Case Summary (G.R. No. L-1523)
Key Dates
Board authorization to open credit lines: February 28, 1977. Continuing Suretyship Agreement executed: March 14, 1977. Trust receipts (credit lines) executed: May–June 1977 (aggregate P562,443.46). Metrobank debit memo showing settlement of letters of credit: March 22, 1978. Promissory note for P500,000 executed by Arrieta and Lilia Perez: March 21, 1978. Metrobank suit filed: 1979; Amended Complaint impleading Aguenza: August 30, 1980. Trial court decision absolving Aguenza: February 28, 1984. Court of Appeals decision reversing and holding Intertrade and Aguenza liable: February 11, 1986. Supreme Court decision reinstating trial court judgment: April 7, 1997.
Applicable Law
Primary constitutional frame: 1987 Philippine Constitution (case decided after 1990). Statutory and doctrinal authorities relied upon in the decision: Rules of Evidence (Rule 129, Section 4 on judicial admissions), New Civil Code provisions cited (Article 1878 regarding power to borrow; Article 2055 on surety), established doctrines on corporate capacity/ratification (e.g., Vicente v. Geraldez), and the rule that surety contracts are strictly construed against the creditor and are not to be presumed.
Facts
Intertrade’s Board by resolution (February 28, 1977) empowered Aguenza and Arrieta jointly to apply for and open credit lines with Metrobank. Aguenza and Arrieta executed trust receipts (May–June 1977) aggregating P562,443.46, later shown by Metrobank’s March 22, 1978 debit memo to have been paid in full. On March 14, 1977 Aguenza and Arrieta executed a Continuing Suretyship Agreement to secure Intertrade’s obligations to Metrobank up to P750,000. On March 21, 1978 Arrieta and Lilia Perez obtained a P500,000 loan from Metrobank and signed a promissory note promising repayment in 25 installments; they later defaulted. Metrobank sued Intertrade, Arrieta, the Perezes (and initially impleaded Aguenza in an amended complaint), seeking recovery from the principal and from sureties.
Trial Court Disposition
The trial court found the promissory note to be the personal obligation of Arrieta and Lilia Perez and absolved Intertrade and Aguenza from liability. The trial court ordered Arrieta and Lilia Perez to pay Metrobank the sums due, including attorney’s fees, and dismissed Metrobank’s claims against Intertrade and Aguenza.
Court of Appeals Rationale and Holding
The Court of Appeals reversed the trial court, holding that Intertrade had admitted corporate liability in its answer and other documentary indications and thereby that the promissory note represented a corporate obligation. The appellate court concluded that the Continuing Suretyship Agreement (expressly continuing and covering existing and future obligations of Intertrade) encompassed the March 21, 1978 promissory note; hence Intertrade and Aguenza were declared jointly and severally liable to Metrobank for principal, interest, penalties, and attorney’s fees, while Arrieta and the Perezes were absolved.
Issue Presented to the Supreme Court
Whether the promissory note executed by Arrieta and Lilia Perez constituted a corporate obligation of Intertrade such that Aguenza, as a continuing surety for Intertrade’s obligations, became personally liable under the Continuing Suretyship Agreement.
Supreme Court Analysis — Judicial Admissions
The Court examined the contention that Intertrade’s pleadings amounted to a judicial admission of corporate liability. It reiterated that judicial admissions in pleadings are not absolute and may be contradicted if shown to have been made through palpable mistake, improvidence, or taken out of context (Rule 129, Sec. 4). The Supreme Court found that the appellate court misappreciated Intertrade’s answer: there was no clear, express, or authorized admission of corporate liability binding the corporation. Even if the responsive pleading contained statements susceptible of such interpretation, they would be ineffective without an enabling act or ratification by the corporate governing body.
Supreme Court Analysis — Ratification and Corporate Authority
The Court emphasized corporate separateness and that the power to bind a corporation rests with its governing body (Board of Directors) or by authority granted in the corporate charter or bylaws. Unauthorized acts by corporate officers (here, Arrieta acting unilaterally with a bookkeeper) cannot be ratified by the same officers who purportedly exceeded their authority; ratification must come from the proper corporate organ. The records lacked any board resolution, shareholder resolution, or other evidence that the Board authorized Arrieta (alone) and Lilia Perez to contract the P500,000 loan or to sign the promissory note on behalf of Intertrade.
Supreme Court Analysis — Capacity to Borrow and Need for Enabling Act
Given the sizable and onerous nature of the P500,000 loan, the Court noted that the power to borrow money for a corporation typically requires express or implied authority from the board; past practice in Intertrade showed that loans or credit lines were authorized expressly and jointly (as in the February 28, 1977 resolution empowering Aguenza and Arrieta jointly). The March 21, 1978 note was executed only by Arrieta and a bookkeeper, without Aguenza’s participation or any board authorization. Consequently, the transaction did not demonstrate the requisite corporate enabling act to bind Intertrade.
Supreme Court Analysis — Scope of the Continuing Suretyship Agreement
The Court addressed whether the continuing suretyship could reach the March 21, 1978 promissory note. It reaffirmed the foundational rule that surety contracts must be express and will not be presumed or extended beyond what is stipulated; ambiguities are resolved against the creditor. Because the loan was not shown to be Intertrade’s
Case Syllabus (G.R. No. L-1523)
Facts
- On February 28, 1977, the Board of Directors of Intertrade, by Board Resolution, authorized and empowered J. Antonio Aguenza (petitioner) and Vitaliado P. Arrieta to jointly apply for and open credit lines with Metropolitan Bank & Trust Company (Metrobank).
- Pursuant to that authority, petitioner and Arrieta executed several trust receipts from May to June 1977 in favor of Metrobank, with the aggregate value of P562,443.46 and Intertrade named as entrustee and Metrobank as entruster.
- On March 14, 1977, petitioner and Arrieta executed a Continuing Suretyship Agreement binding themselves jointly and severally with Intertrade to pay whatever obligations Intertrade incurred, not exceeding P750,000.
- Metrobank’s Debit Memo to Intertrade dated March 22, 1978 showed full settlement of the letters of credit covered by the trust receipts in the total amount of P562,443.46.
- On March 21, 1978, Arrieta and Lilia P. Perez (a bookkeeper of Intertrade) obtained a P500,000 loan from Metrobank and executed a Promissory Note in that amount. The note provided for 25 equal installments of P20,000 each starting April 20, 1979, interest at 18.704% per annum, and in case of default an additional 8% per annum.
- Arrieta and Lilia Perez defaulted on several installments, causing the entire obligation to become due and demandable.
- In 1979 Metrobank filed suit against Intertrade, Arrieta, Lilia Perez and Patricio Perez to collect unpaid principal, interests, fees, penalties, exemplary damages, attorney’s fees and costs. On August 30, 1980 Metrobank filed an Amended Complaint to implead petitioner Aguenza as liable for the March 21, 1978 loan, invoking the Continuing Suretyship Agreement dated March 14, 1977.
- The debit memo evidenced full payment of the earlier credit-line obligations (P562,443.46) that the Continuing Suretyship had been related to.
Trial Court Disposition (First Instance)
- After trial, the Regional Trial Court absolved petitioner Aguenza from liability and dismissed Metrobank’s complaint against him.
- The trial court’s dispositive ruling:
- Declared the Promissory Note dated March 21, 1978 the responsibility only of Arrieta and Lilia Perez personally and excluding Intertrade.
- Ordered Arrieta and Lilia Perez to pay Metrobank P1,062,898.92 (as of September 15, 1982) plus interest, fees and penalties, and P44,000 for attorney’s fees and litigation expenses.
- Declared Patricio Perez jointly and severally liable with his spouse Lilia Perez.
- Dismissed the case insofar as Intertrade and Aguenza were concerned; counterclaims dismissed as well.
- Costs to be paid jointly and severally by Arrieta and Lilia Perez.
Court of Appeals Disposition
- On February 11, 1986, the Intermediate Appellate Court (now Court of Appeals) set aside the trial court decision and rendered judgment ordering Intertrade & Marketing Co., Inc. and J. Antonio Aguenza, jointly and severally:
- To pay Metrobank principal of P440,000 plus interest at 18.704% per annum from April 15, 1979 until full payment;
- To pay penalty equivalent to 8% of P440,000 from July 19, 1978 until full payment;
- To pay P15,000 as attorney’s fees.
- The appellate court absolved Arrieta, Lilia Perez and Patricio Perez from liability and dismissed all counterclaims.
- The Court of Appeals’ reasoning:
- Treated as established that Intertrade admitted corporate liability for the promissory note (relying on Intertrade’s pleadings and certain letters from Arrieta’s office).
- Found the stated purpose of the note ("operating capital") indicated corporate obligation.
- Held Aguenza had signed the Continuing Suretyship Agreement and the instrument was expressly "CONTINUING," covering obligations existing at the date and those thereafter, and it remained in force until written revocation by the surety; no written revocation was shown.
- Concluded the continuing suretyship covered the promissory note obligation.
Petition to the Supreme Court; Relief Sought
- Petitioner Aguenza filed a petition for review on certiorari seeking reversal of the Court of Appeals decision and reinstatement of the trial court’s absolution.
- Grounds of petition: appellate court erred in finding the March 21, 1978 loan to be a corporate liability of Intertrade and in holding petitioner personally liable under the Continuing Suretyship Agreement dated March 14, 1977; petitioner asserted misapprehension of facts and incorrect conclusions from record evidence.
Issues Presented
- Whether the March 21, 1978 P500,000 promissory note signed by Arrieta and Lilia Perez was a corporate liability of Intertrade.
- Whether the Continuing Suretyship Agreement dated March 14, 1977 executed by petitioner and Arrieta covered the March 21, 1978 loan and rendered petitioner personally liable thereon.
- Whether Intertrade’s pleadings, or letters emanating from Arrieta’s office, constituted a binding admission or ratification that rendered Intertrade liable for the March 21, 1978 loan.
Supreme Court Holding / Disposition
- The petition was GRANTED.
- The decision of the Court of Appeals dated February 11, 1986 was REVERSED and SET ASIDE.
- The judgment of the trial court dated February 28, 1984 (the trial court judgment later referenced as February 29, 1984) was REINSTATED.
- No costs. The decision was concurred in by Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ.