ASTRO ELECTRONICS CORP. AND PETER ROXAS, PETITIONER, VS. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, RESPONDENT.

Astro Electronics versus Philippine Export and Foreign Loan Guarantee Corporation

The Case

This is a petition for review on certiorari brought by Astro Electronics Corporation and its president, Peter Roxas, against the Philippine Export and Foreign Loan Guarantee Corporation, known as Philguarantee. Philguarantee had guaranteed seventy percent of Astro's loan with the Philippine Trust Company, paid that amount when Astro defaulted, and then sued both Astro and Roxas for reimbursement. The case matters because it fixes two rules every commercial-law candidate must carry into the examination room: a person who signs a promissory note twice, once as corporate officer and once in his personal capacity, binds himself as a solidary co-maker; and a guarantor who pays is subrogated by operation of law to the creditor's rights, without need of the debtor's consent.

Procedural History

Philguarantee filed a complaint for sum of money against Astro and Roxas before the Regional Trial Court of Makati, Branch 147. After trial, the trial court rendered judgment in favor of Philguarantee, ordering Astro and Roxas to pay jointly and severally the amount of three million six hundred twenty-one thousand one hundred eighty-seven pesos and fifty-two centavos, with interest and penalty charges at sixteen percent per annum from January 1, 1985 until full payment, plus costs. The trial court observed that if Roxas had intended to sign merely as president of Astro, he should have signed the promissory note only once. Roxas and Astro appealed to the Court of Appeals, which affirmed the trial court, agreeing that Roxas failed to explain satisfactorily why he signed twice, so the presumption that private transactions are fair and regular must be sustained. The case then reached the Supreme Court through a petition for review on certiorari under Rule 45.

Facts

Astro obtained several loans from the Philippine Trust Company amounting to three million pesos, secured by three promissory notes. On each of these notes, Peter Roxas signed twice: once as President of Astro and once in his personal capacity. Roxas also signed a Continuing Suretyship Agreement in favor of the bank, again as President of Astro and as surety.

With Astro's consent, Philguarantee guaranteed in favor of the bank the payment of seventy percent of Astro's loan, on the condition that upon payment, Philguarantee would be proportionally subrogated to the rights of the bank against Astro. Astro failed to pay its loan obligations despite demands, so Philguarantee paid seventy percent of the guaranteed loan to the bank. Philguarantee then sued Astro and Roxas for the sum of money.

In his Answer, Roxas disclaimed liability, alleging that he had merely signed the instruments in blank and that the phrases "in his personal capacity" and "in his official capacity" were fraudulently inserted without his knowledge. The courts below rejected this defense, and the Supreme Court, examining the signatures closely, found that portions of Roxas's signatures covered portions of the typewritten words "personal capacity," showing that those words already existed when he signed.

Issues

• Whether or not Roxas should be held jointly and severally, that is solidarily, liable with Astro for the sum awarded by the trial court.
• Whether or not Roxas's claim that the phrases on the notes were fraudulently inserted after he signed them can overcome the presumptions that private transactions are fair and regular and that a person takes ordinary care of his concerns.
• Whether or not Philguarantee may proceed against Roxas and Astro as subrogee of the bank's rights after paying seventy percent of the guaranteed loan.

Applicable Provisions

Section 184 of the Negotiable Instruments Law provides:

Section 184. When any person, who is not otherwise a party to an instrument, signs his name thereto in blank, he shall be deemed to be an indorser thereof.

The Court invokes this provision to explain that persons who write their names on the face of promissory notes are makers, and Roxas, by signing twice, became a co-maker.

Section 60 of the Negotiable Instruments Law provides:

Section 60. The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse.

This is the engagement that binds Roxas as maker to pay according to the tenor of the notes.

Article 1302 of the Civil Code provides:

Article 1302. It is presumed that there is legal subrogation in the cases mentioned in the preceding article, and in the following cases: (1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge; (2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; (3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share.

The Court cites this as the source of the legal subrogation that operates in Philguarantee's favor.

Article 2067 of the Civil Code provides:

Article 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.

This is the provision that makes Philguarantee the transferee of the bank's rights against Roxas and Astro.

Ruling

On the first issue, the Court ruled that Roxas is solidarily liable with Astro. The promissory notes are valid and binding against both. Roxas signed twice, first as president of Astro and second in his personal capacity, and by signing his name aside from being president, he became a co-maker who cannot escape liability. Even without the phrase "personal capacity," Roxas would still be primarily liable as a joint and several debtor, because his intention to be liable as such is manifested by his double signature, which necessarily implies that he undertook the obligation in two different capacities, official and personal. The notes uniformly provide:

FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order...

An instrument that begins with "I," "We," or "Either of us" promise to pay, when signed by two or more persons, makes them solidarily liable. The phrase "joint and several" binds the makers jointly and individually to the payee, so the creditor may sue all of them together or select one or more as the object of the suit.

On the second issue, the Court held that Roxas's claim of fraudulent insertion was correctly disregarded. Roxas did not deny signing the notes twice, and he offered no explanation for doing so. It devolved upon him to overcome the presumptions that private transactions are fair and regular and that a person takes ordinary care of his concerns. Bare allegations, unsubstantiated by evidence, are not equivalent to proof. A businessman is presumed to take ordinary care of his concerns and would not sign a document without first informing himself of its contents and consequences. The Court also noted that Roxas executed, and again signed twice, a Continuing Suretyship Agreement, which reinforced his solidary liability.

On the third issue, the Court ruled that Philguarantee has every right to proceed against the petitioners. It is subrogated to the rights of the bank to demand and collect payment from both Roxas and Astro, since it already paid seventy percent of the loan obligation in compliance with its contract of guarantee. Subrogation is the transfer of all the rights of the creditor to a third person who substitutes him in all his rights. It may be legal or conventional. Legal subrogation takes place without agreement, by operation of law, because of certain acts. Roxas's acquiescence is not necessary, because this is legal subrogation, which occurs by operation of law and without need of the debtor's knowledge. As guarantor who paid, Philguarantee became the transferee of all the rights of the bank against Roxas and Astro.

Doctrine

First, under the Negotiable Instruments Law, a person who writes his name on the face of a promissory note is a maker, and by making it he engages that he will pay it according to its tenor. When a corporate officer signs a note twice, once as officer and once in his personal capacity, he becomes a co-maker and is solidarily liable with the corporation. The phrase "joint and several" authorizes the creditor to sue all the makers together or to select one or more of them.

Second, bare allegations of fraudulent insertion, unsubstantiated by evidence, cannot overcome the presumptions that private transactions are fair and regular and that a person takes ordinary care of his concerns. The burden rests on the party alleging fraud.

Third, a guarantor who pays is subrogated by operation of law to all the rights of the creditor against the debtor, under Article 2067 of the Civil Code, and this legal subrogation under Article 1302 does not require the debtor's knowledge or consent.

Disposition

The Supreme Court found no error in the decision of the Court of Appeals and affirmed it in its entirety, holding Astro and Roxas solidarily liable to Philguarantee.

Remember This

Memorize this line: a corporate officer who signs a promissory note twice, officially and personally, is a solidary co-maker, and a guarantor who pays is subrogated by operation of law to the creditor's rights. Examiners use this case to test solidary liability of co-makers under the Negotiable Instruments Law and the rules on legal subrogation and guaranty under the Civil Code.