NDC vs CIR

No. L-15422. November 30, 1962.

P- National Development Co.

R- CIR, National Textile Workers Union

Art. 85 - Meal Periods

Facts:

GOCC NDC employed 4 shifts of work: a. 8am-4pm, b. 6am-2pm, c. 2pm-10pm, d. 10pm-6am.  It credited the workers the 1-hour mealtime with 8 hours of work for each shift and paid them for the same number of hours. But since 1953, it credited those workers in one shift, who were required to continue working until the next shift, only 6 hours of work for overtime work excluding the mealtime periods in computing compensation.

The Union maintained the opposite view. The CIR held that mealtime should be counted in the determination of overtime work.

Issue:

            WoN the mealtime breaks should be considered working time.

Ruling:

            Yes. Mealtime breaks should be counted as working time for purposes of overtime compensation because work therein was continuous, and employees and laborers were not permitted to rest completely.

            Sec. 1, Com. Act No. 444, as amended, provides:

            “The legal working day for any person employed by another shall be of not more than eight hours daily. When the work is not continuous, the time during which the laborer is not working and can leave his working place and can rest completely shall not be counted.”

            In this case, the CIR’s finding that work in the petitioner company was continuous and did not permit employees and laborers to rest completely has basis in evidence and is following our earlier rulings.

            Thus, the mealtime breaks are compensable.

NB – CIR has jurisdiction over claims for overtime compensation when the following requisites are complied with:

a)    there must exist between the parties an employer-employee relationship or the claimant must seek his reinstatement; and

the controversy must relate to a case certified by the President to the CIR as one involving national interest, or must arise either under the Eight-Hour Labor Law, or under the Minimum Wage Law.

Villamaria, Jr. vs. CA

G.R. No. 165881. April 19, 2006.

P- Oscar Villamaria, Jr

R- CA, Jerry Bustamante

Employer-Employee Relationship; Conditions of Employment

Facts:
            Oscar Villamaria, Jr. operated passenger jeepneys by employing drivers on a “boundary basis.” In 1997, Villamaria agreed to sell the jeepney to driver Bustamante under the “boundary-hulog scheme”.  Their contract stipulated the prohibitions, compliance and restrictions.

            Bustamante continued driving the jeepney under the supervision and control of Villamaria. But later he failed to comply with his obligations so that notice of compliance and warning were ensued. Until in 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from driving the vehicle. Hence, Bustamante filed a complaint for Illegal Dismissal. 

The LA ruled in his favor, but the NLRC reversed the Order for the reason that the juridical relationship between Bustamante and Villamaria was that of vendor and vendee. However, the CA affirmed the LA on the ground that the relationship between Villamaria and Bustamante was dual: that of vendor-vendee and employer-employee.

            Villamaria averred that their contract was a combination of vendor-vendee and employer-employee because they had clearly entered into a conditional deed of sale over the jeepney so that their employer-employee relationship had been transformed into that of vendor-vendee.

Issue:

            WoN the existence of a boundary-hulog agreement negates the employer-employee relationship between the vendor and vendee.

Ruling:

            No, The Kasunduan did not extinguish the employer-employee relationship of the parties extant before the execution of said deed.

            Under the boundary-hulog scheme incorporated in the Kasunduan, a dual juridical relationship was created between petitioner and respondent: that of employer-employee and vendor-vendee.

            The fact that the driver does not receive fixed wages but only the excess of the “boundary” given to the owner/operator is not sufficient to change the relationship between them. Indubitably, the driver performs activities which are usually necessary or desirable in the usual business or trade of the owner/operator.

            Thus, the petition is denied.

Citizens' League of Freeworkers vs. Abbas

No. L-21212. September 23, 1966

P- Citizens' League of Freeworkers

R- Hon. Macapanton Abbas (CFI Davao), Teofilo Geronimo and Emerita Mendez

Employer-Employee Relationship; Conditions of Employment

Facts:

The spouses Teofilo and Emerita leased the auto calesas to the Union members on a daily rental basis. The Union bargained with the spouses to recognize them as employees instead of lessees. Unable to get such bargain, the union declared a strike.

The spouses prayed for the issuance of a writ of preliminary injunction restraining the Union from interfering with its operation. CFI Davao granted the prayer. 

Meanwhile, the Union filed a complaint for unfair labor practice against the former. It also filed before the CFI Davao a motion to declare the writ of preliminary injunction void. But Judge Abbas denied said motion on the ground that there was no employer-employee relationship between the spouses and the Union drivers.

Issue:

WoN a driver under the boundary system is not an employee.

Ruling:

            No. A driver who operates under the boundary system is an "employee" of the owner of the vehicle within the meaning of the law.

            In National Labor Union v. Dinglasan, 52 O.G., No. 4, 1933, the Court rules that the employer-employee relationship existed between the owner of the jeepneys and the drivers even if the latter worked under the boundary system.

NB – There are two features sufficient to establish the relationship between the operators and the drivers from that of employer-employee, which is far from the relationship of lessor and lessee:

a.    compensation is the excess of the total amount of fares earned or collected by the drivers; and

the gasoline is for the account of the drivers.

Great Pacific Life Assurance Corporation vs. Judico

G.R. No. 73887. December 21, 1989

P- Great Pacific Life Assurance Corporation

R- Honorato Judico

Employer-Employee Relationship; Conditions of Employment

Facts:

Honorato Judico filed a complaint for illegal dismissal against Grepalife and prayed for award of money claims. The LA dismissed the complaint on the ground that the employer-employee relations did not exist between the parties, but ordered Grepalife to pay complainant the sum of P1,000.00 by reason of Christian Charity. Both appealed to NLRC.

The NLRC reversed the LA ruling by declaring Judico a regular employee as defined under Art. 281 of the Labor Code.

Grepalife argued that Judico is not its employee because his compensation was in the form of commissions and bonuses based on actual production (insurance plans sold and premium collections).

Issue:

WoN employer-employee relationship existed between the parties.

Ruling:

            Yes, there exists an er-ee relation between Grepalife and Judico because the element of control by the former on the latter was present.

            The test to determine whether employer-employee relationship exists is when the “employee” was controlled by the “employer” not only as to the kind of work, the amount of results, the kind of performance, but also the power of dismissal.

            In this case, Judico received a definite minimum amount per week as his wage known as “sales reserve”. He was assigned a definite place in the office to work on when he is not in the field, was burdened with the job of collection, was required to make regular reports to the company, and for which an anemic performance would mean a dismissal. Undoubtedly, by nature of his position and work, Judico had been a regular employee of Grepalife, and is therefore entitled to the protection of the law and could not just be terminated without valid and justifiable cause.

            Thus, the appealed decision is affirmed in toto.

Opulencia Ice Plant and Storage vs. NLRC

G.R. No. 98368. December 15, 1993.

P- Opulencia Ice Plant and Storage

R- NLRC, Manuel Esita

Employer-Employee Relationship; Conditions of Employment

Facts:
            In 1980, Manuel Esita was hired as a compressor operator-mechanic for the ice plants of Dr. Melchor Opulencia for a daily wage of P35.00. In 1989, he was dismissed from service because of demanding the correct amount of wages due him. So, he filed a complaint for illegal dismissal, underpayment, non-payment for overtime, legal holiday, premium for holiday and rest day, 13th month, separation/retirement pay and allowances against Dr. Opulencia.

            The LA declared the existence of an employer-employee relationship between the parties, and directed Opulencia to pay Esita his claims, except for overtime pay due to lack of basis. The NLRC affirmed the ruling but reduced the amount.

            Opulencia denied that Esita was an employee because he was merely a helper/peon of one of the contractors who did major repairs and renovation of the Tanauan ice plant. Thus, Esita’s work could not have ripened into a regular employment.

Issue:

            WoN there is no employer-employee relationship between them.

Ruling:

            No, the employer-employee relationship between the parties was clearly established.

            Moreover, no particular form of evidence is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted.

            Furthermore, the circumstance that Esita’s presence would be required only when there was need for repair cannot affect the regular status of his employment. An employee who is required to remain on call in the employer’s premises or so close thereto that he cannot use the time effectively and gainfully for his own purpose shall be considered as working while on call.

            In sum, the determination of regular and casual employment is not affected by the fact that the employee’s regular presence in the place of work is not required, the more significant consideration being that the work of the employee is usually necessary or desirable in the business of the employer.

            Thus, the petition is denied.

Sanchez v. Harry Lyons Construction Inc. et al

No. L-2779. October 18, 1950

P- Harry Lyons Construction Inc. et al

R- CFI Manila/ Daniel Sanchez et al

Labor Code, Article 4 – Construction in favor of Labor

Facts:

·                   In Jan. 1947, Daniel Sanchez et al (other 10 workers) was employed by Harry Lyons as Carpenter Foreman, Warehousemen and Guards.
·         In Dec. 1947, they were dismissed by the Harry Lyons without one months' previous notice. They demanded payment of one month's salary, but the company refused.
·         The Municipal Court of Manila ruled in favor of the Sanchez et al, which was affirned by the CFI Manila.
·         On appeal to the CA, the petitioner argued that:

a.    In their contracts of employment, they agreed that their employment may be terminated at any time without previous notice; and that the use of the word "temporary" in their contracts of services show that their employment was with a term, and the term was "temporary, on a day to day basis.".

b.    They also executed an advance waiver on the benefit of Article 302 of the Code of Commerce and that of any other law, ruling, or custom which might require notice of discharge or payment of salary or wages after date of the termination of such employment.

Issues:

1.    WoN those paid on a monthly and daily basis, are entitled to the benefit granted in article 302 of the Code of Commerce.

2.    WoN, if they are so entitled, their waiver of such benefits was legal and valid.

Ruling:

1.    Yes, the law gives an added proviso that in the case of factors or shop clerks, these shall be entitled to salary during this one month of standing notice.

Under ART. 302- In cases in which no special time is fixed in the contracts of service, any one of the parties thereto may cancel it, advising the other party thereof one month in advance.  "The factor or shop clerk shall be entitled, in such case, to the salary due for said month."

The one-month notice must be given to them, because the two conditions concur: (a) that no special time is fixed in the contract of service, and (b) that said employee is a commercial employee. Consequently, when such notice is not given under these conditions, they are entitled to indemnity which may be one month's salary.

The word "temporary" as used in the contract does not mean the special time fixed in the contracts referred to in article 302 of the Code of Commerce. The daily basis therein stipulated is for the computation of pay, and is not necessarily the period of employment.

Thus, they are entitled to the payment of one month's salary.

2.    No, such a waiver made in advance is void as being contrary to public policy.

Public policy, with regard to labor, is clearly stated in article II, section 5, of the Philippine Constitution - "The promotion of social justice to insure the well-being and economic security of all the people should be the concern of theState”; and article XIV, section 6 - "The State shall afford protection to labor, especially to working women and minors, and shall regulate the relations between landowner and tenant, and between labor and capital in industry and in agriculture. * * *".

Article 302 of the Code of Commerce must be applied in consonance with these provisions of our constitution.

In the matter of employment bargaining, there is no doubt that the employer stands on higher footing than the employee. First of all, there is greater supply than demand for labor. Secondly, the need for employment by labor comes from vital and even desperate, necessity. Consequently, the law must protect labor, at least, to the extent of raising him to equal footing in bargaining relations with capital and to shield him from abuses brought about by the necessity for survival. It is safe to presume therefore, that an employee or laborer who waives in advance any benefit granted him by law does so, certainly not in his interest or through generosity but under the forceful intimidation of urgent need, and hence, he could not have so acted freely and voluntarily.

Thus, the decision of the lower court is AFFIRMED.

Euro-Linea Phils., Inc. v. National Labor Relations Commission

No. L-75782. December 1, 1987

P- Euro-Linea Phils., Inc.

R- NLRC/ Jimmy Pastoral.

Labor Code, Article 4 – Construction in favor of Labor

Facts:

·                   Pastoral had been employed by FMC as shipping expediter for 1 year & 5 mos.
·         Then, Euro-Linea absorbed Pastoral as shipping expediter on a probationary basis for a period of six months.
·         But before his probationary period ended, his employment was terminated for failure "to meet the performance standards set by the company."
·         Pastoral filed a complaint for illegal dismissal against petitioner.
·         The Labor Arbiter ruled in favor of Pastoral, ordering the reinstatement of complainant with six months backwages, which was affirmed by the NLRC.
·         The petitioner argued that the dismissal is with cause, since respondent during his period of employment failed to meet the performance standards set by the company; that employers should be given leeway in the application of his right to choose efficient workers; and that the determination of compliance with the standards is the prerogative of the employer as long as it is not whimsical; that it had terminated for cause the respondent before the expiration of the probationary employment

Issue:

            WoN the dismissal of Pastoral was justifiable.

Ruling:

            No, because the petitioner not only failed to present sufficient evidence to substantiate the cause of private respondent's dismissal, but likewise failed to cite particular acts or instances to show the latter's poor performance.

Furthermore, what makes the dismissal highly suspicious is the fact that while petitioner claims that respondent was inefficient, it retained his services until the last remaining two weeks of the six months probationary employment.

The prerogative of management to dismiss or lay-off an employee must be done without abuse of discretion, for what is at stake is not only petitioner's position but also his means of livelihood. The right of an employer to freely select or discharge his employees is subject to regulation by the State, basically in the exercise of its paramount police power because the preservation of the lives of the citizens is a basic duty of the State, more vital than the preservation of corporate profits.

Finally, in the interpretation of the protection to labor and social justice provisions of the constitution and the labor laws and rules and regulations implementing the constitutional mandate, the Supreme Court has always adopted the liberal approach which favors the exercise of labor rights (Article 4 of the New Labor Code).

            Thus, the petition is DISMISSED.

Acuña v. CA

G.R. No. 159832. May 5, 2006

P- Mercedita Acuña et al

R- Joint International Corp. and Elizabeth Alañon

Labor Code, Article 4 – Construction in favor of Labor

Facts:

·         Acuña and the other 2 workers were deployed by the JIC as machine operators in Taiwan through an employment contract (salary is NTD15k + overtime pay) for 2 years.
·         After 7 days, they left their jobs and booked a flight home due to unbearable conditions.
·         They demanded from JIC the return of their placement fees and plane fare, and claimed their unpaid salary for the period of 5 days.
·         The JIC refused, but later offered settlement agreement. The petitioners signed a waiver for the said refund.
·         They filed a complaint before NLRC for illegal dismissal and non-payment of the benefits with moral & exemplary damages.
·         The Labor Arbiter ruled in their favor declaring that they did not resign voluntarily from their jobs. Thus, JIC was ordered to pay jointly & severally the said claims.
·         On appeal, the NLRC ruled that there was constructive dismissal since working under said conditions was unbearable.
·         However, the CA ruled otherwise because there was no fraud or malice, or intention on the part of the principal to subject them to unhealthy conditions.

Issue:

            WoN petitioners were illegally dismissed, thus entitling them to benefits plus damages.

Ruling:

            No. The circumstances show that there was no constructive dismissal (CD = involuntary resignation when continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to an employee).

            However, on the matter of overtime pay, the claim should not be disallowed just because the petitioners cannot substantiate them. GR- claims for overtime pay require documents to be subjected to rules of evidence and procedure. E2R- claim of overseas workers against foreign employers.

            Under LC Art.4, when controversies exist between a worker and his employer, doubts reasonably arising from the evidence, or in the interpretation of agreements and writing should be resolved in favor of the worker.

            Thus, the respondents were solidarily liable with the foreign principal for the overtime pay claims of petitioners.

            As to the award of moral and exemplary damages, the Court holds it lacks legal basis because they failed to prove bad faith, fraud or ill motive on the part of the respondents.

            Thus, the petition is DENIED.

Abella v. National Labor Relations Commission

G.R. No. 71812, July 20, 1987

P- Rosalina Abella/ Hacianda Danao-Ramona

R- Romeo Quitco & Ricardo Dionele Sr.

Labor Code, Article 4 – Construction in favor of Labor

Facts:

·         Abella leased a farm land known as Hacienda Danao-Ramona, for a period of ten (10) years, renewable, at her option, for another ten (10) years.
·         After 10 yrs, she opted to extend the lease contract for another ten (10) years.
·         She employed Quitco & Dionele as farm workers.
·         When her leasehold rights expired, she dismissed the two and turned over the hacienda to the land owners.
·         Quitco & Dionele filed a complaint against Abella for overtime pay, illegal dismissal and reinstatement with backwages.
·         The Labor Arbiter ruled that the dismissal is warranted by the cessation of business, but granted the private respondents separation pay.
·         On appeal, the NLRC affirmed the decision and dismissed the appeal for lack of merit.
·         Abella claimed that since her lease agreement had already expired, she is not liable for payment of separation pay.  She invoked Article 272 of the Labor Code, which pertains to the just causes of termination.
·         The Labor Arbiter does not argue the justification of the termination of employment but applied Article 284 as amended by BP 130, which provides for the rights of the employees under the circumstances of termination.
·         She contended that the provision quoted by the LA violates the constitutional guarantee against impairment of obligations and contracts, because when she leased Hacienda Danao-Ramona, neither she nor the lessor contemplated the creation of the obligation to pay separation pay to workers at the end of the lease.

Issue:

            WoN the respondents are entitled to separation pay.

Ruling:

            Yes. The purpose of Article 284 as amended is the protection of the workers whose employment is terminated because of the closure of establishment and reduction of personnel.

It is well-settled that in the implementation and interpretation of the provisions of the Labor Code and its implementing regulations, the working man's welfare should be the primordial and paramount consideration.

Under Article 4 of the New Labor Code, "all doubts in the implementation and interpretation of the provisions of this Code including its implementing rules and regulations shall be resolved in favor of labor."

            Thus, the petition is DISMISSED.

Philippine American General Insurance Co., Inc. v. Mutuc

No. L-19632. November 13, 1974
Art 1306. The contracting parties may establish stipulations not contrary to law, morals, good customs, public order or public policy.

Petitioner: Philippine American General Insurance Co., Inc

Respondents: Manuel C. Mutuc, Doroteo Q. Mojica, and Fausto S. Alberto

Facts:

·         Philippine American General Insurance Co., Inc. (PAGI) executed in behalf of defendant Mutuc, as principal, a surety bond in favor of the Maersk Line. The surety company guaranteed the faithful performance by said Mutuc of his duties as crewmember of the vessel of the Maersk Line, and more particularly, that he would not desert said vessel while he was engaged as crewmember.

·         Defendant Mutuc, Mojica, and appellant Alberto, executed an indemnity agreement in favor of PAGI. The parties agreed to jointly and severally indemnify plaintiff PAGI for any cost incurred by the latter in consequence of having become surety of any of them. It was further agreed that in case of any extension or renewal of the bond, they equally bind themselves under the same terms and conditions without the necessity of executing another indemnity agreement and waived their right to be notified of any renewal or extension of the bond which may be granted under the indemnity agreement.

·         The duration of surety bond was only for a year but at the instance of defendant Mutuc, it was renewed for three successive one year periods without the consent of Alberto.

·         According to the letter of the Immigration and Naturalization Service, Mutuc was not aboard the vessel M/S Merit Maersk when it departed from New York and was presumed to be a deserter. Maersk Line asked PAGI for the remittance of the forfeited bond of P1,000. PAGI wrote a letter to the defendants Mojica and Alberto demanding the payment of the amount of P1,000 in accordance with the indemnity agreement. Alberto refused on the ground that the stipulation as to “any extension” without the need for his being notified was null and void being contrary to law, morals, good customs, public order or public policy.  

Issue:

            WoN the stipulation as to “any extension” without the need for his being notified was null and void being contrary to law, morals, good customs, public order or public policy.

           

Held:

            No, the Supreme Court holds that there was nothing that did offend public policy or public order when such an arrangement was explicitly provided for.

            Article 1306 provides “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.”

Contracts, which are the private laws of the contracting parties, should be fulfilled according to the literal sense of their stipulations.  If their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what their form may be, whenever the essential requisites for their validity are present.

In the case at bar, Alberto agreed in advance to any extension without the need for notification. Such stipulation was explicitly provided for and is not against the law, morals, good customs, public policy or public order.

           Thus, the decision of the lower court is AFFIRMED.

Ong Chua v Carr

GR No. 29512. January 17, 1929
Art. 1362 – Unilateral mistake.

Petitioner – Ong Chua

Respondents – Edward Carr et al

Facts:

·         In 1923, Ong Chua bought four properties of the spouses Henry E. Teck and Magdalena Lim. Chua executed a public document granting the spouses the right to repurchase within four years. But neither one of the documents was placed on record with the register of deeds.

·         In 1925, Edward Carr came to Atty. P.J. Moore for advice and assistance in the former’s desire to purchase coconut lands. Later, Moore informed Carr that he could buy the lots purchased by Chua from the spouses Teck and Lim.

·         After long negotiations, Chua agreed to sell the properties in question to Carr on the condition that the sale should be subject to the rights of Teck and Lim to reconvey the properties, and that said rights were to be respected by the vendee.

·         However, Atty. Moore told Carr that they would make the deed of sale to appear absolute, but that Carr was to bear in mind that the rights of Teck and Lim still existed, and that the deed and other documents must be left in Moore's possession until the expiration of the term for the right of repurchase.

·         Hence, the deed of sale did not include therein the condition that the sale was subject to Teck's and Lim's rights to repurchase. The deed was signed by Chua, who was unfamiliar of English, trusting Atty. Moore that such public document contained sufficient conditions as agreed.

·         In 1926, Atty. Moore got critically ill. While the Atty. was under medical treatment, Carr annoyed the former.  Carr demanded the Atty. to surrender the deed to him for registration to the register of deeds.

·         Teck offered to repurchase the property in question from Chua who thereupon demanded of Carr the reconveyance of the property to the spouses.  But Carr refused to do so, claiming that he had an absolute title to said property.

·         Upon learning that the deed in question contained no reference to the rights of reconveyance, Chua filed an action to reform the deed of the sale in accordance with the original agreement. Subsequent to his answer, Carr died. He was substituted by the administrator of his estate, Manuel Igual.

·         The CFI Zamboanga rendered the judgment in favor of Chua.

·         On appeal, Igual argued that the facts proven did not justify the reformation of the deed in question.

Issue:

          WoN the petitioner performs a fraudulent conduct and unfair advantage over Chua to casue for the reformation of the deed.

Held:

          Yes, the Court holds that the evidence is conclusive that the conduct of Carr constituted fraud and was calculated to obtain an unfair advantage over Chua.

          Under Art. 1362, reformation will be given "where there is a mistake on one side and fraud or unfair dealing on the other".

In the case at bar, Carr knew the contents of the deed and fully agreed to Moore's plan to place it in escrow until the expiration of the term for the repurchase or redemption of the land. But he violated his own agreement when he harassed Moore into giving him possession of the deed prematurely. He took immediate advantage of that circumstance and hastened to have the document presented to the register of deeds for the issuance of certificates of title. Hence, such conduct constitutes fraud and was calculated to obtain an unfair advantage over the plaintiff.

          Thus, the appealed judgement is AFFIRMED.

Prudential Bank v IAC

G.R. No. 74886. December 8, 1992
Art. 1358 – What must appear in a public document.

Petitioner – Prudential Bank

Respondents – IAC, Phil. Rayon Mills Inc. & Anacleto Chi

Facts:

·         Philippine Rayon Mills entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan.

·         To effect payment, Philippine Rayon applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho.

·         Then, Nissho issued drafts which were all paid by the Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd.  Philippine Rayon President Anacleto R. Chi, accepted two of these drafts while the other ten drafts were not.

·         Prudential Bank indorsed the shipping documents to the Philippine Rayon, which accepted the delivery.

·         To take delivery of the machineries, Prudential Bank and Philippine Rayon executed a trust receipt, signed by Chi in his capacity as President. Chi agreed that he is jointly and severally liable to the Prudential Bank should the Philippine Rayon fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank.

·         The obligation of the Philippine Rayon arising from the letter of credit and the trust receipt remained unpaid and unliquidated. Repeated formal demands yielded no result. Hence, Prudential Bank filed an action for the collection of the principal amount of P956,384.95 against Philippine Rayon and Chi.

·         The trial court ordered Philippine Rayon the sum of P153,645.22 with interest at 6% per annum from 1974 until fully paid, and dismissed the case against Chi.

·         The Prudential Bank argued that Chi is solidarily liable with Philippine Rayon in accordance with law and based on his signature on the solidary guaranty clause at the dorsal side of the trust receipt.

·         The appellate court sustained the trial court in all respects because the said contract was not executed and acknowledged before a notary public.

Issue:

          WoN a contract of guaranty should be signed and acknowledged before a notary public to render Chi liable.

Held:

          No, the Court holds that the acknowledgment before a notary public is not required by law to make a party liable on the instrument.

          Under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public document.

          In the case at bar, the contract signed by Chi was a solidary guaranty clause. It was also admitted by Prudential Bank. With respect to a guaranty, which is a promise to answer for the debt or default of another, the law merely requires that it should be in writing. Otherwise, it would be unenforceable unless ratified. Unlike in surety, the acknowledgment of a surety before a notary public is required to make it a public document.

However, because the questioned provision is a solidary guaranty clause as distinguished from a contract of surety, the obligation of Chi is only that of a guarantor. Pursuant to other provisions of the law, the defense of exhaustion (excussion) may be raised by Chi before he may be held liable for the obligation.

          Thus, the petition is GRANTED. The rulings of the lower courts are REVERSED and SET ASIDE. But Anacleto Chi is DECLARED secondarily liable on the trust receipt, and is ordered to pay the face value thereof, with interest at the legal rate, if the writ of execution for the enforcement of the awards against Philippine Rayon Mills, Inc. is returned unsatisfied.