Philippine Trust Co. v. Yap Tico & Co.
REITERATIONFacts
The Antecedents: In November and December 1923, three promissory notes were executed. The first, for P50,000.00, was executed by The Visayan General Supply Co., Inc., by Enrique Echaus as President, and F. M. Yap Tico & Co., Ltd., by Yap Seng as Pres. & Gen. Manager, payable to Enrique Echaus. The second and third notes, each for P25,000.00, were executed by F. M. Yap Tico & Co., Ltd., by Yap Seng as Pres. & Gen. Manager, payable to The Visayan General Supply Co., Inc. Enrique Echaus endorsed the first note to the plaintiff, Philippine Trust Company. The second and third notes were endorsed by The Visayan General Supply Co., Inc., by Enrique Echaus as President, and then Enrique Echaus endorsed the second note in blank to the plaintiff. The third note was also delivered to the plaintiff with the endorsement from The Visayan General Supply Co., Inc., by Enrique Echaus as President. Procedural History: The plaintiff prayed for judgment for the amounts of these obligations plus interest. The Visayan General Supply Co., Inc., and Enrique Echaus were declared in default. F. M. Yap Tico & Co., Ltd., filed an answer and set up special defenses. After joint trial, the court rendered judgment against F. M. Yap Tico & Co., Ltd., for P25,000.00 with interest in civil case No. 6720, and for P50,000.00 with interest and P25,000.00 with interest in civil case No. 6721. The Petition: F. M. Yap Tico & Co., Ltd., appealed, alleging that Yap Seng signed the promissory notes as an accommodation party without valuable consideration and that neither he nor his corporation was empowered to sign as accommodation parties. The appellant also alleged that the plaintiff knew Yap Seng had signed as an accommodation party at the time of endorsement.
Issue(s)
Whether F. M. Yap Tico & Co., Ltd., through its president and general manager Yap Seng, signed the promissory notes as an accommodation party without valuable consideration. Whether Yap Seng and F. M. Yap Tico & Co., Ltd., were empowered to sign promissory notes as accommodation parties. Whether the plaintiff, Philippine Trust Company, knew that Yap Seng had signed the promissory notes as an accommodation party at the time of endorsement.
Ruling
The judgment appealed from is affirmed, with costs against the appellant.
Ratio Decidendi
On the issue of whether F. M. Yap Tico & Co., Ltd., signed as an accommodation party without consideration: The Court held that the points raised by the appellant were not proven. Yap Seng's deposition, intended to prove these claims, was rightly rejected by the trial court. The Court found that Yap Seng is estopped from denying the validity of the corporate transaction he executed in the name of the corporation. By his actions, he led a third person to believe that both he and his corporation had the authority to execute the notes. This principle of estoppel prevents him from later claiming lack of consideration or authority for the accommodation. On the issue of whether Yap Seng and F. M. Yap Tico & Co., Ltd., were empowered to sign as accommodation parties: The Court found that this point was not proven. The appellant failed to establish that it was not empowered to execute such promissory notes. The burden was on the appellant to show its lack of empowerment as part of its defense, and this burden was not met. Therefore, the third assignment of error is untenable. On the issue of whether the plaintiff knew Yap Seng signed as an accommodation party: The Court found that this point was not sufficiently established. The circumstances of the case, including the total sum of the promissory notes executed in favor of Echaus, were strongly against the appellant's contention. The Court concluded that, in the face of the evidence of record, such a contention could not be considered proven, even when taking into account Enrique Echaus's testimony. The Court also noted that the plaintiff received the notes in the ordinary course of business, paid their value after discounting interest, demanded payment, and received nothing in return, which further supports the conclusion that the appellant's claim of the plaintiff's knowledge was not proven.
Main Doctrine
A party who executes a corporate transaction in the name of the corporation, thereby leading a third person to believe that both the individual and the corporation have the authority to execute it, is estopped from denying the validity of the transaction. Furthermore, a party alleging that a promissory note was signed as an accommodation party without consideration bears the burden of proving such claim, and knowledge of this fact by the plaintiff at the time of endorsement must also be sufficiently established.