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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