[G.R. No. 105395. December 10, 1993.] BANK OF AMERICA, NT & SA, petitioner, vs.

COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE AND JANE DOE, respondents. Agcaoili & Associates for petitioner. Valenzuela Law Center, Victor Fernandez and Ramon M. Guevara for private respondents. SYLLABUS 1.COMMERCIAL LAW; CODE OF COMMERCE; LETTERS OF CREDITS; DEFINED AND CONSTRUED. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents or documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires the said documents and control over the goods only after reimbursing the bank. 2.ID.; ID.; ID.; DISTINGUISHED. What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the

required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. 3.ID.; ID.; ID.; PARTIES THERETO. There would at least be three (3) parties: (a) the buyer, who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipt of the documents of title; (b) the bank issuing the letter of credit, which undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surrender the documents to the buyer upon reimbursement; and, (c) the seller, who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment. The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the services of an advising (notifying) bank may be utilized to convey to the seller the existence of the credit; or, of a confirming bank which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying bank which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, to have the draft discounted. 4.ID.; ID.; ID.; UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (U.C.P.); APPLICATION TO PHILIPPINE CODE OF COMMERCE. Being a product of international commerce, the impact of this commercial instrument transcends national boundaries, and it is thus not uncommon to find a dearth of national law that can adequately provide for its governance. This country is no exception. Our own Code of Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It is no wonder then why great reliance has been placed on commercial usage and practice, which, in any case, can be justified by the universal acceptance of the autonomy of contracts rule. The rules were later developed into what is now known as the Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce. It is by no means a complete text by itself, for, to be sure, there are other principles, which, although part of lex mercatoria, are not dealt with in the U.C.P. In FEATI Bank and Trust Company v. Court of Appeals, (G.R. No. 94209, prom. 30 April 1991; 196 SCRA 576) the Supreme Court have accepted, to the extent of their pertinency, the application in our jurisdiction of this international commercial credit regulatory set of rules. In Bank of Phil. Islands v. De Nery, (G.R. No. L-24821, 16 October 1970; 35 SCRA 256) the Court

has said that the observance of the U.C.P. is justified by Article 2 of the Code of Commerce which expresses that, in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. The Court have further observed that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable. 5.ID.; ID.; ID.; ADVISING OR NOTIFYING BANK; CONSTRUED; CASE AT BAR. The crucial point of dispute in this case is whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary" thereof, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred that liability. Bank of America has, only been an advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of InterResin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only means that the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft. No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure is solely an advise of credit opened by the abovementioned correspondent and conveys no engagement by us." This written reservation by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions of U.C.P. As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying InterResin of the letter of credit issued in its favor, let alone to confirm the letter of credit. Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The view that Bank of America should have first checked the authenticity of the letter of credit with Bank of Ayudhya, by using advanced mode of business communications, before dispatching the same to Inter-Resin finds no real support in U.C.P. Article 18 of the U.C.P. states that: "Banks assume no liability or responsibility for the consequences arising out of the delay and/or loss in transit of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any telecommunication . . ." As advising bank, Bank of

America is bound only to check the "apparent authenticity" of the letter of credit, which it did. 6.ID.; ID.; ID.; ID.; RIGHT OF RECOURSE, WHEN AVAILABLE. May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial availment thereunder and the required documents therefor were later negotiated with it by Inter-Resin? The answer is yes. This kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America, has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks with which to negotiate the draft and the documents.) As a negotiating bank, Bank of America has a right of recourse against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 7.ID.; ID.; ID.; NATURE OF OPERATION. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described in those documents. VITUG, J p: A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to court as adversaries in seeking a definition of their respective rights or liabilities thereunder. On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable Letter of Credit No. 20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of General Chemicals, Ltd., of Thailand in the amount of US$2,782,000.00 to cover the sale of plastic ropes and "agricultural files," with the petitioner as advising bank and private respondent Inter-Resin Industrial Corporation as beneficiary. prcd

On 11 March 1981, Bank of America wrote InterResin informing the latter of the foregoing and transmitting, along with the bank's communication, the letter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano Tanay to Bank of America to have the letter of credit confirmed. The bank did not. Reynaldo Dueas, bank employee in charge of letters of credit, however, explained to Atty. Tanay that there was no need for confirmation because the letter of credit would not have been transmitted if it were not genuine. Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the letter of credit by submitting to Bank of America invoices,

covering the shipment of 24,000 bales of polyethylene rope to General Chemicals valued at US$1,320,600.00, the corresponding packing list, export declaration and bill of lading. Finally, after being satisfied that Inter-Resin's documents conformed with the conditions expressed in the letter of credit, Bank of America issued in favor of InterResin a Cashier's Check for P10,219,093.20, "the Peso equivalent of the draft (for) US$1,320,600.00 drawn by Inter-Resin, after deducting the costs for documentary stamps, postage and mail insurance." 1 The check was picked up by InterResin's Executive Vice-President Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the latter of the availment under the letter of credit and sought the corresponding reimbursement therefor. Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second availment under the same letter of credit consisting of a packing list, bill of lading, invoices, export declaration and bills in set, evidencing the second shipment of goods. Immediately upon receipt of a telex from Bank of Ayudhya declaring the letter of credit fraudulent, 2 Bank of America stopped the processing of Inter-Resin's documents and sent a telex to its branch office in Bangkok, Thailand, requesting assistance in determining the authenticity of the letter of credit. 3 Bank of America kept InterResin informed of the developments. Sensing a fraud, Bank of America sought the assistance of the National Bureau of Investigation (NBI). With the help of the staff of the Philippine Embassy at Bangkok, as well as the police and customs personnel of Thailand, the NBI agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did not contain ropes but plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally charged for estafa through falsification of commercial documents. The case, however, was eventually dismissed by the Rizal Provincial Fiscal who found no prima facie evidence to warrant prosecution. LLpr Bank of America sued Inter-Resin for the recovery of P10,219,093.20 the peso equivalent of the draft for US$320,600.00 on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin claimed that not only was it entitled to retain P10,219,093.20 on its first shipment but also to the balance US$1,461,400.00 covering the second shipment. On 28 June 1989, the trial court ruled for InterResin, 4 holding that: (a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to Thailand; (b) the telex declaring the letter of credit fraudulent was unverified and selfserving, hence hearsay, but even assuming that the letter of credit was fake, "the fault should be borne by the BA which was careless and negligent" 5 for

failing to utilize its modern means of communication to verify with Bank of Ayudhya in Thailand the authenticity of the letter of credit before sending the same to Inter-Resin; (c) the loading of plastic products into the vans were under strict supervision, inspection and verification of government officers who have in their favor the presumption of regularity in the performance of official functions; and (d) Bank of America failed to prove the participation of Inter-Resin or its employees in the alleged fraud as, in fact, the complaint for estafa through falsification of documents was dismissed by the Provincial Fiscal of Rizal. 6 On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse by petitioner Bank of America. The following issues are raised by Bank of America: (a) whether it has warranted the genuineness and authenticity of the letter of credit and, corollarily, whether it has acted merely as an advising bank or as a confirming bank; (b) whether Inter-Resin has actually shipped the ropes specified by the letter of credit; and, (c) following the dishonor of the letter of credit by Bank of Ayudhya, whether Bank of America may recover against Inter-Resin under the draft executed in its partial availment of the letter of credit. 8 llcd In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the issue of being only an advising bank; (b) the findings of the trial court that the ropes have actually been shipped is binding on the Court; and, (c) Bank of America cannot recover from Inter-Resin because the drawer of the letter of credit is the Bank of Ayudhya and not Inter-Resin. If only to understand how the parties, in the first place, got themselves into the mess, it may be well to start by recalling how, in its modern use, a letter of credit is employed in trade transactions. A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. 9To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. 10 The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. Once the credit is established, the seller ships the goods to the buyer and in the process secures the

required shipping documents or documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires the said documents and control over the goods only after reimbursing the bank. LexLib What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. 11 There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and obliges himself to reimburse the issuing bank upon receipt of the documents of title; (b) the bank issuing the letter of credit, 13 which undertakes to pay the seller upon receipt of the draft and proper documents of titles and to surrender the documents to the buyer upon reimbursement; and, (c) the seller, 14 who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment. The number of the parties, not infrequently and almost invariably in international trade practice, may be increased. Thus, the services of an advising (notifying) bank 15 may be utilized to convey to the seller the existence of the credit; or, of a confirming bank 16 which will lend credence to the letter of credit issued by a lesser known issuing bank; or, of a paying bank 17 which undertakes to encash the drafts drawn by the exporter. Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another bank, termed the negotiating bank, 18 to have the draft discounted. llcd Being a product of international commerce, the impact of this commercial instrument transcends national boundaries, and it is thus not uncommon to find a dearth of national law that can adequately provide for its governance. This country is no exception. Our own Code of Commerce basically introduces only its concept under Articles 567-572, inclusive, thereof. It is no wonder then why great

reliance has been placed on commercial usage and practice, which, in any case, can be justified by the universal acceptance of the autonomy of contracts rule. The rules were later developed into what is now known as the Uniform Customs and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce. It is by no means a complete text by itself, for, to be sure, there are other principles, which, although part of lex mercatoria, are not dealt with in the U.C.P.

In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of their pertinency, the application in our jurisdiction of this international commercial credit regulatory set of rules. 20 In Bank of Phil. Islands v. De Nery, 21 we have said that the observance of the U.C.P. is justified by Article 2 of the Code of Commerce which expresses that, in the absence of any particular provision in the Code of Commerce, commercial transactions shall be governed by usages and customs generally observed. We have further observed that there being no specific provisions which govern the legal complexities arising from transactions involving letters of credit not only between or among banks themselves but also between banks and the seller or the buyer, as the case may be, the applicability of the U.C.P. is undeniable. The first issue raised by the petitioner, i.e., that it has in this instance merely been an advising bank, is outrightly rejected by Inter-Resin and is thus sought to be discarded for having been raised only on appeal. We cannot agree. The crucial point of dispute in this case is whether under the "letter of credit," Bank of America has incurred any liability to the "beneficiary" thereof, an issue that largely is dependent on the bank's participation in that transaction; as a mere advising or notifying bank, it would not be liable, but as a confirming bank, had this been the case, it could be considered as having incurred that liability. 22 LexLib In Insular Life Assurance Co. Ltd. Employees Association- Natu vs. Insular Life Assurance Co., Ltd., 23 the Court said: Where the issues already raised also rest on other issues not specifically presented, as long as the latter issues bear relevance and close relation to the former and as long as they arise from matters on record, the court has the authority to include them in its discussion of the controversy and to pass upon them just as well. In brief, in those cases where questions not particularly raised by the parties surface as necessary for the complete adjudication of the rights and obligations of the parties, and such questions fall within the issues already framed by the parties, the interests of justice dictate that the court should consider and resolve them. The rule that only issues or theories raised in the initial proceedings may be taken up by a party

thereto on appeal should only refer to independent, not concomitant matters, to support or oppose the cause of action or defense. The evil that is sought to be avoided, i.e., surprise to the adverse party, is in reality not existent on matters that are properly litigated in the lower court and appear on record. It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising, not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a confirming bank. The fact, too, that the draft required by the letter of credit is to be drawn under the account of General Chemicals (buyer) only means that the same had to be presented to Bank of Ayudhya (issuing bank) for payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not the advising bank, to pay the draft. LLjur No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure is solely an advise of credit opened by the abovementioned correspondent and conveys no engagement by us." 24 This written reservation by Bank of America in limiting its obligation only to being an advising bank is in consonance with the provisions of U.C.P. As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. 25 The bare statement of the bank employee, aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's representative, on the authenticity of the letter of credit certainly did not have the effect of novating the letter of credit and Bank of America's letter of advise, 26 nor can it justify the conclusion that the bank must now assume total liability on the letter of credit. Indeed, Inter-Resin itself cannot claim to have been all that free from fault. As the seller, the issuance of the letter of credit should have obviously been a great concern to it. 27 It would have, in fact, been strange if it did not, prior to the letter of credit, enter into a contract, or negotiated at the very least, with General Chemicals. 28 In the ordinary course of business, the perfection of contract precedes the issuance of a letter of credit. Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The view that Bank of America should have first checked the authenticity of the letter of credit with Bank of Ayudhya, by using advanced mode of business communications, before dispatching the same to Inter-Resin finds no real support in U.C.P. Article 18 of the U.C.P. states that: "Banks assume

no liability or responsibility for the consequences arising out of the delay and/or loss in transit of any messages, letters or documents, or for delay, mutilation or other errors arising in the transmission of any telecommunication . . ." As advising bank, Bank of America is bound only to check the "apparent authenticity" of the letter of credit, which it did. 29 Clarifying its meaning, Webster's Ninth New Collegiate Dictionary 30 explains that the word "APPARENT suggests appearance to unaided senses that is not or may not be borne out by more rigorous examination or greater knowledge." prcd May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for partial availment thereunder and the required documents therefor were later negotiated with it by Inter-Resin? The answer is yes. This kind of transaction is what is commonly referred to as a discounting arrangement. This time, Bank of America, has acted independently as a negotiating bank, thus saving Inter-Resin from the hardship of presenting the documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course, could have chosen other banks with which to negotiate the draft and the documents.) As a negotiating bank, Bank of America has a right of recourse against the issuer bank and until reimbursement is obtained, Inter-Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 31 While Bank of America has indeed failed to allege material facts in its complaint that might have likewise warranted the application of the Negotiable Instruments Law and possibly then allowed it to even go after the indorsers of the draft, this failure, 32 nonetheless, does not preclude petitioner bank's right (as a negotiating bank) of recovery from Inter-Resin itself. Inter-Resin admits having received P10,219.093.20 from Bank of America on the letter of credit transaction and in having executed the corresponding draft. That payment to Inter-Resin has given, as aforesaid, Bank of America the right of reimbursement from the issuing bank, Bank of Ayudhya which, in turn, could then seek indemnification from the buyer (the General Chemicals of Thailand). Since Bank of Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin for restitution. "Between the seller and the negotiating bank there is the usual relationship existing between a drawer and purchaser of drafts. Unless drafts drawn in pursuance of the credit are indicated to be without recourse therefore, the negotiating bank has the ordinary right of recourse against the seller in the event of dishonor by the issuing bank . . . The fact that the correspondent and the negotiating bank may be one and the same does not affect its rights and

obligations in either capacity, although a special agreement is always a possibility . . ." 33 LLpr The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its products, is really of no consequence. In the operation of a letter of credit, the involved banks deal only with documents and not on goods described in those documents. 34 The other issues raised in the instant petition, for instance, whether or not Bank of Ayudhya did issue the letter of credit and whether or not the main contract of sale that has given rise to the letter of credit has been breached, are not relevant to this controversy. They are matters, instead, that can only be of concern to the herein parties in an appropriate recourse against those who, unfortunately, are not impleaded in these proceedings. In fine, we hold that First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted merely as a notifying bank and did not assume the responsibility of a confirming bank; and Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as beneficiary of the letter of credit which has been disowned by the alleged issuer bank. No judgment of civil liability against the other defendants, Francisco Trajano and other unidentified parties, can be made, in this instance, there being no sufficient evidence to warrant any such finding. WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is ordered to refund to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from the filing of the complaint until fully paid. LibLex No costs. SO ORDERED. INSULAR BANK OF ASIA & AMERICA (NOW PHILIPPINE COMMERCIAL INTERNATIONAL BANK), petitioner, vs. HON. INTERMEDIATE APPELLATE COURT THE PHILIPPINE AMERICAN LIFE INSURANCE CO., SPS. BEN MENDOZA & JUANITA M. MENDOZA, respondents. Balili, Parado, Cavada & Maamo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for respondent Spouses Mendozas. Francisco, Zulueta & Associates for respondent Philam Life. SYLLABUS 1.COMMERCIAL LAW; GENERAL BANKING ACT; LETTER OF CREDIT; TERMS THEREOF CONSTRUED, GUIDED BY THE INTENTION OF THE PARTIES. "Letters of credit and contracts for the issuance of such letters are subject to the same rules of construction as are ordinary commercial contracts. They are to receive a reasonable and not a technical construction and although usage and custom cannot control express terms in letters of credit, they are to be construed with reference to all the surrounding facts and circumstances, to the particular and often varying terms in which they may be expressed, the circumstances and intention of the parties to them, and the usages of the particular trade of business contemplated." (International Banking Corp. vs. Irving National Bank, CCA N.Y. 283 F. 103, affirming DC 274 F. 122; Old Colong Trust Co. vs. Lawyers' Title and Trust Co. CAA NY, 297 F. 152, cited in Vol. 72, CJS sec. 178, pp. 387-388). 2.ID.; ID.; ID.; UNEQUIVOCAL TERMS OF THE LETTERS OF CREDIT SECURED PAYMENT OF ANY OBLIGATION OF ACCOUNTEE. Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam Life including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they are a security arrangement, they are not converted thereby into contracts of guaranty. That would make themultra vires rather than a letter of credit, which is within the powers of a bank (Section 74[e], RA 337, General Banking Act). 3.ID.; ID.; STANDBY L/Cs, ABSOLUTE SEPARATE AND INDEPENDENT AGREEMENTS. The standby L/Cs are, "in effect an absolute undertaking to pay the money advanced or the amount for which credit is given on the faith of the instrument." (Scribner v. Rutherford, 22 N.W. 670, 65 Iowa 551; Duval v. Trask, 12 Mass. 154, cited in 38 CJS, Sec. 7, p. 1142). They are primary obligations and not accessory contracts. Being separate and independent agreements, the payments made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. Payments made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. And although these payments could result in the reduction of the actual amount which could ultimately be collected from IBAA, the latter's separate undertaking under its L/Cs remains.

4.ID.; ID.; LETTERS OF CREDIT; STRICTLY CONSTRUED AGAINST THE WRITER. The amount of P222,000.00, therefore, considered as "any obligation of the accountee" under the L/Cs will still have to be paid by IBAA under the explicit terms thereof, which IBAA had itself supplied. Letters of credit are strictly construed to the end that the rights of those directly parties to them may be preserved and their interest safeguarded (Moss vs. Old Colony Trust Co., 140 N.E. 803, 246 Mass. 138, 152). Like any other writing, it will be construed most strongly against the writer and so as to be reasonable and consistent with honest intentions. On the whole, the construction will be generally a strict one (Lamborn vs. National Park Bank of New York, 208 N.Y.S. 428, 212 App. Div. 25, affirming Id., 204 N Y.S. 557, 123 Misc. 211, affirmed Id., 148 N.E. 664, 240 N.Y. 520). As found by the Appellate Court, however, the amount payable should not exceed P296,294.05 (P600,000.00 less P303,705.95, the total amount found by the Appellate Court to have been paid by IBAA to Philam Life). 5.REMEDIAL LAW; APPEAL; SUPREME COURT'S JURISDICTION LIMITED TO REVIEWING ERRORS OF LAW COMMITTED BY LOWER COURTS. Whether or not documentary evidence was disregarded by the Appellate Court regarding the amount actually paid by IBAA to Philam Life, or P303,705.95 (not P342,127.05 as found by the Trial Court), questions a finding of fact, which should be accorded not only respect but even finality. It is not the function of this Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by lower Courts. 6.ID.; CIVIL PROCEDURE; PLEADING AND PRACTICE; COURTS NOT REQUIRED TO RESOLVE ALL ISSUES RAISED IN PLEADINGS. The third issue faults respondent Appellate Court with having passed sub-silencio over certain points raised by petitioner IBAA in his Brief sustaining the Decision of the Trial Court. It is accepted judicial practice, however, that Courts are not required to resolve all issues raised in pleadings unless necessary for the resolution of the case. Apparently, respondent Appellate Court deemed it unnecessary to pass upon those points. 7.CIVIL LAW; ATTORNEY'S FEES; AWARD, REASONABLE. The award of attorney's fees of P25,000.00 appears reasonable under the circumstances of the case specially considering that in the foreclosure of the mortgage in its favor IBAA charged the Mendozas attorney's fees in the amount of P86,477.20.

MELENCIO-HERRERA, J p: An appeal by certiorari under Rule 45 of the Rules of Court by petitioner, the Insular Bank of Asia and America (IBAA) [now the Philippine Commercial International Bank], from the judgment of the public respondent, then the Intermediate Appellate Court, * in CA-G.R. CV No. 03224. Briefly, the antecedent facts disclose that sometime in 1976 and 1977 respondent spouses Ben S. Mendoza and Juanita M. Mendoza (the Mendozas, for brevity), obtained two (2) loans from respondent Philippine American Life Insurance Co. (Philam Life) in the total amount of P600,000.00 to finance the construction of their residential house at Mandaue City. The said loans, with a 14% nominal interest rate, were to be liquidated in equal amortizations over a period of five (5) years from March 1977 to March 1982. To secure payment, Philam Life required that amortizations be guaranteed by an irrevocable standby letter of credit of a commercial bank. Thus, the Mendozas contracted with petitioner Insular Bank of Asia and America (IBAA) for the issuance of two (2) irrevocable standby Letters of Credit in favor of Philam Life for the total amount of P600,000.00. The first L/C for P500,000.00 was to expire on 1 October 1981 (Exhibit "7", IBAA), and the second for P100,000.00 on 1 January 1982 (Exhibit "8", IBAA). These two (2) irrevocable standby L/Cs were, in turn, secured by a real estate mortgage for the same amount on the property of Respondent Spouses in favor of IBAA. On 11 May 1977, the Mendozas executed a promissory note (No. L-562/77) in favor of IBAA promising to pay the sum of P100,000.00 plus 19% p.a. interest on 31 May 1979. Again, on 3 June 1977, Respondent Spouses executed another Promissory Note (No. 564/77) binding themselves to pay IBAA P100,000.00 plus 19% p.a. interest on 23 June 1979. Both Notes authorized IBAA "to sell at public or private sale such securities or things for the purpose of applying their proceeds to such payments" of "any particular obligation or obligations" the Mendozas may have to IBAA. (Exhibits "34" and "35" IBAA, Annex "D" p. 131, Rollo) The Mendozas failed to pay Philam Life the amortization that fell due on 1 June 1978 so that Philam Life informed IBAA that it was declaring both loans as "entirely due and demandable" and demanded payment of P492,996.30 (Exhibit "H"). However, because IBAA contested the propriety of calling in the entire loan, Philam Life desisted and resumed availing of the L/Cs by drawing-on them for five (5) more amortizations. On 7 September 1979, because the Mendozas defaulted on their amortization due on 1 September 1979, Philam Life again informed IBAA that it was declaring the entire balance outstanding on both

DECISION

loans, including liquidated damages, "immediately due and payable." Philam Life then demanded the payment of P274,779.56 from IBAA but the latter took the position that, as a mere guarantor of the Mendozas who are the principal debtors, its remaining outstanding obligation under the two (2) standby L/Cs was only P30,100.60. Later, IBAA corrected the latter amount and showed instead an overpayment arrived at as follows: Limit of LiabilityP600,000.00 Less: a)Payment of MendozasP280,293.11 b)Payment of IBAA372 127.05P652,520.76 ____________________ Overpayment by IBAA(P52,520.76) ========= On 21 April 1980 the Real Estate Mortgage, which secured the two (2) standby L/Cs, was extrajudicially foreclosed by, and sold at public auction for P775,000.00, to petitioner IBAA as the lone and highest bidder (Exhibit "17 - Mendoza"). The bid price of P775,000.00 by petitioner IBAA was arrived at as follows: Principal (unpaid advances under the 2 standby LCs) plus interest & chargesP432,386.0 7 Add: a)Stipulated Attorney's fees (20%)P 86,477.20 b)Principals (clean loans) plus accrued interest under P/Ns Nos. 562/77 and 564/77P255,346.9 5 c)Expenses of foreclosureP 772.20 __________ TOTALP775,000. 42 =========

On a date that does not appear of record, Philam Life filed suit against Respondent Spouses and IBAA before the Regional Trial Court of Manila, Branch XXXXI, for the recovery of the sum of P274,779.56, the amount allegedly still owing under the loan. After trial, said Court rendered a Decision finding that IBAA had paid Philam Life only P342,127.05 and not P372,227.65, as claimed by IBAA, because of a stale IBAA Manager's check in the amount of P30,100.60, which had to be deducted. With this deduction, the Trial Court arrived at the following computation: Limit of Liability of IBAAP600,000.00 Less: a)Payment by MendozasP280,293.11 b)Payment by IBAAP342.127 .05P622,420.16 ____________________ Overpayment by IBAAP 22,420.16 =========

Thus, the Trial Court ruled: "ACCORDINGLY, judgment is hereby rendered ordering: "(1)Defendants-spouses Ben S. Mendoza and Juanita M. Mendoza to pay plaintiff Philippine American Life Insurance Company the sum of P322,000.00 plus 2% per month as penalty interest from September 12, 1979 until the whole amount is fully paid, P10,000 as attorney's fees, and costs. "(2)Plaintiff Philippine American Life Insurance Company to refund the sum of P22,420.16 to the defendant Insular Bank of Asia and America plus legal interest from March 31, 1980 until the whole amount is fully paid; and "(3)Dismissal of the counterclaim and crossclaim filed by the defendants-spouses against the plaintiff and the defendant IBAA, as well as the counterclaim filed by defendant IBAA against the plaintiff." (pp. 28-29, Rollo)

In so deciding, the Trial Court took the position that IBAA, "as surety," was discharged of its liability to the extent of the payment made by the Mendozas, as the principal debtors, to the creditor, Philam Life. Both Philam Life and Respondent Spouses appealed to respondent Appellate Court, which reversed the Trial Court and ruled instead that IBAA's liability was not reduced by virtue of the payments made by the Mendozas. Accordingly, the Appellate Court decreed: "WHEREFORE, premises considered, judgment is hereby rendered ordering: 1.Defendants-appellant spouses Ben S. Mendoza and Juanita M. Mendoza and defendant-appellee IBM to pay jointly and severally plaintiff-appellant Philamlife, the sum of P222,000.00 plus 2% per month as penalty interest from September 12, 1979 until the whole amount is fully paid; plus P25,000.00, as attorney's fees, and costs; however, defendantappellee IBAA shall only be liable up to the amount of P296,294.05; 2.Dismissal of the claim by the IBAA for a refund of P22,420.16 from the Phil-American Life Insurance Co.; and 3.Dismissal of the counterclaim and cross-claim filed by the defendant-spouses against the plaintiff and the defendant IBAA, as well as the counterclaim filed by defendant IBAA against the plaintiff. "No special pronouncement as to costs in this instance." (p. 51, Rollo). Availing of the instant Petition, IBAA seeks a reversal of the aforesaid judgment and the affirmance instead of that of the Trial Court. We resolved to give due course. The issues addressed, as posited by IBAA, are: "1.Whether or not the partial payments made by the principal obligors (respondent MENDOZAS) would have the corresponding effect of reducing the liability of the petitioner as guarantor or surety under the terms of the standby LCs in question.

"2.Whether or not respondent Intermediate Appellate Court is collect in disregarding a documentary evidence (O.R. No. 74323, Exhibit 28-IBAA) showing the amount paid by petitioner and which was admitted as evidence without objection on the part of the counsel for the respondent Philam. "3.Whether or not the Intermediate Appellate Court is correct in passing sub-silencio the following points raised by the petitioner in its Brief to sustain the decision of the Trial Court on some other grounds. a.Effective rate of interest imposed by respondent Philam exceeded the allowable ceiling; b.Respondent Philam has no right to call in at one time the two standby letters of credit; c.Respondent Philam failed to follow the condition in the two (2) standby letters of credit which could have otherwise altered the result of the decision. "4.Whether or not the award of attorney's fees to respondent Philam is proper in so far as petitioner is affected." (p. 15, Rollo) The pivotal issue is the first one. IBAA stresses that it has no more liability to Philam Life under the two (2) standby Letters of Credit and, instead, is entitled to a refund. Whereas Philam Life and the Mendoza spouses separately maintain that IBAA's obligation under said two (2) L/Cs is original and primary and is not reduced by the direct payments made by the Mendozas to Philam Life. 1.In construing the terms of a Letter of Credit, as in other contracts, it is the intention of the parties that must govern. "Letters of credit and contracts for the issuance of such letters are subject to the same rules of construction as are ordinary commercial contracts. They are to receive a reasonable and not a technical construction and

although usage and custom cannot control express terms in letters of credit, they are to be construed with reference to all the surrounding facts and circumstances, to the particular and often varying terms in which they may be expressed, the circumstances and intention of the parties to them, and the usages of the particular trade of business contemplated." (International Banking Corp. vs. Irving National Bank, CCA N.Y. 283 F. 103, affirming DC 274 F. 122; Old Colony Trust Co. vs. Lawyers' Title and Trust Co. CAA NY, 297 F. 152, cited in Vol. 72, CJS sec. 178, pp. 387388). The terms of the subject Irrevocable Standby Letters of Credit read, in part, as follows: "This credit secures the payment of any obligation of the accountee to you under that Loan Agreement hereto attached as Annex 'A' and made a part hereof, including those pertaining to (a) surcharges on defaulted installments, (b) increased interest charges (in the event the law should authorize this increase), and (c) liabilities connected with taxes stipulated to be for Accountee's account; provided, however, that our maximum liabilities hereunder shall not exceed the amount of P500,000.00 (P100,000.00 for the other LC). "Each drawing under this credit shall be available at any time after one (1) day from due date of the obligations therein secured. Each drawing under this credit shall be accomplished by your signed statement in duplicate that the amount drawn represents payment due and unpaid by the accountee. (pp. 11-12, Decision, pp. 38-39, Rollo). [Emphasis ours]. Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam Life including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they are a security arrangement, they are not converted thereby into contracts of guaranty. That would make them ultra vires rather than a letter of credit, which is within the

powers of a bank (Section 74[e], RA 337, General Banking Act). 1 The standby L/Cs are, "in effect an absolute undertaking to pay the money advanced or the amount for which credit is given on the faith of the instrument." (Scribner v. Rutherford, 22 N.W. 670, 65 Iowa 551; Duval v. Trask, 12 Mass. 154, cited in 38 CJS, Sec. 7, p. 1142). They are primary obligations and not accessory contracts. Being separate and independent agreements, the payments made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. Payments made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. And although these payments could result in the reduction of the actual amount which could ultimately be collected from IBAA, the latter's separate undertaking under its L/Cs remains. Both the Trial Court and the Appellate Court found, as a fact, that there still remains a balance on the loan. Pursuant to its absolute undertaking under the L/Cs, therefore, IBAA cannot escape the obligation to pay Philam Life for this unexpended balance. The Appellate Court found it to be P222,000.00, arrived at by the Trial Court and adopted by the Appellate Court, as follows: ". . . In the summary of application of payments (Exhibit `KK') the plaintiff applied P1,918.00 as commitment fee, P4,397.66 as surcharges, P199,683.40 as interests, and P320,000.00 on the principal. The P58,000.00 which is covered by OR No. 74396 was also applied `against the total loan.' Since plaintiff applied P376,000.00 against the total indebtedness of P600,000.00 there still remains an outstanding balance on the principal P322,000.00 (should be P222,000.00) aside from the agreed penalty interest until the whole amount is fully paid . . . " (Decision, Trial Court, p. 50, Rollo) The amount of P222,000.00, therefore, considered as "any obligation of the accountee" under the L/Cs will still have to be paid by IBAA under the explicit terms thereof, which IBAA had itself supplied. Letters of credit are strictly construed to the end that the rights of those directly parties to them may be preserved and their interest safeguarded (Moss vs. Old Colony Trust Co., 140 N.E. 803, 246 Mass. 138, 152). Like any other writing, it will be construed most strongly against the writer and so as to be reasonable and consistent with honest intentions. On the whole, the construction will be generally a strict one (Lamborn vs. National Park Bank of New York, 208 N.Y.S. 428, 212 App. Div. 25, affirming Id., 204 N Y.S. 557, 123 Misc. 211, affirmed Id., 148 N.E. 664, 240 N.Y. 520). As found by the Appellate

Court, however, the amount payable should not exceed P296,294.05 (P600,000.00 less P303,705.95, the total amount found by the Appellate Court to have been paid by IBAA to Philam Life). 2.The second issue as to whether or not documentary evidence was disregarded by the Appellate Court regarding the amount actually paid by IBAA to Philam Life, or P303,705.95 (not P342,127.05 as found by the Trial Court), questions a finding of fact, which should be accorded not only respect but even finality. It is not the function of this Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by lower Courts. 3.The third issue faults respondent Appellate Court with having passed sub-silencio over certain points raised by petitioner IBAA in his Brief sustaining the Decision of the Trial Court. It is accepted judicial practice, however, that Courts are not required to resolve all issues raised in pleadings unless necessary for the resolution of the case. Apparently, respondent Appellate Court deemed it unnecessary to pass upon those points. Be that as it may, suffice it to state:

4.Coming now to the award of attorney's fees of P25,000.00 the same appears reasonable under the circumstances of the case specially considering that in the foreclosure of the mortgage in its favor IBAA charged the Mendozas attorney's fees in the amount of P86,477.20, supra. As to the liability of the Mendozas to IBAA, it bears recalling that the Mendozas, upon their application for the opening and issuance of the Irrevocable Standby Letters of Credit in favor of Philam Life, had executed a Real Estate Mortgage as security to IBAA for any payment that the latter may remit to Philam Life on the strength of said Letters of Credit; and that IBAA had recovered from the Mendozas the amount of P432,386.07 when it foreclosed on the mortgaged property of said spouses in the concept of "principal (unpaid advances under the 2 standby LCs plus interest and charges)." In addition, IBAA had recovered P255,364.95 representing its clear loans to the Mendozas plus accrued interest besides the fact that it now has the foreclosed property. As between IBAA and the Mendozas, therefore, there has been full liquidation. The remaining obligation of P222,000.00 on the loan of the Mendozas, therefore, is now IBAA's sole responsibility to pay to Philam Life by virtue of its absolute and irrevocable undertaking under the standby L/Cs. Specially so, since the promissory notes executed by the Mendozas in favor of IBAA authorized the sale of the mortgaged security "for the purpose of applying their proceeds to . . . payments" of their obligations to IBAA. WHEREFORE, the Decision of respondent Intermediate Appellate Court, dated 20 December 1985, is hereby MODIFIED. Petitioner IBAA (now the Philippine Commercial International Bank) shall pay Philippine American Life Insurance Company the sum of P222,000.00 plus 2% per month as penalty interest from 12 September 1979 until the whole amount is fully paid, but in no case to exceed P296,294.05, plus P25,000.00 as attorney's fees. No costs. SO ORDERED. LAND BANK OF THE PHILIPPINES, petitioner, vs. MONET'S EXPORT AND MANUFACTURING CORPORATION, SPOUSES VICENTE V. TAGLE, SR. and MA. CONSUELO G. TAGLE, respondents.

a)It is a matter of common knowledge in lending procedures that the nominal interest is different from the effective rate of interest and that the discounting interest scheme as well as the principal amortization scheme are practices commonly resorted to by lending institutions. If IBAA disagreed with the computation scheme adopted by Philam Life, which could have been detected in the early stages of the controversy, IBAA could have interposed its objections. b)The right to call in at one time the two standby L/Cs was specifically provided for in the Loan Agreement, which was specifically made an integral part of the L/Cs. Section 8 thereof read: ". . . 8. The Lender shall have the right to declare the entire balance of the loans and all obligations of the borrower to the lender as immediately due and payable in case the borrower fails for any reason to comply with any payment or other obligations of the Lender." (p. 248, Rollo) c)The omission by Philam Life to draw the required drafts on the standby L/Cs can be explained by the fact that all the drafts were pre-prepared, pre-dated and pre-accepted by the Mendozas. Philam Life, therefore, could not have complied to the letter with the provision in the L/Cs that drawings therefrom were to be made by drafts for each due and unpaid amortization. Besides, the acceleration of the entire balance of the loan was sufficient notice of dishonor of the pre-drawn and pre-accepted drafts.

DECISION

YNARES-SANTIAGO, J p:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the October 9, 2003 Decision 1 of the Court of Appeals 2 in CAG.R. CV No. 57436, and its January 20, 2004 Resolution 3 denying petitioner's motion for reconsideration. The factual antecedents are as follows: On June 25, 1981, petitioner, Land Bank of the Philippines (Land Bank), and Monet's Export and Manufacturing Corporation (Monet) executed an Export Packing Credit Line Agreement 4 under which Monet was given a credit line in the amount of P250,000.00, secured by the proceeds of its export letters of credit, 5 the continuing guaranty of the spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle, 6 and the third party mortgage executed by Pepita C. Mendigoria. 7 The credit line agreement was renewed and amended several times 8 until it was increased to P5,000,000.00. 9 Owing to the continued failure and refusal of Monet, notwithstanding repeated demands, to pay its indebtedness to Land Bank, which have ballooned to P11,464,246.19 10 by August 31, 1992, a complaint11 for collection of sum of money with prayer for preliminary attachment was filed by Land Bank with the Regional Trial Court of Manila, docketed as Civil Case No. 93-64350. 12 In their joint Answer with Compulsory Counterclaim, 13 Monet and the Tagle spouses alleged that Land Bank failed and refused to collect the receivables on their export letter of credit against Wishbone Trading Company of Hong Kong in the sum of US$33,434.00, while it made unauthorized payments on their import letter of credit to Beautilike (H.K.) Ltd. in the amount of US$38,768.40, which seriously damaged the business interests of Monet. SACHcD On July 15, 1997, the trial court rendered decision, 14 the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1.Recognizing the obligation of the defendants as stated in the "Schedule of Amortization from the Loans and Discount Department of LAND BANK" (Exh. "39"), as well as the interest mentioned therein, but deleting the penalty thereof as no penalty should be charged and sentencing defendants jointly and severally to pay the amounts stated therein as verified; 2.Granting the counterclaim interposed by the defendants in

the amount of US$30,000.00 payable in Philippine Pesos at the official exchange rate when payment is to be made, to compensate for the defendants' lost income opportunities occasioned by defendants' transaction with Wishbone Trading Corporation and with Beautilike, the same to be deducted from the confirmed and computed obligation mentioned in No. 1 hereof; and 3.Denying the claim for attorney's fees for lack of merit. 15 From the foregoing decision, Land Bank filed an appeal 16 with the Court of Appeals. cdtai2005 On October 9, 2003, the Court of Appeals promulgated the decision subject of the present petition for review. In affirming the trial court, the Court of Appeals found that, indeed, Land Bank was responsible for the mismanagement of the Wishbone and Beautilike accounts of Monet. It held that because of the non-collection and unauthorized payment made by Land Bank on behalf of Monet, and considering that the latter could no longer draw from its credit line with Land Bank, it suffered from lack of financial resources sufficient to buy the needed materials to fill up the standing orders from its customers. TacSAE The Court of Appeals disposed of Land Bank's appeal in this wise: WHEREFORE, premises considered, and finding no reversible error in the assailed Decision of the Regional Trial Court of Manila, Branch 49, in Civil Case No. 93-64350 dated July 15, 1997, said Decision is hereby AFFIRMED and UPHELD and the appeal is DISMISSED for lack of merit. SO ORDERED. 17 Land Bank's Motion for Reconsideration 18 was denied by the Court of Appeals on January 20, 2004, 19 hence, this petition raising the following issues: 1.Whether or not the respondent Court seriously erred in upholding the findings and conclusion of the trial court limiting the liability of private respondents based on [the] Summary of Availment and Schedule

of Amortization and granting the latter opportunity losses anchored on the theory that petitioner disrupted the cas[h] flow of respondent MONET's which led to its decline; 2.Whether or not the respondent Court palpably erred in not clearly establishing petitioner's right to collect payment from private respondents' loan validly obtained in the sum of P11,464,246.19 Million which has become long overdue and demandable. 20 The petition is partly impressed with merit. As regards the Beautilike account, the trial court and the Court of Appeals erred in holding that Land Bank failed to protect Monet's interest when it paid the suppliers despite discrepancies in the shipment vis-vis the order specifications of Monet. Our ruling in Bank of America, NT & SA v. Court of Appeals, 21 is pertinent: A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods before he is paid, and a buyer, who wants to have control of the goods before paying. To break the impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by virtue of the letter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them upon their presentment simultaneously with the tender of documents required by the letter of credit. The buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are documents of title evidencing or attesting to the shipment of the goods to the buyer. HcACTE Once the credit is established, the seller ships the goods to the buyer and in the process secures the required shipping documents or

documents of title. To get paid, the seller executes a draft and presents it together with the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then obtains possession of the documents upon paying the seller. The transaction is completed when the buyer reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement, the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires the said documents and control over the goods only after reimbursing the bank. What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and the required shipping documents are presented to it. In turn, this arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By this so-called "independence principle," the bank determines compliance with the letter of credit only by examining the shipping documents presented; it is precluded from determining whether the main contract is actually accomplished or not. (Emphasis supplied) Moreover, Article 3 of the Uniform Customs and Practice (UCP) for Documentary Credits provides that credits, by their nature, are separate transactions from the sales or other contract(s) on which they may be based and banks are in no way concerned with or bound by such contract(s), even if any reference whatsoever to such contract(s) is included in the credit. Consequently, the undertaking of a bank to pay, accept and pay draft(s) or negotiate and/or fulfill any other obligation under the credit is not subject to claims or defenses by the applicant resulting from his relationships with the issuing bank or the beneficiary. In particular, Article 15 of the UCP states: Banks assume no liability or responsibility for the form,

sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for the general and/or particular conditions stipulated in the documents or superimposed thereon; nor do they assume any liability or responsibility for the description, weight, quality, condition, packing, delivery, value or existence of the goods represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever. (Emphasis supplied) EHSIcT In Transfield Philippines, Inc. v. Luzon Hydro Corporation, et al., 22 we held that the engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and the required documents are presented to it. The so-called "independence principle" assures the seller or the beneficiary of prompt payment independent of any breach of the main contract and precludes the issuing bank from determining whether the main contract is actually accomplished or not. For, if the letter of credit is drawable only after the settlement of any dispute on the main contract entered into by the applicant of the said letter of credit and the beneficiary, then there would be no practical and beneficial use for letters of credit in commercial transactions. Accordingly, we find merit in the contention of Land Bank that, as the issuing bank in the Beautilike transaction involving an import letter of credit, it only deals in documents and it is not involved in the contract between the parties. The relationship between the beneficiary and the issuer of a letter of credit is not strictly contractual, because both privity and a meeting of the minds are lacking. Thus, upon receipt by Land Bank of the documents of title which conform with what the letter of credit requires, it is duty bound to pay the seller, as it did in this case.

we find that the trial court and the Court of Appeals committed no reversible error in holding Land Bank liable for opportunity losses. The trial court summarized the transaction in this manner: The shipment to Wishbone Trading Company was for US16,119.00 on October 16, 1986. Documents were submitted without requesting for purchase of export bills. This was sent by plaintiff (Land Bank) via telex to Hongkong Bank requesting advice to pay as there were discrepancies. On advice of Hongkong Bank plaintiff paid the first shipment. At this point defendants (Monet and the Tagle spouses) were reluctant to release the two subsequent documents to the buyer until payment of the first shipment is made. When LANDBANK paid the defendants, believing that everything was in order, defendants released the documents for the two subsequent shipments, thinking that the LANDBANK's international department had taken the necessary measures for them to be paid. Wishbone then came up with new additional discrepancies not listed in the cable sent by LANDBANK. Defendants argue that if LANDBANK had acted prudently on this as it used to do, Mantruste Hongkong could not have denied payment upon the first instructions of the buyer based on the cable of LANDBANK's international department. Defendants therefore asked LANDBANK to share with them the burden of compelling the shrewd buyers to effect the payment of the export bills. Furthermore, referring to the telex of Mantruste Hongkong the original documents to Wishbone were sent per requirement under the term of the Letter of Credit, but the goods were consigned to the order of Wells Fargo Bank. Defendants believed that Wells Fargo Bank should be responsible to the shipper. Thus the defendants requested for assistance to telex Wells Fargo Bank to inquire about the whereabouts of the merchandise shipped to them as consignee. As early as November 30, 1986, Mantruste Hongkong sent a telex addressed to the bank instructing

Thus, no fault or acts of mismanagement can be attributed to Land Bank relative to Monet's import letter of credit. Its actions find solid footing on the legal principles and jurisprudence earlier discussed. Consequently, it was error for the trial court and for the Court of Appeals to grant opportunity losses to the respondents on this account. On the matter, however, of the Wishbone transaction where it is alleged by respondents that petitioner failed in its duty to protect its (Monet's) interest in collecting the amount due to it from its customers,

it to pay MONET the sum of US$16,119.00 for the first shipment despite discrepancies which were minor and properly corrected. The evidence indicates that in the Wishbone case the foreign buyer was actually putting one over the defendants, which LANDBANK could have properly prevented had it been more aggressive as is expected of a bank. STHAID Exhibits "27" and "27-A" clearly show that the terms and conditions of the Letter of Credit were substantially complied with by MONET. And the evidence shows that Wells Fargo Bank was included to receive the bills of lading, notifying only Style Up of California, and yet LANDBANK did not consider this for purposes of collection. These were testified to by defendant Consuelo Tagle who explained what happened, including payments of account, which LANDBANK failed to rebut. LANDBANK did not pursue collection on this despite the fact that the goods were acceptable merchandise. 23 A careful review of the records reveal that the trial court correctly considered Land Bank as the attorney-in-fact of Monet with regard to its export transactions with Wishbone Trading Company. It was stipulated in the Deed of Assignment 24 executed between Monet and Land Bank on June 26, 1981: That the ASSIGNOR/s (Monet) by these presents, does/do hereby appoint/s the ASSIGNEE (Land Bank) their/his/her true and lawful attorney-in-fact and in their/his/her place and stead, to demand, collect and receive the proceeds of the export letters of credit at a loan value of 80% to be applied to the payment of the credit accommodation herein secured. (Underscoring supplied) Clearly, petitioner's refusal to own its responsibility in the handling of the Wishbone account fails against the aforequoted provision. As the attorney-in-fact of Monet in transactions involving its export letters of credit, such as the Wishbone account, Land Bank should have exercised the requisite degree of diligence in collecting the amount due to the former. The records of this case are bereft of evidence showing that Land Bank

exercised the prudence mandated by its contractual obligations to Monet. The failure of Land Bank to judiciously safeguard the interest of Monet is not without any repercussions vis--vis the viability of Monet as a business enterprise. As correctly observed by the Court of Appeals: In fine, because of the noncollection . . . defendantsappellees suffered from a lack of financial resources sufficient to buy new materials. And since they also could no longer draw on their existing credit line with Landbank, they could not purchase materials to fill up the orders of their customers. Because of this the business reputation of Monet's suffered which hastened its decline. 25 The right of the respondents to be awarded opportunity losses having been established, we now go to the determination of the proper amount to be awarded to them under the circumstances obtaining in this case. The lower court awarded to herein respondents opportunity losses in the amount of US$30,000.00 based on its findings of two (2) acts of mismanagement committed by Land Bank. The Court of Appeals affirmed the amount of the award in the assailed decision. In view of our findings that Land Bank is not guilty of mismanagement in its handling of Monet's import letter of credit relative to the Beautilike transaction, we hold that a reduction of the amount of the grant is in order. It is not possible for us to totally do away with the award of opportunity losses having affirmed the findings of the trial court and the Court of Appeals that Land Bank, as the attorney-in-fact of Monet in its transaction with Wishbone Trading Company, committed acts of mismanagement. On account of the foregoing reasons, we reduce the amount of opportunity losses granted to Monet to US$15,000.00 payable in Philippine pesos at the official exchange rate when payment is to be made. AcDaEH Anent the second issue, we find that the trial court erred in limiting the obligation of the respondents to Land Bank to what was stated in the "Schedule of Amortization from the Loans and Discounts Department of LANDBANK", or Exhibit "39", 26 for the respondents. Prefatorily, we restate the time honored principle that in a petition for review under Rule 45, only questions of law may be raised. It is not our function to analyze or weigh all over again evidence already considered in the proceedings below, our jurisdiction is limited to reviewing only errors of law that may have been committed by the lower court. 27 The resolution of factual issues is the function of lower courts, whose

findings on these matters are received with respect. A question of law which we may pass upon must not involve an examination of the probative value of the evidence presented by the litigants. 28 The above rule, however, admits of certain exceptions. The findings of fact of the Court of Appeals are generally conclusive but may be reviewed when: (1) the factual findings of the Court of Appeals and the trial court are contradictory; (2) the findings are grounded entirely on speculation, surmises or conjectures; (3) the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd or impossible; (4) there is grave abuse of discretion in the appreciation of facts; (5) the appellate court, in making its findings, goes beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; (6) the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different conclusion; and (8) the findings of fact of the Court of Appeals are contrary to those of the trial court or are mere conclusions without citation of specific evidence, or where the facts set forth by the petitioner are not disputed by respondent, or where the findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. 29 Our review of the records of this case reveal that the reversible error committed by the lower court, and that of the Court of Appeals, partook of the form of over reliance and sole reliance on the figures contained in Exhibit "39", to the exclusion of other pieces of documentary evidence annexed by Land Bank to its complaint. There is no doubt that the respondents indeed owed Land Bank a sum of money. This much was clearly established by the series of letters 30 written by the officers of Monet to Land Bank acknowledging the corporation's indebtedness, albeit without specifying any amount, and asking for understanding and more time within which they can settle their obligations. We note, however, that the respondents have been consistent and persistent in their stand that they do not harbor any intention of evading the payment of the amount they actually owed to the petitioner, provided that there be a reconciliation of the payments made by the respondents on their loan obligations. 31 Indeed, Exhibit "39" or the Summary of Availment and Schedule of Amortization, which was made by the trial court as the basis in determining the amount of indebtedness of the respondents to the petitioner, is a document issued by the Loans and Discounts Department of Land Bank itself. Nevertheless, we note that the amount covered by the said summary pertains only to the indebtedness of Monet to Land Bank amounting to P2,500,000.00, as covered by Promissory Note No. P-981. The amount reflected in

Exhibit "39" is so small when compared to the P11,464,246.19 which Land Bank sought to collect from the respondents in its complaint before the trial court. The records of this case show that respondents, in the course of their credit transactions with Land Bank, executed not only one, but several promissory notes in varying amounts in favor of the bank. cETDIA

On the other hand, Land Bank submitted a Consolidated Statement of Account dated August 31, 1992 32 in support of its claim as to the amount owed to it. The said document illustrated how, based on the computations made by Land Bank, the indebtedness of Monet ballooned to P11,464,246.19. Land Bank also submitted a Summary of Availments and Payments from 1981 to 1989 33 which detailed the series of availments and payments made by Monet. Notwithstanding the above facts, and considering that Monet's Exhibit "39" was prepared before its due date of April 29, 1991, while Land Bank's Consolidated Statement of Account was prepared much later on August 31, 1992, the trial court chose to overlook them and conveniently held that the correct basis of Monet's indebtedness to Land Bank are the figures contained in Exhibit "39". Nonetheless, no explanation was proffered why it used Exhibit "39" as basis in determining the actual indebtedness of Monet. We note that instead of dealing squarely with the issue of resolving the total amount of indebtedness due to Land Bank, the trial court and the Court of Appeals chose to expound on Land Bank's alleged acts of mismanagement. In "discussing" this issue, all the trial court said was: LANDBANK claims that as of August 31, 1992, the defendants owe them the sum of P11,464,246.19 payable with interest at the rate of 10% per annum. But this is disputed by the defendants as shown in their Summary of Availment and Schedule of Amortization (Exh. "39"). 34 While both the petitioner and the respondents submitted their respective pieces of documentary evidence in support of their contentions as to the amount of indebtedness due to petitioner, the trial court failed to calibrate and harmonize them. Unfortunately, despite the pieces of evidence submitted by the parties, our review of the same is inconclusive in determining the total amount due to the petitioner. The petitioner had failed to establish the effect of Monet's Exhibit "39" to its own Consolidated Statement of Account as of August 31, 1992, nor did the respondents categorically refute the

said statement of account vis--vis its Exhibit "39". The interest of justice will best be served if this case be remanded to the court of origin for the purpose of determining the amount due to petitioner. The dearth in the records of sufficient evidence with which we can utilize in making a categorical ruling on the amount of indebtedness due to the petitioner constrains us to remand this case to the trial court with instructions to receive additional evidence as needed in order to fully thresh out the issue and establish the rights and obligations of the parties. From the amount ultimately determined by the trial court as the outstanding obligation of the respondents to the petitioner, will be deducted the award of opportunity losses granted to the respondents in the amount of US$15,000.00 payable in Philippine pesos at the official exchange rate when payment is to be made. SCHIcT WHEREFORE, the instant petition is GRANTED. The October 9, 2003 decision and the January 20, 2004 resolution of the Court of Appeals in CA-G.R. CV No. 57436, are MODIFIED insofar as the award of the counterclaim to the respondents is concerned. Accordingly, there being no basis to award opportunity costs to the respondents, Monet's Export and Manufacturing Corporation and the spouses, Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle, relative to the Beautilike account, but finding good cause to sustain the award of opportunity costs to the respondents on account of the failure of the petitioner to diligently perform its duties as the attorney-in-fact of the respondents in the Wishbone Trading Company account, the amount of opportunity costs granted to the respondents, is REDUCED to US$15,000.00 payable in Philippine pesos at the official exchange rate when payment is to be made. Insofar as the amount of indebtedness of the respondents to the petitioner is concerned, the October 9, 2003 decision and the January 20, 2004 resolution of the Court of Appeals in CA-G.R. CV No. 57436, are SET ASIDE. The case is hereby remanded to its court of origin, the Regional Trial Court of Manila, Branch 49, for the reception of additional evidence as may be needed to determine the actual amount of indebtedness of the respondents to the petitioner. The trial court is INSTRUCTED to deduct the award of opportunity losses granted to the respondents, in the amount of US$15,000.00 payable in Philippine pesos at the official exchange rate when payment is to be made, from the amount ultimately determined as the actual amount of indebtedness of the respondents to the petitioner. No pronouncement as to costs. SO ORDERED. LAND BANK OF THE PHILIPPINES, petitioner, vs. MONET'S EXPORT AND MANUFACTURING CORP., VICENTE V. TAGLE, SR. and

MA. CONSUELO G. TAGLE, respondents.

DECISION

ABAD, J p: This case is about the evidence required to prove how much a borrower still owes the bank when he has multiple loan accounts with it that had all fallen due. The Facts and the Case On June 25, 1981 petitioner Land Bank of the Philippines (Land Bank) and respondent Monet's Export and Manufacturing Corporation (Monet) executed an Export Packing Credit Line Agreement (Agreement) under which the bank gave Monet a credit line of P250,000.00, secured by the proceeds of its export letters of credit, promissory notes, a continuing guaranty executed by respondent spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle (the Tagles), and a third-party mortgage executed by one Pepita C. Mendigoria. Land Bank renewed and amended this credit line agreement several times until it reached a ceiling of P5 million. Land Bank claims that by August 31, 1992 Monet's obligation under the Agreement had swelled to P11,464,246.19. Since Monet failed to pay despite demands, the bank filed a collection suit against Monet and the Tagles before the Regional Trial Court (RTC) of Manila. 1 In their answer, Monet and the Tagles claimed that Land Bank had refused to collect the US$33,434.00 receivables on Monet's export letter of credit against Wishbone Trading Company of Hong Kong while making an unauthorized payment of US$38,768.40 on its import letter of credit to Beautilike (H.K.) Ltd. This damaged Monet's business interests since it ran short of funds to carry on with its usual business. In other words, Land Bank mismanaged its client's affairs under the Agreement. HDIaST After trial or on July 15, 1997 the RTC rendered a decision 2 that, among other things, recognized Monet and the Tagles' obligations to Land Bank in the amount reflected in Exhibit 39, the bank's Schedule of Amortization from its Loans and Discount Department, but sans any penalty. The RTC ordered petitioners to pay Land Bank the same. On appeal to the Court of Appeals (CA), 3 the latter rendered judgment on October 9, 2003, affirming the RTC decision. 4 Land Bank filed a petition for review with this Court 5 and on March 10, 2005 the Court rendered a Decision 6 that, among other things, remanded the case to the RTC for the reception of additional evidence. The pertinent portion reads:

Insofar as the amount of indebtedness of the respondents [Monet and the Tagles] to the petitioner [Land Bank] is concerned, the October 9, 2003 decision and the January 20, 2004 resolution of the Court of Appeals in CA-G.R. CV No. 57436, are SET ASIDE. The case is hereby remanded to its court of origin, the Regional Trial Court of Manila, Branch 49, for the reception of additional evidence as may be needed to determine the actual amount of indebtedness of the respondents to the petitioner. . . . In remanding the case, the Court noted that Exhibit 39, the Summary of Availment and Schedule of Amortization, on which both the RTC and the CA relied, covered only Monet's debt of P2.5 million under Promissory Note P-981, a small amount compared to the P11,464,246.19 that Land Bank sought to collect from it. The records showed, however, that Monet executed not only one but several promissory notes in varying amounts in favor of the bank. Indeed, the bank submitted a Consolidated Statement of Account dated August 31, 1992 in support of its claim of P11,464,246.19 but both the RTC and the CA merely glossed over it. Land Bank also submitted a Summary of Availments and Payments from 1981 to 1989 that detailed the series of availments and payments Monet made. The Court explained its reason for remanding the case for reception of additional evidence, thus: Unfortunately, despite the pieces of evidence submitted by the parties, our review of the same is inconclusive in determining the total amount due to the petitioner. The petitioner had failed to establish the effect of Monet's Exhibit "39" to its own Consolidated Statement of Account as of August 31, 1992, nor did the respondents categorically refute the said statement of account vis--vis its Exhibit "39". The interest of justice will best be served if this case be remanded to the court of origin for the purpose of determining the amount due to petitioner. The dearth in the records of sufficient evidence with which we can utilize in making a categorical ruling on the amount of indebtedness due to the petitioner constrains us to remand this case to the trial

court with instructions to receive additional evidence as needed in order to fully thresh out the issue and establish the rights and obligations of the parties. From the amount ultimately determined by the trial court as the outstanding obligation of the respondents to the petitioner, will be deducted the award of opportunity losses granted to the respondents in the amount of US$15,000.00 payable in Philippine pesos at the official exchange rate when payment is to be made. 7 ADCEcI On remand, the RTC held one hearing on October 30, 2006, at which the lawyer of Land Bank told the court that, apart from what the bank already adduced in evidence, it had no additional documents to present. Based on this, the RTC issued an order on the same day, 8 affirming its original decision of July 15, 1997. The pertinent portion of the order reads: At today's hearing of this case, the lawyer for Land Bank stated on record that he has no more documents to present. Therefore, the obligation of the defendants would be those stated in the schedule of amortization from the Loans & Discount Department of the Land Bank (Exhibit "39") as well as the interest mentioned therein, as provided in the Decision of this Court. From the said obligation shall be deducted in favor of the defendants the REDUCED amount of US$15,000.00 representing the award of opportunity losses, as determined by the Supreme Court, payable in Philippine Pesos at the official exchange rate when payment is to be made. 9 In effect, the RTC stood by Exhibit 39 as the basis of its finding that Monet and the Tagles owed Land Bank only P2.5 million as opposed to the latter's claim of P11,464,246.19. Effectively, the RTC reinstated the portion of its July 15, 1997 decision that the Court struck down with finality in G.R. 161865 as baseless for determining the amount due the bank. Land Bank filed a motion for reconsideration, actually a motion to reopen the hearing, to enable it to adduce in evidence a Consolidated Billing Statement as of October 31, 2006 to show how much

Monet and the Tagles still owed the bank. But the trial court denied the motion. Land Bank appealed the order to the CA10 but the latter rendered a decision on May 30, 2008, 11 affirming the RTC orders. 12 Land Bank moved for reconsideration, but the CA denied it in its October 10, 2008 resolution, 13 hence, the present petition by Land Bank. Issue Presented The sole issue presented in this case is whether or not the RTC and the CA acted correctly in denying petitioner Land Bank's motion to reopen the hearing to allow it to present the bank's updated Consolidated Billing Statement as of October 31, 2006 that reflects respondents Monet and the Tagles' remaining indebtedness to it. The Court's Ruling The CA conceded that the RTC needed to receive evidence that would enable it to establish Monet's actual indebtedness to Land Bank in compliance with the Court's decision in G.R. 161865. But since Land Bank, which had the burden of proving the amount of that indebtedness, told the RTC, when it set the matter for hearing, that it had no further documentary evidence to present, it was but right for that court to issue its assailed order of October 30, 2006, which reiterated its original decision of July 15, 1997. aEAIDH The CA also held that the RTC did right in denying Land Bank's motion to reopen the hearing to allow it to present its Consolidated Billing Statement as of October 31, 2006 involving Monet's loans. Such billing statement, said the CA, did not constitute sufficient evidence to prove Monet's total indebtedness for the simple reason that this Court in G.R. 161865 regarded a prior Consolidated Statement of Account for 1992 insufficient for that purpose. But what the RTC and the CA did not realize is that the original RTC decision of July 15, 1997 was an incomplete decision since it failed to resolve the main issue that the collection suit presented: how much Monet and the Tagles exactly owed Land Bank. As the Court noted in its decision in G.R. 161865, the evidence then on record showed that the credit line Land Bank extended to Monet began at P250,000.00 but, after several amendments, eventually rose up to P5 million. Monet availed itself of these credit lines by taking out various loans evidenced by individual promissory notes that had diverse terms of payment. As it happened, however, in its original decision, the RTC held that Monet still owed Land Bank only P2.5 million as reported in the bank's Schedule of Amortization (Exhibit 39). But that schedule covered only one promissory note, Promissory Note P-981. Noting this, the Court rejected Exhibit 39 as basis for

determining Monet's total obligation, given that it undeniably took out more loans as evidenced by the other promissory notes it executed in favor of Land Bank. And, although the bank presented at the trial its Consolidated Statement of Account for 1992 covering Monet's loans, the Court needed to know how the balance of P2.5 million in Exhibit 39, dated April 29, 1991, which the RTC regarded as true and correct, impacted on that consolidated statement that the bank prepared a year later. The Court thus remanded the case so the RTC can receive evidence that would show, after reconciliation of all of Monet's loan accounts, exactly how much more it owed Land Bank. The CA of course places no value on the Consolidated Billing Statement that Land Bank would have adduced in evidence had the RTC granted its motion for reconsideration and reopened the hearing. Apparently, both courts believe that Land Bank needed to present in evidence all original documents evidencing every transaction between Land Bank and Monet to prove the current status of the latter's loan accounts. But a bank statement, properly authenticated by a competent bank officer, can serve as evidence of the status of those accounts and what Monet and the Tagles still owe the bank. Under Section 43, Rule 13014 of the Rules of Court, entries prepared in the regular course of business are prima facie evidence of the truth of what they state. The billing statement reconciles the transaction entries entered in the bank records in the regular course of business and shows the net result of such transactions. SHacCD Entries in the course of business are accorded unusual reliability because their regularity and continuity are calculated to discipline record keepers in the habit of precision. If the entries are financial, the records are routinely balanced and audited. In actual experience, the whole of the business world function in reliance of such kind of records. 15 Parenthetically, consider a borrower who takes out a loan of P10,000.00 from a bank and executes a promissory note providing for interests, charges, and penalties and an undertaking to pay the loan in 10 monthly installments of P1,000.00. If he pays the first five months installments but defaults in the rest, how will the bank prove in court that the debtor still owes it P5,000.00 plus interest? The bank will of course present the promissory note to establish the scope of the debtor's primary obligations and a computation of interests, charges, and penalties based on its terms. It must then show by the entries in its record how much it had actually been paid. This will in turn establish how much the borrower still owes it. The bank does not have to present all the receipts of payment it issued to all its clients during the entire year, thousands of them, merely to establish the fact that only five of them,

rather than ten, pertains to the borrower. The original documents need not be presented in evidence when it is numerous, cannot be examined in court without great loss of time, and the fact sought to be established from them is only the general result. 16 Monet and the Tagles can of course dispute the bank's billing statements by proof that the bank had exaggerated what was owed it and that Monet had made more payments than were reflected in those statements. They can do this by presenting evidence of those greater payments. Notably, Monet and the Tagles have consistently avoided stating in their letters to the bank how much they still owed it. But, ultimately, it is as much their obligation to prove this disputed point if they deny the bank's statements of their loan accounts. In reverting back to Exhibit 39, which covers just one of many promissory notes that Monet and the Tagles executed in favor of Land Bank, the RTC and the CA have shown an unjustified obstinacy and a lack of understanding of what the Court wanted done to clear up the issue of how much Monet and the Tagles still owed the bank. The bank lawyer who claimed that Land Bank had no further evidence to present during the hearing was of course in error and it probably warranted a dismissal of the bank's claim for failure to prosecute. But the bank's motion for reconsideration, asking for an opportunity to present evidence of the status of the loans, opened up a chance for the RTC to abide by what the Court required of it. It committed error, together with the CA, in ruling that a reopening of the hearing would serve no useful purpose. TIDHCc WHEREFORE, the Court GRANTS the petition, SETS ASIDEthe Court of Appeals decision in CA-G.R. CV 88782 dated May 30, 2008 and resolution dated October 10, 2008 and the Regional Trial Court order in Civil Case 93-64350 dated October 30, 2006, REMANDS the case to the same Regional Trial Court of Manila for the reception of such evidence as may be needed to determine the actual amount of indebtedness of respondents Monet's Export and Manufacturing Corp. and the spouses Vicente V. Tagle, Sr. and Ma. Consuelo G. Tagle and adjudicate petitioner Land Bank of the Philippines' claims as such evidence may warrant. SO ORDERED.

This Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court assails the November 23, 2011 Decision 2 of the Court of Appeals (CA) in CAG.R. CV No. 80350, which affirmed the December 4, 2002 Decision 3 of the Regional Trial Court (RTC), Manila, Branch 21. The RTC Decision acquitted petitioner Ildefonso S. Crisologo (petitioner) of the charges for violation of Presidential Decree (P.D.) No. 115 (Trust Receipts Law) in relation to Article 315 1 (b) of the Revised Penal Code (RPC), but adjudged him civilly liable under the subject letters of credit. HTSIEa The Factual Antecedents Sometime in January and February 1989, petitioner, as President of Novachemical Industries, Inc. (Novachem), applied for commercial letters of credit from private respondent China Banking Corporation (Chinabank) to finance the purchase of 1,600 4 kgs. of amoxicillin trihydrate micronized from Hyundai Chemical Company based in Seoul, South Korea and glass containers from San Miguel Corporation (SMC). Subsequently, Chinabank issued Letters of Credit Nos. 89/0301 5and DOM-33041 6 in the respective amounts of US$114,400.00 7 (originally US$135,850.00) 8 with a peso equivalent of P2,139,119.80 9 and P1,712,289.90. After petitioner received the goods, he executed for and in behalf of Novachem the corresponding trust receipt agreements dated May 24, 1989 and August 31, 1989 in favor of Chinabank. On January 28, 2004, Chinabank, through its Staff Assistant, Ms. Maria Rosario De Mesa (Ms. De Mesa), filed before the City Prosecutor's Office of Manila a Complaint-Affidavit 10 charging petitioner for violation of P.D. No. 115 in relation to Article 315 1 (b) of the RPC for his purported failure to turn-over the goods or the proceeds from the sale thereof, despite repeated demands. It averred that the latter, with intent to defraud, and with unfaithfulness and abuse of confidence, misapplied, misappropriated and converted the goods subject of the trust agreements, to its damage and prejudice. In his defense, petitioner claimed that as a regular client of Chinabank, Novachem was granted a credit line and letters of credit (L/Cs) secured by trust receipt agreements. The subject L/Cs were included in the special term-payment arrangement mutually agreed upon by the parties, and payable in installments. In the payment of its obligations, Novachem would normally give instructions to Chinabank as to what particular L/C or trust receipt obligation its payments would be applied. However, the latter deviated from the special arrangement and misapplied payments intended for the subject L/Cs and exacted unconscionably high interests and penalty charges. The City Prosecutor found probable cause to indict petitioner as charged and filed the corresponding informations before the RTC of Manila, docketed as Criminal Case Nos. 94-139613 and 94-139614.

ILDEFONSO S. CRISOLOGO, petitioner, vs. PEOPLE OF THE PHILIPPINES and CHINA BANKING CORPORATION, respondents. PERLAS-BERNABE, J p:

The RTC Ruling After due proceedings, the RTC rendered a Decision 11 dated December 4, 2002 acquitting petitioner of the criminal charges for failure of the prosecution to prove his guilt beyond reasonable doubt. It, however, adjudged him civilly liable to Chinabank, without need for a separate civil action, for the amounts of P1,843,567.90 and P879,166.81 under L/C Nos. 89/0301 and DOM-33041, respectively, less the payment of P500,000.00 made during the preliminary investigation, with legal interest from the filing of the informations on October 27, 1994 until full payment, and for the costs. The CA Ruling On appeal of the civil aspect, the CA affirmed 12 the RTC Decision holding petitioner civilly liable. It noted that petitioner signed the "Guarantee Clause" of the trust receipt agreements in his personal capacity and even waived the benefit of excussion against Novachem. As such, he is personally and solidarily liable with Novachem. cCAIaD The Petition In the instant petition, petitioner contends that the CA erred in declaring him civilly liable under the subject L/Cs which are corporate obligations of Novachem, and that the adjudged amounts were without factual basis because the obligations had already been settled. He also questions the unilaterally-imposed interest rates applied by Chinabank and, accordingly, prays for the application of the stipulated interest rate of 18% per annum (p.a.) on the corporation's obligations. He further assails the authority of Ms. De Mesa to prosecute the case against him sans authority from Chinabank's Board of Directors. The Court's Ruling The petition is partly meritorious. Section 13 of the Trust Receipts Law explicitly provides that if the violation or offense is committed by a corporation, as in this case, the penalty provided for under the law shall be imposed upon the directors, officers, employees or other officials or person responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. In this case, petitioner was acquitted of the charge for violation of the Trust Receipts Law in relation to Article 315 1 (b) 13 of the RPC. As such, he is relieved of the corporate criminal liability as well as the corresponding civil liability arising therefrom. However, as correctly found by the RTC and the CA, he may still be held liable for the trust receipts and L/C transactions he had entered into in behalf of Novachem. Settled is the rule that debts incurred by directors, officers, and employees acting as corporate agents are

not their direct liability but of the corporation they represent, except if they contractually agree/stipulate or assume to be personally liable for the corporation's debts, 14 as in this case. The RTC and the CA adjudged petitioner personally and solidarily liable with Novachem for the obligations secured by the subject trust receipts based on the finding that he signed the guarantee clauses therein in his personal capacity and even waived the benefit of excussion. However, a review of the records shows that petitioner signed only the guarantee clauses of the Trust Receipt dated May 24, 1989 15 and the corresponding Application and Agreement for Commercial Letter of Credit No. L/C No. 89/0301. 16 With respect to the Trust Receipt 17 dated August 31, 1989 and Irrevocable Letter of Credit 18 No. L/C No. DOM-33041 issued to SMC for the glass containers, the second pages of these documents that would have reflected the guarantee clauses were missing and did not form part of the prosecution's formal offer of evidence. In relation thereto, Chinabank stipulated 19 before the CA that the second page of the August 31, 1989 Trust Receipt attached to the complaint before the court a quo would serve as the missing page. A perusal of the said page, however, reveals that the same does not bear the signature of the petitioner in the guarantee clause. Hence, it was error for the CA to hold petitioner likewise liable for the obligation secured by the said trust receipt (L/C No. DOM-33041). Neither was sufficient evidence presented to prove that petitioner acted in bad faith or with gross negligence as regards the transaction that would have held him civilly liable for his actions in his capacity as President of Novachem. aHSAIT On the matter of interest, while petitioner assailed the unilateral imposition of interest at rates above the stipulated 18% p.a., he failed to submit a summary of the pertinent dates when excessive interests were imposed and the purported over-payments that should be refunded. Having failed to prove his affirmative defense, the Court finds no reason to disturb the amount awarded to Chinabank. Settled is the rule that in civil cases, the party who asserts the affirmative of an issue has the onus to prove his assertion in order to obtain a favorable judgment. Thus, the burden rests on the debtor to prove payment rather than on the creditor to prove non-payment. 20 Lastly, the Court affirms Ms. De Mesa's capacity to sue on behalf of Chinabank despite the lack of proof of authority to represent the latter. The Court noted that as Staff Assistant of Chinabank, Ms. De Mesa was tasked, among others, to review applications for L/Cs, verify the documents of title and possession of goods covered by L/Cs, as well as pertinent documents under trust receipts (TRs); prepare/send/cause the preparation of statements of accounts reflecting the outstanding balance under the said L/Cs and/or TRs, and accept the corresponding payments; refer unpaid obligations to Chinabank's lawyers and follow-up results thereon. As such, she was in a position to verify the truthfulness and

correctness of the allegations in the ComplaintAffidavit. Besides, petitioner voluntarily submitted 21 to the jurisdiction of the court a quo and did not question Ms. De Mesa's authority to represent Chinabank in the instant case until an adverse decision was rendered against him. WHEREFORE, the assailed November 23, 2011 Decision of the Court of Appeals in CA-G.R. CV No. 80350 isAFFIRMED with the modification absolving petitioner Ildefonso S. Crisologo from any civil liability to private respondent China Banking Corporation with respect to the Trust Receipt dated August 31, 1989 and L/C No. DOM-33041. The rest of the Decision stands. SO ORDERED. [G.R. No. 74886. December 8, 1992.] PRUDENTIAL BANK, petitioner, vs. INTERM EDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS INC. and ANACLETO R. CHI,respondents. SYLLABUS 1.COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; LETTER OF CREDIT; CONSTRUED. A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 2.ID.; ID.; ID.; PRESENTMENT FOR ACCEPTANCE, NOT NECESSARY IN CASE AT BAR. The transaction in the case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to cover the former's contract to purchase and import loom and textile machinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner approved the application. The drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. There was no need for acceptance as the issued drafts are sight drafts. They are, pursuant to Section 7 of the Negotiable Instruments Law (NIL), payable on demand. Presentment for acceptance is defined as the production of a bill of exchange to a drawee for acceptance. Contrary to both courts' pronouncements, Philippine Rayon immediately became liable thereon upon petitioner's payment

thereof. Such is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). 3.ID.; ID.; ACCEPTANCE OF A BILL, EXPLAINED. The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; this may be done in writing by the drawee in the bill itself, or in a separate instrument. 4.ID.; TRUST RECEIPTS LAW (P.D. 115), TRUST RECEIPT TRANSACTION, DEFINED. Under P.D. No. 115, otherwise known as the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt transaction is defined as "any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called the trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the following: . . ." 5.ID.; ID.; VIOLATIONS THEREOF; PENDENCY OF CRIMINAL ACTION, NOT A LEGAL OBSTACLE TO A SEPARATE CIVIL ACTION. Although petitioner commenced a criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability arising out of the trust receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of the sale of goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal Code. Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party in cases of

defamation, fraud and physical injuries. Estafa falls under fraud. 6.ID.; ID.; ID.; PENALTY WHEN VIOLATION COMMITTED BY JURIDICAL ENTITIES. A close examination of Sec. 13 of P.D. No. 115 reveals that the penalty referred to therein which shall be imposed upon the directors, officers, employees or other officials or persons of the corporation, partnership, association or other judicial utility is imprisonment, the duration of which would depend on the amount of the fraud as provided for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships, associations and other juridical entities cannot be put in jail. However, it is these entities which are made liable for the civil liability arising from the criminal offense. This is the import of the clause "without prejudice to the civil liabilities arising from the criminal offense." 7.CIVIL LAW; CONTRACTS; GUARANTY; VALIDITY THEREOF. The attestation by witnesses and the acknowledgment before a notary public are not required by law to make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present; however, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that it be proved in a certain way, that requirement is absolute and indispensable. With respect to a guaranty, which is a promise to answer for the debt or default of another, the law merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless ratified. While the acknowledgment of a surety before a notary public is required to make the same a public document, under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public document. 8.ID.; ID.; ID.; DEFENSE OF EXCUSSION; NOT A CONDITION SINE QUA NON FOR THE INSTITUTION OF ACTION AGAINST GUARANTOR. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. However, excussion is not a condition sine qua non for the institution of an action against the guarantor. In Southern Motors, Inc. vs. Barbosa (99 Phil. 263, 268 [1956]), this Court stated: "4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him until after the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the case." 9.ID.; ID.; CONTRACT OF ADHESION; CONSTRUCTION THEREOF. 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. 10.REMEDIAL LAW; CIVIL PROCEDURE; PERMISSIVE JOINDER OF PARTIES; RATIONALE. There was then nothing procedurally objectionable in impleading private respondent Chi as a co-defendant in Civil Case No. Q19312 before the trial court. Section 6, Rule 3 of the Rules of Court on permissive joinder of parties explicitly allows it. This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary work, trouble and expense. 11.CIVIL LAW; CONTRACTS; GUARANTY; GUARANTOR; LIABILITY IN CASE AT BAR. Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to pay. Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases. In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the full extent of the latter's liability. All things considered, he can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner.

D E C I S I O N DAVIDE, JR., J p:

Petitioner seeks to review and set aside the decision 1 of public respondent Intermediate Appellate Court (now Court of Appeals), dated 10 March 1986, in ACG.R. No. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of First Instance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved an action instituted by the petitioner for the recovery of a sum of money representing the amount paid by it to the Nissho Company Ltd. of Japan for textile machinery imported by the defendant, now private respondent, Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon), represented by co-defendant Anacleto R. Chi. The facts which gave rise to the instant controversy are summarized by the public respondent as follows:

"On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan (Exhibit B, Plaintiff's Folder of Exhibits, p. 2). To effect payment for said machineries, the defendantappellant applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. By virtue of said application, the Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts, were drawn and issued by Nissho (Exhibits X, X-1 to X11, Ibid., pp. 65, 66 to 76), which were all paid by the Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts (Exhibits X and X-1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president, Anacleto R. Chi, while the others were not (Exhibits X-2 to X11, Ibid., pp. 66 to 76). Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the defendant-appellant which accepted delivery of the same. To enable the defendant-appellant to take delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as President (sic) of defendant-appellant company (Exhibit C, Ibid., p. 13). At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the defendantappellant fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. The defendantappellant was able to take delivery of the textile machineries and installed the same at its factory site at 69 Obudan Street, Quezon City. Sometime in 1967, the defendantappellant ceased business operation (sic). On December 29, 1969, defendant-appellant's factory was leased by Yupangco Cotton Mills for an annual rental of P300,000.00 (Exhibit I, Ibid., p. 22). The lease was renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5, 1974, all the textile machineries in the defendant-appellant's factory were sold to AIC Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29) The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained unpaid and unliquidated. Repeated formal demands (Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the payment

of the said trust receipt yielded no result. Hence, the present action for the collection of the principal amount of P956,384.95 was filed on October 3, 1974 against the defendant-appellant and Anacleto R. Chi. In their respective answers, the defendants interposed identical special defenses, viz., the complaint states no cause of action; if there is, the same has prescribed; and the plaintiff is guilty of laches." 2 On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, the amounts due under Exhibits "X" & "X-1", with interest at 6% per annum beginning September 15, 1974 until fully paid. LLphil Insofar as the amounts involved in drafts Exhs. "X" (sic) to "X-11", inclusive, the same not having been accepted by defendant Philippine Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued, hence, the instant case is premature. Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to pay defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees. With costs against defendant Philippine Rayon Mills, Inc. SO ORDERED." 3 Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to reverse or modify the decision, petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from the private respondents for the entire unpaid balance of the imported machines, the total amount of which was paid to the Nissho Company Ltd., thereby violating the principle of the third party payor's right to reimbursement provided for in the second paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusing to hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable under Section 13 of P.D. No 115 for the entire unpaid balance of the imported machines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the solidary guaranty clause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at least a simple guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that Chi is a simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and jurisprudence which provide that such liability had already attached; (f) contravening the judicial

admissions of Philippine Rayon with respect to its liability to pay the petitioner the amounts involved in the drafts (Exhibits "X", "X-1" to "X-11"); and (g) interpreting "sight" drafts as requiring acceptance by Philippine Rayon before the latter could be held liable thereon. 4 In its decision, public respondent sustained the trial court in all respects. As to the first and last assigned errors, it rules that the provision on unjust enrichment, Article 2142 of the Civil Code, applies only if there is no express contract between the parties and there is a clear showing that the payment is justified. In the instant case, the relationship existing between the petitioner and Philippine Rayon is governed by specific contracts, namely the application for letters of credit, the promissory note, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-11") which had not been presented to and were not accepted by Philippine Rayon, petitioner was not justified in unilaterally paying the amounts stated therein. The public respondent did not agree with the petitioner's claim that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior acceptance of the drafts. Since the ten (10) drafts were not presented and accepted, no valid demand for payment can be made. LLphil Public respondent also disagreed with the petitioner's contention that private respondent Chi is solidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his signature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first contention, the public respondent ruled that the civil liability provided for in said Section 13 attaches only after conviction. As to the second, it expressed misgivings as to whether Chi's signature on the trust receipt made the latter automatically liable thereon because the so-called solidary guaranty clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but by two (2) persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is not acknowledged before a notary public. Besides, even granting that it was executed and acknowledged before a notary public, Chi cannot be held liable therefor because the records fail to show that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all legal remedies as required in Article 2058 of the Civil Code. As provided for under Articles 2052 and 2054 of the Civil Code, the obligation of a guarantor is merely accessory and subsidiary, respectively. Chi's liability would therefore arise only when the principal debtor fails to comply with his obligation. 5 Its motion to reconsider the decision having been denied by the public respondent in its Resolution of 11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal issues:

"I.WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THE PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT UNDER ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE AGAINST UNJUST ENRICHMENT; II.WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH. C); III.WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS LIABLE THEREON AND TO WHAT EXTENT; IV.WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO, HAS HIS LIABILITY AS SUCH ALREADY ATTACHED; V.WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL. RAYON RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115; VI.WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE TRUST RECEIPT (EXH. C); VII.WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT; VIII.WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL. RAYON BEFORE THE LATTER BECOMES LIABLE TO PETITIONER." 7 COMMERCIAL LAW; NEGOTIABLE INSTRUMENTS; LETTER OF CREDIT; CONSTRUED. A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. Through a letter of credit, the bank merely substitutes its

own promise to pay for the promise to pay of one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon.

2.ID.; ID.; ID.; PRESENTMENT FOR ACCEPTANCE, NOT NECESSARY IN CASE AT BAR. The transaction in the case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to cover the former's contract to purchase and import loom and textile machinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner approved the application. The drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. There was no need for acceptance as the issued drafts are sight drafts. They are, pursuant to Section 7 of the Negotiable Instruments Law (NIL), payable on demand. Presentment for acceptance is defined as the production of a bill of exchange to a drawee for acceptance. Contrary to both courts' pronouncements, Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL).

to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called the trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the following: . . ."

3.ID.; ID.; ACCEPTANCE OF A BILL, EXPLAINED. The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; this may be done in writing by the drawee in the bill itself, or in a separate instrument.

5.ID.; ID.; VIOLATIONS THEREOF; PENDENCY OF CRIMINAL ACTION, NOT A LEGAL OBSTACLE TO A SEPARATE CIVIL ACTION. Although petitioner commenced a criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability arising out of the trust receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of the sale of goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal Code. Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party in cases of defamation, fraud and physical injuries. Estafa falls under fraud. . [G.R. No. 73271. May 29, 1987.]

4.ID.; TRUST RECEIPTS LAW (P.D. 115), TRUST RECEIPT TRANSACTION, DEFINED. Under P.D. No. 115, otherwise known as the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt transaction is defined as "any transaction by and between a person referred

SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendantsappellants, vs. INSULAR BANK OF ASIA AND AMERICA, plaintiffappellee.

DECISION

MELENCIO-HERRERA, J p: This case was appealed to the Intermediate Appellate Court which, however, certified the same to this Court, the issue involved being purely legal. The facts are not disputed. On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells. In consideration thereof, the VINTOLAS, jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent of the aforementioned amount or such portion thereof as may be drawn or paid, upon the faith of the said credit together with the usual charges." On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its account, "and "in case of sale" to turn over the proceeds as soon as received to IBAA. The due date indicated in the document was October 19, 1975. Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded by offering to return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having misappropriated, misapplied and converted for their own personal use and benefit the aforesaid goods. During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court. On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of the crime charged, after finding that the element of misappropriation or conversion was in-existent. Concluded the Court: "Finally, it should be mentioned that under the trust receipt, in the event of default and/or nonfulfillment on the part of the

accused of their undertaking, the bank is entitled to take possession of the goods or to recover its equivalent value together with the usual charges. In either case, the remedy of the Bank is civil and not criminal in nature. . . ." 2 Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before the Regional Trial Court of Cebu, Branch XVI. Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and: LLpr "1.Order(ed) defendants jointly and severally to pay the plaintiff the sum of Seventy Two Thousand Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine Currency, plus interest of 14% per annum and service charge of one (1%) per cent per annum computed from judicial demand and until the obligation is fully paid; "2.Order(ed) defendants jointly and severally to pay attorney's fees to the plaintiff in the sum of Four Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit." 3 The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right to enforce separately their civil liability. They maintain that by intervening actively in the prosecution of the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly with the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, reading: "Section 1.Institution of criminal and civil action. When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged is impliedly instituted with the criminal action, unless the offended party expressly waives the civil action or reserves his right to institute it separately. . . ." and that since the judgment in the criminal case had made a declaration that the facts from which the civil action might arise did not exist, the filing of the civil action arising from the offense is now

barred, as provided by Section 3-b of Rule 111 of the same Rules providing: "(b)Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. In other cases, the person entitled to the civil action may institute it in the jurisdiction in the manner provided by law against the person who may be liable for restitution of the thing and reparation or indemnity for the damage suffered." Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court. The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt.LLpr Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as: ". . . any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a 'trust receipt' wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instrument thereof to the extent of the amount owing

to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the following: 1.In the case of goods or documents, (a) to sell the goods or procure their sale, . . ." A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. "It secures an indebtedness and there can be no such thing as security interest that secures no obligation." 4 As defined in our laws: (h)"Security Interest means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only." 5 As elucidated in Samo vs. People 6 "a trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased." Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. ". . . for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of

a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. . . ." 7 Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. In so arguing, the VINTOLAS conveniently close their eyes to their application for a Letter of Credit wherein they expressly obligated themselves in these terms: LLphil

Court would not have dwelt on a civil liability that it had intended to extinguish by the same decision. 9The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the merchandise as charged in the criminal case. 10 Their civil liability does not arise ex delicto, the action for the recovery of which would have been deemed instituted with the criminal action (unless waived or reserved) and where acquittal based on a judicial declaration that the criminal acts charged do not exist would have extinguished the civil action. 11 Rather, the civil suit instituted by IBAA is based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Under the situational circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly providing: "Art. 31.When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter." WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED. No costs. SO ORDERED.

"IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in Philippine Currency the equivalent of the above amount or such portion thereof as may be drawn or paid upon the faith of said credit together with the usual charges. . . ." (Exhibit "A"). They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00. "be applied, without further proceedings or formalities to pay or reduce our obligation under this letter of credit or its corresponding Trust Receipt." (Emphasis supplied) 8 The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa case is no bar to the institution of a civil action for collection. It is inaccurate for the VINTOLAS to claim that the judgment in the estafa case had declared that the facts from which the civil action might arise, did not exist, for, it will be recalled that the decision of acquittal expressly declared that "the remedy of the Bank is civil and not criminal in nature." This amounts to a reservation of the civil action in IBAA's favor, for the