Tupaz IV & Tupaz v.

CA & BPI
G.R. No. 145578 – November 18, 2005
J. Carpio

Topic: Effects of Guaranty Between Guarantor and Creditor; Benefit of Excussion

Doctrine: (1) Excussion is not a prerequisite 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. (2) The benefit of excussion may be waived.

Petitioners: Jose C. Tupaz IV & Petronila C. Tupaz

Respondents: The Court of Appeals & Bank of the Philippine Islands

Case Summary:  Jose and Petronila, officers of El Oro Corporation, signed trust receipts (30
September 1931 and 7 October 1981) in behalf of the company, and in favor of BPI. They were not
able to fulfill their obligations under the trust receipts. BPI charged petitioners with estafa under the
Trust Receipts Law. They were acquitted but were held solidarily liable with El Oro in the payment of
the debt to BPI. 

Held: Jose and Petronilla are not liable under the October 7 trust receipt because they signed it in
their capacities as officers of the corporation. Only Jose is liable for the September 30 trust receipt
because he signed it in his personal capacity. However, his liability is not solidary with El Oro; he is
liable only as guarantor. The solidary guaranty clause makes guarantors signing the trust
receipt solidarily liable with each other; it does not operate to make them solidarily liable with
the company. But, the suit against Jose still stands because excussion is not a pre-requisite to secure
judgment against a guarantor. In fact, excussion can be waived.

Facts:

 Petitioners Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President for Operations and
Vice-President/Treasurer, respectively, of El Oro Engraver 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 BPI for two commercial letters of credit.
o The letters of credit were in favor of El Oro Corporation’s suppliers, Tanchaoco
Manufacturing Incorporated1 and Maresco Rubber and Retreading Corporation.2

o BPI granted petitioners’ application and issued:

 Letter of Credit No. 2-00896-3 for ₱564,871.05 to Tanchaoco Incorporated

 Letter of Credit No. 2-00914-5 for ₱294,000 to Maresco Corporation. 

 Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of
BPI.

1
Supplier of 23,524 kilos of high-grade steel bars and 305 high-carbon steel sheets..
2
Supplier of 9,800 kilos of specialized rubber compound.
 o On 30 September 1981, petitioner Jose C. Tupaz IV signed, in his personal capacity, a
trust receipt corresponding to Letter of Credit No. 2-00896-3 (for ₱564,871.05).

 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. 

o 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
₱294,000).

 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, BPI paid the former ₱564,871.05 and ₱294,000, respectively.

 Petitioners did not comply with their undertaking under the trust receipts. BPI made several
demands for payments but El Oro Corporation made partial payments only.

o On 27 June 1983 and 28 June 1983, BPI’s counsel and its representative respectively sent
final demand letters to El Oro Corporation.

o 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.

 BPI charged petitioners with estafa under Section 13, P.D. No. 115 or Trust Receipts Law.

 After preliminary investigation, the then Makati Fiscal’s Office found probable cause to indict
petitioners. The Makati Fiscal’s Office filed the corresponding Informations (Criminal Case Nos.
8848 and 8849) with RTC Makati, on 17 January 1984 and the cases were raffled to Branch 144
on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the
trial, BPI presented evidence on the civil aspect of the cases.

Trial Court: WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila
Tupaz based upon reasonable doubt. However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are
hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of
₱624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total
amount due as attorney’s fees; ₱5,000.00 as expenses of litigation; and costs of the suit.

- Since the civil action for the recovery of the civil liability is deemed impliedly instituted with the
criminal action, the El Oro Engraver Corporation and both accused, jointly and solidarily should
be held civilly liable to BPI. The mere fact that they were unable to collect in full from the AFP
and/or the Department of National Defense the proceeds of the sale is no valid defense to the civil
claim of the said complainant.

CA: affirmed trial court’s ruling

 - It is clear from Sec 13, PD 115 that civil liability arising from the violation of the trust receipt
agreement is distinct from the criminal liability imposed therein.

- Vintola vs. Insular Bank of Asia and America  acquittal in the estafa case is no bar to the
institution of a civil action for collection. The civil liability of the accused does not arise  ex
delicto but rather based ex contractu.

- Appellants argued that they cannot be held solidarily liable with their corporation, alleging that
they executed the subject documents including the trust receipt agreements only in their capacity
as such corporate officers.

o However, the trust receipt agreement indicated in clear and unmistakable terms that the
accused signed the same as surety for the corporation and that they bound themselves
directly and immediately liable in the event of default with respect to the obligation under
the letters of credit which were made part of the said agreement, without need of demand.

o Even in the application for the letter of credit, it is clear that the undertaking of the
accused is that of a surety: "In consideration of your establishing the commercial letter of
credit herein applied for substantially in accordance with the foregoing, the undersigned
Applicant and Surety hereby agree, jointly and severally, to each and all stipulations,
provisions and conditions on the reverse side hereof." 

Issues + Held:
1. W/N petitioners bound themselves personally liable for El Oro Corporation’s debts under the
trust receipts – For Jose Tupaz IV: YES, as a guarantor under the trust receipt dated 30
September 1981; NO for trust receipt dated 9 October 1981. For Petronila Tupaz: NO for both.

o 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.

 Exception: directors or officers are personally liable for the corporation’s debts
only if they so contractually agree or stipulate.

o Here, the dorsal side of the trust receipts contains the following stipulation:

To the Bank of the Philippine Islands 

In consideration of your releasing to ………………………………… under the terms of this Trust Receipt
the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand,
whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to,
and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any
respect of this undertaking on the part of the said ……………………………………. I/we further agree that
my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on
your part to take any steps or exhaust any legal remedies that you may have against the said
…………………………………. before making demand upon me/us.

o In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers
of El Oro Corporation. Under Petronila Tupaz’s signature are the words "Vice-Pres–
Treasurer" and under 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.
 Ong v. Court of Appeals  A corporate representative signed a solidary
guarantee clause in two trust receipts in his capacity as corporate representative.
Court held that the corporate representative did not undertake to guarantee
personally the payment of the corporation’s debts. 3

o 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.

o 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.

2. If so:
(a) W/N petitioners’ liability is solidary with El Oro Corporation – NO

o As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:
“I/We, jointly and severally, agree and promise to pay to you, on demand x x x I/we
further agree that my/our liability in this guarantee shall be DIRECT AND
IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust
any legal remedies that you may have x x x”

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

o Prudential Bank v. IAC  Court interpreted a substantially identical clause in a trust

receipt signed by a corporate officer who bound himself personally liable for the
corporation’s obligation.

 The petitioner here 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.

3
Petitioner placed his signature after the typewritten words "ARMCO INDUSTRIAL CORPORATION" found at the end of the solidary guarantee clause. Evidently,
petitioner did not undertake to guaranty personally the payment of the principal and interest of ARMAGRI’s debt under the two trust receipts.
  “This is further bolstered by the last sentence which speaks of waiver of
exhaustion, which, nevertheless, is ineffective in this case because the
space therein for the party whose property may not be exhausted was not
filled up. Under Art 2058 CC, the defense of exhaustion (excussion) may
be raised by a guarantor before he may be held liable for the obligation.”

 “Petitioner likewise admits that the questioned provision is a solidary

guaranty clause, thereby clearly distinguishing it from a contract of
surety. 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.” 

 “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; Chi’s participation
therein is limited to the affixing of his signature thereon. It is, therefore, a
contract of adhesion; as such, it must be strictly construed against the
party responsible for its preparation.”

o However, BPI’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.

 Second, the benefit of excussion may be waived.

 Under the trust receipt dated 30 Sept 1981, 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 guarantee.

o 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 dated 30 September 1981.

 That trust receipt (and the trust receipt dated 9 October 1981) 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."

 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.

o The lower courts correctly applied the 18% interest rate per annum considering that the
face value of each of the trust receipts is based on the drafts drawn under the letters of
credit. Based on the guidelines laid down in Eastern Shipping Lines, Inc. v. CA the
accrued stipulated interest earns 12% interest per annum from the time of the filing of the
Informations in the Makati RTC on 17 January 1984.

 The total amount due as of the date of the finality of this Decision will earn
interest at 18% per annum until fully paid since this was the stipulated rate in the
applications for the letters of credit.
o The accounting of El Oro Corporation’s debts as of 23 January 1992, which the trial court
used, is no longer useful as it does not specify the amounts owing under each of the trust
receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro
Corporation’s total liability under each of the trust receipts dated 30 September 1981 and
9 October 1981 based on the following formula (see footnote) 4

o Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation  SC

ordered TC to compute the amount of obligation due based on a formula substantially
similar to that indicated above: “Mathematics is an exact science, the application of
which needs no further proof from the parties.”

(b) W/N petitioners’ acquittal of estafa under Section 13, PD 115 extinguished their civil liability
– NO
 The rule is that where the civil action is impliedly instituted with the criminal action, the
civil liability is not extinguished by acquittal where the civil liability does not arise from
or is not based upon the criminal act of which the accused was acquitted. 5

 Here, BPI chose not to file a separate civil action to recover payment under the trust
receipts. Instead, BPI sought to recover payment in Criminal Case Nos. 8848 and 8849.

 Although the TC acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil
liability. His liability arose not from the criminal act of which he was acquitted ( ex delito)

4
TOTAL AMOUNT DUE = [principal + interest + interest on interest] – partial payments made
Interest = principal x 18 % per annum x no. of years from due date27 until finality of judgment
Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of years until finality of judgment
Attorney’s fees is 10% of the total amount computed as of finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid.

5
[w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the
liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives
who thereby incur only civil liability (See Art. 332, RPC); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused
was acquitted xxx.
 but from the trust receipt contract (ex contractu) of 30 September 1981. Jose Tupaz
signed the trust receipt of 30 September 1981 in his personal capacity.

3. On the other Matters Petitioners Raise

 Petitioners raise for the first time in this appeal the contention that El Oro Corporation’s
debts under the trust receipts are not yet due and demandable. Alternatively, petitioners
assail the trust receipts as simulated.

 These assertions have no merit. Under the terms of the trust receipts dated 30 September
1981 and 9 October 1981, El Oro Corporation’s debts fell due on 29 December 1981 and
8 December 1981, respectively.

 Neither is there merit to petitioners’ claim that the trust receipts were simulated. During
the trial, petitioners did not deny applying for the letters of credit and subsequently
executing the trust receipts to secure payment of the drafts drawn under the letters of
credit.

Ruling:

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals

dated 7 September 2000 and its Resolution dated 18 October 2000 with the
following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated
30 September 1981 and 9 October 1981, as computed by the Regional Trial Court, Makati, Branch 144,
upon finality of this Decision, based on the formula provided above; 

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation’s total debt under the trust
receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and

3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9
October 1981.

SO ORDERED.