesbreo vs. Court of AppealsApril 10, 1980Philippine Underwriters Finance Corp.Benavidez St., Makati Metro ManilaAttention: Mr. Alfredo O. BanariaSVP-TreasurerGENTLEMEN:This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981.As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity.Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo.Very Truly Yours, (Sgd.) Florencio B. Biagan Senior Vice President13We find nothing in his Letter of Agreement which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add that, even had this Letter of Agreement set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the fact that what Philfinance and Delta were doing by their exchange of promissory notes was this: Delta invested, by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day,______________

13 Exhibit 3, Records, p. 240.476

476SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of Appealsborrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes.Apropos Deltas complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without the consent of Delta, we note that such consent was not necessary for the validity and enforceability of the assignment in favor of petitioner.14 Deltas argument that Philfinances sale or assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Deltas) consent, is quite mistaken. Conventional subrogation, which in the first place is never lightly inferred,15 must be clearly established by the unequivocal terms of the subtituting obligation or by the evident incompatibility of the new and old obligations on every point.16 Nothing of the sort is present in the instant case.It is in fact difficult to be impressed with Deltas complaint, since it released its DMC PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling debt instruments and other securities, and more generally, in money market transactions. In Perez v. Court of Appeals,17 the Court, speaking through Mme. Justice Herrera, made the following important statement:There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith the money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in the open market. It involves commercial papers which are instruments evidencing indebtedness of any person or entity . . . ., which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse. The fundamental_______________

14 National Investment and Development Corporation v. De los Angeles, 40 SCRA 487 (1971); Bastida v. Dy Buncio & Co., 93 Phil. 195 (1953). See also Articles 1285 and 1626, Civil Code.15 Article 1300, Civil Code.16 Article 1292, id.17 127 SCRA 636 (1984).f477

VOL. 222, MAY 24, 1993477Sesbreo vs. Court of Appealsfunction of the money market device in its operation is to match and bring together in a most impersonal manner both the fund users and the fund suppliers. The money market is an impersonal market, free from personal considerations. The market mechanism is intended to provide quick mobility of money and securities.The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial paper in the money market necessarily knows in advance that it would be expeditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor.x x x x x x x x xThere is no need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal basis. And as specifically required by Presidential Decree No. 678, the investing public must be given adequate and effective protection in availing of the credit of a borrower in the commercial paper market.18 (Citations omitted; italics supplied)We turn to Deltas arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have taken place. The essential requirements of compensation are listed in the Civil Code as follows:Art. 1279. In order that compensation may be proper, it is necessary:(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;(3)That the two debts are due;(4) That they be liquidated and demandable;(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Italics supplied)_______________

18 127 SCRA at 645-646.478

478SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of AppealsOn 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by Delta in its 10 April 1980 Letter of Agreement with Philfinance, where Delta acknowledged that the relevant promissory notes were to be offsetted (sic) against [Philfinance] PN No. 143-A upon coterminal maturity.As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the co-terminal maturity date, that is to say, before any compensation had taken place. Further, the assignment to petitioner would have prevented compensation from taking place between Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him.The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July 1981,19 that is, after the maturity not only of the money market placement made by petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an assignee are not any greater than the rights of the assignor, since the assignee is merely substituted in the place of the assignor20 and that the assignee acquires his rights subject to the equitiesi.e., the defenseswhich the debtor could have set up_______________

19 Records, p. 451; Plaintiffs Memorandum, p. 13.20 Gonzales v. Land Bank of the Philippines, 183 SCRA 520 (1990); Philippine National Bank v. General Acceptance and Finance Corp., 161 SCRA 449 (1988); National Investment and Development Corporation v. De los Angeles, 40 SCRA 489 (1971); Montinola v. Philippine National Bank, 88 Phil. 178 (1951); National Exchange Company, Ltd. v. Ramos, 51 Phil. 310 (1927); Sison v. Yap-Tico, 37 Phil. 584 (1918).479

VOL. 222, MAY 24, 1993479Sesbreo vs. Court of Appealsagainst the original assignor before notice of the assignment was given to the debtor. Article 1285 of the Civil Code provides that:ART. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation.If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones.If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (Italics supplied)Article 1626 of the same Code states that: the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. In Sison v. Yap-Tico,21 the Court explained that:[n]o man is bound to remain a debtor: he may pay to him with whom he contracted to pay; and if he pay before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the duty of the person who has acquired a title by transfer to demand payment of the debt, to give his debtor notice.22At the time that Delta was first put to notice of the assignment in petitioners favor on 14 July 1981, DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him.It bears some emphasis that petitioner could have notified Delta of the assignment in his favor as soon as that assignment_______________

21 37 Phil. 584 (1918).22 37 Phil. at 589. See also Rodriguez v. Court of Appeals, 207 SCRA 553, 559 (1992). See, generally, Philippine National Bank v. General Acceptance and Finance Corp., 161 SCRA 449, 457 (1988).480

480SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of Appealsor sale was effected on 9 February 1981. He could have also notified Delta as soon as his money market placement matured on 13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had yet to set in and discharge DMC PN No. 2731. Again, petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance the Denominated Custodianship Receipt (DCR) No. 10805 issued by private respondent Pilipinas in favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of any indication that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner.IIWe turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following words:Upon your written instructions, we [Pilipinas] shall undertake physical delivery of the above securities fully assigned to you.23The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that:(1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to mature on 6 April 1981 and payable to the order of Philfinance;(2)Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February) 1981), holding that Note on_______________

23 Petitioners Memorandum, p. 12; Rollo, p. 221.481

VOL. 222, MAY 24, 1993481Sesbreo vs. Court of Appealsbehalf and for the benefit of petitioner, at least to the extent it had been assigned to petitioner by payee Philfinance;24(3) petitioner may inspect the Note either personally or by authorized representative; at any time during regular bank hours; and(4)upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a participation therein to the extent of P307,933.33) should this Denominated Custodianship Receipt remain outstanding in [petitioners] favor thirty (30) days after its maturity.Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or at any other time. We note that both in his complaint and in his testimony before the trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect physical delivery to him of DMC PN No. 2731.25 Accordingly, petitioners theory that Pilipinas had assumed a solidary obligation to pay the amount represented by the portion of the Note assigned to him by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks to impute to Pilipinas cannot, however, be lightly inferred. Under Article 1207 of the Civil Code, there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. The record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability_______________

24 The DCR specified the amount of P307,933.33 as the extent to which DMC PN No. 2731 pertained to petitioner Raul Sesbreo. This amount probably refers to the placement of P300,000.00 by petitioner plus interest from 9 February 1981 until the maturity date of DMC PN No. 2731, i.e., 6 April 1981.25 Complaint, pp. 2-3; Rollo, pp. 23-24; TSN of 11 April 1983, p. 51; TSN, 9 October 1986, pp. 15-16. See also Minutes of the Pre-trial Conference, dated 04 March, 1983, p. 9.482

482SUPREME COURT REPORTS ANNOTATEDSesbreo vs. Court of Appealsunder the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarity liable with Philfinance and private respondent Delta under DMC PN No. 2731.We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreno.We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depositary was owed, however, to petitioner Sesbreno as beneficiary of the custodianship or depositary agreement. We do not consider that this is a simple case of a stipulation pour au