Professional Documents
Culture Documents
COMREV
[G.R. No. 149454. May 28, 2004]
BANK OF THE PHILIPPINE ISLANDS, petitioner,
vs. CASA MONTESSORI INTERNATIONALE and
LEONARDO T. YABUT, respondents.
[G.R. No. 149507. May 28, 2004]
CASA MONTESSORI INTERNATIONALE, petitioner,
vs. BANK OF THE PHILIPPINE ISLANDS, respondent.
DECISION
PANGANIBAN, J.:
By the nature of its functions, a bank is required to
take meticulous care of the deposits of its clients,
who have the right to expect high standards of
integrity and performance from it.Among its
obligations in furtherance thereof is knowing the
signatures of its clients. Depositors are not
estopped from questioning wrongful withdrawals,
even if they have failed to question those errors in
the statements sent by the bank to them for
verification.
The Case
Before us are two Petitions for Review[1] under
Rule 45 of the Rules of Court, assailing the March
23, 2001 Decision[2] and the August 17,
2001 Resolution[3] of the Court of Appeals (CA) in
CA-GR CV No. 63561. The decretal portion of the
assailed Decision reads as follows:
WHEREFORE, upon the premises, the decision
appealed from is AFFIRMED with the modification
that defendant bank [Bank of the Philippine Islands
(BPI)] is held liable only for one-half of the value of
the forged checks in the amount of P547,115.00
after deductions subject to REIMBURSEMENT from
third party defendant Yabut who is
likewise ORDERED to pay the other half to plaintiff
corporation [Casa Montessori Internationale
(CASA)].[4]
The assailed Resolution denied all the parties
Motions for Reconsideration.
The Facts
The facts of the case are narrated by the CA as
follows:
On November 8, 1982, plaintiff CASA Montessori
International[5] opened Current Account No. 02910081-01 with defendant BPI[,] with CASAs
President Ms. Ma. Carina C. Lebron as one of its
authorized signatories.
In 1991, after conducting an investigation, plaintiff
discovered that nine (9) of its checks had been
encashed by a certain Sonny D. Santos since 1990
in the total amount of P782,000.00, on the
following dates and amounts:
Check No. Date Amount
1.
839700 April 24, 1990 P 43,400.00
2.
839459 Nov. 2, 1990 110,500.00
3.
839609 Oct. 17, 1990 47,723.00
4.
839549 April 7, 1990 90,700.00
5.
839569 Sept. 23, 1990 52,277.00
6.
729149 Mar. 22, 1990 148,000.00
7.
729129 Mar. 16, 1990 51,015.00
8.
839684 Dec. 1, 1990 140,000.00
9.
729034 Mar. 2, 1990 98,985.00
Total -- P 782,600.00[6]
It turned out that Sonny D. Santos with account at
BPIs Greenbelt Branch [was] a fictitious name used
by third party defendant Leonardo T. Yabut who
worked as external auditor of CASA.Third party
defendant voluntarily admitted that he forged the
signature of Ms. Lebron and encashed the checks.
The PNP Crime Laboratory conducted an
examination of the nine (9) checks and concluded
that the handwritings thereon compared to the
standard signature of Ms. Lebron were not written
by the latter.
On March 4, 1991, plaintiff filed the herein
Complaint for Collection with Damages against
defendant bank praying that the latter be ordered
to reinstate the amount of P782,500.00[7] in the
current and savings accounts of the plaintiff with
interest at 6% per annum.
On February 16, 1999, the RTC rendered the
appealed decision in favor of the plaintiff.[8]
Ruling of the Court of Appeals
Modifying the Decision of the Regional Trial Court
(RTC), the CA apportioned the loss between BPI
and CASA. The appellate court took into account
CASAs contributory negligence that resulted in the
undetected forgery. It then ordered Leonardo T.
Yabut to reimburse BPI half the total amount
claimed; and CASA, the other half. It also
disallowed attorneys fees and moral and
exemplary damages.
Hence, these Petitions.[9]
Issues
In GR No. 149454, Petitioner BPI submits the
following issues for our consideration:
I. The Honorable Court of Appeals erred in deciding
this case NOT in accord with the applicable
decisions of this Honorable Court to the effect that
forgery cannot be presumed; that it must be
proved by clear, positive and convincing evidence;
and that the burden of proof lies on the party
alleging the forgery.
II. The Honorable Court of Appeals erred in
deciding this case not in accord with applicable
laws, in particular the Negotiable Instruments Law
(NIL) which precludes CASA, on account of its own
negligence, from asserting its forgery claim against
BPI, specially taking into account the absence of
any negligence on the part of BPI.[10]
In GR No. 149507, Petitioner CASA submits the
following issues:
2
1. The Honorable Court of Appeals erred when it
ruled that there is no showing that [BPI], although
negligent, acted in bad faith x x x thus denying the
prayer for the award of attorneys fees, moral
damages and exemplary damages to [CASA]. The
Honorable Court also erred when it did not order
[BPI] to pay interest on the amounts due to
[CASA].
2. The Honorable Court of Appeals erred when it
declared that [CASA] was likewise negligent in the
case at bar, thus warranting its conclusion that the
loss in the amount of P547,115.00 be apportioned
between [CASA] and [BPI] x x x.[11]
These issues can be narrowed down to three. First,
was there forgery under the Negotiable
Instruments Law (NIL)? Second, were any of the
parties negligent and therefore precluded from
setting up forgery as a defense? Third, should
moral and exemplary damages, attorneys fees,
and interest be awarded?
The Courts Ruling
The Petition in GR No. 149454 has no merit, while
that in GR No. 149507 is partly meritorious.
First Issue:
Forged Signature Wholly Inoperative
Section 23 of the NIL provides:
Section 23. Forged signature; effect of. -- When a
signature is forged or made without the authority
of the person whose signature it purports to be, it
is wholly inoperative, and no right x x x to enforce
payment thereof against any party thereto, can be
acquired through or under such signature, unless
the party against whom it is sought to enforce
such right is precluded from setting up the forgery
or want of authority.[12]
Under this provision, a forged signature is a
real[13] or absolute defense,[14] and a person
whose signature on a negotiable instrument is
forged is deemed to have never become a party
thereto and to have never consented to the
contract that allegedly gave rise to it.[15]
The counterfeiting of any writing, consisting in the
signing of anothers name with intent to defraud, is
forgery.[16]
In the present case, we hold that there was forgery
of the drawers signature on the check.
First, both the CA[17] and the RTC[18] found that
Respondent Yabut himself had voluntarily
admitted, through an Affidavit, that he had forged
the drawers signature and encashed the checks.
[19] He never refuted these findings.[20] That he
had been coerced into admission was not
corroborated by any evidence on record.[21]
Second, the appellate and the trial courts also
ruled that the PNP Crime Laboratory, after its
examination of the said checks,[22] had concluded
that the handwritings thereon -- compared to the
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to implead Yabut in the civil case before the lower
court.
Under these two constitutional provisions, [t]he Bill
of Rights[40] does not concern itself with the
relation between a private individual and another
individual. It governs the relationship between the
individual and the State.[41] Moreover, the Bill of
Rights is a charter of liberties for the individual and
a limitation upon the power of the [S]tate.
[42] These rights[43] are guaranteed to preclude
the slightest coercion by the State that may lead
the accused to admit something false, not prevent
him from freely and voluntarily telling the truth.
[44]
Yabut is not an accused here. Besides, his mere
invocation of the aforesaid rights does not
automatically entitle him to the constitutional
protection.[45] When he freely and voluntarily
executed[46] his Affidavit, the State was not even
involved. Such Affidavit may therefore be admitted
without violating his constitutional rights while
under custodial investigation and against selfincrimination.
Clear, Positive and Convincing
Examination and Evidence
The examination by the PNP, though inconclusive,
was nevertheless clear, positive and convincing.
Forgery cannot be presumed.[47] It must be
established by clear, positive and convincing
evidence.[48] Under the best evidence rule as
applied to documentary evidence like the checks in
question, no secondary or substitutionary evidence
may inceptively be introduced, as the original
writing itself must be produced in court.[49] But
when, without bad faith on the part of the offeror,
the original checks have already been destroyed or
cannot be produced in court, secondary evidence
may be produced.[50] Without bad faith on its
part, CASA proved the loss or destruction of the
original checks through the Affidavit of the one
person who knew of that fact[51] -- Yabut. He
clearly admitted to discarding the paid checks to
cover up his misdeed.[52] In such a situation,
secondary evidence like microfilm copies may be
introduced in court.
The drawers signatures on the microfilm copies
were compared with the standard signature. PNP
Document Examiner II Josefina de la Cruz testified
on cross-examination that two different persons
had written them.[53] Although no conclusive
report could be issued in the absence of the
original checks,[54] she affirmed that her findings
were 90 percent conclusive.[55]According to her,
even if the microfilm copies were the only basis of
comparison, the differences were evident.
[56] Besides, the RTC explained that although the
Report was inconclusive, no conclusive report
4
experts and scientific instruments, may be
inconclusive;[71] but it is a non sequitur to say
that such result is not clear, positive and
convincing. The preponderance of evidence
required in this case has been satisfied.[72]
Second Issue:
Negligence Attributable to BPI Alone
Having established the forgery of the drawers
signature, BPI -- the drawee -- erred in making
payments by virtue thereof. The forged signatures
are wholly inoperative, and CASA -- the drawer
whose authorized signatures do not appear on the
negotiable instruments -- cannot be held liable
thereon. Neither is the latter precluded from
setting up forgery as a real defense.
Clear Negligence
in Allowing Payment
Under a Forged Signature
We have repeatedly emphasized that, since the
banking business is impressed with public interest,
of paramount importance thereto is the trust and
confidence of the public in general.Consequently,
the highest degree of diligence[73] is expected,
[74] and high standards of integrity and
performance are even required, of it.[75] By the
nature of its functions, a bank is under obligation
to treat the accounts of its depositors with
meticulous care,[76] always having in mind the
fiduciary nature of their relationship.[77]
BPI contends that it has a signature verification
procedure, in which checks are honored only when
the signatures therein are verified to be the same
with or similar to the specimen signatures on the
signature cards. Nonetheless, it still failed to
detect the eight instances of forgery. Its negligence
consisted in the omission of that degree of
diligence required[78] of a bank.It cannot now
feign ignorance, for very early on we have already
ruled that a bank is bound to know the signatures
of its customers; and if it pays a forged check, it
must be considered as making the payment out of
its own funds, and cannot ordinarily charge the
amount so paid to the account of the depositor
whose name was forged.[79] In fact, BPI was the
same bank involved when we issued this ruling
seventy years ago.
Neither Waiver nor Estoppel
Results from Failure to
Report Error in Bank Statement
The monthly statements issued by BPI to its clients
contain a notice worded as follows: If no error is
reported in ten (10) days, account will be correct.
[80] Such notice cannot be considered a waiver,
even if CASA failed to report the error. Neither is it
estopped from questioning the mistake after the
lapse of the ten-day period.
5
innocent mistake, estoppel will not arise.[97] A
person who has no knowledge of or consent to a
transaction may not be estopped by it.
[98] Estoppel cannot be sustained by mere
argument or doubtful inference x x x.[99] CASA is
not barred from questioning BPIs error even after
the lapse of the period given in the notice.
Loss Borne by
Proximate Source
of Negligence
For allowing payment[100] on the checks to a
wrongful and fictitious payee, BPI -- the drawee
bank -- becomes liable to its depositordrawer. Since the encashing bank is one of its
branches,[101] BPI can easily go after it and hold it
liable for reimbursement.[102] It may not debit the
drawers account[103] and is not entitled to
indemnification from the drawer.[104] In both law
and equity, when one of two innocent persons
must suffer by the wrongful act of a third person,
the loss must be borne by the one whose
negligence was the proximate cause of the loss or
who put it into the power of the third person to
perpetrate the wrong.[105]
Proximate cause is determined by the facts of the
case.[106] It is that cause which, in natural and
continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and
without which the result would not have occurred.
[107]
Pursuant to its prime duty to ascertain well the
genuineness of the signatures of its clientdepositors on checks being encashed, BPI is
expected to use reasonable business prudence.
[108] In the performance of that obligation, it is
bound by its internal banking rules and regulations
that form part of the contract it enters into with its
depositors.[109]
Unfortunately, it failed in that regard. First, Yabut
was able to open a bank account in one of its
branches without privity;[110] that is, without the
proper verification of his corresponding
identification papers. Second, BPI was unable to
discover early on not only this irregularity, but also
the marked differences in the signatures on the
checks and those on the signature card.Third,
despite the examination procedures it conducted,
the Central Verification Unit[111] of the bank even
passed off these evidently different signatures as
genuine. Without exercising the required prudence
on its part, BPI accepted and encashed the eight
checks presented to it. As a result, it proximately
contributed to the fraud and should be held
primarily liable[112] for the negligence of its
officers or agents when acting within the course
and scope of their employment.[113] It must bear
the loss.
6
prepare the bank reconciliations.[131]He owned
his working papers,[132] and his output consisted
of his opinion as well as the clients financial
statements and accompanying notes
thereto. CASA had every right to rely solely upon
his output -- based on the terms of the audit
engagement -- and could thus be unwittingly
duped into believing that everything was in
order. Besides, [g]ood faith is always presumed
and it is the burden of the party claiming otherwise
to adduce clear and convincing evidence to the
contrary.[133]
Moreover, there was a time gap between the
period covered by the bank statement and the
date of its actual receipt. Lebron personally
received the December 1990 bank statement only
in January 1991[134] -- when she was also
informed of the forgery for the first time, after
which she immediately requested a stop payment
order. She cannot be faulted for the late detection
of the forged December check. After all, the bank
account with BPI was not personal but corporate,
and she could not be expected to monitor closely
all its finances. A preschool teacher charged with
molding the minds of the youth cannot be
burdened with the intricacies or complexities of
corporate existence.
There is also a cutoff period such that checks
issued during a given month, but not presented for
payment within that period, will not be reflected
therein.[135] An experienced auditor with intent to
defraud can easily conceal any devious scheme
from a client unwary of the accounting processes
involved by manipulating the cash balances on
record -- especially when bank transactions are
numerous, large and frequent. CASA could only be
blamed, if at all, for its unintelligent choice in the
selection and appointment of an auditor -- a fault
that is not tantamount to negligence.
Negligence is not presumed, but proven by
whoever alleges it.[136] Its mere existence is not
sufficient without proof that it, and no other cause,
[137] has given rise to damages.[138] In addition,
this fault is common to, if not prevalent among,
small and medium-sized business entities, thus
leading the Professional Regulation Commission
(PRC), through the Board of Accountancy (BOA), to
require today not only accreditation for the
practice of public accountancy,[139] but also the
registration of firms in the practice thereof. In fact,
among the attachments now required upon
registration are the code of good
governance[140] and a sworn statement on
adequate and effective training.[141]
The missing checks were certainly reported by the
bookkeeper[142] to the accountant[143] -- her
immediate supervisor -- and by the latter to the
7
[160] because it cannot experience physical
suffering and mental anguish.[161] However, for
breach of the fiduciary duty required of a bank, a
corporate client may claim such damages when its
good reputation is besmirched by such breach, and
social humiliation results therefrom.[162] CASA
was unable to prove that BPI had debased the
good reputation of,[163] and consequently caused
incalculable embarrassment to, the former. CASAs
mere allegation or supposition thereof, without any
sufficient evidence on record,[164] is not enough.
Exemplary Damages Also Denied
We also deny CASAs claim for exemplary damages.
Imposed by way of correction[165] for the public
good,[166] exemplary damages cannot be
recovered as a matter of right.[167] As we have
said earlier, there is no bad faith on the part of BPI
for paying the checks of CASA upon forged
signatures. Therefore, the former cannot be said to
have acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.[168] The latter,
having no right to moral damages, cannot demand
exemplary damages.[169]
Attorneys Fees Granted
Although it is a sound policy not to set a premium
on the right to litigate,[170] we find that CASA is
entitled to reasonable attorneys fees based on
factual, legal, and equitable justification.[171]
When the act or omission of the defendant has
compelled the plaintiff to incur expenses to protect
the latters interest,[172] or where the court deems
it just and equitable,[173] attorneys fees may be
recovered. In the present case, BPI persistently
denied the claim of CASA under the NIL to recredit
the latters account for the value of the forged
checks. This denial constrained CASA to incur
expenses and exert effort for more than ten years
in order to protect its corporate interest in its bank
account. Besides, we have already cautioned BPI
on a similar act of negligence it had committed
seventy years ago, but it has remained
unrelenting. Therefore, the Court deems it just and
equitable to grant ten percent (10%)[174] of the
total value adjudged to CASA as attorneys fees.
Interest Allowed
For the failure of BPI to pay CASA upon demand
and for compelling the latter to resort to the courts
to obtain payment, legal interest may be
adjudicated at the discretion of the Court, the
same to run from the filing[175] of the Complaint.
[176] Since a court judgment is not a loan or a
forbearance of recovery, the legal interest shall be
at six percent (6%) per annum.[177] If the
obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation
to the contrary, shall be the payment of x x x legal
8
also unique in the number of parties involved and
its supranational character.
Petitioner has appealed from the Decision[1] of the
Court of Appeals in CA-G.R. SP No. 61901
entitled Transfield Philippines, Inc. v. Hon. Oscar
Pimentel, et al., promulgated on 31 January 2001.
[2]
On 26 March 1997, petitioner and respondent
Luzon Hydro Corporation (hereinafter, LHC)
entered into a Turnkey Contract[3] whereby
petitioner, as Turnkey Contractor, undertook to
construct, on a turnkey basis, a seventy (70)Megawatt hydro-electric power station at the
Bakun River in the provinces of Benguet and Ilocos
Sur (hereinafter, the Project). Petitioner was given
the sole responsibility for the design, construction,
commissioning, testing and completion of the
Project.[4]
The Turnkey Contract provides that: (1) the target
completion date of the Project shall be on 1 June
2000, or such later date as may be agreed upon
between petitioner and respondent LHC or
otherwise determined in accordance with the
Turnkey Contract; and (2) petitioner is entitled to
claim extensions of time (EOT) for reasons
enumerated in the Turnkey Contract, among which
are variations, force majeure, and delays caused
by LHC itself.[5] Further, in case of dispute, the
parties are bound to settle their differences
through mediation, conciliation and such other
means enumerated under Clause 20.3 of the
Turnkey Contract.[6]
To secure performance of petitioners obligation on
or before the target completion date, or such time
for completion as may be determined by the
parties agreement, petitioner opened in favor of
LHC two (2) standby letters of credit both dated 20
March 2000 (hereinafter referred to as the
Securities), to wit: Standby Letter of Credit No.
E001126/8400 with the local branch of respondent
Australia and New Zealand Banking Group Limited
(ANZ Bank)[7] and Standby Letter of Credit No.
IBDIDSB-00/4 with respondent Security Bank
Corporation (SBC)[8] each in the amount of
US$8,988,907.00.[9]
In the course of the construction of the project,
petitioner sought various EOT to complete the
Project. The extensions were requested allegedly
due to several factors which prevented the
completion of the Project on target date, such
as force majeure occasioned by typhoon Zeb,
barricades and demonstrations. LHC denied the
requests, however. This gave rise to a series of
legal actions between the parties which
culminated in the instant petition.
The first of the actions was a Request for
Arbitration which LHC filed before the Construction
9
Case No. 00-1312 and raffled to Branch 148 of the
RTC of Makati.
After appropriate proceedings, the trial court
issued an Order on 9 November 2000, extending
the temporary restraining order for a period of
seventeen (17) days or until 26 November 2000.
[18]
The RTC, in its Order[19] dated 24 November 2000,
denied petitioners application for a writ of
preliminary injunction. It ruled that petitioner had
no legal right and suffered no irreparable injury to
justify the issuance of the writ. Employing the
principle of independent contract in letters of
credit, the trial court ruled that LHC should be
allowed to draw on the Securities for liquidated
damages. It debunked petitioners contention that
the principle of independent contract could be
invoked only by respondent banks since according
to it respondent LHC is the ultimate beneficiary of
the Securities. The trial court further ruled that the
banks were mere custodians of the funds and as
such they were obligated to transfer the same to
the beneficiary for as long as the latter could
submit the required certification of its claims.
Dissatisfied with the trial courts denial of its
application for a writ of preliminary injunction,
petitioner elevated the case to the Court of
Appeals via a Petition for Certiorari under Rule 65,
with prayer for the issuance of a temporary
restraining order and writ of preliminary injunction.
[20] Petitioner submitted to the appellate court
that LHCs call on the Securities was premature
considering that the issue of its default had not yet
been resolved with finality by the CIAC and/or the
ICC. It asserted that until the fact of delay could be
established, LHC had no right to draw on the
Securities for liquidated damages.
Refuting petitioners contentions, LHC claimed that
petitioner had no right to restrain its call on and
use of the Securities as payment for liquidated
damages. It averred that the Securities are
independent of the main contract between them
as shown on the face of the two Standby Letters of
Credit which both provide that the banks have no
responsibility to investigate the authenticity or
accuracy of the certificates or the declarants
capacity or entitlement to so certify.
In its Resolution dated 28 November 2000, the
Court of Appeals issued a temporary restraining
order, enjoining LHC from calling on the Securities
or any renewals or substitutes thereof and ordering
respondent banks to cease and desist from
transferring, paying or in any manner disposing of
the Securities.
However, the appellate court failed to act on the
application for preliminary injunction until the
temporary restraining order expired on 27 January
10
On 25 August 2003, petitioner filed a Supplement
to the Petition[22] and Supplemental
Memorandum,[23] alleging that in the course of
the proceedings in the ICC Arbitration, a number of
documentary and testimonial evidence came out
through the use of different modes of discovery
available in the ICC Arbitration. It contends that
after the filing of the petition facts and admissions
were discovered which demonstrate that LHC
knowingly misrepresented that petitioner had
incurred delays notwithstanding its knowledge and
admission that delays were excused under the
Turnkey Contractto be able to draw against the
Securities. Reiterating that fraud constitutes an
exception to the independence principle, petitioner
urges that this warrants a ruling from this Court
that the call on the Securities was wrongful, as well
as contrary to law and basic principles of equity. It
avers that it would suffer grave irreparable
damage if LHC would be allowed to use the
proceeds of the Securities and not ordered to
return the amounts it had wrongfully drawn
thereon.
In its Manifestation dated 8 September 2003,
[24] LHC contends that the supplemental
pleadings filed by petitioner present erroneous and
misleading information which would change
petitioners theory on appeal.
In yet another Manifestation dated 12 April 2004,
[25] petitioner alleges that on 18 February 2004,
the ICC handed down its Third Partial Award,
declaring that LHC wrongfully drew upon the
Securities and that petitioner was entitled to the
return of the sums wrongfully taken by LHC for
liquidated damages.
LHC filed a Counter-Manifestation dated 29 June
2004,[26] stating that
petitioners Manifestation dated 12 April 2004
enlarges the scope of its Petition for Review of the
31 January 2001 Decision of the Court of Appeals.
LHC notes that the Petition for Review essentially
dealt only with the issue of whether injunction
could issue to restrain the beneficiary of an
irrevocable letter of credit from drawing thereon. It
adds that petitioner has filed two other
proceedings, to wit: (1) ICC Case No.
11264/TE/MW, entitled Transfield Philippines Inc. v.
Luzon Hydro Corporation, in which the parties
made claims and counterclaims arising from
petitioners performance/misperformance of its
obligations as contractor for LHC; and (2) Civil
Case No. 04-332, entitled Transfield Philippines,
Inc. v. Luzon Hydro Corporation before Branch 56
of the RTC of Makati, which is an action to enforce
and obtain execution of the ICCs partial award
mentioned in petitioners Manifestation of 12 April
2004.
11
instrument, because it is not payable to order or
bearer and is generally conditional, yet the draft
presented under it is often negotiable.[29]
In commercial 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.[30] The use of credits in commercial
transactions serves to reduce the risk of
nonpayment of the purchase price under the
contract for the sale of goods. However, credits are
also used in non-sale settings where they serve to
reduce the risk of nonperformance. Generally,
credits in the non-sale settings have come to be
known as standby credits.[31]
There are three significant differences between
commercial and standby credits. First, commercial
credits involve the payment of money under a
contract of sale. Such credits become payable
upon the presentation by the seller-beneficiary of
documents that show he has taken affirmative
steps to comply with the sales agreement. In the
standby type, the credit is payable upon
certification of a party's nonperformance of the
agreement. The documents that accompany the
beneficiary's draft tend to show that the applicant
has not performed. The beneficiary of a
commercial credit must demonstrate by
documents that he has performed his contract. The
beneficiary of the standby credit must certify that
his obligor has not performed the contract.[32]
By definition, a letter of credit is a written
instrument whereby the writer requests or
authorizes the addressee to pay money or deliver
goods to a third person and assumes responsibility
for payment of debt therefor to the addressee.
[33] A letter of credit, however, changes its nature
as different transactions occur and if carried
through to completion ends up as a binding
contract between the issuing and honoring banks
without any regard or relation to the underlying
contract or disputes between the parties thereto.
[34]
Since letters of credit have gained general
acceptability in international trade transactions,
the ICC has published from time to time updates
on the Uniform Customs and Practice (UCP) for
Documentary Credits to standardize practices in
the letter of credit area. The vast majority of
letters of credit incorporate the UCP.[35] First
published in 1933, the UCP for Documentary
Credits has undergone several revisions, the latest
of which was in 1993.[36]
12
independence may be only as to the justification
aspect like in a commercial letter of credit or
repayment standby, which is identical with the
same obligations under the underlying agreement.
In both cases the payment may be enjoined if in
the light of the purpose of the credit the payment
of the credit would constitute fraudulent abuse of
the credit.[40]
Can the beneficiary invoke the independence
principle?
Petitioner insists that the independence principle
does not apply to the instant case and assuming it
is so, it is a defense available only to respondent
banks. LHC, on the other hand, contends that it
would be contrary to common sense to deny the
benefit of an independent contract to the very
party for whom the benefit is intended. As
beneficiary of the letter of credit, LHC asserts it is
entitled to invoke the principle.
As discussed above, in a letter of credit
transaction, such as in this case, where the credit
is stipulated as irrevocable, there is a definite
undertaking by the issuing bank to pay the
beneficiary provided that the stipulated documents
are presented and the conditions of the credit are
complied with.[41] Precisely, the independence
principle liberates the issuing bank from the duty
of ascertaining compliance by the parties in the
main contract. As the principles nomenclature
clearly suggests, the obligation under the letter of
credit is independent of the related and originating
contract. In brief, the letter of credit is separate
and distinct from the underlying transaction.
Given the nature of letters of credit, petitioners
argumentthat it is only the issuing bank that may
invoke the independence principle on letters of
creditdoes not impress this Court. To say that the
independence principle may only be invoked by
the issuing banks would render nugatory the
purpose for which the letters of credit are used in
commercial transactions. As it is, the
independence doctrine works to the benefit of both
the issuing bank and the beneficiary.
Letters of credit are employed by the parties
desiring to enter into commercial transactions, not
for the benefit of the issuing bank but mainly for
the benefit of the parties to the original
transactions. With the letter of credit from the
issuing bank, the party who applied for and
obtained it may confidently present the letter of
credit to the beneficiary as a security to convince
the beneficiary to enter into the business
transaction. On the other hand, the other party to
the business transaction, i.e., the beneficiary of
the letter of credit, can be rest assured of being
empowered to call on the letter of credit as a
security in case the commercial transaction does
13
event of nonperformance, that he will receive it
promptly, and that he will receive it before any
litigation with the obligor (the applicant) over the
nature of the applicants performance takes place.
The standby credit has this opposite effect of the
surety contract: it reverses the financial burden of
parties during litigation.
In the surety contract setting, there is no duty to
indemnify the beneficiary until the beneficiary
establishes the fact of the obligors performance.
The beneficiary may have to establish that fact in
litigation. During the litigation, the surety holds the
money and the beneficiary bears most of the cost
of delay in performance.
In the standby credit case, however, the
beneficiary avoids that litigation burden and
receives his money promptly upon presentation of
the required documents. It may be that the
applicant has, in fact, performed and that the
beneficiarys presentation of those documents is
not rightful. In that case, the applicant may sue
the beneficiary in tort, in contract, or in breach of
warranty; but, during the litigation to determine
whether the applicant has in fact breached the
obligation to perform, the beneficiary, not the
applicant, holds the money. Parties that use a
standby credit and courts construing such a credit
should understand this allocation of burdens. There
is a tendency in some quarters to overlook this
distinction between surety contracts and standby
credits and to reallocate burdens by permitting the
obligor or the issuer to litigate the performance
question before payment to the beneficiary.[42]
While it is the bank which is bound to honor the
credit, it is the beneficiary who has the right to ask
the bank to honor the credit by allowing him to
draw thereon. The situation itself emasculates
petitioners posture that LHC cannot invoke the
independence principle and highlights its puerility,
more so in this case where the banks concerned
were impleaded as parties by petitioner itself.
Respondent banks had squarely raised the
independence principle to justify their releases of
the amounts due under the Securities. Owing to
the nature and purpose of the standby letters of
credit, this Court rules that the respondent banks
were left with little or no alternative but to honor
the credit and both of them in fact submitted that
it was ministerial for them to honor the call for
payment.[43]
Furthermore, LHC has a right rooted in the
Contract to call on the Securities. The relevant
provisions of the Contract read, thus:
4.2.1. In order to secure the performance of its
obligations under this Contract, the Contractor at
its cost shall on the Commencement Date provide
security to the Employer in the form of two
14
Citing Dolans treatise on letters of credit,
petitioner argues that the independence principle
is not without limits and it is important to fashion
those limits in light of the principles purpose,
which is to serve the commercial function of the
credit. If it does not serve those functions,
application of the principle is not warranted, and
the commonlaw principles of contract should apply.
It is worthy of note that the propriety of LHCs call
on the Securities is largely intertwined with the
fact of default which is the self-same issue pending
resolution before the arbitral tribunals. To be able
to declare the call on the Securities wrongful or
fraudulent, it is imperative to resolve, among
others, whether petitioner was in fact guilty of
delay in the performance of its obligation.
Unfortunately for petitioner, this Court is not called
upon to rule upon the issue of defaultsuch issue
having been submitted by the parties to the
jurisdiction of the arbitral tribunals pursuant to the
terms embodied in their agreement.[47]
Would injunction then be the proper remedy to
restrain the alleged wrongful draws on the
Securities?
Most writers agree that fraud is an exception to the
independence principle. Professor Dolan opines
that the untruthfulness of a certificate
accompanying a demand for payment under a
standby credit may qualify as fraud sufficient to
support an injunction against payment.[48] The
remedy for fraudulent abuse is an injunction.
However, injunction should not be granted unless:
(a) there is clear proof of fraud; (b) the fraud
constitutes fraudulent abuse of the independent
purpose of the letter of credit and not only fraud
under the main agreement; and (c) irreparable
injury might follow if injunction is not granted or
the recovery of damages would be seriously
damaged.[49]
In its complaint for injunction before the trial court,
petitioner alleged that it is entitled to a total
extension of two hundred fifty-three (253) days
which would move the target completion date. It
argued that if its claims for extension would be
found meritorious by the ICC, then LHC would not
be entitled to any liquidated damages.[50]
Generally, injunction is a preservative remedy for
the protection of ones substantive right or interest;
it is not a cause of action in itself but merely a
provisional remedy, an adjunct to a main suit. The
issuance of the writ of preliminary injunction as an
ancillary or preventive remedy to secure the rights
of a party in a pending case is entirely within the
discretion of the court taking cognizance of the
case, the only limitation being that this discretion
should be exercised based upon the grounds and
in the manner provided by law.[51]
15
[58] What petitioner did assert before the courts
below was the fact that LHCs draws on the
Securities would be premature and without basis in
view of the pending disputes between them.
Petitioner should not be allowed in this instance to
bring into play the fraud exception rule to sustain
its claim for the issuance of an injunctive relief.
Matters, theories or arguments not brought out in
the proceedings below will ordinarily not be
considered by a reviewing court as they cannot be
raised for the first time on appeal.[59] The lower
courts could thus not be faulted for not applying
the fraud exception rule not only because the
existence of fraud was fundamentally interwoven
with the issue of default still pending before the
arbitral tribunals, but more so, because petitioner
never raised it as an issue in its pleadings filed in
the courts below. At any rate, petitioner utterly
failed to show that it had a clear and unmistakable
right to prevent LHCs call upon the Securities.
Of course, prudence should have impelled LHC to
await resolution of the pending issues before the
arbitral tribunals prior to taking action to enforce
the Securities. But, as earlier stated, the Turnkey
Contract did not require LHC to do so and,
therefore, it was merely enforcing its rights in
accordance with the tenor thereof. Obligations
arising from contracts have the force of law
between the contracting parties and should be
complied with in good faith.[60] More importantly,
pursuant to the principle of autonomy of contracts
embodied in Article 1306 of the Civil Code,
[61] petitioner could have incorporated in its
Contract with LHC, a proviso that only the final
determination by the arbitral tribunals that default
had occurred would justify the enforcement of the
Securities. However, the fact is petitioner did not
do so; hence, it would have to live with its inaction.
With respect to the issue of whether the
respondent banks were justified in releasing the
amounts due under the Securities, this Court
reiterates that pursuant to the independence
principle the banks were under no obligation to
determine the veracity of LHCs certification that
default has occurred. Neither were they bound by
petitioners declaration that LHCs call thereon was
wrongful. To repeat, respondent banks undertaking
was simply to pay once the required documents
are presented by the beneficiary.
At any rate, should petitioner finally prove in the
pending arbitration proceedings that LHCs draws
upon the Securities were wrongful due to the nonexistence of the fact of default, its right to seek
indemnification for damages it suffered would not
normally be foreclosed pursuant to general
principles of law.
16
adversely, by some other court.[67] It may also
consist in the act of a party against whom an
adverse judgment has been rendered in one
forum, of seeking another and possibly favorable
opinion in another forum other than by appeal or
special civil action of certiorari, or the institution of
two or more actions or proceedings grounded on
the same cause on the supposition that one or the
other court might look with favor upon the other
party.[68] To determine whether a party violated
the rule against forum-shopping, the test applied is
whether the elements of litis pendentia are present
or whether a final judgment in one case will
amount to res judicata in another.[69] Forumshopping constitutes improper conduct and may
be punished with summary dismissal of the
multiple petitions and direct contempt of court.[70]
Considering the seriousness of the charge of
forum-shopping and the severity of the sanctions
for its violation, the Court will refrain from making
any definitive ruling on this issue until after
petitioner has been given ample opportunity to
respond to the charge.
WHEREFORE, the instant petition is DENIED, with
costs against petitioner.
Petitioner is hereby required to answer the charge
of forum-shopping within fifteen (15) days from
notice.
SO ORDERED.
3. [G.R. NO. 117913. February 1, 2002]
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO,
ALFONSO YAP, RICHARD VELASCO and ALFONSO
CO, petitioners, vs. COURT OF APPEALS and
PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
[G.R. NO. 117914. February 1, 2002]
MICO METALS CORPORATION, petitioner, vs. COURT
OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
DECISION
DE LEON, JR., J:
Before us is the joint and consolidated petition for
review of the Decision[1] dated June 15, 1994 of
the Court of Appeals in CA-G.R. CV No. 27480
entitled, Philippine Bank of Communications
vs. Mico Metals Corporation, Charles Lee,
Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard
Velasco and Alfonso Co, which reversed the
decision of the Regional Trial Court (RTC) of Manila,
Branch 55 dismissing the complaint for a sum of
money filed by private respondent Philippine Bank
of Communications against herein
petitioners, Mico Metals Corporation (MICO, for
brevity), Charles Lee, Chua Siok Suy,
[2] Mariano Sio, Alfonso Yap, Richard Velasco and
17
other credit lines of the same kind and such further
terms and conditions as may, upon granting of
said loans and other banking facilities, be imposed
by the Bank; and to make, execute, sign and
deliver any contracts of mortgage, pledge or sale
of one, some or all of the properties of the
Company, or any other agreements or documents
of whatever nature or kind, including the signing,
indorsing, cashing, negotiation and execution of
promissory notes, checks, money orders or other
negotiable instruments, which may be necessary
and proper in connection with said loans and other
banking facilities, or with their amendments,
renewals and extensions of payment of the whole
or any part thereof.[4]
On March 26, 1979, MICO availed of the first loan
of One Million Pesos (P1,000,000.00) from PBCom.
Upon maturity of the loan, MICO caused the same
to be renewed, the last renewal of which was made
on May 21, 1982 under Promissory Note BNA No.
26218.[5]
Another loan of One Million Pesos (P1,000,000.00)
was availed of by MICO from PBCom which was
likewise later on renewed, the last renewal of
which was made on May 21, 1982under Promissory
Note BNA No. 26219.[6] To
complete MICOs availment of Three Million Pesos
(P3,000,000.00) discounting loan/credit line
with PBCom, MICO availed of another loan
from PBCom in the sum of One Million Pesos
(P1,000,000.00) on May 24, 1979. As in previous
loans, this was rolled over or renewed, the last
renewal of which was made on May 25, 1982under
Promissory Note BNA No. 26253.[7]
As security for the loans, MICO through its VicePresident and General Manager, Mariano Sio,
executed on May 16, 1979 a Deed of Real Estate
Mortgage over its properties situated inPasig,
Metro Manila covered by Transfer Certificates of
Title (TCT) Nos. 11248 and 11250.
On March 26, 1979 Charles Lee, Chua Siok Suy,
Mariano Sio, Alfonso Yap and Richard Velasco, in
their personal capacities executed a Surety
Agreement[8] in favor of PBComwhereby the
petitioners jointly and severally, guaranteed the
prompt payment on due dates or at maturity of
overdrafts, promissory notes, discounts, drafts,
letters of credit, bills of exchange, trust receipts,
and other obligations of every kind and nature, for
which MICO may be held accountable by PBCom. It
was provided, however, that the liability of the
sureties shall not at any one time exceed the
principal amount of Three Million Pesos
(P3,000,000.00) plus interest, costs, losses,
charges and expenses including attorneys fees
incurred by PBCom in connection therewith.
18
RESOLVED FURTHER, That said bank is hereby
authorized, empowered and directed to rely on the
authority given hereunder, the same to continue in
full force and effect until written notice of its
revocation shall be received by said Bank.[11]
On July 2, 1981, MICO filed with PBCom an
application for a domestic letter of credit in the
sum of Three Hundred Forty-Eight Thousand Pesos
(P348,000.00).[12] The corresponding irrevocable
letter of credit was approved and opened under LC
No. L-16060.[13] Thereafter, the domestic letter of
credit was negotiated and accepted by MICO as
evidenced by the corresponding bank draft issued
for the purpose.[14] After the supplier of the
merchandise was paid, a trust receipt
upon MICOs own initiative, was executed in favor
of PBCom.[15]
On September 14, 1981, MICO applied for another
domestic letter of credit with PBCom in the sum of
Two Hundred Ninety Thousand Pesos
(P290,000.00).[16] The corresponding irrevocable
letter of credit was issued on September 22,
1981 under LC No. L-16334.[17] After the
beneficiary of the said letter of credit was paid
by PBCom for the price of the merchandise, the
goods were delivered to MICO which executed a
corresponding trust receipt[18] in favor of PBCom.
On November 10, 1981, MICO applied for authority
to open a foreign letter of credit in favor of
Ta Jih Enterprises Co., Ltd.,[19] and thus, the
corresponding letter of credit[20] was then issued
by PBCom with a cable sent to the beneficiary,
Ta Jih Enterprises Co., Ltd. advising that said
beneficiary may draw funds from the account
of PBCom in its correspondent banks New York
Office.[21] PBCom also informed its corresponding
bank in Taiwan, the Irving Trust Company, of the
approved letter of credit. The correspondent bank
acknowledged PBComsadvice through a
confirmation letter[22] and by debiting
from PBComs account with the said correspondent
bank the sum of Eleven Thousand Nine Hundred
Sixty US Dollars ($11 ,960.00).[23] As in past
transactions, MICO executed in favor of PBCom a
corresponding trust receipt.[24]
On January 4, 1982, MICO applied, for authority to
open a foreign letter of credit in the sum of One
Thousand Nine Hundred US Dollars ($1,900.00),
with PBCom.[25] Upon approval, the corresponding
letter of credit denominated as LC No.
62293[26] was issued whereupon PBCom advised
its correspondent bank and MICO[27] of the same.
Negotiation and proper acceptance of the letter of
credit were then made by MICO. Again, a
corresponding trust receipt[28] was executed by
MICO in favor of PBCom.
19
Petitioners (MICO and herein petitioners-sureties)
denied all the allegations of the complaint filed by
respondent PBCom, and alleged that: a) MICO was
not granted the alleged loans and neither did it
receive the proceeds of the aforesaid loans; b)
Chua Siok Suy was never granted any valid Board
Resolution to sign for and in behalf of MICO;
c) PBCom acted in bad faith in granting the alleged
loans and in releasing the proceeds thereof; d)
petitioners were never advised of the alleged grant
of loans and the subsequent releases therefor, if
any; e) since no loan was ever released to or
received by MICO, the corresponding real estate
mortgage and the surety agreements signed
concededly by the petitioners-sureties are null and
void.
The trial court gave credence to the testimonies of
herein petitioners and dismissed the complaint
filed by PBCom. The trial court likewise declared
the real estate mortgage and its foreclosure null
and void. In ruling for herein petitioners, the trial
court said that PBCom failed to adequately prove
that the proceeds of the loans were ever delivered
to MICO. The trial court pointed out, among others,
that while PBCom claimed that the proceeds of the
Four Million Pesos (P4,000,000.00) loan covered by
promissory note TA 094 were deposited to the
current account of petitioner MICO, PBCom failed
to produce the ledger account showing such
deposit. The trial court added that
while PBCom may have loaned to MICO the other
sums of Three Hundred Forty-Eight Thousand
Pesos (P348,000.00) and Two Hundred Ninety
Thousand Pesos (P290,000.00), no proof has been
adduced as to the existence of the goods covered
and paid by the said amounts. Hence, inasmuch as
no consideration ever passed from PBCom to
MICO, all the documents involved therein, such as
the promissory notes, real estate mortgage
including the surety agreements were all void or
nonexistent for lack of cause or consideration. The
trial court said that the lack of proof as regards the
existence of the merchandise covered by the
letters of credit bolstered the claim of herein
petitioners that no purchases of the goods were
really made and that the letters of credit
transactions were simply resorted to by
the PBCom and Chua Siok Suy to accommodate
the latter in his financial requirements.
The Court of Appeals reversed the ruling of the
trial court, saying that the latter committed an
erroneous application and appreciation of the rules
governing the burden of proof. Citing Section 24 of
the Negotiable Instruments Law which provides
that Every negotiable instrument is deemed prima
facie to have been issued for valuable
consideration and every person whose signature
20
delivery of money or loan proceeds to MICO or to
any of the petitioners-sureties. Petitioners claim
that under normal banking practice, borrowers are
required to accomplish promissory notes in blank
even before the grant of the loans applied for and
such documents become valid written contracts
only when the loans are actually released to the
borrower.
We are not convinced.
During the trial of an action, the party who has the
burden of proof upon an issue may be aided in
establishing his claim or defense by the operation
of a presumption, or, expressed differently, by the
probative value which the law attaches to a
specific state of facts. A presumption may operate
against his adversary who has not introduced proof
to rebut the presumption. The effect of a legal
presumption upon a burden of proof is to create
the necessity of presenting evidence to meet the
legal presumption or the prima facie case created
thereby, and which if no proof to the contrary is
presented and offered, will prevail. The burden of
proof remains where it is, but by the presumption
the one who has that burden is relieved for the
time being from introducing evidence in support of
his averment, because the presumption stands in
the place of evidence unless rebutted.
Under Section 3, Rule 131 of the Rules of Court the
following presumptions, among
others, are satisfactory if uncontradicted: a) That
there was a sufficient consideration for a contract
and b) That a negotiable instrument was given or
indorsed for sufficient consideration. As observed
by the Court of Appeals, a similar presumption is
found in Section 24 of the Negotiable Instruments
Law which provides that every negotiable
instrument is deemed prima facie to have been
issued for valuable consideration and every person
whose signature appears thereon to have become
a party for value. Negotiable instruments which
are meant to be substitutes for money, must
conform to the following requisites to be
considered as such a) it must be in writing; b) it
must be signed by the maker or drawer; c) it must
contain an unconditional promise or order to pay a
sum certain in money; d) it must be payable on
demand or at a fixed or determinable future time;
e) it must be payable to order or bearer; and f)
where it is a bill of exchange, the drawee must be
named or otherwise indicated with reasonable
certainty. Negotiable instruments include
promissory notes, bills of exchange and checks.
Letters of credit and trust receipts are, however,
not negotiable instruments. But drafts issued in
connection with letters of credit are negotiable
instruments.
21
possession of the merchandise covered by
Irrevocable Letter of Credit no. 61873 was released
byPBCom to MICO.
16) Letters dated March 2, 1979 from MICO signed
by its president, Charles Lee, showing that MICO
sought credit line from PBCom in the form of loans,
letters of credit and trust receipt in the sum
ofP7,500,000.00.
17) Letter dated July 14, 1980 from MICO signed by
its president, Charles Lee, showing that MICO
requested for additional financial assistance in the
sum of P4,000,000.00.
18) Board resolution dated March 6, 1979 of MICO
authorizing Charles Lee and Mariano Sio singly or
jointly to act and sign for and in behalf of MICO
relative to the obtention of credit facilities
fromPBCom.
19) Duly notarized Deed of Mortgage dated May
16, 1979 executed by MICO in favor
of PBCom over MICO s real properties covered by
TCT Nos. 11248 and 11250 located in Pasig.
20) Duly notarized Surety Agreement dated March
26, 1979 executed by herein petitioners Charles
Lee, Mariano Sio, Alfonso Yap, Richard Velasco and
Chua Siok Suy in favor of PBCom.
21) Duly notarized Surety Agreement dated July
28, 1980 executed by herein petitioners Charles
Lee, Mariano Sio, Alfonso Yap, Richard Velasco and
Chua Siok Suy in favor of PBCom.
22) Duly notarized certification dated July 28, 1980
issued by MICO s corporate secretary, Mr. P.B.
Barrera, attesting to the adoption of a board
resolution authorizing Chua Siok Suy to sign, for
and in behalf of MICO, all the necessary documents
including contracts, loan instruments and
mortgages relative to the obtention of various
credit facilities from PBCom.
The above-cited documents presented have not
merely created a prima facie case but have
actually proved the solidary obligation of MICO and
the petitioners, as sureties of MICO, in favor of
respondent PBCom. While the presumption found
under the Negotiable Instruments Law may not
necessarily be applicable to trust receipts and
letters of credit, the presumption that the drafts
drawn in connection with the letters of credit have
sufficient consideration. Under Section 3(r), Rule
131 of the Rules of Court there is also a
presumption that sufficient consideration was
given in a contract. Hence, petitioners should have
presented credible evidence to rebut that
presumption as well as the evidence presented by
private respondentPBCom. The letters of credit
show that the pertinent
materials/merchandise have been received by
MICO. The drafts signed by the
beneficiary/suppliers in connection with the
22
testified that the proceeds of the loans were
deposited in MICOs current account with PBCom,
his testimony was allegedly not supported by any
bank record, note or memorandum. A careful
scrutiny of the record including the transcript of
stenographic notes reveals, however, that
although private respondentPBCom was willing to
produce the corresponding account ledger showing
that the proceeds of the loans were credited
to MICOs current account with PBCom, MICO in fact
vigorously objected to the presentation of said
document. That point is shown in the testimony
of PBComs witness, Gardiola, thus:
Q: Now, all of these promissory note Exhibits I and
J which as you have said previously (sic) availed
originally by defendant Mico Metals Corp.
sometime in 1979, my question now is, do you
know what happened to the proceeds of the
original availment?
A: Well, it was credited to the current account
of Mico Metals Corp.
Q: Why did it was credited to the proceeds to the
account of Mico Metals Corp? (sic)
A: Well, that is our understanding.
ATTY. DURAN:
Your honor, may we be given a chance to object,
the best evidence is the so-called current
account...
COURT:
Can you produce the ledger account?
A: Yes, Your Honor, I will bring.
COURT:
The ledger or record of the current account
of Mico Metals Corp.
A: Yes, Your Honor.
ATTY. ACEJAS:
Your Honor, these are a confidential record, and
they might not be disclosed without the consent of
the person concerned. (sic)
ATTY. SANTOS:
Well, you are the one who is asking that.
ATTY. DURAN:
Your Honor, Im precisely want to show for the ...
(sic)
COURT:
But the amount covered by the current account of
defendant Mico Metals Corp. is the subject matter
of this case.
xxx xxx xxx
Q: Are those availments were release? (sic)
A: Yes, Your Honor, to the defendant corporation.
Q: By what means?
A: By the credit to their current account.
ATTY. ACEJAS:
We object to that, your Honor, because the
disclose is the secrecy of the bank deposit. (sic)
xxx xxx xxx
23
bank or on another designated bank not in the city
of the beneficiary. As a rule, whenever the facilities
of the opening bank are used, the beneficiary is
supposed to present his drafts to the notifying
bank for negotiation and (g) the confirming bank
which, upon the request of the beneficiary,
confirms the letter of credit issued by the opening
bank.
From the foregoing, it is clear that letters of credit,
being usually bank to bank transactions, involve
more than just one bank. Consequently, there is
nothing unusual in the fact that the drafts
presented in evidence by respondent bank were
not made payable to PBCom. As explained by
respondent bank, a draft was drawn on the Bank of
Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan,
supplier of the goods covered by the foreign letter
of credit. Having paid the supplier, the Bank of
Taiwan then presented the bank draft for
reimbursement by PBComscorrespondent bank in
Taiwan, the Irving Trust Company which explains
the reason why on its face, the draft was made
payable to the Bank of Taiwan. Irving Trust
Company accepted and endorsed the draft
to PBCom. The draft was later transmitted
to PBCom to support the latters claim for payment
from MICO. MICO accepted the draft upon
presentment and negotiated it toPBCom.
Petitioners further aver that MICO never requested
that legal possession of the merchandise be
transferred to PBCom by way of trust receipts.
Petitioners insist that assuming that MICO
transferred possession of the merchandise
to PBCom by way of trust receipts, the same would
be illegal since PBCom, being a banking institution,
is not authorized by law to engage in the business
of importing and selling goods.
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.[39] A trust receipt, therefor, is a
document of security pursuant to which a bank
acquires a security interest in the goods under
trust receipt. Under a letter of credit-trust receipt
arrangement, a bank extends a loan covered by a
letter of credit, with the trust receipt as a security
for the loan. The transaction involves a loan
feature represented by a letter of credit, and a
security feature which is in the covering trust
receipt which secures an indebtedness.
Petitioners averments with regard to the second
issue are no less incredulous. Petitioners contend
that the letters of credit, surety agreements and
24
1982. As office manager, he was the one in charge
of transacting business like purchasing, selling and
paying the salary of the employees. He was also in
charge of the handling of documents pertaining to
surety agreements, trust receipts and promissory
notes;[44] that when he first joined MICO Metals
Corporation, he was able to read the by-laws of the
corporation and he came to know that only the
chairman and the president can borrow money in
behalf of the corporation; that Chua Siok Suy once
called him up and told him to secure an invoice so
that a credit line can be opened in the bank with a
local letter of credit; that when the invoice was
secured, he (Co) brought it together with the
application for a credit line to Chua Siok Suy, and
that he questioned the authority of
Chua SiokSuy pointing out that he (Co) is not
empowered to sign the document inasmuch as
only the latter, as president, was authorized to do
so. However, Chua Siok Suy allegedly just said that
he had already talked with the Chairman of the
Board of PBCom; and that
Chua Siok Suy reportedly said that he needed the
money to finance a project that he had with
the Taipeigovernment. Co also testified that he
knew of the application for domestic letter of credit
in the sum of Three Hundred Forty-Eight Thousand
Pesos (P348,000.00); and that a
certain MoisesRosete was authorized to claim the
check covering the Three Hundred Forty-Eight
Thousand Pesos (P348,000.00) from PBCom; and
that after claiming the check Rosete brought it to
Perez Battery Center for indorsement after which
the same was deposited to the personal account of
Chua Siok Suy.[45]
We consider as incredible and unacceptable the
claim of petitioners-sureties that the Board of
Directors of MICO was so careless about the
business affairs of MICO as well as about their own
personal reputation and money that they simply
relied on the say so of Chua Siok Suy on matters
involving millions of pesos. Under Section 3 (d),
Rule 131 of the Rules of Court, it is presumed that
a person takes ordinary care of his concerns.
Hence, the natural presumption is that one does
not sign a document without first informing himself
of its contents and consequences. Said
presumption acquires greater force in the case at
bar where not only one but several documents
were executed at different times and at different
places by the petitioner sureties and
Chua Siok Suy as president of MICO.
MICO and herein petitioners-sureties insist that
Chua Siok Suy was not duly authorized to
negotiate for loans in behalf of MICO from PBCom.
Petitioners allegation, however, is belied by the
July 28, 1980 Certification issued by the corporate
25
the prima facie case. Where the defendant merely
denies, either generally or otherwise, the
allegations of the plaintiffs pleadings, the burden
of proof continues to rest on the plaintiff
throughout the trial and does not shift to the
defendant until the plaintiffs evidence has been
presented and duly offered. The defendant has
then no burden except to produce evidence
sufficient to create a state of equipoise between
his proof and that of the plaintiff to defeat the
latter, whereas the plaintiff has the burden, as in
the beginning, of establishing his case by a
preponderance of evidence.[47] But where the
defendant has failed to present
andmarshall evidence sufficient to create a state of
equipoise between his proof and that of plaintiff,
the prima facie case presented by the plaintiff will
prevail.
In the case at bar, respondent PBCom, as plaintiff
in the trial court, has in fact presented sufficient
documentary and testimonial evidence that proved
by preponderance of evidence its subject collection
case against the defendants who are the
petitioners herein. In view of all the foregoing, the
Court of Appeals committed no reversible error in
its appealed Decision.
WHEREFORE, the assailed Decision of the Court of
Appeals in CA-G.R. CV No. 27480 entitled,
Philippine Bank of Communications vs. Mico Metals
Corporation, Charles Lee, ChuaSiok Suy,
Mariano Sio, Alfonso Yap, Richard Velasco and
Alfonso Co, is AFFIRMED in toto.
Costs against the petitioners.
SO ORDERED.
4. G.R. No. 94209
April 30, 1991
FEATI BANK & TRUST COMPANY (now CITYTRUST
BANKING CORPORATION), petitioner,
vs.
THE COURT OF APPEALS, and BERNARDO E.
VILLALUZ, respondents.
Pelaez, Adriano & Gregorio for petitioner.
Ezequiel S. Consulta for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review seeking the reversal of
the decision of the Court of Appeals dated June 29,
1990 which affirmed the decision of the Regional
Trial Court of Rizal dated October 20, 1986
ordering the defendants Christiansen and the
petitioner, to pay various sums to respondent
Villaluz, jointly and severally.
The facts of the case are as follows:
On June 3, 1971, Bernardo E. Villaluz agreed to sell
to the then defendant Axel Christiansen 2,000
26
Also incorporated by reference in the letter of
credit is the Uniform Customs and Practice for
Documentary Credits (1962 Revision).
The logs were thereafter loaded on the vessel
"Zenlin Glory" which was chartered by
Christiansen. Before its loading, the logs were
inspected by custom inspectors Nelo Laurente,
Alejandro Cabiao, Estanislao Edera from the
Bureau of Customs (Records, Vol. I, p. 124) and
representatives Rogelio Cantuba and Jesus Tadena
of the Bureau of Forestry (Records, Vol. I, pp. 1617) all of whom certified to the good condition and
exportability of the logs.
After the loading of the logs was completed, the
Chief Mate, Shao Shu Wang issued a mate receipt
of the cargo which stated the same are in good
condition (Records, Vol. I, p. 363). However,
Christiansen refused to issue the certification as
required in paragraph 4 of the letter of credit,
despite several requests made by the private
respondent.
Because of the absence of the certification by
Christiansen, the Feati Bank and Trust Company
refused to advance the payment on the letter of
credit.
The letter of credit lapsed on June 30, 1971,
(extended, however up to July 31, 1971) without
the private respondent receiving any certification
from Christiansen.
The persistent refusal of Christiansen to issue the
certification prompted the private respondent to
bring the matter before the Central Bank. In a
memorandum dated August 16, 1971, the Central
Bank ruled that:
. . . pursuant to the Monetary Board Resolution No.
1230 dated August 3, 1971, in all log exports, the
certification of the lumber inspectors of the Bureau
of Forestry . . . shall be considered final for
purposes of negotiating documents. Any provision
in any letter of credit covering log exports
requiring certification of buyer's agent or
representative that said logs have been approved
for shipment as a condition precedent to
negotiation of shipping documents shall not be
allowed. (Records, Vol. I, p. 367)
Meanwhile, the logs arrived at Inchon, Korea and
were received by the consignee, Hanmi Trade
Development Company, to whom Christiansen sold
the logs for the amount of $37.50 per cubic meter,
for a net profit of $10 per cubic meter. Hanmi
Trade Development Company, on the other hand
sold the logs to Taisung Lumber Company at
Inchon, Korea. (Rollo, p. 39)
Since the demands by the private respondent for
Christiansen to execute the certification proved
futile, Villaluz, on September 1, 1971, instituted an
action for mandamus and specific performance
27
in Los Angeles, California, undertook by its terms
that the same shall be honored upon its
presentment. On the other hand, the notifying
bank, the defendant Feati Bank and Trust
Company, by accepting the instructions from the
issuing bank, itself assumed the very same
undertaking as the issuing bank under the terms of
the letter of credit.
xxx
xxx
xxx
The Court likewise agrees with the plaintiff that the
defendant BANK may also be held liable under the
principles and laws on both trust and estoppel.
When the defendant BANK accepted its role as the
notifying and negotiating bank for and in behalf of
the issuing bank, it in effect accepted a trust
reposed on it, and became a trustee in relation to
plaintiff as the beneficiary of the letter of credit. As
trustee, it was then duty bound to protect the
interests of the plaintiff under the terms of the
letter of credit, and must be held liable for
damages and loss resulting to the plaintiff from its
failure to perform that obligation.
Furthermore, when the defendant BANK assumed
the role of a notifying and negotiating BANK it in
effect represented to the plaintiff that, if the
plaintiff complied with the terms and conditions of
the letter of credit and presents the same to the
BANK together with the documents mentioned
therein the said BANK will pay the plaintiff the
amount of the letter of credit. The Court is
convinced that it was upon the strength of this
letter of credit and this implied representation of
the defendant BANK that the plaintiff delivered the
logs to defendant CHRISTIANSEN, considering that
the issuing bank is a foreign bank with whom
plaintiff had no business connections and
CHRISTIANSEN had not offered any other Security
for the payment of the logs. Defendant BANK
cannot now be allowed to deny its commitment
and liability under the letter of credit:
A holder of a promissory note given because of
gambling who indorses the same to an innocent
holder for value and who assures said party that
the note has no legal defect, is in estoppel from
asserting that there had been an illegal
consideration for the note, and so, he has to pay
its value. (Rodriguez v. Martinez, 5 Phil. 67).
The defendant BANK, in insisting upon the
certification of defendant CHRISTIANSEN as a
condition precedent to negotiating the letter of
credit, likewise in the Court's opinion acted in bad
faith, not only because of the clear declaration of
the Central Bank that such a requirement was
illegal, but because the BANK, with all the legal
counsel available to it must have known that the
condition was void since it depended on the sole
28
during the pendency of its appeal from the adverse
decision in Civil Case No. 15121. However, the
execution of the same decision against defendant
Axel Christiansen did not appeal said decision may
proceed unimpeded. The Sheriff s levy on the
petitioner's properties, and the notice of sale dated
January 13, 1987 (Annex M), are hereby annulled
and set aside. Rollo p. 44)
A motion for reconsideration was thereafter filed
by the private respondent. The Court of Appeals, in
a resolution dated June 29, 1987 denied the
motion for reconsideration.
In the meantime, the appeal filed by the petitioner
before the Court of Appeals was given due course.
In its decision dated June 29, 1990, the Court of
Appeals affirmed the decision of the lower court
dated October 20, 1986 and ruled that:
1. Feati Bank admitted in the "special and negative
defenses" section of its answer that it was the
bank to negotiate the letter of credit issued by the
Security Pacific National Bank of Los Angeles,
California. (Record, pp. 156, 157). Feati Bank did
notify Villaluz of such letter of credit. In fact, as
such negotiating bank, even before the letter of
credit was presented for payment, Feati Bank had
already made an advance payment of P75,000.00
to Villaluz in anticipation of such presentment. As
the negotiating bank, Feati Bank, by notifying
Villaluz of the letter of credit in behalf of the
issuing bank (Security Pacific), confirmed such
letter of credit and made the same also its own
obligation. This ruling finds support in the authority
cited by Villaluz:
A confirmed letter of credit is one in which the
notifying bank gives its assurance also that the
opening bank's obligation will be performed. In
such a case, the notifying bank will not simply
transmit but will confirm the opening bank's
obligation by making it also its own undertaking, or
commitment, or guaranty or obligation. (Ward &
Hatfield, 28-29, cited in Agbayani, Commercial
Laws, 1978 edition, p. 77).
Feati Bank argues further that it would be
considered as the negotiating bank only upon
negotiation of the letter of credit. This stance is
untenable. Assurance, commitments or guaranties
supposed to be made by notifying banks to the
beneficiary of a letter of credit, as defined above,
can be relevant or meaningful only with respect to
a future transaction, that is, negotiation. Hence,
even before actual negotiation, the notifying bank,
by the mere act of notifying the beneficiary of the
letter of credit, assumes as of that moment the
obligation of the issuing bank.
2. Since Feati Bank acted as guarantor of the
issuing bank, and in effect also of the latter's
principal or client, i.e. Hans Axel-Christiansen. (sic)
29
THE RESPONDENT COURT LIKEWISE COMMITTED
AN ERROR OF LAW WHEN IT AFFIRMED THE TRIAL
COURT'S DECISION. (Rollo, p. 12)
The principal issue in this case is whether or not a
correspondent bank is to be held liable under the
letter of credit despite non-compliance by the
beneficiary with the terms thereof?
The petition is impressed with merit.
It is a settled rule in commercial transactions
involving letters of credit that the documents
tendered must strictly conform to the terms of the
letter of credit. The tender of documents by the
beneficiary (seller) must include all documents
required by the letter. A correspondent bank which
departs from what has been stipulated under the
letter of credit, as when it accepts a faulty tender,
acts on its own risks and it may not thereafter be
able to recover from the buyer or the issuing bank,
as the case may be, the money thus paid to the
beneficiary Thus the rule of strict compliance.
In the United States, commercial transactions
involving letters of credit are governed by the rule
of strict compliance. In the Philippines, the same
holds true. The same rule must also be followed.
The case of Anglo-South America Trust Co. v. Uhe
et al. (184 N.E. 741 [1933]) expounded clearly on
the rule of strict compliance.
We have heretofore held that these letters of credit
are to be strictly complied with which documents,
and shipping documents must be followed as
stated in the letter. There is no discretion in the
bank or trust company to waive any requirements.
The terms of the letter constitutes an agreement
between the purchaser and the bank. (p. 743)
Although in some American decisions, banks are
granted a little discretion to accept a faulty tender
as when the other documents may be considered
immaterial or superfluous, this theory could lead to
dangerous precedents. Since a bank deals only
with documents, it is not in a position to determine
whether or not the documents required by the
letter of credit are material or superfluous. The
mere fact that the document was specified therein
readily means that the document is of vital
importance to the buyer.
Moreover, the incorporation of the Uniform
Customs and Practice for Documentary Credit
(U.C.P. for short) in the letter of credit resulted in
the applicability of the said rules in the governance
of the relations between the parties.
And even if the U.C.P. was not incorporated in the
letter of credit, we have already ruled in the
affirmative as to the applicability of the U.C.P. in
cases before us.
In Bank of P.I. v. De Nery (35 SCRA 256 [1970]), we
pronounced that the observance of the U.C.P. in
this jurisdiction is justified by Article 2 of the Code
30
on the completeness of the documents tendered
by the beneficiary.
In regard to the ruling of the lower court and
affirmed by the Court of Appeals that the petitioner
is not a notifying bank but a confirming bank, we
find the same erroneous.
The trial court wrongly mixed up the meaning of an
irrevocable credit with that of a confirmed credit.
In its decision, the trial court ruled that the
petitioner, in accepting the obligation to notify the
respondent that theirrevocable credit has been
transmitted to the petitioner on behalf of the
private respondent, has confirmed the letter.
The trial court appears to have overlooked the fact
that an irrevocable credit is not synonymous with a
confirmed credit. These types of letters have
different meanings and the legal relations arising
from there varies. A credit may be
an irrevocable credit and at the same time a
confirmed credit or vice-versa.
An irrevocable credit refers to the duration of the
letter of credit. What is simply means is that the
issuing bank may not without the consent of the
beneficiary (seller) and the applicant (buyer)
revoke his undertaking under the letter. The
issuing bank does not reserve the right to revoke
the credit. On the other hand, a confirmed letter of
credit pertains to the kind of obligation assumed
by the correspondent bank. In this case, the
correspondent bank gives an absolute assurance
to the beneficiary that it will undertake the issuing
bank's obligation as its own according to the terms
and conditions of the credit. (Agbayani,
Commercial Laws of the Philippines, Vol. 1, pp. 8183)
Hence, the mere fact that a letter of credit is
irrevocable does not necessarily imply that the
correspondent bank in accepting the instructions
of the issuing bank has also confirmed the letter of
credit. Another error which the lower court and the
Court of Appeals made was to confuse the
obligation assumed by the petitioner.
In commercial transactions involving letters of
credit, the functions assumed by a correspondent
bank are classified according to the obligations
taken up by it. The correspondent bank may be
called a notifying bank, a negotiating bank, or a
confirming bank.
In case of a notifying bank, the correspondent
bank assumes no liability except to notify and/or
transmit to the beneficiary the existence of the
letter of credit. (Kronman and Co., Inc. v. Public
National Bank of New York, 218 N.Y.S. 616 [1926];
Shaterian, Export-Import Banking, p. 292, cited in
Agbayani, Commercial Laws of the Philippines, Vol.
1, p. 76). A negotiating bank, on the other hand, is
a correspondent bank which buys or discounts a
31
this case, and upon which the private respondent
premised his argument, is the P75,000.00 loan
extended by the petitioner to him.
The private respondent relies on this loan to
advance his contention that the letter of credit was
confirmed by the petitioner. He claims that the
loan was granted by the petitioner to him, "in
anticipation of the presentment of the letter of
credit."
The proposition advanced by the private
respondent has no basis in fact or law. That the
loan agreement between them be construed as an
act of confirmation is rather far-fetched, for it
depends principally on speculative reasoning.
As earlier stated, there must have been an
absolute assurance on the part of the petitioner
that it will undertake the issuing bank's obligation
as its own. Verily, the loan agreement it entered
into cannot be categorized as an emphatic
assurance that it will carry out the issuing bank's
obligation as its own.
The loan agreement is more reasonably classified
as an isolated transaction independent of the
documentary credit.
Of course, it may be presumed that the petitioner
loaned the money to the private respondent in
anticipation that it would later be paid by the latter
upon the receipt of the letter. Yet, we would have
no basis to rule definitively that such "act" should
be construed as an act of confirmation.
The private respondent no doubt was in need of
money in loading the logs on the ship "Zenlin
Glory" and the only way to satisfy this need was to
borrow money from the petitioner which the latter
granted. From these circumstances, a logical
conclusion that can be gathered is that the letter
of credit was merely to serve as a collateral.
At the most, when the petitioner extended the loan
to the private respondent, it assumed the
character of a negotiating bank. Even then, the
petitioner will still not be liable, for a negotiating
bank before negotiation has no contractual
relationship with the seller.
The case of Scanlon v. First National Bank (supra)
perspicuously explained the relationship between
the seller and the negotiating bank, viz:
It may buy or refuse to buy as it chooses. Equally,
it must be true that it owes no contractual duty
toward the person for whose benefit the letter is
written to discount or purchase any draft drawn
against the credit. No relationship of agent and
principal, or of trustee and cestui, between the
receiving bank and the beneficiary of the letter is
established. (P.568)
Whether therefore the petitioner is a notifying
bank or a negotiating bank, it cannot be held
liable. Absent any definitive proof that it has
32
buyer and the seller but also of the credit
agreement between the issuing bank and the
buyer. (See Kingdom of Sweden v. New York Trust
Co., 96 N.Y.S. 2d 779 [1949]). The relationship
between the buyer (Christiansen) and the issuing
bank (Security Pacific National Bank) is entirely
independent from the letter of credit issued by the
latter.
The contract between the two has no bearing as to
the non-compliance by the buyer with the
agreement between the latter and the seller. Their
contract is similar to that of a contract of services
(to open the letter of credit) and not that of agency
as was intimated by the Court of Appeals. The
unjustified refusal therefore by Christiansen to
issue the certification under the letter of credit
should not likewise be charged to the issuing bank.
As a mere notifying bank, not only does the
petitioner not have any contractual relationship
with the buyer, it has also nothing to do with the
contract between the issuing bank and the buyer
regarding the issuance of the letter of credit.
The theory of guarantee relied upon by the Court
of Appeals has to necessarily fail. The concept of
guarantee vis-a-vis the concept of an irrevocable
credit are inconsistent with each other.
In the first place, the guarantee theory destroys
the independence of the bank's responsibility from
the contract upon which it was opened. In the
second place, the nature of both contracts is
mutually in conflict with each other. In contracts of
guarantee, the guarantor's obligation is merely
collateral and it arises only upon the default of the
person primarily liable. On the other hand, in an
irrevocable credit the bank undertakes a primary
obligation. (SeeNational Bank of Eagle Pass, Tex v.
American National Bank of San Francisco, 282 F. 73
[1922])
The relationship between the issuing bank and the
notifying bank, on the contrary, is more similar to
that of an agency and not that of a guarantee. It
may be observed that the notifying bank is merely
to follow the instructions of the issuing bank which
is to notify or to transmit the letter of credit to the
beneficiary. (See Kronman v. Public National Bank
of New York, supra). Its commitment is only to
notify the beneficiary. It does not undertake any
assurance that the issuing bank will perform what
has been mandated to or expected of it. As an
agent of the issuing bank, it has only to follow the
instructions of the issuing bank and to it alone is it
obligated and not to buyer with whom it has no
contractual relationship.
In fact the notifying bank, even if the seller tenders
all the documents required under the letter of
credit, may refuse to negotiate or accept the drafts
drawn thereunder and it will still not be held liable
33
certification that the logs had been approved by
him to be in accordance with the terms and
conditions of his purchase order. Apparently,
Villaluz was in too much haste to ship his logs
without taking all due precautions to assure that
all the terms and conditions of the letter of credit
had been strictly complied with, so that there
would be no hitch in its negotiation. (Rollo, p. 8)
WHEREFORE, the COURT RESOLVED to GRANT the
petition and hereby NULLIFIES and SETS ASIDE the
decision of the Court of Appeals dated June 29,
1990. The amended complaint in Civil Case No.
15121 is DISMISSED.
SO ORDERED.
5. [G.R. No. 129918. July 9, 1998]
PHILIPPINE NATIONAL BANK, petitioner, vs. HON.
MARCELINO L. SAYO, JR., in his capacity as
Presiding Judge of the Regional Trial Court of
Manila (Branch 45), NOAHS ARK SUGAR REFINERY,
ALBERTO T. LOOYUKO, JIMMY T. GO and WILSON T.
GO, respondents.
DECISION
DAVIDE, JR., J.:
In this special civil action for certiorari, actually the
third dispute between the same private parties to
have reached this Court,[1] petitioner asks us to
annul the orders[2] of 15 April 1997 and 14 July
1997 issued in Civil Case No. 90-53023 by the
Regional Trial Court, Manila, Branch 45. The first
order[3] granted private respondents motion for
execution to satisfy their warehousemans lien
against petitioner, while the second
order[4] denied, with finality, petitioners motion for
reconsideration of the first order and urgent
motion to lift garnishment, and private
respondents motion for partial reconsideration.
The factual antecedents until the commencement
of G.R. No. 119231 were summarized in our
decision therein, as follows:
In accordance with Act No. 2137, the Warehouse
Receipts Law, Noahs Ark Sugar Refinery issued on
several dates, the following Warehouse Receipts
(Quedans): (a) March 1, 1989, Receipt No. 18062,
covering sugar deposited by Rosa Sy; (b) March 7,
1989, Receipt No. 18080, covering sugar deposited
by RNS Merchandising (Rosa Ng Sy); (c) March 21,
1989, Receipt No. 18081, covering sugar deposited
by St. Therese Merchandising; (d) March 31, 1989,
Receipt No. 18086, covering sugar deposited by St.
Therese Merchandising; and (e) April 1, 1989,
Receipt No. 18087, covering sugar deposited by
RNS Merchandising. The receipts are substantially
in the form, and contains the terms, prescribed for
negotiable warehouse receipts by Section 2 of the
law.
Subsequently, Warehouse Receipts Nos. 18080 and
18081 were negotiated and endorsed to Luis T.
34
Go, doing business under the trade name and style
Noahs Ark Sugar Refinery against Rosa Ng Sy and
Teresita Ng, praying that the latter be ordered to
deliver or return to them the quedans (previously
endorsed to PNB and the subject of the suit) and
pay damages and litigation expenses.
The Answer of Rosa Ng Sy and Teresita Ng, dated
September 6, 1990, one of avoidance, is
essentially to the effect that the transaction
between them, on the one hand, and Jimmy T. Go,
on the other, concerning the quedans and the
sugar stocks covered by them was merely a
simulated one being part of the latters complex
banking schemes and financial maneuvers, and
thus, they are not answerable in damages to him.
On January 31, 1991, the Philippine National Bank
filed a Motion for Summary Judgment in favor of
the plaintiff as against the defendants for the
reliefs prayed for in the complaint.
On May 2, 1991, the Regional Trial Court issued an
order denying the Motion for Summary
Judgment. Thereupon, the Philippine National Bank
filed a Petition for Certiorari with the Court of
Appeals, docketed as CA-G.R. SP No. 25938 on
December 13, 1991.
Pertinent portions of the decision of the Court of
Appeals read:
In issuing the questioned Orders, the respondent
Court ruled that questions of law should be
resolved after and not before, the questions of fact
are properly litigated. A scrutiny of defendants
affirmative defenses does not show material
questions of fact as to the alleged nonpayment of
purchase price by the vendees/first endorsers, and
which nonpayment is not disputed by PNB as it
does not materially affect PNBs title to the sugar
stocks as holder of the negotiable quedans.
What is determinative of the propriety of summary
judgment is not the existence of conflicting claims
from prior parties but whether from an
examination of the pleadings, depositions,
admissions and documents on file, the defenses as
to the main issue do not tender material questions
of fact (see Garcia vs. Court of Appeals, 167 SCRA
815) or the issues thus tendered are in fact sham,
fictitious, contrived, set up in bad faith or so
unsubstantial as not to constitute genuine issues
for trial. (See Vergara vs. Suelto, et al., 156 SCRA
753; Mercado, et al. vs. Court of Appeals, 162
SCRA 75). [sic] The questioned Orders themselves
do not specify what material facts are in issue.
(See Sec. 4, Rule 34, Rules of Court).
To require a trial notwithstanding pertinent
allegations of the pleadings and other facts
appearing on the record, would constitute a waste
of time and an injustice to the PNB whose rights to
35
Private respondents filed a Motion Seeking
Clarification of the Decision, dated September 1,
1993. We denied this motion in this manner:
It bears stressing that the relief granted in this
Courts decision of September 1, 1993 is precisely
that set out in the final and executory decision of
the Court of Appeals in CA-G.R. SP No. 25938,
dated December 13, 1991, which was affirmed in
toto by this Court and which became unalterable
upon becoming final and executory.
Private respondents thereupon filed before the trial
court an Omnibus Motion seeking among others
the deferment of the proceedings until private
respondents [were] heard on their claim for
warehousemans lien. On the other hand, on August
22, 1994, the Philippine National Bank filed a
Motion for the Issuance of a Writ of Execution and
an Opposition to the Omnibus Motion filed by
private respondents.
The trial court granted private respondents
Omnibus Motion on December 20, 1994 and set
reception of evidence on their claim for
warehousemans lien. The resolution of the PNBs
Motion for Execution was ordered deferred until
the determination of private respondents claim.
On February 21, 1995, private respondents claim
for lien was heard and evidence was received in
support thereof. The trial court thereafter gave
both parties five (5) days to file respective
memoranda.
On February 28, 1995, the Philippine National Bank
filed a Manifestation with Urgent Motion to Nullify
Court Proceedings. In adjudication thereof, the trial
court issued the following order on March 1, 1995:
WHEREFORE, this court hereby finds that there
exists in favor of the defendants a valid
warehousemans lien under Section 27 of Republic
Act 2137 and accordingly, execution of the
judgment is hereby ordered stayed and/or
precluded until the full amount of defendants lien
on the sugar stocks covered by the five (5)
quedans subject of this action shall have been
satisfied conformably with the provisions of
Section 31 of Republic Act 2137.[5]
Unsatisfied with the trial courts order of 1 March
1995, herein petitioner filed with us G.R. No.
119231, contending:
I
PNBS RIGHT TO A WRIT OF EXECUTION IS
SUPPORTED BY TWO FINAL AND EXECUTORY
DECISIONS: THE DECEMBER 13, 1991 COURT OF
APPEALS [sic] DECISION IN CA-G.R. SP NO. 25938;
AND, THE NOVEMBER 9, 1992 SUPREME COURT
DECISION IN G.R. NO. 107243. RESPONDENT RTCS
MINISTERIAL AND MANDATORY DUTY IS TO ISSUE
THE WRIT OF EXECUTION TO IMPLEMENT THE
36
fees before it would release to the PNB sugar
stocks covered by the five (5) Warehouse
Receipts. Our resolution, dated March 9, 1994, did
not preclude private respondents unqualified right
to establish its claim to recover storage fees which
is recognized under Republic Act No. 2137. Neither
did the Court of Appeals decision, dated December
13, 1991, restrict such right.
Our Resolutions reference to the decision by the
Court of Appeals, dated December 13, 1991, in CAG.R. SP No. 25938, was intended to guide the
parties in the subsequent disposition of the case to
its final end. We certainly did not foreclose private
respondents inherent right as warehouseman to
collect storage fees and preservation expenses as
stipulated on the face of each of the Warehouse
Receipts and as provided for in the Warehouse
Receipts Law (R.A. 2137).[6]
Petitioners motion to reconsider the decision in
G.R. No. 119231 was denied.
After the decision in G.R. No. 119231 became final
and executory, various incidents took place before
the trial court in Civil Case No. 90-53023. The
petition in this case summarizes these as follows:
3.24 Pursuant to the abovementioned Supreme
Court Decision, private respondents filed a Motion
for Execution of Defendants Lien as
Warehouseman dated 27 November 1996. A
photocopy of said Motion for Execution is attached
hereto as Annex I.
3.25 PNB opposed said Motion on the following
grounds:
(a) The lien claimed by Noahs Ark in the
unbelievable amount of P734,341,595.06 is
illusory; and
(b) There is no legal basis for execution of
defendants lien as warehouseman unless and until
PNB compels the delivery of the sugar stocks.
3.26 In their Reply to Opposition dated 18 January
1997, private respondents pointed out that a lien
existed in their favor, as held by the Supreme
Court. In its Rejoinder dated 7 February 1997, PNB
countered private respondents argument, pointing
out that the dispositive portion of the court a
quos Order dated 1 March 1995 failed to state the
amount for which execution may be granted and,
thus, the same could not be the subject of
execution; and (b) private respondents should
instead file a separate action to prove the amount
of its claim as warehouseman.
3.27 The court a quo, this time presided by herein
public respondent, Hon. Marcelino L. Sayo Jr.,
granted private respondents Motion for
Execution. In its questioned Order dated 15 April
1997 (Annex A), the court a quo ruled in this wise:
Accordingly, the computation of accrued storage
fees and preservation charges presented in
37
ever filed in court to effectively commence this
entirely new cause of action;
(4) There is no evidence on record which would
support and sustain the claim of P734,341,595.06
which is excessive, oppressive and
unconscionable;
(5) Said claim if executed would constitute unjust
enrichment to the serious prejudice of PNB and
indirectly the Philippine Government, who
innocently acquired the sugar quedans through
assignment of credit;
(6) In all respects, the decisions of both the
Supreme Court and of the former Presiding Judge
of the trial court do not contain a specific
determination and/or computation of
warehousemans lien, thus requiring first and
foremost a fair hearing of PNBs evidence, to
include the true and standard industry rates on
sugar storage fees, which if computed at such
standard rate of thirty centavos per kilogram per
month, shall result in the sum of about Three
Hundred Thousand Pesos only.
3.31 In its Motion for Reconsideration, petitioner
prayed for the following reliefs:
1. PNB be allowed in the meantime to exercise its
basic right to present evidence in order to prove
the above allegations especially the true and
reasonable storage fees which may be deducted
from PNBs judgment award of P39.1 Million, which
storage fees if computed correctly in accordance
with standard sugar industry rates, would amount
to only P300 Thousand Pesos, without however
waiving or abandoning its (PNBs) legal
positions/contentions herein abovementioned.
2. The Order dated April 15, 1997 granting the
Motion for Execution by defendant Noahs Ark be
set aside.
3. The execution proceedings already commenced
by said sheriffs be nullified at whatever stage of
accomplishment.
A photocopy of petitioners Motion for
Reconsideration with Urgent Prayer for Quashal of
Writ of Execution is attached hereto and made
integral part hereof as Annex M.
3.32 Private respondents filed an Opposition with
Motion for Partial Reconsideration dated 8 May
1997. Still discontented with the excessive and
staggering amount awarded to them by the court a
quo, private respondents Motion for Partial
Reconsideration sought additional and continuing
storage fees over and above what the court a
quo had already unjustly awarded. A photocopy of
private respondents Opposition with Motion for
Partial Reconsideration dated 8 May 1997 is
attached hereto as Annex N.
3.32.1 Private respondents prayed for the further
amount of P227,375,472.00 in storage fees from 1
38
1997, together with all its related Motions are all
DENIED with finality for lack of merit.
xxxxxxxxx
The Order of this Court dated April 15, 1997, the
final Writ of Execution likewise dated April 15,
1997 and the corresponding Garnishment all stand
firm.
SO ORDERED.[7]
Aggrieved thereby, petitioners filed this petition,
alleging as grounds therefor, the following:
A. THE COURT A QUO ACTED WITHOUT OR IN
EXCESS OF ITS JURISDICTION OR WITH GRAVE
ABUSE OF DISCRETION WHEN IT ISSUED A WRIT OF
EXECUTION IN FAVOR OF DEFENDANTS FOR THE
AMOUNT OF P734,341,595.06.
4.1 The court a quo had no authority to issue a writ
of execution in favor of private respondents as
there was no final and executory judgment ripe for
execution.
4.2 Public respondent judge patently exceeded the
scope of his authority in making a determination of
the amount of storage fees due private
respondents in a mere interlocutory order
resolving private respondents Motion for
Execution.
4.3 The manner in which the court a quo awarded
storage fees in favor of private respondents and
ordered the execution of said award was arbitrary
and capricious, depriving petitioner of its inherent
substantive and procedural rights.
B. EVEN ASSUMING ARGUENDO THAT THE COURT A
QUO HAD AUTHORITY TO GRANT PRIVATE
RESPONDENTS MOTION FOR EXECUTION, THE
COURT A QUO ACTED WITH GRAVE ABUSE OF
DISCRETION IN AWARDING THE HIGHLY
UNREASONABLE, UNCONSCIONABLE, AND
EXCESSIVE AMOUNT OF P734,341,595.06 IN FAVOR
OF PRIVATE RESPONDENTS.
4.4 There is no basis for the court a quos award
of P734,341,595.06 representing private
respondents alleged warehousemans lien.
4.5 PNB has sufficient evidence to show that the
astronomical amount claimed by private
respondents is very much in excess of the industry
rate for storage fees and preservation expenses.
C. PUBLIC RESPONDENT JUDGES GRAVE ABUSE OF
DISCRETION BECOMES MORE PATENT AFTER A
CLOSE PERUSAL OF THE QUESTIONED ORDER
DATED 14 JULY 1997.
4.6 The court a quo resolved a significant and
consequential matter entirely relying on
documents submitted by private respondents
totally disregarding clearly contrary evidence
submitted by PNB.
4.7 The court a quo misquoted and misinterpreted
the Supreme Court Decision dated 18 April 1997.
39
cited the cases of Edward v. Arce, where we ruled
that the only portion of the decision which could be
the subject of execution was that decreed in the
dispositive part,[9] and Ex-Bataan Veterans
Security Agency, Inc. v. National Labor Relations
Commission,[10] where we held that a writ of
execution should conform to the dispositive portion
to be executed, otherwise, execution becomes void
if in excess of and beyond the original judgment.
Petitioner likewise emphasized that the hearing of
21 February 1995 was marred by procedural
infirmities, narrating that the trial court proceeded
with the hearing notwithstanding the urgent
motion for postponement of petitioners counsel of
record, who attended a previously scheduled
hearing in Pampanga. However, petitioners lawyerrepresentative was sent to confirm the allegations
in said motion. To petitioners dismay, instead of
granting a postponement, the trial court allowed
the continuance of the hearing on the basis that
there was nothing sensitive about [the
presentation of private respondents evidence].
[11] At the same hearing, the trial court admitted
all the documentary evidence offered by private
respondents and ordered the filing of the parties
respective memoranda. Hence, petitioner was
virtually deprived of its right to cross-examine the
witness, comment on or object to the offer of
evidence and present countervailing evidence. In
fact, to date, petitioners urgent motion to nullify
the court proceedings remains unresolved.
To stress its point, petitioner underscores the
conflicting views of Judge Benito C. Se, Jr., who
heard and tried almost the entire proceedings, and
his successor, Judge Marcelino L. Sayo, Jr., who
issued the assailed orders. In the resolution[12] of
1 March 1995, Judge Se found private respondents
claim for warehouse lien in the amount
of P734,341,595.06 unacceptable, thus:
In connection with [private respondents] claim for
payment of warehousing fees and expenses, this
Court cannot accept [private respondents]
pretense that they are entitled to storage fees and
preservation expenses in the amount
of P734,341,595.06 as shown in their Exhibits 1 to
11. There would, however, appear to be legal basis
for their claim for fees and expenses covered
during the period from the time of the issuance of
the five (5) quedans until demand for their delivery
was made by [petitioner] prior to the institution of
the present action. [Petitioner] should not be made
to shoulder the warehousing fees and expenses
after the demand was made. xxx[13]
Since it was deprived of a fair opportunity to
present its evidence on the warehousemans lien
due Noahs Ark, petitioner submitted the following
documents: (1) an affidavit of petitioners credit
40
Finally, petitioner questioned the trial courts
refusal to lift the garnishment order considering
that the levy on its real property, with an
estimated market value of P6,000,000,000, was
sufficient to satisfy the judgment award; and
contended that the garnishment was contrary to
Section 103[21] of the Bangko Sentral ng Pilipinas
Law (Republic Act No. 7653).
On 8 August 1997, we required respondents to
comment on the petition and issued a temporary
restraining order enjoining the trial court from
implementing its orders of 15 April and 14 July
1997.
In their comment, private respondents first sought
the lifting of the temporary restraining order,
claiming that petitioner could no longer seek a
stay of the execution of this Courts decision in G.R.
No. 119231 which had become final and
executory; and the petition raised factual issues
which had long been resolved in the decision in
G.R. No. 119231, thereby rendering the instant
petition moot and academic. They underscored
that CA-G.R. No. SP No. 25938, G.R. No. 107243
and G.R. No. 119231 all sustained their claim for a
warehousemans lien, while the storage fees
stipulated in the Refining Contract had the
approval of the Sugar Regulatory
Authority. Likewise, under the Warehouse Receipts
Law, full payment of their lien was a pre-requisite
to their obligation to release and deliver the sugar
stock to petitioner.
Anent the trial courts jurisdiction to determine the
warehousemans lien, private respondents
maintained that such had already been
established. Accordingly, the resolution of 1 March
1995 declared that they were entitled to a
warehousemans lien, for which reason, the
execution of the judgment in favor of petitioner
was stayed until the latters full payment of the
lien. This resolution was then affirmed by this
Court in our decision in G.R. No. 119231. Even
assuming the trial court erred, the error could only
have been in the wisdom of its findings and not of
jurisdiction, in which case, the proper remedy of
petitioner should have been an appeal
and certiorari did not lie.
Private respondents also raised the issue of res
judicata as a bar to the instant petition, i.e., the
March resolution was already final and
unappealable, having been resolved in G.R. No.
119231, and the orders assailed here were issued
merely to implement said resolution.
Private respondents then debunked the claim that
petitioner was denied due process. In that
February hearing, petitioner was represented by
counsel who failed to object to the presentation
and offer of their evidence consisting of the
41
the 1997 Rules of Civil Procedure, which provided
that the sheriff must levy on all the property of the
judgment debtor, excluding those exempt from
execution, in the execution of a money judgment.
Finally, private respondents accused petitioner of
coming to court with unclean hands, specifically
citing its misrepresentation that the award of the
warehousemans lien would result in the collapse of
its business. This claim, private respondents
asserted, was contradicted by petitioners 1996
Audited Financial Statement indicating that
petitioners assets amounted to billions of pesos,
and its 1996 Annual Report to its stockholders
where petitioner declared that the pending legal
actions arising from their normal course of
business will not materially affect the Groups
financial position.[25]
In reply, petitioner advocated that resort to the
remedy of certiorari was proper since the assailed
orders were interlocutory, and not a final judgment
or decision. Further, that it was virtually deprived
of its constitutional right to due process was a
valid issue to raise in the instant petition; and not
even the doctrine of res judicata could bar this
petition as the element of a final and executory
judgment was lacking. Petitioner likewise disputed
the claim that the resolution of 1 March 1995 was
final and executory, otherwise private respondents
would not have filed an opposition and motion for
partial reconsideration[26] two years
later. Petitioner also contended that the issues
raised in this petition were not resolved in G.R. No.
119231, as what was resolved there was private
respondents mere entitlement to a
warehousemans lien, without specifying a
corresponding amount. In the instant petition, the
issues pertained to the amount and enforceability
of said lien based on the arbitrary manner the
amount was determined by the trial court.
Petitioner further argued that the refining contracts
private respondents invoked could not bind the
former since it was not a party thereto. In fact, said
contracts were not even attached to
the quedans when negotiated; and that their
validity was repudiated by a supposed party
thereto, Rosa Ng Sy, who claimed that the contract
was simulated, thus void pursuant to Article 1345
of the New Civil Code. Should the refining
contracts in turn be declared void, petitioner
advocated that any determination by the court of
the existence and amount of the warehousemans
lien due should be arrived at using the test of
reasonableness. Petitioner likewise noted that the
other refining contracts[27] presented by private
respondents to show similar storage fees were
executed between the years 1996 and 1997,
several years after 1989. Thus, petitioner
42
On the second issue, counsel for petitioner
submitted that the trial court had no authority to
issue the writ of execution or if it had, it denied
PNB due process when it held PNB liable for the
astronomical amount of P734,341,595.06 as
warehousemans lien or storage fees. Counsel for
respondent, on the other hand, contended that the
trial courts authority to issue the questioned writ of
execution is derived from the decision in G.R. No.
119231 which decision allegedly provided for
ample or sufficient parameters for the computation
of the storage fees.
On the third issue, counsel for petitioner while
presupposing that PNB may be held to answer for
storage fees, contended that the same should start
from the time the endorsees of the sugar quedans
defaulted in their payments, i.e., 1990 because
before that, respondent Noahs Arks claim was that
it was the owner of the sugar covered by the
quedans. On the other hand, respondents counsel
pointed out that PNBs liability should start from the
issuance of the quedans in 1989.
The arguments on the fourth issue, hinge on the
parties arguments for or against the first three
issues. Counsel for petitioner stressed that the trial
court indeed committed a grave abuse of
discretion, while respondents counsel insisted that
no grave abuse of discretion was committed by the
trial court.[29]
Private respondents likewise admitted that during
the pendency of the case, they failed to avail of
their options as a warehouseman. Concretely, they
could have enforced their lien through the
foreclosure of the goods or the filing of an ordinary
civil action. Instead, they sought to execute this
Courts judgment in G.R. No. 119231. They
eventually agreed that petitioners liability for the
warehousemans lien should be reckoned from the
time it stepped into the shoes of the original
depositors.[30]
In our resolution of 24 November 1997, we
required the parties to simultaneously submit their
respective memoranda within 30 days or, in the
alternative, a compromise agreement should a
settlement be achieved. Notwithstanding efforts
exerted by the parties, no mutually acceptable
solution was reached.
In their respective memoranda, the parties
reiterated or otherwise buttressed the arguments
raised in their previous pleadings and during the
oral arguments on 24 November 1997, especially
on the formulated issues.
The petition is meritorious.
We shall take up the formulated issues in seriatim.
A. This Special Civil Action is an Appropriate
Remedy.
43
law.The third remedy is sought judicially by suing
for the unpaid charges.[35]
Initially, private respondents availed of the first
remedy. However, when petitioner moved to
execute the judgment in G.R. No. 107243 before
the trial court, private respondents, in turn, moved
to have the warehouse charges and fees due them
determined and thereafter sought to collect these
from petitioners. While the most appropriate
remedy for private respondents was an action for
collection, in G.R. No. 119231, we
already recognized their right to have such
charges and fees determined in Civil Case No. 9053023. The import of our holding in G.R. No.
119231 was that private respondents were likewise
entitled to a judgment on their warehouse charges
and fees, and the eventual satisfaction thereof,
thereby avoiding having to file another action to
recover these charges and fees, which would only
have further delayed the resolution of the
respective claims of the parties, and as a corollary
thereto, the indefinite deferment of the execution
of the judgment in G.R. No. 107243. Thus we note
that petitioner, in fact, already acquiesced to the
scheduled dates previously set for the hearing on
private respondents warehousemans charges.
However, as will be shown below, it would be
premature to execute the order fixing the
warehousemans charges and fees.
C. Petitioner is Liable for Storage Fees.
We confirmed petitioners liability for storage fees
in G.R. No. 119231. However, petitioners status as
to the quedans must first be clearly defined and
delineated to be able to determine the extent of its
liability.
Petitioner insisted, both in its petition and during
the oral arguments on 24 November 1997, that it
was a mere pledgee as the quedans were used to
secure two loans it granted.[36] In our decision in
G.R. No. 107243, we upheld this contention of
petitioner, thus:
Zoleta and Ramos then used the quedans as
security for loans obtained by them from the
Philippine National Bank (PNB) as security for loans
obtained by them in the amounts ofP23.5 million
and P15.6 million,
respectively. These quedans they indorsed to the
bank.[37]
As such, Martinez v. Philippine National
Bank[38] becomes relevant:
In conclusion, we hold that where a warehouse
receipt or quedan is transferred or endorsed to a
creditor only to secure the payment of a loan or
debt, the transferee or endorsee does not
automatically become the owner of the goods
covered by the warehouse receipt or quedan but
he merely retains the right to keep and with the
44
invokable against anyone who claims a right of
possession thereon.
The next issue to resolve is the duration of time
the right of petitioner over the goods may be held
subject to the warehousemans lien.
Sections 8, 29 and 31 of the Warehouse Receipts
Law now come to fore. They provide, as follows:
SECTION 8. Obligation of warehousemen to deliver.
A warehouseman, in the absence of some lawful
excuse provided by this Act, is bound to deliver the
goods upon a demand made either by the holder
of a receipt for the goods or by the depositor, if
such demand is accompanied with:
(a) An offer to satisfy warehousemans lien;
(b) An offer to surrender the receipt, if negotiable,
with such indorsements as would be necessary for
the negotiation of the receipt; and
(c) A readiness and willingness to sign, when the
goods are delivered, an acknowledgment that they
have been delivered, if such signature is requested
by the warehouseman.
In case the warehouseman refuses or fails to
deliver the goods in compliance with a demand by
the holder or depositor so accompanied, the
burden shall be upon the warehouseman to
establish the existence of a lawful excuse for such
refusal.
SECTION 29. How the lien may be lost. A
warehouseman loses his lien upon goods;
(a) By surrendering possession thereof, or
(b) By refusing to deliver the goods when a
demand is made with which he is bound to comply
under the provisions of this Act.
SECTION 31. Warehouseman need not deliver until
lien is satisfied. A warehouseman having a lien
valid against the person demanding the goods
may refuse to deliver the goods to him until the
lien is satisfied.
Simply put, where a valid demand by the lawful
holder of the quedans for the delivery of the goods
is refused by the warehouseman, despite the
absence of a lawful excuse provided by the statute
itself, the warehousemans lien is thereafter
concomitantly lost. As to what the law deems a
valid demand, Section 8 enumerates what must
accompany a demand; while as regards the
reasons which a warehouseman may invoke to
legally refuse to effect delivery of the goods
covered by the quedans, these are:
(1) That the holder of the receipt does not satisfy
the conditions prescribed in Section 8 of the
Act. (See Sec. 8, Act No. 2137)
(2) That the warehouseman has legal title in
himself on the goods, such title or right being
derived directly or indirectly from a transfer made
by the depositor at the time of or subsequent to
45
Answer with Counterclaim and Third-Party
Complaint in Civil Case No. 90-53023, by claiming
that they are still the legal owners of the
subject quedans and the quantity of sugar
represented therein. Under the circumstances, this
hardly qualified as a valid, legal excuse. The loss of
the warehousemans lien, however, does not
necessarily mean the extinguishment of the
obligation to pay the warehousing fees and
charges which continues to be a personal liability
of the owners, i.e., the pledgors, not the pledgee,
in this case. But even as to the owners-pledgors,
the warehouseman fees and charges have ceased
to accrue from the date of the rejection by Noahs
Ark to heed the lawful demand by petitioner for
the release of the goods.
The finality of our denial in G.R. No. 119231 of
petitioners petition to nullify the trial courts order
of 01 March 1995 confirms the warehousemans
lien; however, such lien, nevertheless, should be
confined to the fees and charges as of the date in
March 1990 when Noahs Ark refused to heed PNBs
demand for delivery of the sugar stocks and in no
event beyond the value of the credit in favor of the
pledgee (since it is basic that, in foreclosures, the
buyer does not assume the obligations of the
pledgor to his other creditors even while such
buyer acquires title over the goods less any
existing preferred lien thereover).[46] The
foreclosure of the thing pledged, it might
incidentally be mentioned, results in the full
satisfaction of the loan liabilities to the pledgee of
the pledgors.[47]
D. Respondent Judge Committed Grave Abuse of
Discretion.
We hold that the trial court deprived petitioner of
due process in rendering the challenged order of
15 April 1996 without giving petitioner an
opportunity to present its evidence. During the
final hearing of the case, private respondents
commenced and concluded their presentation of
evidence as to the matter of the existence of and
amount owing due to their warehousemans lien.
Their exhibits were duly marked and offered, and
the trial court thereafter ruled, to wit:
Court: Order.
With the admission of Exhibits 1 to 11, inclusive of
submarkings, as part of the testimony of Benigno
Bautista, the defendant [private respondents] is
given five (5) days from today to file its
memorandum. Likewise, plaintiff [petitioner] is
given five (5) days, from receipt of defendants
[private respondents] memorandum, to file its
comment thereto. Thereafter the same shall be
deemed submitted for decision.
SO ORDERED.[48]
46
of Court explicitly provides that execution shall
issue as a matter of right, on motion, upon a
judgment or order that disposes of the action or
proceeding upon the expiration of the period to
appeal therefrom if no appeal has been duly
perfected. Execution pending appeal is, however,
allowed in Section 2 thereof, but only on motion
with due notice to the adverse party, more
importantly, only upon good reasons shown in a
special order. Here, there is no showing that a
motion for execution pending appeal was filed and
that a special order was issued by respondent
court. Verily, the immediate execution only served
to further strengthen our perception of undue and
unwarranted haste on the part of respondent court
in resolving the issue of the warehousemans lien in
favor of private respondents.
In light of the above, we need not rule anymore on
the fourth formulated issue.
WHEREFORE, the petition is GRANTED. The
challenged orders of 15 April and 14 July 1997,
including the notices of levy and garnishment, of
the Regional Trial Court of Manila, Branch 45, in
Civil Case No. 90-53023 are REVERSED and SET
ASIDE, and said court is DIRECTED to conduct
further proceedings in said case:
(1) to allow petitioner to present its evidence on
the matter of the warehousemans lien;
(2) to compute the petitioners warehousemans lien
in light of the foregoing observations; and
(3) to determine whether, for the relevant period,
Noahs Ark maintained a sufficient inventory to
cover the volume of sugar specified in
the quedans.
Costs against private respondents.
SO ORDERED.
6. [G.R. No. 90828. September 5, 2000]
MELVIN COLINARES and LORDINO
VELOSO, petitioners, vs. HONORABLE COURT OF
APPEALS, and THE PEOPLE OF THE
PHILIPPINES,respondents.
DECISION
DAVIDE, JR., C.J.:
In 1979 Melvin Colinares and Lordino Veloso
(hereafter Petitioners) were contracted for a
consideration of P40,000 by the Carmelite Sisters
of Cagayan de Oro City to renovate the latters
convent at Camaman-an, Cagayan de Oro City.
On 30 October 1979, Petitioners obtained 5,376 SF
Solatone acoustical board 2x4x, 300 SF tanguile
wood tiles 12x12, 260 SF Marcelo economy tiles
and 2 gallons UMYLIN cement adhesive from CM
Builders Centre for the construction project.[1] The
following day, 31 October 1979, Petitioners applied
for a commercial letter of credit[2] with the
Philippine Banking Corporation, Cagayan de Oro
City branch (hereafter PBC) in favor of CM Builders
47
before January 29, 1980 but that the said accused
after receipt of the goods, with intent to defraud
and cause damage to the entruster, conspiring,
confederating together and mutually helping one
another, did then and there wilfully, unlawfully and
feloniously fail and refuse to remit the proceeds of
the sale of the goods to the entruster despite
repeated demands but instead converted,
misappropriated and misapplied the proceeds to
their own personal use, benefit and gain, to the
damage and prejudice of the Philippine Banking
Corporation, in the aforesaid sum of P22,389.80,
Philippine Currency.
Contrary to PD 115 in relation to Article 315 of the
Revised Penal Code.[16]
The case was docketed as Criminal Case No. 1390.
During trial, petitioner Veloso insisted that the
transaction was a clean loan as per verbal
guarantee of Cayo Garcia Tuiza, PBCs former
manager. He and petitioner Colinares signed the
documents without reading the fine print, only
learning of the trust receipt implication much
later. When he brought this to the attention of PBC,
Mr. Tuiza assured him that the trust receipt was a
mere formality.[17]
On 7 July 1986, the trial court promulgated its
decision[18] convicting Petitioners of estafa for
violating P.D. No. 115 in relation to Article 315 of
the Revised Penal Code and sentencing each of
them to suffer imprisonment of two years and one
day of prision correccional as minimum to six years
and one day of prision mayor as maximum, and to
solidarily indemnify PBC the amount of P20,824.44,
with legal interest from 29 January 1980, 12 %
penalty charge per annum, 25% of the sums due
as attorneys fees, and costs.
The trial court considered the transaction between
PBC and Petitioners as a trust receipt transaction
under Section 4, P.D. No. 115. It considered
Petitioners use of the goods in their Carmelite
monastery project an act of disposing as
contemplated under Section 13, P.D. No. 115, and
treated the charge invoice[19] for goods issued by
CM Builders Centre as a document within the
meaning of Section 3 thereof. It concluded that the
failure of Petitioners to turn over the amount they
owed to PBC constituted estafa.
Petitioners appealed from the judgment to the
Court of Appeals which was docketed as CA-G.R.
CR No. 05408. Petitioners asserted therein that the
trial court erred in ruling that they violated the
Trust Receipt Law, and in holding them criminally
liable therefor. In the alternative, they contend that
at most they can only be made civilly liable for
payment of the loan.
In its decision[20] 6 March 1989, the Court of
Appeals modified the judgment of the trial court by
48
In its Comment of 30 July 1990, the Solicitor
General opined that payment of the loan was akin
to a voluntary surrender or plea of guilty which
merely serves to mitigate Petitioners culpability,
but does not in any way extinguish their criminal
liability.
In the Resolution of 13 August 1990, we gave due
course to the Petition and required the parties to
file their respective memoranda.
The parties subsequently filed their respective
memoranda.
It was only on 18 May 1999 when this case was
assigned to the ponente. Thereafter, we required
the parties to move in the premises and for
Petitioners to manifest if they are still interested in
the further prosecution of this case and inform us
of their present whereabouts and whether their
bail bonds are still valid.
Petitioners submitted their Compliance.
The core issues raised in the petition are the denial
by the Court of Appeals of Petitioners Motion for
New Trial and the true nature of the contract
between Petitioners and the PBC. As to the latter,
Petitioners assert that it was an ordinary loan, not
a trust receipt agreement under the Trust Receipts
Law.
The grant or denial of a motion for new trial rests
upon the discretion of the judge. New trial may be
granted if: (1) errors of law or irregularities have
been committed during the trial prejudicial to the
substantial rights of the accused; or (2) new and
material evidence has been discovered which the
accused could not with reasonable diligence have
discovered and produced at the trial, and which, if
introduced and admitted, would probably change
the judgment.[26]
For newly discovered evidence to be a ground for
new trial, such evidence must be (1) discovered
after trial; (2) could not have been discovered and
produced at the trial even with the exercise of
reasonable diligence; and (3) material, not merely
cumulative, corroborative, or impeaching, and of
such weight that, if admitted, would probably
change the judgment.[27] It is essential that the
offering party exercised reasonable diligence in
seeking to locate the evidence before or during
trial but nonetheless failed to secure it.[28]
We find no indication in the pleadings that the
Disclosure Statement is a newly discovered
evidence.
Petitioners could not have been unaware that the
two-page document exists. The Disclosure
Statement itself states, NOTICE TO BORROWER:
YOU ARE ENTITLED TO A COPY OF THIS PAPER
WHICH YOU SHALL SIGN.[29] Assuming Petitioners
copy was then unavailable, they could have
compelled its production in court,[30] which they
49
materials for their construction project. It was only
a day later, 31 October 1979, that they went to the
bank to apply for a loan to pay for the
merchandise.
This situation belies what normally obtains in a
pure trust receipt transaction where goods are
owned by the bank and only released to the
importer in trust subsequent to the grant of the
loan. The bank acquires a security interest in the
goods as holder of a security title for the advances
it had made to the entrustee.[35] The ownership of
the merchandise continues to be vested in the
person who had advanced payment until he has
been paid in full, or if the merchandise has already
been sold, the proceeds of the sale should be
turned over to him by the importer or by his
representative or successor in interest.[36] To
secure that the bank shall be paid, it takes full title
to the goods at the very beginning and continues
to hold that title as his indispensable security until
the goods are sold and the vendee is called upon
to pay for them; hence, the importer has never
owned the goods and is not able to deliver
possession.[37] In a certain manner, trust receipts
partake of the nature of a conditional sale where
the importer becomes absolute owner of the
imported merchandise as soon as he has paid its
price.[38]
Trust receipt transactions are 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.[39]
The antecedent acts in a trust receipt transaction
consist of the application and approval of the letter
of credit, the making of the marginal deposit and
the effective importation of goods through the
efforts of the importer.[40]
PBC attempted to cover up the true delivery date
of the merchandise, yet the trial court took notice
even though it failed to attach any significance to
such fact in the judgment. Despite the Court of
Appeals contrary view that the goods were
delivered to Petitioners previous to the execution
of the letter of credit and trust receipt, we find that
the records of the case speak volubly and this fact
remains uncontroverted. It is not uncommon for us
to peruse through the transcript of the
stenographic notes of the proceedings to be
satisfied that the records of the case do support
the conclusions of the trial court.[41] After such
perusal Grego Mutia, PBCs credit investigator,
admitted thus:
ATTY. CABANLET: (continuing)
50
handling of money or goods to the prejudice of
another regardless of whether the latter is the
owner.[45] Here, it is crystal clear that on the part
of Petitioners there was neither dishonesty nor
abuse of confidence in the handling of money to
the prejudice of PBC. Petitioners continually
endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging
payment of the loan.
The Information charges Petitioners with intent to
defraud and misappropriating the money for their
personal use. The mala prohibita nature of the
alleged offense notwithstanding, intent as a state
of mind was not proved to be present in Petitioners
situation. Petitioners employed no artifice in
dealing with PBC and never did they evade
payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable
terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not
importers acquiring the goods for re-sale, contrary
to the express provision embodied in the trust
receipt. They are contractors who obtained the
fungible goods for their construction project. At no
time did title over the construction materials pass
to the bank, but directly to the Petitioners from CM
Builders Centre. This impresses upon the trust
receipt in question vagueness and ambiguity,
which should not be the basis for criminal
prosecution in the event of violation of its
provisions.[46]
The practice of banks of making borrowers sign
trust receipts to facilitate collection of loans and
place them under the threats of criminal
prosecution should they be unable to pay it may
be unjust and inequitable, if not
reprehensible. Such agreements are contracts of
adhesion which borrowers have no option but to
sign lest their loan be disapproved. The resort to
this scheme leaves poor and hapless borrowers at
the mercy of banks, and is prone to
misinterpretation, as had happened in this
case. Eventually, PBC showed its true colors and
admitted that it was only after collection of the
money, as manifested by its Affidavit of
Desistance.
WHEREFORE, the challenged Decision of 6 March
1989 and the Resolution of 16 October 1989 of the
Court of Appeals in CA-GR. No. 05408 are
REVERSED and SET ASIDE.Petitioners are hereby
ACQUITTED of the crime charged, i.e., for violation
of P.D. No. 115 in relation to Article 315 of the
Revised Penal Code.
No costs.
SO ORDERED.
7. DEVELOPMENT BANK OF G.R. No. 143772
THE PHILIPPINES,
Petitioner,
Present:
PANGANIBAN, J., Chairman,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
CARPIO MORALES and
GARCIA, JJ.
PRUDENTIAL BANK,
Respondent. Promulgated:
November 22, 2005
x------------------------------------------x
DECISION
CORONA, J.:
Development Bank of the Philippines (DBP) assails
in this petition for review on certiorari under Rule
45 of the Rules of Court the December 14, 1999
decision[1] and the June 8, 2000 resolution of the
Court of Appeals in CA-G.R. CV No. 45783. The
challenged decision dismissed DBPs appeal and
affirmed the February 12, 1991 decision of the
Regional Trial Court of Makati, Branch 137 in Civil
Case No. 88-931 in toto, while the impugned
resolution denied DBPs motion for reconsideration
for being pro forma.
In 1973, Lirag Textile Mills, Inc. (Litex) opened an
irrevocable commercial letter of credit with
respondent Prudential Bank for US$498,000. This
was in connection with its importation of 5,000
spindles for spinning machinery with drawing
frame, simplex fly frame, ring spinning frame and
various accessories, spare parts and tool gauge.
These were released to Litex under covering trust
receipts it executed in favor of Prudential Bank.
Litex installed and used the items in its textile mill
located in Montalban, Rizal.
On October 10, 1980, DBP granted a foreign
currency loan in the amount of US$4,807,551 to
Litex. To secure the loan, Litex executed real estate
and chattel mortgages on its plant site in
Montalban, Rizal, including the buildings and other
improvements, machineries and equipments there.
Among the machineries and equipments
mortgaged in favor of DBP were the articles
covered by the trust receipts.
Sometime in June 1982, Prudential Bank learned
about DBPs plan for the overall rehabilitation of
Litex. In a July 14, 1982 letter, Prudential Bank
notified DBP of its claim over the various items
51
covered by the trust receipts which had been
installed and used by Litex in the textile mill.
Prudential Bank informed DBP that it was the
absolute and juridical owner of the said items and
they were thus not part of the mortgaged assets
that could be legally ceded to DBP.
For the failure of Litex to pay its obligation, DBP
extra-judicially foreclosed on the real estate and
chattel mortgages, including the articles claimed
by Prudential Bank. During the foreclosure sale
held on April 19, 1983, DBP acquired the
foreclosed properties as the highest bidder.
Subsequently, DBP caused to be published in the
September 2, 1984 issue of the Times Journal an
invitation to bid in the public sale to be held on
September 10, 1984. It called on interested parties
to submit bids for the sale of the textile mill
formerly owned by Litex, the land on which it was
built, as well as the machineries and equipments
therein. Learning of the intended public auction,
Prudential Bank wrote a letter dated September 6,
1984 to DBP reasserting its claim over the items
covered by trust receipts in its name and advising
DBP not to include them in the auction. It also
demanded the turn-over of the articles or
alternatively, the payment of their value.
An exchange of correspondences ensued between
Prudential Bank and DBP. In reply to Prudential
Banks September 6, 1984 letter, DBP requested
documents to enable it to evaluate Prudential
Banks claim. On September 28, 1994, Prudential
Bank provided DBP the requested documents. Two
months later, Prudential Bank followed up the
status of its claim. In a letter dated December 3,
1984, DBP informed Prudential Bank that its claim
had been referred to DBPs legal department and
instructed Prudential Bank to get in touch with its
chief legal counsel. There being no concrete action
on DBPs part, Prudential Bank, in a letter dated
July 30, 1985, made a final demand on DBP for the
turn-over of the contested articles or the payment
of their value. Without the knowledge of Prudential
Bank, however, DBP sold the Litex textile mill, as
well as the machineries and equipments therein, to
Lyon Textile Mills, Inc. (Lyon) on June 8, 1987.
Since its demands remained unheeded, Prudential
Bank filed a complaint for a sum of money with
damages against DBP with the Regional Trial Court
of Makati, Branch 137, on May 24, 1988. The
complaint was docketed as Civil Case No. 88-931.
On February 12, 1991, the trial court decided[2] in
favor of Prudential Bank. Applying the provisions of
c)
10% of the total amount due as and for
attorneys fees.
SO ORDERED.
Aggrieved, DBP filed an appeal with the Court of
Appeals. However, the appellate court dismissed
the appeal and affirmed the decision of the trial
court in toto. It applied the provisions of PD 115
and held that ownership over the contested
articles belonged to Prudential Bank as entrustor,
not to Litex. Consequently, even if Litex mortgaged
the items to DBP and the latter foreclosed on such
mortgage, DBP was duty-bound to turn over the
52
proceeds to Prudential Bank, being the party that
advanced the payment for them.
On DBPs argument that the disputed articles were
not proper objects of a trust receipt agreement,
the Court of Appeals ruled that the items were part
of the trust agreement entered into by and
between Prudential Bank and Litex. Since the
agreement was not contrary to law, morals, public
policy, customs and good order, it was binding on
the parties.
Moreover, the appellate court found that DBP was
not a mortgagee in good faith. It also upheld the
finding of the trial court that DBP was a trustee ex
maleficio of Prudential Bank over the articles
covered by the trust receipts.
DBP filed a motion for reconsideration but the
appellate court denied it for being pro forma.
Hence, this petition.
Trust receipt transactions are governed by the
provisions of PD 115 which defines such a
transaction as follows:
Section 4. What constitutes a trust receipt
transaction. A trust receipt transaction, within the
meaning of this Decree, is any transaction by and
between a person referred to in this Decree as the
entruster, and another person referred to in this
Decree as 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 latters 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
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, 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 of the following:
1. In the case of goods or documents, (a) to sell
the goods or procure their sale; or (b) to
manufacture or process the goods with the
purpose of ultimate sale: Provided, That, in the
case of goods delivered under trust receipt for the
purpose of manufacturing or processing before its
ultimate sale, the entruster shall retain its title
over the goods whether in its original or processed
53
step for the said goods to be ultimately or
subsequently sold. Instead, the contemporaneous
and subsequent acts of both Litex and Prudential
Bank showed that the imported articles were
released to Litex to be installed in its textile mill
and used in its business. DBP itself was aware of
this. To support its assertion that the contested
articles were excluded from goods that could be
covered by a trust receipt, it contended:
First. That the chattels in controversy were
procured by DBPs mortgagor Lirag Textile Mills
(LITEX) for the exclusive use of its textile mills.
They were not procured (a) to sell or otherwise procure their sale;
(b) to manufacture or process the goods with the
purpose of ultimate sale.[5] (emphasis supplied)
Hence, the transactions between Litex and
Prudential Bank were allegedly not trust receipt
transactions within the meaning of PD 115. It
follows that, contrary to the decisions of the trial
court and the appellate court, the transactions
were not governed by the Trust Receipts Law.
We disagree.
The various agreements between Prudential Bank
and Litex commonly denominated as trust receipts
were valid. As the Court of Appeals correctly ruled,
their provisions did not contravene the law,
morals, good customs, public order or public policy.
The agreements uniformly provided:
Received, upon the Trust hereinafter mentioned
from the PRUDENTIAL BANK (hereinafter referred
to as BANK) the following goods and
merchandise, the property of said BANK specified
in the bill of lading as follows:
Description of
Security
54
With regard to the imposition of exemplary
damages, the appellate court agreed with the trial
court that the requirements for the award thereof
had been sufficiently established. Prudential Banks
entitlement to compensatory damages was
likewise amply proven. It was also shown that DBP
was aware of Prudential Banks claim as early as
July, 1982. However, it ignored the latters demand,
included the disputed articles in the mortgage
foreclosure and caused their sale in a public
auction held on April 19, 1983 where it was
declared as the highest bidder. Thereafter, in the
series of communications between them, DBP
gave Prudential Bank the false impression that its
claim was still being evaluated. Without acting on
Prudential Banks plea, DBP included the contested
articles among the properties it sold to Lyon in
June, 1987. The trial court found that this chain of
events showed DBPs fraudulent attempt to prevent
Prudential Bank from asserting its rights. It
smacked of bad faith, if not deceit. Thus, the award
of exemplary damages was in order. Due to the
award of exemplary damages, the grant of
attorneys fees was proper.[15]
DBPs assertion that both the trial and appellate
courts failed to address the issue of prescription is
of no moment. Its claim that, under Article 1146
(1) of the Civil Code, Prudential Banks cause of
action had prescribed as it should be reckoned
from October 10, 1980, the day the mortgage was
registered, is not correct. The written extra-judicial
demand by the creditor interrupted the
prescription of action.[16] Hence, the four-year
prescriptive period which DBP insists should be
counted from the registration of the mortgage was
interrupted when Prudential Bank wrote the extrajudicial demands for the turn over of the articles or
their value. In particular, the last demand letter
sent by Prudential Bank was dated July 30, 1988
and this was received by DBP the following day.
Thus, contrary to DBPs claim, Prudential Banks
right to enforce its action had not yet prescribed
when it filed the complaint on May 24, 1988.
WHEREFORE, the petition is hereby DENIED. The
December 14, 1999 decision and June 8, 2000
resolution of the Court of Appeals in CA-G.R. CV
No. 45783 are AFFIRMED.
Costs against the petitioner.
SO ORDERED.
8. [G.R. No. 137232. June 29, 2005]
ROSARIO TEXTILE MILLS CORPORATION and
EDILBERTO YUJUICO, petitioners, vs. HOME
55
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered in favor of plaintiff and against
defendants who are ordered to pay jointly and
severally in favor of plaintiff, inclusive of stipulated
30% per annum interest and penalty of 3% per
month until fully paid, under the following
promissory notes:
90-1116 6-20-90 P737,088.25 9-18-90
(maturity)
90-1320 7-13-90 P650,000.00 10-11-90
90-1334 7-17-90 P422,500.00 10-15-90
90-1335 7-17-90 P422,500.00 10-15-90
90-1347 7-18-90 P795,000.00 10-16-90
90-1373 7-20-90 P715,900.00 10-18-90
90-1397 7-27-90 P773,500.00 10-20-90
90-1429 7-26-90 P425,750.00 10-24-90
90-1540 8-7-90 P720,984.00 11-5-90
90-1569 8-9-90 P209,433.75 11-8-90
90-0922 5-28-90 P747,780.00 8-26-90
The counterclaims of defendants are hereby
DISMISSED.
SO ORDERED. (OR, p. 323; Rollo, p. 73).[2]
Dissatisfied, RTMC and Yujuico, herein petitioners,
appealed to the Court of Appeals, contending that
under the trust receipt contracts between the
parties, they merely held the goods described
therein in trust for respondent Home Bankers
Savings and Trust Company (the bank) which owns
the same. Since the ownership of the goods
remains with the bank, then it should bear the
loss. With the destruction of the goods by fire,
petitioners should have been relieved of any
obligation to pay.
The Court of Appeals, however, affirmed the trial
courts judgment, holding that the bank is merely
the holder of the security for its advance payments
to petitioners; and that the goods they purchased,
through the credit line extended by the bank,
belong to them and hold said goods at their own
risk.
Petitioners then filed a motion for reconsideration
but this was denied by the Appellate Court in its
Resolution dated January 12, 1999.
Hence, this petition for review
on certiorari ascribing to the Court of Appeals the
following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE ACTS OF THE
PETITIONERS-DEFENDANTS WERE TANTAMOUNT
TO A VALID AND EFFECTIVE TENDER OF THE
GOODS TO THE RESPONDENT-PLAINTIFF.
II
THE HONORABLE COURT OF APPEALS ERRED IN
NOT APPLYING THE DOCTRINE OF RES PERIT
DOMINO IN THE CASE AT BAR CONSIDERING THE
VALID AND EFFECTIVE TENDER OF THE DEFECTIVE
56
withdrawals from this credit line and issued several
promissory notes in favor of the bank. In banking
and commerce, a credit line is that amount of
money or merchandise which a banker, merchant,
or supplier agrees to supply to a person on credit
and generally agreed to in advance.[3] It is the
fixed limit of credit granted by a bank, retailer, or
credit card issuer to a customer, to the full extent
of which the latter may avail himself of his
dealings with the former but which he must not
exceed and is usually intended to cover a series of
transactions in which case, when the customers
line of credit is nearly exhausted, he is expected to
reduce his indebtedness by payments before
making any further drawings.[4]
It is thus clear that the principal transaction
between petitioner RTMC and the bank is a
contract of loan. RTMC used the proceeds of this
loan to purchase raw materials from a supplier
abroad. In order to secure the payment of the loan,
RTMC delivered the raw materials to the bank as
collateral. Trust receipts were executed by the
parties to evidence this security arrangement.
Simply stated, the trust receipts were mere
securities.
In Samo vs. People,[5] we described a trust receipt
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.[6]
In Vintola vs. Insular Bank of Asia and America,
[7] we elucidated further that 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.[8] Section 3 (h) of the Trust Receipts
Law (P.D. No. 115) defines a security interest as
follows:
(h) Security Interest means a property interest in
goods, documents, or instruments to secure
performance of some obligation 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.
Petitioners insistence that the ownership of the
raw materials remained with the bank is
untenable. In Sia vs. People,[9] Abad vs. Court of
Appeals,[10] and PNB vs. Pineda,[11] we held that:
If under the trust receipt, the bank is made to
appear as the owner, it was but an artificial
expedient, more of legal fiction than fact, for if it
were really so, it could dispose of the goods in any
57
the parties is a loan. What respondent bank sought
to collect as creditor was the loan it granted to
petitioners. Petitioners recourse is to sue their
supplier, if indeed the materials were defective.
WHEREFORE, the petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 48708 are AFFIRMED IN TOTO.
Costs against petitioners.
SO ORDERED.
9. G. R. No. 164317
February 6, 2006
ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY
PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial Court,
Manila, Branch 52; RIZAL COMMERCIAL BANKING
CORP. and THE PEOPLE OF THE
PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on
certiorari of the Decision1 of the Court of Appeals
(CA) in CA-G.R. SP No. 57169 dismissing the
petition for certiorari, prohibition and mandamus
filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the
motion for reconsideration thereof.
Petitioner was the Senior Vice-President of
Philippine Blooming Mills, Inc. (PBMI). Sometime in
September to October 1980, PBMI, through
petitioner, applied with the Rizal Commercial
Banking Corporation (respondent bank) for the
issuance of commercial letters of credit to finance
its importation of assorted goods.3
Respondent bank approved the application, and
irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and
delivered in trust to PBMI. Petitioner signed 13
trust receipts4 as surety, acknowledging delivery
of the following goods:
80
Refractory
Tundish
Bricks
17
98
112180
02P835,526 5 cases
19-81 .25
spare parts
for CCM
18
08
112180
20
42
013081
18
01
112180
02P2,001,7
19-81 15.17
18
57
120980
18
95
121780
03P67,652.
17-81 04
Spare parts
for
Spectrophoto
meter
19
11
122280
03P91,497.
20-81 85
50 pcs. Ingot
moulds
20
41
013081
04P91,456.
30-81 97
50 pcs. Ingot
moulds
8 pcs.
Kubota Rolls
for rolling
mills
Synthetic
Graphite
Electrode
[with]
tapered pitch
filed nipples
T/R Date
No Gran
s.
ted
Matur Principal
ity
Date
Description
of Goods
20
99
021081
05P66,162.
11-81 26
18
45
120580
03P1,596,4
05-81 70.05
79.9425 M/T
"SDK" Brand
Synthetic
Graphite
Electrode
21
00
021081
18
53
120880
18
24
1128-
58
and payment of other indebtedness to respondent
bank. In case the goods remained unsold within
the specified period, the goods were to be returned
to respondent bank without any need of demand.
Thus, said "goods, manufactured products or
proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and
capable of identification" were respondent banks
property.
When the trust receipts matured, petitioner failed
to return the goods to respondent bank, or to
return their value amounting to P6,940,280.66
despite demands. Thus, the bank filed a criminal
complaint for estafa6 against petitioner in the
Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the
City Prosecutor found probable cause estafa under
Article 315, paragraph 1(b) of the Revised Penal
Code, in relation to Presidential Decree (P.D.) No.
115, otherwise known as the Trust Receipts Law.
Thirteen (13) Informations were filed against the
petitioner before the Regional Trial Court (RTC) of
Manila. The cases were docketed as Criminal Cases
No. 86-42169 to 86-42181, raffled to Branch 31 of
said court.
Petitioner appealed the resolution of the City
Prosecutor to the then Minister of Justice. The
appeal was dismissed in a Resolution7 dated
March 17, 1987, and petitioner moved for its
reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus
reversing the previous resolution finding probable
cause against petitioner.8 The City Prosecutor was
ordered to move for the withdrawal of the
Informations.
This time, respondent bank filed a motion for
reconsideration, which, however, was denied on
February 24, 1988.9 The RTC, for its part, granted
the Motion to Quash the Informations filed by
petitioner on the ground that the material
allegations therein did not amount to estafa.10
In the meantime, the Court rendered judgment in
Allied Banking Corporation v. Ordoez,11 holding
that the penal provision of P.D. No. 115
encompasses any act violative of an obligation
covered by the trust receipt; it is not limited to
transactions involving goods which are to be sold
(retailed), reshipped, stored or processed as a
component of a product ultimately sold. The Court
also ruled that "the non-payment of the amount
covered by a trust receipt is an act violative of the
obligation of the entrustee to pay."12
On February 27, 1995, respondent bank re-filed the
criminal complaint for estafa against petitioner
before the Office of the City Prosecutor of Manila.
The case was docketed as I.S. No. 95B-07614.
59
against petitioner for violation of P.D. No. 115
before the RTC of Manila. The cases were docketed
as Criminal Cases No. 99-178596 to 99-178608
and consolidated for trial before Branch 52 of said
court. Petitioner filed a motion for reconsideration,
which the Secretary of Justice denied in a
Resolution18 dated January 17, 2000.
Petitioner then filed a petition for certiorari,
prohibition and mandamus with the CA, assailing
the resolutions of the Secretary of Justice on the
following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN
UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN
THEY ALLOWED HIS PROSECUTION DESPITE THE
FACT THAT NO EVIDENCE HAD BEEN PRESENTED
TO PROVE HIS PARTICIPATION IN THE ALLEGED
TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE
COMMITTED AN ACT IN GRAVE ABUSE OF
DISCRETION AND IN EXCESS OF HIS JURISDICTION
WHEN THEY CONTINUED PROSECUTION OF THE
PETITIONER DESPITE THE LENGTH OF TIME
INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD
JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND
ASSISTANT CITY PROSECUTOR ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO AN EXCESS
OF JURISDICTION WHEN THEY CONTINUED THE
PROSECUTION OF THE PETITIONER DESPITE LACK
OF SUFFICIENT BASIS.19
In his petition, petitioner incorporated a
certification stating that "as far as this Petition is
concerned, no action or proceeding in the Supreme
Court, the Court of Appeals or different divisions
thereof, or any tribunal or agency. It is finally
certified that if the affiant should learn that a
similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of
Appeals, or different divisions thereof, of any other
tribunal or agency, it hereby undertakes to notify
this Honorable Court within five (5) days from such
notice."20
In its Comment on the petition, the Office of the
Solicitor General alleged that A.
THE HONORABLE SECRETARY OF JUSTICE
CORRECTLY RULED THAT PETITIONER ALFREDO
CHING IS THE OFFICER RESPONSIBLE FOR THE
OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION
OF P.D. [No.] 115 IN RELATION TO ARTICLE 315,
PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONERS CONTENTION
THAT EXCESSIVE DELAY HAS MARRED THE
60
the deficiency in his certification of non-forum
shopping should not result in the dismissal of his
petition.
The Office of the Solicitor General (OSG) takes the
opposite view, and asserts that indubitably, the
certificate of non-forum shopping incorporated in
the petition before the CA is defective because it
failed to disclose essential facts about pending
actions concerning similar issues and parties. It
asserts that petitioners failure to comply with the
Rules of Court is fatal to his petition. The OSG cited
Section 2, Rule 42, as well as the ruling of this
Court in Melo v. Court of Appeals.24
We agree with the ruling of the CA that the
certification of non-forum shopping petitioner
incorporated in his petition before the appellate
court is defective. The certification reads:
It is further certified that as far as this Petition is
concerned, no action or proceeding in the Supreme
Court, the Court of Appeals or different divisions
thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn
that a similar action or proceeding has been filed
or is pending before the Supreme Court, the Court
of Appeals, or different divisions thereof, of any
other tribunal or agency, it hereby undertakes to
notify this Honorable Court within five (5) days
from such notice.25
Under Section 1, second paragraph of Rule 65 of
the Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum
shopping, as provided in the third paragraph of
Section 3, Rule 46 of said Rules. The latter
provision reads in part:
SEC. 3. Contents and filing of petition; effect of
non-compliance with requirements. The petition
shall contain the full names and actual addresses
of all the petitioners and respondents, a concise
statement of the matters involved, the factual
background of the case and the grounds relied
upon for the relief prayed for.
xxx
The petitioner shall also submit together with the
petition a sworn certification that he has not
theretofore commenced any other action involving
the same issues in the Supreme Court, the Court of
Appeals or different divisions thereof, or any other
tribunal or agency; if there is such other action or
proceeding, he must state the status of the same;
and if he should thereafter learn that a similar
action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or
different divisions thereof, or any other tribunal or
agency, he undertakes to promptly inform the
aforesaid courts and other tribunal or agency
thereof within five (5) days therefrom. xxx
61
cannot even just dent the findings of the
respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115
which states in part, viz:
xxx If the violation or offense is committed by a
corporation, partnership, association or other
judicial entities, the penalty provided for in this
Decree shall be imposed upon the directors,
officers, employees or other officials or persons
therein responsible for the offense, without
prejudice to the civil liabilities arising from the
criminal offense.
"There is no dispute that it was the respondent,
who as senior vice-president of PBM, executed the
thirteen (13) trust receipts. As such, the law points
to him as the official responsible for the offense.
Since a corporation cannot be proceeded against
criminally because it cannot commit crime in which
personal violence or malicious intent is required,
criminal action is limited to the corporate agents
guilty of an act amounting to a crime and never
against the corporation itself (West Coast Life Ins.
Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes,
39 SCRA 303). Thus, the execution by respondent
of said receipts is enough to indict him as the
official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still
contend that PD 115 covers only goods which are
ultimately destined for sale and not goods, like
those imported by PBM, for use in manufacture.
This issue has already been settled in the Allied
Banking Corporation case, supra, where he was
also a party, when the Supreme Court ruled that
PD 115 is not limited to transactions in goods
which are to be sold (retailed), reshipped, stored or
processed as a component or a product ultimately
sold but covers failure to turn over the proceeds
of the sale of entrusted goods, or to return said
goods if unsold or disposed of in accordance with
the terms of the trust receipts.
"In regard to the other assigned errors, we note
that the respondent bound himself under the terms
of the trust receipts not only as a corporate official
of PBM but also as its surety. It is evident that
these are two (2) capacities which do not exclude
the other. Logically, he can be proceeded against
in two (2) ways: first, as surety as determined by
the Supreme Court in its decision in RCBC vs. Court
of Appeals, 178 SCRA 739; and, secondly, as the
corporate official responsible for the offense under
PD 115, the present case is an appropriate remedy
under our penal law.
"Moreover, PD 115 explicitly allows the prosecution
of corporate officers without prejudice to the civil
liabilities arising from the criminal offense thus,
the civil liability imposed on respondent in RCBC
vs. Court of Appeals case is clearly separate and
62
received the goods for PBM, it was inevitable that
the petitioner is the proper corporate officer to be
proceeded against by virtue of the PBMs violation
of P.D. No. 115.29
The ruling of the CA is correct.
In Mendoza-Arce v. Office of the Ombudsman
(Visayas),30 this Court held that the acts of a
quasi-judicial officer may be assailed by the
aggrieved party via a petition for certiorari and
enjoined (a) when necessary to afford adequate
protection to the constitutional rights of the
accused; (b) when necessary for the orderly
administration of justice; (c) when the acts of the
officer are without or in excess of authority; (d)
where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when
there is clearly no prima facie case against the
accused.31 The Court also declared that, if the
officer conducting a preliminary investigation (in
that case, the Office of the Ombudsman) acts
without or in excess of his authority and resolves
to file an Information despite the absence of
probable cause, such act may be nullified by a writ
of certiorari.32
Indeed, under Section 4, Rule 112 of the 2000
Rules of Criminal Procedure,33 the Information
shall be prepared by the Investigating Prosecutor
against the respondent only if he or she finds
probable cause to hold such respondent for trial.
The Investigating Prosecutor acts without or in
excess of his authority under the Rule if the
Information is filed against the respondent despite
absence of evidence showing probable cause
therefor.34 If the Secretary of Justice reverses the
Resolution of the Investigating Prosecutor who
found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the
Information despite the absence of probable cause,
the Secretary of Justice acts contrary to law,
without authority and/or in excess of authority.
Such resolution may likewise be nullified in a
petition for certiorari under Rule 65 of the Revised
Rules of Civil Procedure.35
A preliminary investigation, designed to secure the
respondent against hasty, malicious and
oppressive prosecution, is an inquiry to determine
whether (a) a crime has been committed; and (b)
whether there is probable cause to believe that the
accused is guilty thereof. It is a means of
discovering the person or persons who may be
reasonably charged with a crime. Probable cause
need not be based on clear and convincing
evidence of guilt, as the investigating officer acts
upon probable cause of reasonable belief. Probable
cause implies probability of guilt and requires more
than bare suspicion but less than evidence which
would justify a conviction. A finding of probable
63
2. In the case of instruments a) to sell or procure
their sale or exchange; or b) to deliver them to a
principal; or c) to effect the consummation of some
transactions involving delivery to a depository or
register; or d) to effect their presentation,
collection or renewal.
The sale of goods, documents or instruments by a
person in the business of selling goods, documents
or instruments for profit who, at the outset of the
transaction, has, as against the buyer, general
property rights in such goods, documents or
instruments, or who sells the same to the buyer on
credit, retaining title or other interest as security
for the payment of the purchase price, does not
constitute a trust receipt transaction and is outside
the purview and coverage of this Decree.
An entrustee is one having or taking possession of
goods, documents or instruments under a trust
receipt transaction, and any successor in interest
of such person for the purpose of payment
specified in the trust receipt agreement.39 The
entrustee is obliged to: (1) hold the goods,
documents or instruments in trust for the entruster
and shall dispose of them strictly in accordance
with the terms and conditions of the trust receipt;
(2) receive the proceeds in trust for the entruster
and turn over the same to the entruster to the
extent of the amount owing to the entruster or as
appears on the trust receipt; (3) insure the goods
for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods
or proceeds thereof whether in money or whatever
form, separate and capable of identification as
property of the entruster; (5) return the goods,
documents or instruments in the event of non-sale
or upon demand of the entruster; and (6) observe
all other terms and conditions of the trust receipt
not contrary to the provisions of the decree.40
The entruster shall be entitled to the proceeds
from the sale of the goods, documents or
instruments released under a trust receipt to the
entrustee to the extent of the amount owing to the
entruster or as appears in the trust receipt, or to
the return of the goods, documents or instruments
in case of non-sale, and to the enforcement of all
other rights conferred on him in the trust receipt;
provided, such are not contrary to the provisions of
the document.41
In the case at bar, the transaction between
petitioner and respondent bank falls under the
trust receipt transactions envisaged in P.D. No.
115. Respondent bank imported the goods and
entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with
the bank as entruster. The agreement was as
follows:
64
owner.46 Thus, failure of the entrustee to turn over
the proceeds of the sale of the goods covered by
the trust receipts to the entruster or to return said
goods if they were not disposed of in accordance
with the terms of the trust receipt is a crime under
P.D. No. 115, without need of proving intent to
defraud. The law punishes dishonesty and abuse of
confidence in the handling of money or goods to
the prejudice of the entruster, regardless of
whether the latter is the owner or not. A mere
failure to deliver the proceeds of the sale of the
goods, if not sold, constitutes a criminal offense
that causes prejudice, not only to another, but
more to the public interest.47
The Court rules that although petitioner signed the
trust receipts merely as Senior Vice-President of
PBMI and had no physical possession of the goods,
he cannot avoid prosecution for violation of P.D.
No. 115.
The penalty clause of the law, Section 13 of P.D.
No. 115 reads:
Section 13. Penalty Clause. The failure of an
entrustee to turn over the proceeds of the sale of
the 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 Three hundred and fifteen,
paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended,
otherwise known as the Revised Penal
Code.1wphi1 If the violation or offense is
committed by a corporation, partnership,
association or other juridical entities, the penalty
provided for in this Decree shall be imposed upon
the directors, officers, employees or other officials
or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from
the criminal offense.
The crime defined in P.D. No. 115 is malum
prohibitum but is classified as estafa under
paragraph 1(b), Article 315 of the Revised Penal
Code, or estafa with abuse of confidence. It may
be committed by a corporation or other juridical
entity or by natural persons. However, the penalty
for the crime is imprisonment for the periods
provided in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). Any person who
shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
1st. The penalty of prision correccional in its
maximum period to prision mayor in its minimum
period, if the amount of the fraud is over 12,000
pesos but does not exceed 22,000 pesos; and if
65
therefor, it creates a criminal offense which,
otherwise, would not exist and such can be
committed only by the corporation. But when a
penal statute does not expressly apply to
corporations, it does not create an offense for
which a corporation may be punished. On the
other hand, if the State, by statute, defines a crime
that may be committed by a corporation but
prescribes the penalty therefor to be suffered by
the officers, directors, or employees of such
corporation or other persons responsible for the
offense, only such individuals will suffer such
penalty.51 Corporate officers or employees,
through whose act, default or omission the
corporation commits a crime, are themselves
individually guilty of the crime.52
The principle applies whether or not the crime
requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves
commit the crime and to those, who, by virtue of
their managerial positions or other similar relation
to the corporation, could be deemed responsible
for its commission, if by virtue of their relationship
to the corporation, they had the power to prevent
the act.53 Moreover, all parties active in promoting
a crime, whether agents or not, are
principals.54 Whether such officers or employees
are benefited by their delictual acts is not a
touchstone of their criminal liability. Benefit is not
an operative fact.
In this case, petitioner signed the trust receipts in
question. He cannot, thus, hide behind the cloak of
the separate corporate personality of PBMI. In the
words of Chief Justice Earl Warren, a corporate
officer cannot protect himself behind a corporation
where he is the actual, present and efficient
actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit. Costs against the
petitioner.
SO ORDERED.
10. [G.R. No. 122502. December 27, 2002]
LORENZO M. SARMIENTO, JR. and GREGORIO
LIMPIN, JR., petitioners, vs. COURT OF APPEALS and
ASSOCIATED BANKING CORP., respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Filed with this court is the petition for review under
Rule 45 of the Rules of Court assailing the July 31,
1995 Decision[1] of the Court of Appeals in CA-G.R.
CV No. 31568 which affirmed the Decision of the
Regional Trial Court of Davao City dated August 1,
1990 in Civil Case No. 19,272-88; and the October
25, 1995 Resolution[2] denying petitioners Motion
for Reconsideration.
The dispositive portion of the trial courts decision
reads as follows:
66
against acceptance and any other indebtedness of
the defendants to the bank. (Exh. C-2)
That the defendants shall immediately give notice
to said Bank of any average damage, nonshipment, shortage, non-delivery or other
happening not in the usual and ordinary course of
business (Exh. C-3).
That the due date of the Trust Receipt is December
5, 1978, (Exh. C-4).
The defendants failed to comply with their
undertaking under the Trust Receipt. Hence as
early as March, 1980, demands were made for
them to comply with their undertaking (Exhs. Q, R
to R-2, S, T, D to D-1; F to F-2). However,
defendants failed to pay their account. Legal
action against the defendants was deferred due to
the proposed settlement of the account (Exh U).
However, no settlement was reached. Hence the
bank, thru counsel, sent a final letter of demand on
May 26, 1986 (Exh. E). On June 11, 1986, a
complaint for Violation of the Trust Receipt Law
was filed against the defendants before the City
Fiscals Office (Exh. L-3). Thereafter, the
corresponding Information was filed against the
defendants. Defendant Lorenzo Sarmiento, Jr. was,
however, dropped from the Information while
defendant Gregorio Limpin, Jr. was convicted (Exh.
P to P-9).
The defendants claim that they cannot be held
liable as the 825 tons of assorted scrap iron,
subject of the trust receipt agreement, were lost
when the vessel transporting them sunk, and that
said scrap iron were delivered to Davao Libra
Industrial Sales, a business concern over which
they had no interest whatsoever.
They tried to show that the scrap irons were
loaded on board Barge L-1853, owned and
operated by Luzon Stevedoring, for shipment to
Toledo Atlas Pier in Cebu (Exh. 1; that the said
Barge capsized on October 4, 1978 while on its
way to Toledo City, and a notice of Marine Protest
was made by Capt. Jose C. Barrientos (Exh. 2); that
Benigno Azarcon executed an affidavit attesting to
the fact that Barge L-1853, capsized on October 4,
1978 and all its cargoes were washed away (Exh.
3); that Charlie Torregoza, a security guard of L.S.
Sarmiento and Company, Inc., who was one of
those assigned to escort Barge L-1853, prepared
an Incident Report, showing that said Barge
capsized on October 4, 1978 and that cargoes
were washed away (Exhs. 4 and 4-A).[4]
After trial, the lower court rendered judgment in
favor of herein private respondent Associated
Banking Corporation.
On appeal by herein petitioners Sarmiento, Jr. and
Limpin, Jr., the Court of Appeals affirmed the
67
Section 1. Institution of criminal and civil actions.
When a criminal action is instituted, the civil action
for the recovery of civil liability is impliedly
instituted with the criminal action, unless the
offended party waives the civil action, reserves his
right to institute it separately, or institutes the civil
action prior to the criminal action.
Such civil action includes recovery of indemnity
under the Revised Penal Code, and damages under
Articles 32, 33, 34 and 2176 of the Civil Code of
the Philippines arising from the same act or
omission of the accused.
A waiver of any of the civil actions extinguishes the
others. The institution of, or the reservation of the
right to file, any of said civil actions separately
waives the others.
The reservation of the right to institute the
separate civil actions shall be made before the
prosecution starts to present its evidence and
under circumstances affording the offended party
a reasonable opportunity to make such
reservation.
x x x.
Under the Revised Rules of Criminal Procedure,
effective December 1, 2000,[9] the same Section
of the same Rule provides:
Section 1. Institution of criminal and civil actions. -(a) When a criminal action is instituted, the civil
action for the recovery of civil liability arising from
the offense charged shall be deemed instituted
with the criminal action unless the offended party
waives the civil action, reserves the right to
institute it separately or institutes the civil action
prior to the criminal action.
The reservation of the right to institute separately
the civil action shall be made before the
prosecution starts presenting its evidence and
under circumstances affording the offended party
a reasonable opportunity to make such
reservation.
x x x.
While a reading of the aforequoted provisions
shows that the offended party is required to make
a reservation of his right to institute a separate
civil action, jurisprudence instructs that such
reservation may not necessarily be express but
may be implied[10] which may be inferred not only
from the acts of the offended party but also from
acts other than those of the latter.
Demonstrative of the principle of implied
reservation of a separate civil action are the cases
of Vintola vs. Insular Bank of Asia and America,
[11] Bernaldes, Sr. vs. Bohol Land Transp., Inc.
[12] and Jarantilla vs. Court of Appeals.[13]
In the Vintola case, Insular Bank of Asia and
America (IBAA, for brevity) charged spouses Tirso
and Loreta Vintola with Estafa. The spouses were
68
record before Us that appellants made of record
their claim for damages against the driver or his
employer; much less does it appear that they had
attempted to prove such damages. The failure of
the court to make any pronouncement in its
decision concerning the civil liability of the driver
and/or of his employer must therefore be due to
the fact that the criminal action did not involve at
all any claim for civil indemnity.[14] (Emphasis
supplied)
Later, in Jarantilla, this Court ruled that the failure
of the trial court to make any pronouncement,
favorable or unfavorable, as to the civil liability of
the accused amounts to a reservation of the right
to have the civil liability litigated and determined
in a separate action, for nowhere in the Rules of
Court is it provided that if the court fails to
determine the civil liability, it becomes no longer
enforceable.[15]
Nothing in the records at hand shows that private
respondent ever attempted to enforce its right to
recover civil liability during the prosecution of the
criminal action against petitioners.
Petitioners correctly raised in their third assigned
error that private respondents counsel made a
formal entry of appearance in Criminal Case No.
14,126.[16] However, it is undisputed that in the
early proceedings of the criminal action, private
respondents counsel moved to withdraw his
appearance. The trial court, in its Order dated
September 4, 1987, granted such motion. [17] This
Court has previously held that the appearance of
the offended party in the criminal case through a
private prosecutor may not per se be considered
either as an implied election to have his claim for
damages determined in said proceedings or a
waiver of his right to have it determined
separately.[18] He must actually or actively
intervene in the criminal proceedings as to leave
no doubt with respect to his intention to press a