Sunday, May 5, 2019

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.

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