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The Facts

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (“petitioners”) were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation (“El Oro Corporation”). El Oro Corporation had a
contract with the Philippine Army to supply the latter with “survival bolos.”

To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation,
applied with respondent Bank of the Philippine Islands for two commercial letters of credit. The letters of credit were in
favor of El Oro Corporation’s suppliers, Tanchaoco Manufacturing Incorporated and Maresco Rubber and Retreading
Corporation. Respondent bank granted petitioners’ application and issued Letter of Credit No. 2-00896-3 for P564,871.05
to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent
bank. On 30 September 1981, petitioner Jose C. Tupaz IV (“petitioner Jose Tupaz”) signed, in his personal capacity,
a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to
sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods,
if not sold, on or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt
corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered
by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before
8 December 1981.

After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation,
respondent bank paid the former P564,871.05 and P294,000, respectively.

Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands
for payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent bank’s
counsel[5] and its representative[6] respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied
that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos.

Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 (“Section 13”) [7] or
Trust Receipts Law (“PD 115”). After preliminary investigation, the then Makati Fiscal’s Office found probable cause to
indict petitioners. The Makati Fiscal’s Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848
and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 (“trial
court”) on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial, respondent
bank presented evidence on the civil aspect of the cases. RTC acquitted petitioners, CA affirmed the RTC decision.

The Issues

The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro Corporation’s debts under the trust
(2) If so —
(a) whether petitioners’ liability is solidary with El Oro Corporation; and
(b) whether petitioners’ acquittal of estafa under Section 13, PD 115 extinguished their civil liability.

The Ruling of the Court

The petition is partly meritorious. We affirm the Court of Appeals’ ruling with the modification that petitioner Jose
Tupaz is liable as guarantor of El Oro Corporation’s debt under the trust receipt dated 30 September 1981.

On Petitioners’ Undertaking Under

the Trust Receipts

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by
these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they
represent.[12] As an exception, directors or officers are personally liable for the corporation’s debts only if they so
contractually agree or stipulate.[13]

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation.
Thus, under petitioner Petronila Tupaz’s signature are the words “Vice-Pres–Treasurer” and under petitioner Jose Tupaz’s
signature are the words “Vice-Pres–Operations.” By so signing that trust receipt, petitioners did not bind themselves
personally liable for El Oro Corporation’s obligation. In Ong v. Court of Appeals,[15] a corporate representative signed a
solidary guarantee clause in two trust receipts in his capacity as corporate representative.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners’ claim that they are not personally liable for El
Oro Corporation’s obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone,
we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro
Corporation’s Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro
Corporation’s debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not
liable under such trust receipt.

The Nature of Petitioner Jose Tupaz’s Liability

Under the Trust Receipt Dated 30 September 1981

The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation
for the latter’s debt under that trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court,[16] the Court interpreted a substantially identical
clause[17] in a trust receipt signed by a corporate officer who bound himself personally liable for the corporation’s
obligation. The petitioner in that case contended that the stipulation “we jointly and severally agree and undertake”
rendered the corporate officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer
liable as guarantor only. The Court further ruled that had there been more than one signatories to the trust receipt, the
solidary liability would exist between the guarantors. We held:

Xxx It, however, described the guaranty as solidary between the guarantors; this would have
been correct if two (2) guarantors had signed it. The clause “we jointly and severally agree and
undertake” refers to the undertaking of the two (2) parties who are to sign it or to the liability existing
between themselves. It does not refer to the undertaking between either one or both of them on the one
hand and the petitioner on the other with respect to the liability described under the trust receipt. xxx

Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be
resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is
on a form drafted and prepared solely by the petitioner; xxx

However, respondent bank’s suit against petitioner Jose Tupaz stands despite the Court’s finding that he is liable
as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still
demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have
been exhausted.[19] Second, the benefit of excussion may be waived.[20] Under the trust receipt dated 30 September 1981,
petitioner Jose Tupaz waived excussion when he agreed that his “liability in [the] guaranty shall be DIRECT AND
IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal
remedies xxx.” The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation’s principal debt and other accessory liabilities
(as stipulated in the trust receipt and as provided by law) under the trust receipt. That trust receipt provided for payment of
attorney’s fees equivalent to 10% of the total amount due and an “interest at the rate of 7% per annum, or at such other
rate as the bank may fix, from the date due until paid xxx.” [21] In the applications for the letters of credit, the parties
stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum.[22]

Petitioner Jose Tupaz’s Acquittal did not

Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not
extinguished by acquittal —

Here, respondent bank chose not to file a separate civil action [30] to recover payment under the trust receipts.
Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court
acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held,
his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex
contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal

In 1981, Joseph Chua and Edgar Rodrigueza executed separate surety agreements in favor of Fortune Motors (Phils.)
Corporation to cover obligations incurred by Fortune Motors whether they be enforced or thereafter made (from the time
of said surety contracts).
In 1982, Fortune Motors secured cars from Canlubang Automotive Resources Corporation (CARCO) via trust receipts and
drafts made by CARCO. These were assigned to Filinvest Credit Corporation. Later Filinvest, when the obligation
matured, demanded payment from Fortune Motor as well as from Chua and Rodrigueza. No payment was made. A case
was filed. Rodrigueza averred that the surety agreement was void because when it was signed in 1981, the principal
obligation (1982) did not yet exist.
(1) Whether or not the surety agreement is void.
(2) Whether or not there was a novation of the obligation that of CARCO with Fortune’s.


(1) No. Future obligations can be covered by a surety. Comprehensive or continuing surety agreements are in fact quite
commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering
into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute
a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a
position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be
no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the
principal debtor. It is obvious from the foregoing that Rodrigueza and Chua were fully aware of the business of Fortune,
an automobile dealer; Chua being the corporate president of Fortune and even a signatory to the Financial Agreement
with Filinvest. 22 Both sureties knew the purpose of the surety undertaking which they signed and they must have had an
estimate of the amount involved at that time. Their undertaking by way of the surety contracts was critical in enabling
Fortune to acquire credit facility from Filinvest and to procure cars for resale, which was the business of Fortune.
Respondent Filinvest, for its part, relied on the surety contracts when it agreed to be the assignee of CARCO with respect
to the liabilities of Fortune with CARCO. After benefiting therefrom, petitioners cannot now impugn the validity of the
surety contracts on the ground that there was no preexisting obligation to be guaranteed at the time said surety contracts
were executed. They cannot resort to equity to escape liability for their voluntary acts, and to heap injustice to Filinvest,
which relied on their signed word.

This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was made to believe that it can collect from
Chua and/or Rodrigueza in case of Fortune’s default. Filinvest relied upon the surety contracts when it demanded
payment from the sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety contracts would virtually
sanction the perpetration of fraud or injustice.

(2) Second Issue: No Novation

Neither do we find merit in the averment of petitioners that the Financing Agreement contained onerous obligations not
contemplated in the surety undertakings, thus changing the principal terms thereof and effecting a novation.

We have ruled previously that there are only two ways to effect novation and thereby extinguish an obligation. First,
novation must be explicitly stated and declared in unequivocal terms. Novation is never presumed. Second, the old and
new obligations must be incompatible on every point. The test of incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation
novates the first. Novation must be established either by the express terms of the new agreement or by the acts of the
parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one.
The will to novate, whether totally or partially, must appear by express agreement of the parties, or by their acts which are
too clear and unequivocal to be mistaken.


On 27 July 1979, private respondents Sanyu Chemical Corporation as principal and Sanyu Trading Corporation along
with individual private stockholders of Sanyu Chemical as sureties, executed a Continuing Suretyship Agreement in favor
of Atok Finance as creditor.

Sanyu Chemical assigned its trade receivables outstanding to Atok Finance in consideration of receipt from Atok Finance
of the amount of P105,000.00. The assigned receivables carried a standard term of thirty (30) days; it appeared, however,
that the standard commercial practice was to grant an extension of up to one hundred twenty (120) days without

Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili
before the Regional Trial Court of Manila to collect a sum of money plus penalty charges starting from 1 September 1983.
Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amounts due under the trade receivables.

Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim
had prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended
that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its
execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.

After trial the trial court rendered a decision in favor of Atok Finance. On appeal the CA reversed and set aside the
decision of the trial court and entered a new judgment dismissing the complaint of Atok Finance.

Whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the
Continuing Suretyship Agreement, or whether that Agreement must be held null and void as having been executed
without consideration and without a pre-existing principal obligation to sustain it. NO

Whether private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu
Chemical, executed in favor of petitioner, on the receivables thereby assigned. YES

(1) Although obligations arising from contracts have the force of law between the contracting parties, (Article
1159 of the Civil Code) this does not mean that the law is inferior to it; the terms of the contract could not be
enforced if not valid. So, even if, as in this case, the agreement was for a continuing suretyship to include
obligations enumerated in the agreement, the same could not be enforced. First, because this contract, just like
guaranty, cannot exist without a valid obligation (Art. 2052, Civil Code); and, second, although it may be given as
security for future debt (Art. 2053, C.C.), the obligation contemplated in the case at bar cannot be considered
'future debt' as envisioned by this law.

There is no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which served
as the principal obligation between the parties. Furthermore, the 'future debts' alluded to in Article 2053 refer to debts
already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the case at
bar where the obligation was acquired two years after the agreement."

A guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of
securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article
2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." Nevertheless, a guaranty may be
constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural
obligation." Moreover, Article 2053 of the Civil Code states that a guaranty may also be given as security for future debts,
the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured."

Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial
practice. A bank or a financing company which anticipates entering into a series of credit transactions with a particular
company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its
sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of
transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety
contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand it, this is
precisely what happened in the case at bar.

(2) As regards the second issue, the contention of Sanyu Chemical was that Atok Finance had no cause of action
under the Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had
ceased. (WRONG) It relied on Article 1629 of the Civil Code which provides: In case the assignor in good faith should
have made himself responsible for the solvency of the debtor, and the contracting parties should not have agreed upon
the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired.
If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the

The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the assignor which
were later assigned to the assignee. The debt alluded to in the law, is not the debt incurred by the assignor to the
assignee as contended by the appellant. Applying the said law to the case at bar, the records disclose that none of the
assigned receivables had matured when the Deed of Assignment was executed.

It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical.
Assignment of receivables is a commonplace commercial transaction today. It is an activity or operation that permits the
assignee to monetize or realize the value of the receivables before the maturity thereof. In other words, Sanyu Chemical
received from Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously benefitted from
the assignment. The payments due in the first instance from the trade debtors of Sanyu Chemical would represent the
return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such

Article 1629 of the Civil Code is not material. The liability of Sanyu Chemical to Atok Finance rests not on the breach
of the warranty of solvency; the liability of Sanyu Chemical was not ex lege but rather ex contractu. Under the Deed of
Assignment, the effect of non-payment by the original trade debtors was a breach of warranty of solvency by Sanyu
Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other
words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and
transferred by virtue of the Deed of Assignment. The obligations of individual private respondent officers and stockholders
of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu
Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment.
That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil Code.

It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a valid and
enforceable cause of action against Sanyu Chemical and the other private respondents.



Leonor S. Bantug and Tomas Alonso were sued by the Texas Company (P.I.), Inc. in the Court of First Instance of Cebu
for the recovery of the sum of P629, unpaid balance of the account of Leonora S. Bantug in connection with the agency
contract with the Texas Company for the faithful performance of which Tomas Alonso signed the following:

Leonor S. Bantug was declared in default as a result of her failure to appear or answer, but Tomas Alonso filed an answer
setting up a general denial and the special defenses that Leonor S. Bantug made him believe that he was merely a co-
security of one Vicente Palanca and he was never notified of the acceptance of his bond by the Texas Company. After
trial, the Court of First Instance of Cebu rendered judgment sentencing Leonor S. Bantug and Tomas Alonso to pay jointly
and severally to the Texas Company the sum of P629. Upon appeal by Tomas Alonso, the Court of Appeals modified the
judgment of the Court of First Instance of Cebu in the sense that Leonor S. Bantug was held solely liable for the payment
of the aforesaid sum of P629 to the Texas Company, with the consequent absolution of Tomas Alonso.


WON Court of Appeals erred in holding that there was merely an offer of guaranty on the part of the respondent, Tomas
Alonso, and that the latter cannot be held liable thereunder because he was never notified by the Texas Company of its


NO. CA is correct.

In view of the foregoing clause which should be the law between the parties, it is obvious that, before a bond is accepted
by the petitioner, it has to be in such form and amount and with such sureties as shall be satisfactory hereto; in other
words, the bond is subject to petitioner's approval. The logical implication arising from this requirement is that, if the
petitioner is satisfied with any such bond, notice of its acceptance or approval should necessarily be given to the property
party in interest, namely, the surety or guarantor. In this connection, we are likewise bound by the finding of the Court of
Appeals that there is no evidence in this case tending to show that the respondent, Tomas Alonso, ever had knowledge of
any act on the part of petitioner amounting to an implied acceptance, so as to justify the application of our decision in
National Bank vs. Escueta (50 Phil., 991).

While unnecessary to this decision, we choose to add a few words explanatory of the rule regarding the necessity of
acceptance in case of bonds. Where there is merely an offer of, or proposition for, a guaranty, or merely a conditional
guaranty in the sense that it requires action by the creditor before the obligation becomes fixed, it does not become a
binding obligation until it is accepted and, unless there is a waiver of notice of such acceptance is given to, or acquired by,
the guarantor, or until he has notice or knowledge that the creditor has performed the conditions and intends to act upon
the guaranty. (National Bank vs. Garcia, 47 Phil., 662; C. J., sec. 21, p. 901; 24 Am. Jur., sec. 37, p. 899.) The
acceptance need not necessarily be express or in writing, but may be indicated by acts amounting to acceptance.
(National Bank vs. Escueta, 50 Phil., 991.) Where, upon the other hand, the transaction is not merely an offer of guaranty
but amounts to direct or unconditional promise of guaranty, unless notice of acceptance is made a condition of the
guaranty, all that is necessary to make the promise binding is that the promise should act upon it, and notice of
acceptance is not necessary (28 C. J., sec. 25, p. 904; 24 Am. Jur., sec 37, p. 899), the reason being that the contract of
guaranty is unilateral (Visayan Surety and Insurance Corporation vs. Laperal, G.R. No. 46515, promulgated June 14,