G.R. No. 179015, 13 June 2012


Planters Products, Incorporated (PPI), a fertilizer manufacturer, entered into an arrangement with respondent Janet Layson for the delivery of fertilizers to her, payable from the proceeds of the loan that petitioner United Coconut Planters Bank (UCPB) extended to her. Layson executed a document called “pagares,” written on the dorsal side of a UCPB promissory note. The second portion of the pagares, signed by that branch’s manager respondent Gregory Grey, stated that the “assignment has been duly accepted and payment duly guaranteed within 60 days from PPI’s Invoice.” Subsequently, Layson executed a third document “Letter Guarantee by the Dealer,” stating that she binds herself to pay PPI the face value of the pagares in case UCPB did not pay the same at maturity. But contrary to her undertakings, on the following day, February 12, 1980, Layson withdrew with branch manager Grey’s connivance the ₱200,000.00 loan that UCPB granted her.

PPI presented the documents of the financed transactions to UCPB for collection. But the bank denied the claim on the ground that it neither authorized the transactions nor the execution of the documents which were not part of its usual banking transactions. UCPB claimed that branch manager Grey exceeded his authority in guaranteeing payment of Layson’s purchases on credit. The pagares, said UCPB, were illegal and void since banking laws prohibit bank officers from guaranteeing loans of bank clients. PPI sued Layson, UCPB, and Grey for breach of contract with damages. RTC rendered a decision, absolving UCPB from liability. PPI appealed the decision to the Court of Appeals (CA). The CA rendered a decision, reversing that of the RTC and declaring UCPB jointly and severally liable with Layson for the latter’s obligation to PPI.


Whether or not UCPB is bound by Grey’s undertaking on its behalf to deliver to PPI the proceeds of the bank’s loan to Layson in payment of the fertilizers she bought.


No. True, a corporation like UCPB is liable to innocent third persons where it knowingly permits its officer, or any other agent, to perform acts within the scope of his general or apparent authority, holding him out to the public as possessing power to do those acts.But, here, it is plain from the guarantee Grey executed that he was acting for himself, not in representation of UCPB. Grey wrote that undertaking at the bottom of the pagares.

UCPB cannot be bound by Grey’s above undertaking since he appears to have made it in his personal capacity. He signed it under his own name, not in UCPB’s name or as its branch manager. Indeed, the wordings of the undertaking do not at all make any allusion to UCPB. A bank guarantee is a contract that binds the bank and so may be entered into only under authority granted by its board of directors. Such authority does not appear on any document.

Indeed, PPI had no right to expect branch manager Grey to issue one without such authorization.

*Case Digest by Stephanie C. Castillo, JD-IV, Andres Bonifacio College, SY: 2019-2020