1

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

standard signature of the drawer -- were not hers.

[23] This conclusion was the same as that in the
Report[24] that the PNP Crime Laboratory had
earlier issued to BPI -- the drawee bank -- upon the
latters request.
Indeed, we respect and affirm the RTCs factual
findings, especially when affirmed by the CA, since
these are supported by substantial evidence on
record.[25]
Voluntary Admission Not
Violative of Constitutional Rights
The voluntary admission of Yabut did not violate
his constitutional rights (1) on custodial
investigation, and (2) against self-incrimination.
In the first place, he was not under custodial
investigation.[26] His Affidavit was executed in
private and before private individuals.[27] The
mantle of protection under Section 12 of Article III
of the 1987 Constitution[28] covers only the period
from the time a person is taken into custody for
investigation of his possible participation in the
commission of a crime or from the time he is
singled out as a suspect in the commission of a
crime although not yet in custody.[29]
Therefore, to fall within the ambit of Section 12,
quoted above, there must be an arrest or a
deprivation of freedom, with questions propounded
on him by the police authorities for the purpose of
eliciting admissions, confessions, or any
information.[30] The said constitutional provision
does not apply to spontaneous statements made in
a voluntary manner[31] whereby an individual
orally admits to authorship of a crime.[32] What
the Constitution proscribes is the compulsory or
coercive disclosure of incriminating facts.[33]
Moreover, the right against selfincrimination[34] under Section 17 of Article
III[35] of the Constitution, which is ordinarily
available only in criminal prosecutions, extends to
all other government proceedings -- including civil
actions, legislative investigations,[36] and
administrative proceedings that possess a criminal
or penal aspect[37] -- but not to private
investigations done by private individuals. Even in
such government proceedings, this right may be
waived,[38] provided the waiver is certain;
unequivocal; and intelligently, understandingly and
willingly made.[39]
If in these government proceedings waiver is
allowed, all the more is it so in private
investigations. It is of no moment that no criminal
case has yet been filed against Yabut. The filing
thereof is entirely up to the appropriate authorities
or to the private individuals upon whom damage
has been caused. As we shall also explain later, it
is not mandatory for CASA -- the plaintiff below --

3
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

could have been given by the PNP, anyway, in the

absence of the original checks.[57] This
explanation is valid; otherwise, no such report can
ever be relied upon in court.
Even with respect to documentary evidence, the
best evidence rule applies only when the contents
of a document -- such as the drawers signature on
a check -- is the subject of inquiry.[58] As to
whether the document has been actually executed,
this rule does not apply; and testimonial as well as
any other secondary evidence is admissible.
[59] Carina Lebron herself, the drawers authorized
signatory, testified many times that she had never
signed those checks. Her testimonial evidence is
admissible; the checks have not been actually
executed.The genuineness of her handwriting is
proved, not only through the courts comparison of
the questioned handwritings and admittedly
genuine specimens thereof,[60] but above all by
her.
The failure of CASA to produce the original checks
neither gives rise to the presumption of
suppression of evidence[61] nor creates an
unfavorable inference against it.[62] Such failure
merely authorizes the introduction of secondary
evidence[63] in the form of microfilm copies. Of no
consequence is the fact that CASA did not present
the signature card containing the signatures with
which those on the checks were compared.
[64] Specimens of standard signatures are not
limited to such a card. Considering that it was not
produced in evidence, other documents that bear
the drawers authentic signature may be resorted
to.[65] Besides, that card was in the possession of
BPI -- the adverse party.
We have held that without the original document
containing the allegedly forged signature, one
cannot make a definitive comparison that would
establish forgery;[66] and that a comparison based
on a mere reproduction of the document under
controversy cannot produce reliable results.
[67] We have also said, however, that a judge
cannot merely rely on a handwriting experts
testimony,[68] but should also exercise
independent judgment in evaluating the
authenticity of a signature under scrutiny.[69] In
the present case, both the RTC and the CA
conducted independent examinations of the
evidence presented and arrived at reasonable and
similar conclusions. Not only did they admit
secondary evidence; they also appositely
considered testimonial and other documentary
evidence in the form of the Affidavit.
The best evidence rule admits of exceptions and,
as we have discussed earlier, the first of these has
been met.[70] The result of examining a
questioned handwriting, even with the aid of

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.

This notice is a simple confirmation[81] or

circularization -- in accounting parlance -- that
requests client-depositors to affirm the accuracy of
items recorded by the banks.[82] Its purpose is to
obtain from the depositors a direct corroboration of
the correctness of their account balances with
their respective banks.[83] Internal or external
auditors of a bank use it as a basic audit
procedure[84] -- the results of which its clientdepositors are neither interested in nor privy to -to test the details of transactions and balances in
the banks records.[85] Evidential matter obtained
from independent sources outside a bank only
serves to provide greater assurance of
reliability[86] than that obtained solely within it for
purposes of an audit of its own financial
statements, not those of its client-depositors.
Furthermore, there is always the audit risk that
errors would not be detected[87] for various
reasons. One, materiality is a consideration in
audit planning;[88] and two, the information
obtained from such a substantive test is merely
presumptive and cannot be the basis of a valid
waiver.[89] BPI has no right to impose a condition
unilaterally and thereafter consider failure to meet
such condition a waiver. Neither may CASA
renounce a right[90] it has never possessed.[91]
Every right has subjects -- active and
passive. While the active subject is entitled to
demand its enforcement, the passive one is dutybound to suffer such enforcement.[92]
On the one hand, BPI could not have been an
active subject, because it could not have
demanded from CASA a response to its
notice. Besides, the notice was a measly request
worded as follows: Please examine x x x and report
x x x.[93] CASA, on the other hand, could not have
been a passive subject, either, because it had no
obligation to respond. It could -- as it did -- choose
not to respond.
Estoppel precludes individuals from denying or
asserting, by their own deed or representation,
anything contrary to that established as the truth,
in legal contemplation.[94] Our rules on evidence
even make a juris et de jure presumption[95] that
whenever one has, by ones own act or omission,
intentionally and deliberately led another to
believe a particular thing to be true and to act
upon that belief, one cannot -- in any litigation
arising from such act or omission -- be permitted to
falsify that supposed truth.[96]
In the instant case, CASA never made any deed or
representation that misled BPI. The formers
omission, if any, may only be deemed an innocent
mistake oblivious to the procedures and
consequences of periodic audits. Since its conduct
was due to such ignorance founded upon an

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.

CASA Not Negligent

in Its Financial Affairs
In this jurisdiction, the negligence of the party
invoking forgery is recognized as an
exception[114] to the general rule that a forged
signature is wholly inoperative.[115] Contrary to
BPIs claim, however, we do not find CASA
negligent in handling its financial affairs. CASA, we
stress, is not precluded from setting up forgery as
a real defense.
Role of Independent Auditor
The major purpose of an independent audit is to
investigate and determine objectively if the
financial statements submitted for audit by a
corporation have been prepared in accordance
with the appropriate financial reporting
practices[116] of private entities. The relationship
that arises therefrom is both legal and moral.
[117] It begins with the execution of the
engagement letter[118] that embodies the terms
and conditions of the audit and ends with the
fulfilled expectation of the auditors
ethical[119] and competent performance in all
aspects of the audit.[120]
The financial statements are representations of the
client; but it is the auditor who has the
responsibility for the accuracy in the recording of
data that underlies their preparation, their form of
presentation, and the opinion[121] expressed
therein.[122] The auditor does not assume the role
of employee or of management in the clients
conduct of operations[123] and is never under the
control or supervision[124] of the client.
Yabut was an independent auditor[125] hired by
CASA. He handled its monthly bank reconciliations
and had access to all relevant documents and
checkbooks.[126] In him was reposed the
clients[127] trust and confidence[128] that he
would perform precisely those functions and apply
the appropriate procedures in accordance with
generally accepted auditing standards.[129]Yet he
did not meet these expectations. Nothing could be
more horrible to a client than to discover later on
that the person tasked to detect fraud was the
same one who perpetrated it.
Cash Balances
Open to Manipulation
It is a non sequitur to say that the person who
receives the monthly bank statements, together
with the cancelled checks and other debit/credit
memoranda, shall examine the contents and give
notice of any discrepancies within a reasonable
time. Awareness is not equipollent with
discernment.
Besides, in the internal accounting control system
prudently installed by CASA,[130] it was Yabut who
should examine those documents in order to

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

auditor. However, both the accountant and the

auditor, for reasons known only to them, assured
the bookkeeper that there were no irregularities.
The bookkeeper[144] who had exclusive custody of
the checkbooks[145] did not have to go directly to
CASAs president or to BPI. Although she rightfully
reported the matter, neither an investigation was
conducted nor a resolution of it was arrived at,
precisely because the person at the top of the
helm was the culprit. The vouchers, invoices and
check stubs in support of all check disbursements
could be concealed or fabricated -- even in
collusion -- and management would still have no
way to verify its cash accountabilities.
Clearly then, Yabut was able to perpetrate the
wrongful act through no fault of CASA. If auditors
may be held liable for breach of contract and
negligence,[146] with all the more reason may
they be charged with the perpetration of fraud
upon an unsuspecting client. CASA had the
discretion to pursue BPI alone under the NIL, by
reason of expediency or munificence or
both. Money paid under a mistake may rightfully
be recovered,[147] and under such terms as the
injured party may choose.
Third Issue:
Award of Monetary Claims
Moral Damages Denied
We deny CASAs claim for moral damages.
In the absence of a wrongful act or omission,
[148] or of fraud or bad faith,[149] moral damages
cannot be awarded.[150] The adverse result of an
action does not per se make the action wrongful,
or the party liable for it. One may err, but error
alone is not a ground for granting such damages.
[151] While no proof of pecuniary loss is necessary
therefor -- with the amount to be awarded left to
the courts discretion[152] -- the claimant must
nonetheless satisfactorily prove the existence of its
factual basis[153] and causal relation[154] to the
claimants act or omission.[155]
Regrettably, in this case CASA was unable to
identify the particular instance -- enumerated in
the Civil Code -- upon which its claim for moral
damages is predicated.[156] Neither bad faith nor
negligence so gross that it amounts to
malice[157] can be imputed to BPI. Bad faith,
under the law, does not simply connote bad
judgment or negligence;[158] it imports a
dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a known
duty through some motive or interest or ill will that
partakes of the nature of fraud.[159]
As a general rule, a corporation -- being an
artificial person without feelings, emotions and
senses, and having existence only in legal
contemplation -- is not entitled to moral damages,

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

interest, which is six percent per annum.[178] The

actual base for its computation shall be on the
amount finally adjudged,
[179] compounded[180] annually to make up for
the cost of money[181] already lost to CASA.
Moreover, the failure of the CA to award interest
does not prevent us from granting it upon
damages awarded for breach of contract.
[182] Because BPI evidently breached its contract
of deposit with CASA, we award interest in addition
to the total amount adjudged. Under Section 196
of the NIL, any case not provided for shall be
governed by the provisions of existing legislation
or, in default thereof, by the rules of the law
merchant.[183] Damages are not provided for in
the NIL. Thus, we resort to the Code of Commerce
and the Civil Code. Under Article 2 of the Code of
Commerce, acts of commerce shall be governed by
its provisions and, in their absence, by the usages
of commerce generally observed in each place;
and in the absence of both rules, by those of the
civil law.[184] This law being silent, we look at
Article 18 of the Civil Code, which states: In
matters which are governed by the Code of
Commerce and special laws, their deficiency shall
be supplied by its provisions. A perusal of these
three statutes unmistakably shows that the award
of interest under our civil law is justified.
WHEREFORE, the Petition in GR No. 149454 is
hereby DENIED, and that in GR No. 149507 PARTLY
GRANTED. The assailed Decision of the Court of
Appeals is AFFIRMED with modification: BPI is held
liable for P547,115, the total value of the forged
checks less the amount already recovered by CASA
from Leonardo T. Yabut, plus interest at the legal
rate of six percent (6%) per annum -- compounded
annually, from the filing of the complaint until paid
in full; and attorneys fees of ten percent (10%)
thereof, subject to reimbursement from
Respondent Yabut for the entire amount, excepting
attorneys fees. Let a copy of this Decision be
furnished the Board of Accountancy of the
Professional Regulation Commission for such action
as it may deem appropriate against Respondent
Yabut. No costs.
SO ORDERED.
2. [G.R. No. 146717. November 22, 2004]
TRANSFIELD PHILIPPINES, INC., petitioner,
vs. LUZON HYDRO CORPORATION, AUSTRALIA and
NEW ZEALAND BANKING GROUP LIMITED and
SECURITY BANK CORPORATION, respondents.
DECISION
TINGA, J.:
Subject of this case is the letter of credit which has
evolved as the ubiquitous and most important
device in international trade. A creation of
commerce and businessmen, the letter of credit is

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

Industry Arbitration Commission (CIAC) on 1 June

1999.[10] This was followed by another Request
for Arbitration, this time filed by petitioner before
the International Chamber of Commerce (ICC)
[11] on 3 November 2000. In both arbitration
proceedings, the common issues presented were:
[1) whether typhoon Zeb and any of its associated
events constituted force majeure to justify the
extension of time sought by petitioner; and [2)
whether LHC had the right to terminate the
Turnkey Contract for failure of petitioner to
complete the Project on target date.
Meanwhile, foreseeing that LHC would call on the
Securities pursuant to the pertinent provisions of
the Turnkey Contract,[12] petitionerin two separate
letters[13] both dated 10 August 2000advised
respondent banks of the arbitration proceedings
already pending before the CIAC and ICC in
connection with its alleged default in the
performance of its obligations. Asserting that LHC
had no right to call on the Securities until the
resolution of disputes before the arbitral tribunals,
petitioner warned respondent banks that any
transfer, release, or disposition of the Securities in
favor of LHC or any person claiming under LHC
would constrain it to hold respondent banks liable
for liquidated damages.
As petitioner had anticipated, on 27 June 2000,
LHC sent notice to petitioner that pursuant to
Clause 8.2[14] of the Turnkey Contract, it failed to
comply with its obligation to complete the Project.
Despite the letters of petitioner, however, both
banks informed petitioner that they would pay on
the Securities if and when LHC calls on them.[15]
LHC asserted that additional extension of time
would not be warranted; accordingly it declared
petitioner in default/delay in the performance of its
obligations under the Turnkey Contract and
demanded from petitioner the payment of
US$75,000.00 for each day of delay beginning 28
June 2000 until actual completion of the Project
pursuant to Clause 8.7.1 of the Turnkey Contract.
At the same time, LHC served notice that it would
call on the securities for the payment of liquidated
damages for the delay.[16]
On 5 November 2000, petitioner as plaintiff filed
a Complaint for Injunction, with prayer for
temporary restraining order and writ of preliminary
injunction, against herein respondents as
defendants before the Regional Trial Court (RTC) of
Makati.[17] Petitioner sought to restrain
respondent LHC from calling on the Securities and
respondent banks from transferring, paying on, or
in any manner disposing of the Securities or any
renewals or substitutes thereof. The RTC issued a
seventy-two (72)-hour temporary restraining order
on the same day. The case was docketed as Civil

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

2001. Immediately thereafter, representatives of

LHC trooped to ANZ Bank and withdrew the total
amount of US$4,950,000.00, thereby reducing the
balance in ANZ Bank to US$1,852,814.00.
On 2 February 2001, the appellate court dismissed
the petition for certiorari. The appellate court
expressed conformity with the trial courts decision
that LHC could call on the Securities pursuant to
the first principle in credit law that the credit itself
is independent of the underlying transaction and
that as long as the beneficiary complied with the
credit, it was of no moment that he had not
complied with the underlying contract. Further, the
appellate court held that even assuming that the
trial courts denial of petitioners application for a
writ of preliminary injunction was erroneous, it
constituted only an error of judgment which is not
correctible by certiorari, unlike error of jurisdiction.
Undaunted, petitioner filed the instant Petition for
Review raising the following issues for resolution:
WHETHER THE INDEPENDENCE PRINCIPLE ON
LETTERS OF CREDIT MAY BE INVOKED BY A
BENEFICIARY THEREOF WHERE THE BENEFICIARYS
CALL THEREON IS WRONGFUL OR FRAUDULENT.
WHETHER LHC HAS THE RIGHT TO CALL AND
DRAW ON THE SECURITIES BEFORE THE
RESOLUTION OF PETITIONERS AND LHCS DISPUTES
BY THE APPROPRIATE TRIBUNAL.
WHETHER ANZ BANK AND SECURITY BANK ARE
JUSTIFIED IN RELEASING THE AMOUNTS DUE
UNDER THE SECURITIES DESPITE BEING NOTIFIED
THAT LHCS CALL THEREON IS WRONGFUL.
WHETHER OR NOT PETITIONER WILL SUFFER
GRAVE AND IRREPARABLE DAMAGE IN THE EVENT
THAT:
A. LHC IS ALLOWED TO CALL AND DRAW ON, AND
ANZ BANK AND SECURITY BANK ARE ALLOWED TO
RELEASE, THE REMAINING BALANCE OF THE
SECURITIES PRIOR TO THE RESOLUTION OF THE
DISPUTES BETWEEN PETITIONER AND LHC.
B. LHC DOES NOT RETURN THE AMOUNTS IT HAD
WRONGFULLY DRAWN FROM THE SECURITIES.[21]
Petitioner contends that the courts below
improperly relied on the independence principle on
letters of credit when this case falls squarely within
the fraud exception rule. Respondent LHC
deliberately misrepresented the supposed
existence of delay despite its knowledge that the
issue was still pending arbitration, petitioner
continues.
Petitioner asserts that LHC should be ordered to
return the proceeds of the Securities pursuant to
the principle against unjust enrichment and that,
under the premises, injunction was the appropriate
remedy obtainable from the competent local
courts.

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.

In its Comment to petitioners Motion for Leave to

File Addendum to Petitioners Memorandum, LHC
stresses that the question of whether the funds it
drew on the subject letters of credit should be
returned is outside the issue in this appeal. At any
rate, LHC adds that the action to enforce the ICCs
partial award is now fully within the Makati RTCs
jurisdiction in Civil Case No. 04-332. LHC asserts
that petitioner is engaged in forum-shopping by
keeping this appeal and at the same time seeking
the suit for enforcement of the arbitral award
before the Makati court.
Respondent SBC in its Memorandum, dated 10
March 2003[27] contends that the Court of Appeals
correctly dismissed the petition for certiorari.
Invoking the independence principle, SBC argues
that it was under no obligation to look into the
validity or accuracy of the certification submitted
by respondent LHC or into the latters capacity or
entitlement to so certify. It adds that the act
sought to be enjoined by petitioner was
already fait accompli and the present petition
would no longer serve any remedial purpose.
In a similar fashion, respondent ANZ Bank in
its Memorandum dated 13 March 2003[28] posits
that its actions could not be regarded as
unjustified in view of the prevailing independence
principle under which it had no obligation to
ascertain the truth of LHCs allegations that
petitioner defaulted in its obligations. Moreover, it
points out that since the Standby Letter of Credit
No. E001126/8400 had been fully drawn,
petitioners prayer for preliminary injunction had
been rendered moot and academic.
At the core of the present controversy is the
applicability of the independence principle and
fraud exception rule in letters of credit. Thus, a
discussion of the nature and use of letters of
credit, also referred to simply as credits, would
provide a better perspective of the case.
The letter of credit evolved as a mercantile
specialty, and the only way to understand all its
facets is to recognize that it is an entity unto itself.
The relationship between the beneficiary and the
issuer of a letter of credit is not strictly contractual,
because both privity and a meeting of the minds
are lacking, yet strict compliance with its terms is
an enforceable right. Nor is it a third-party
beneficiary contract, because the issuer must
honor drafts drawn against a letter regardless of
problems subsequently arising in the underlying
contract. Since the banks customer cannot draw
on the letter, it does not function as an assignment
by the customer to the beneficiary. Nor, if properly
used, is it a contract of suretyship or guarantee,
because it entails a primary liability following a
default. Finally, it is not in itself a negotiable

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]

In Bank of the Philippine Islands v. De Reny Fabric

Industries, Inc.,[37] this Court ruled that the
observance of the UCP is justified by Article 2 of
the Code of Commerce which provides that in the
absence of any particular provision in the Code of
Commerce, commercial transactions shall be
governed by usages and customs generally
observed. More recently, in Bank of America, NT &
SA v. Court of Appeals,[38] this Court ruled that
there being no specific provisions which govern the
legal complexities arising from transactions
involving letters of credit, not only between or
among banks themselves but also between banks
and the seller or the buyer, as the case may be,
the applicability of the UCP is undeniable.
Article 3 of the UCP provides that credits, by their
nature, are separate transactions from the sales or
other contract(s) on which they may be based and
banks are in no way concerned with or bound by
such contract(s), even if any reference whatsoever
to such contract(s) is included in the credit.
Consequently, the undertaking of a bank to pay,
accept and pay draft(s) or negotiate and/or fulfill
any other obligation under the credit is not subject
to claims or defenses by the applicant resulting
from his relationships with the issuing bank or the
beneficiary. A beneficiary can in no case avail
himself of the contractual relationships existing
between the banks or between the applicant and
the issuing bank.
Thus, the engagement of the issuing bank is to pay
the seller or beneficiary of the credit once the draft
and the required documents are presented to it.
The so-called independence principle assures the
seller or the beneficiary of prompt payment
independent of any breach of the main contract
and precludes the issuing bank from determining
whether the main contract is actually
accomplished or not. Under this principle, banks
assume no liability or responsibility for the form,
sufficiency, accuracy, genuineness, falsification or
legal effect of any documents, or for the general
and/or particular conditions stipulated in the
documents or superimposed thereon, nor do they
assume any liability or responsibility for the
description, quantity, weight, quality, condition,
packing, delivery, value or existence of the goods
represented by any documents, or for the good
faith or acts and/or omissions, solvency,
performance or standing of the consignor, the
carriers, or the insurers of the goods, or any other
person whomsoever.[39]
The independent nature of the letter of credit may
be: (a) independence in toto where the credit is
independent from the justification aspect and is a
separate obligation from the underlying agreement
like for instance a typical standby; or (b)

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

not push through, or the applicant fails to perform

his part of the transaction. It is for this reason that
the party who is entitled to the proceeds of the
letter of credit is appropriately called beneficiary.
Petitioners argument that any dispute must first be
resolved by the parties, whether through
negotiations or arbitration, before the beneficiary
is entitled to call on the letter of credit in essence
would convert the letter of credit into a mere
guarantee. Jurisprudence has laid down a clear
distinction between a letter of credit and a
guarantee in that the settlement of a dispute
between the parties is not a pre-requisite for the
release of funds under a letter of credit. In other
words, the argument is incompatible with the very
nature of the letter of credit. If a letter of credit is
drawable only after settlement of the dispute on
the contract entered into by the applicant and the
beneficiary, there would be no practical and
beneficial use for letters of credit in commercial
transactions.
Professor John F. Dolan, the noted authority on
letters of credit, sheds more light on the issue:
The standby credit is an attractive commercial
device for many of the same reasons that
commercial credits are attractive. Essentially,
these credits are inexpensive and efficient. Often
they replace surety contracts, which tend to
generate higher costs than credits do and are
usually triggered by a factual determination rather
than by the examination of documents.
Because parties and courts should not confuse the
different functions of the surety contract on the
one hand and the standby credit on the other, the
distinction between surety contracts and credits
merits some reflection. The two commercial
devices share a common purpose. Both ensure
against the obligors nonperformance. They
function, however, in distinctly different ways.
Traditionally, upon the obligors default, the surety
undertakes to complete the obligors performance,
usually by hiring someone to complete that
performance. Surety contracts, then, often involve
costs of determining whether the obligor defaulted
(a matter over which the surety and the
beneficiary often litigate) plus the cost of
performance. The benefit of the surety contract to
the beneficiary is obvious. He knows that the
surety, often an insurance company, is a strong
financial institution that will perform if the obligor
does not. The beneficiary also should understand
that such performance must await the sometimes
lengthy and costly determination that the obligor
has defaulted. In addition, the suretys performance
takes time.
The standby credit has different expectations. He
reasonably expects that he will receive cash in the

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

irrevocable and confirmed standby letters of credit

(the Securities), each in the amount of
US$8,988,907, issued and confirmed by banks or
financial institutions acceptable to the
Employer. Each of the Securities must be in form
and substance acceptable to the Employer and
may be provided on an annually renewable basis.
[44]
8.7.1 If the Contractor fails to comply with Clause
8.2, the Contractor shall pay to the Employer by
way of liquidated damages (Liquidated Damages
for Delay) the amount of US$75,000 for each and
every day or part of a day that shall elapse
between the Target Completion Date and the
Completion Date, provided that Liquidated
Damages for Delay payable by the Contractor shall
in the aggregate not exceed 20% of the Contract
Price. The Contractor shall pay Liquidated
Damages for Delay for each day of the delay on
the following day without need of demand from the
Employer.
8.7.2 The Employer may, without prejudice to any
other method of recovery, deduct the amount of
such damages from any monies due, or to become
due to the Contractor and/or by drawing on the
Security.[45]
A contract once perfected, binds the parties not
only to the fulfillment of what has been expressly
stipulated but also to all the consequences which
according to their nature, may be in keeping with
good faith, usage, and law.[46] A careful perusal of
the Turnkey Contract reveals the intention of the
parties to make the Securities answerable for the
liquidated damages occasioned by any delay on
the part of petitioner. The call upon the Securities,
while not an exclusive remedy on the part of LHC,
is certainly an alternative recourse available to it
upon the happening of the contingency for which
the Securities have been proffered. Thus, even
without the use of the independence principle, the
Turnkey Contract itself bestows upon LHC the right
to call on the Securities in the event of default.
Next, petitioner invokes the fraud exception
principle. It avers that LHCs call on the Securities is
wrongful because it fraudulently misrepresented to
ANZ Bank and SBC that there is already a breach
in the Turnkey Contract knowing fully well that this
is yet to be determined by the arbitral tribunals. It
asserts that the fraud exception exists when the
beneficiary, for the purpose of drawing on the
credit, fraudulently presents to the confirming
bank, documents that contain, expressly or by
implication, material representations of fact that to
his knowledge are untrue. In such a situation,
petitioner insists, injunction is recognized as a
remedy available to it.

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]

Before a writ of preliminary injunction may be

issued, there must be a clear showing by the
complaint that there exists a right to be protected
and that the acts against which the writ is to be
directed are violative of the said right.[52] It must
be shown that the invasion of the right sought to
be protected is material and substantial, that the
right of complainant is clear and unmistakable and
that there is an urgent and paramount necessity
for the writ to prevent serious damage.
[53] Moreover, an injunctive remedy may only be
resorted to when there is a pressing necessity to
avoid injurious consequences which cannot be
remedied under any standard compensation.[54]
In the instant case, petitioner failed to show that it
has a clear and unmistakable right to restrain LHCs
call on the Securities which would justify the
issuance of preliminary injunction. By petitioners
own admission, the right of LHC to call on the
Securities was contractually rooted and subject to
the express stipulations in the Turnkey Contract.
[55] Indeed, the Turnkey Contract is plain and
unequivocal in that it conferred upon LHC the right
to draw upon the Securities in case of default, as
provided in Clause 4.2.5, in relation to Clause
8.7.2, thus:
4.2.5 The Employer shall give the Contractor seven
days notice of calling upon any of the Securities,
stating the nature of the default for which the
claim on any of the Securities is to be
made, provided that no notice will be required if
the Employer calls upon any of the Securities for
the payment of Liquidated Damages for Delay or
for failure by the Contractor to renew or extend the
Securities within 14 days of their expiration in
accordance with Clause 4.2.2.[56]
8.7.2 The Employer may, without prejudice to any
other method of recovery, deduct the amount of
such damages from any monies due, or to become
due, to the Contractor and/or by drawing on the
Security.[57]
The pendency of the arbitration proceedings would
not per se make LHCs draws on the Securities
wrongful or fraudulent for there was nothing in the
Contract which would indicate that the parties
intended that all disputes regarding delay should
first be settled through arbitration before LHC
would be allowed to call upon the Securities. It is
therefore premature and absurd to conclude that
the draws on the Securities were outright
fraudulent given the fact that the ICC and CIAC
have not ruled with finality on the existence of
default.
Nowhere in its complaint before the trial court or in
its pleadings filed before the appellate court, did
petitioner invoke the fraud exception rule as a
ground to justify the issuance of an injunction.

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.

Moreover, in a Manifestation,[62] dated 30 March

2001, LHC informed this Court that the subject
letters of credit had been fully drawn. This fact
alone would have been sufficient reason to dismiss
the instant petition.
Settled is the rule that injunction would not lie
where the acts sought to be enjoined have already
become fait accompli or an accomplished or
consummated act.[63] In Ticzon v. Video Post
Manila, Inc.[64] this Court ruled that where the
period within which the former employees were
prohibited from engaging in or working for an
enterprise that competed with their former
employerthe very purpose of the preliminary
injunction has expired, any declaration upholding
the propriety of the writ would be entirely useless
as there would be no actual case or controversy
between the parties insofar as the preliminary
injunction is concerned.
In the instant case, the consummation of the act
sought to be restrained had rendered the instant
petition mootfor any declaration by this Court as to
propriety or impropriety of the non-issuance of
injunctive relief could have no practical effect on
the existing controversy.[65] The other issues
raised by petitioner particularly with respect to its
right to recover the amounts wrongfully drawn on
the Securities, according to it, could properly be
threshed out in a separate proceeding.
One final point. LHC has charged petitioner of
forum-shopping. It raised the charge on two
occasions. First, in its Counter-Manifestation dated
29 June 2004[66] LHC alleges that petitioner
presented before this Court the same claim for
money which it has filed in two other proceedings,
to wit: ICC Case No. 11264/TE/MW and Civil Case
No. 04-332 before the RTC of Makati. LHC argues
that petitioners acts constitutes forum-shopping
which should be punished by the dismissal of the
claim in both forums. Second, in its Comment to
Petitioners Motion for Leave to File Addendum to
Petitioners Memorandum dated 8 October 2004,
LHC alleges that by maintaining the present appeal
and at the same time pursuing Civil Case No. 04332wherein petitioner pressed for judgment on the
issue of whether the funds LHC drew on the
Securities should be returnedpetitioner resorted to
forum-shopping. In both instances, however,
petitioner has apparently opted not to respond to
the charge.
Forum-shopping is a very serious charge. It exists
when a party repetitively avails of several judicial
remedies in different courts, simultaneously or
successively, all substantially founded on the same
transactions and the same essential facts and
circumstances, and all raising substantially the
same issues either pending in, or already resolved

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

Alfonso Co.[3] The dispositive portion of the said

Decision of the Court of Appeals, reads:
WHEREFORE, the decision of the Regional Trial
Court is hereby reversed and in lieu thereof, a new
one is entered:
a) Ordering the defendants-appellees jointly and
severally to pay plaintiff PBCom the sum of Five
million four hundred fifty-one thousand six hundred
sixty-three pesos and ninety centavos
(P5,451,663.90) representing defendantsappellees unpaid obligations arising from ordinary
loans granted by the plaintiff plus legal interest
until fully paid.
b) Ordering defendants-appellees jointly and
severally to pay PBCom the sum of Four hundred
sixty-one thousand six hundred pesos and sixty-six
centavos (P46 1,600.66) representing defendantsappellees unpaid obligations arising from their
letters of credit and trust receipt transactions with
plaintiff PBCom plus legal interest until fully paid.
c) Ordering defendants-appellees jointly and
severally to pay PBCom the sum of P50,000.00 as
attorneys fees.
No pronouncement as to costs.
The facts of the case are as follows:
On March 2, 1979, Charles Lee, as President of
MICO wrote private respondent Philippine Bank of
Communications (PBCom) requesting for a grant of
a discounting loan/credit line in the sum of Three
Million Pesos (P3,000,000.00) for the purpose of
carrying out MICOs line of business as well as to
maintain its volume of business.
On the same day, Charles Lee requested for
another discounting loan/credit line of Three Million
Pesos (P3,000,000.00) from PBCom for the purpose
of opening letters of credit and trust receipts.
In connection with the requests for discounting
loan/credit lines, PBCom was furnished by MICO
the following resolution which was adopted
unanimously by MICOs Board of Directors:
RESOLVED, that the President, Mr. Charles Lee, and
the Vice-President and General Manager, Mr.
Mariano A. Sio, singly or jointly, be and they are
duly authorized and empowered for and in behalf
of this Corporation to apply for, negotiate and
secure the approval of commercial loans and other
banking facilities and accommodations, such as,
but not limited to discount loans, letters of credit,
trust receipts, lines for marginal deposits on
foreign and domestic letters of credit, negotiate
out-of-town checks, etc. from the Philippine Bank
of Communications, 216 Juan Luna, Manila in such
sums as they shall deem advantageous, the
principal of all of which shall not exceed the total
amount of TEN MILLION PESOS (P10,000,000.00),
Philippine Currency, plus any interests that may be
agreed upon with said Bank in such loans 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.

On July 14, 1980, petitioner Charles Lee, in his

capacity as president of MICO, wrote PBCom and
applied for an additional loan in the sum of Four
Million Pesos (P4,000,000.00). The loan was
intended for the expansion and modernization of
the companys machineries. Upon approval of the
said application for loan, MICO availed of the
additional loan of Four Million Pesos
(P4,000,000.00) as evidenced by Promissory Note
TA No. 094.[9]
As per agreement, the proceeds of all the
loan availments were credited to MICOs current
checking account with PBCom. To induce
the PBCom to increase the credit line of MICO,
Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso
Yap, Richard Velasco and Alfonso Co (hereinafter
referred to as petitioners-sureties), executed
another surety agreement[10] in favor ofPBCom on
July 28, 1980, whereby they 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 all other obligations
of any kind and nature for which MICO may be held
accountable by PBCom. It was provided, however,
that their liability shall not at any one time exceed
the sum of Seven Million Five Hundred Thousand
Pesos (P7,500,000.00) including interest, costs,
charges, expenses and attorneys fees incurred by
MICO in connection therewith.
On July 29, 1980, MICO furnished PBCom with a
notarized certification issued by its corporate
secretary, Atty. P.B. Barrera, that
Chua Siok Suy was duly authorized by the Board of
Directors to negotiate on behalf of MICO for loans
and other credit availments from PBCom. Indicated
in the certification was the following resolution
unanimously approved by the Board ofDirectors:
RESOLVED, AS IT IS HEREBY RESOLVED, That Mr.
Chua Siok Suy be, as he is hereby authorized and
empowered, on behalf of MICO METALS
CORPORATION from time to time, to borrow money
and obtain other credit facilities, with or without
security, from the PHILIPPINE BANK OF
COMMUNICATIONS in such amount(s) and under
such terms and conditions as he may determine,
with full power and authority to execute, sign and
deliver such contracts, instruments and papers in
connection therewith, including real estate and
chattel mortgages, pledges and assignments over
the properties of the Corporation; and to renew
and/or extend and/or roll-over and/or reavail of the
credit facilities granted thereunder, either for
lesser or for greater amount(s), the intention being
that such credit facilities and all securities of
whatever kind given as collaterals therefor shall be
a continuing security.

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.

In all the transactions involving foreign letters of

credit, PBCom turned over to MICO the necessary
documents such as the bills of lading and
commercial invoices to enable the latter to
withdraw the goods from the port of Manila.
On May 21, 1982 MICO obtained
from PBCom another loan in the sum of Three
Hundred Seventy-Seven Thousand Pesos
(P377,000.00) covered by Promissory Note BA No.
7458.[29]
Upon maturity of all credit availments obtained by
MICO from PBCom, the latter made a demand for
payment.[30] For failure of petitioner MICO to pay
the obligations incurred despite repeated
demands, private
respondent PBCom extrajudicially foreclosed MICO
s real estate mortgage and sold the said
mortgaged properties in a public auction sale held
on November 23, 1982. Private
respondent PBCom which emerged as the highest
bidder in the auction sale, applied the proceeds of
the purchase price at public auction of Three
Million Pesos (P3,000,000.00) to the expenses of
the foreclosure, interest and charges and part of
the principal of the loans, leaving an unpaid
balance of Five Million Four Hundred Forty-One
Thousand Six Hundred Sixty-Three Pesos and
Ninety Centavos (P5,441,663.90) exclusive of
penalty and interest charges. Aside from the
unpaid balance of Five Million Four Hundred FortyOne Thousand Six Hundred Sixty-Three Pesos and
Ninety Centavos (P5,441,663.90), MICO likewise
had another standing obligation in the sum of Four
Hundred Sixty-One Thousand Six Hundred Pesos
and Six Centavos (P461,600.06) representing its
trust receipts liabilities to private
respondent. PBCom then demanded the settlement
of the aforesaid obligations from herein
petitioners-sureties who, however, refused to
acknowledge their obligations to PBCom under the
surety agreements. Hence, PBCom filed a
complaint with prayer for writ of preliminary
attachment before the Regional Trial Court of
Manila, which was raffled to Branch 55, alleging
that MICO was no longer in operation and had no
properties to answer for its
obligations. PBCom further alleged that petitioner
Charles Lee has disposed or concealed his
properties with intent to defraud his creditors.
Except for MICO and Charles Lee, the sheriff of the
RTC failed to serve the summons on herein
petitioners-sureties since they were all reportedly
abroad at the time. An alias summons was later
issued but the sheriff was not able to serve the
same to petitioners Alfonso Co and
Chua Siok Suy who was already sickly at the time
and reportedly in Taiwan where he later died.

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

appears thereon to have become a party thereto

for value, the Court of Appeals said that while the
subject promissory notes and letters of credit
issued by thePBCom made no mention of delivery
of cash, it is presumed that said negotiable
instruments were issued for valuable
consideration. The Court of Appeals also cited the
case of Gatmaitanvs. Court of Appeals[31] which
holds that "there is a presumption that an
instrument sets out the true agreement of the
parties thereto and that it was executed for
valuable consideration. The appellate court noted
and found that a notarized Certification was issued
by MICOs corporate secretary, P.B. Barrera, that
Chua Siok Suy, was duly authorized by the Board
of Directors of MICO to borrow money and obtain
credit facilities from PBCom.
Petitioners filed a motion for reconsideration of the
challenged decision of the Court of Appeals but
this was denied in a Resolution dated November 7,
1994 issued by its Former Second Division.
Petitioners-sureties then filed a petition for review
on certiorari with this Court, docketed as G.R. No.
117913, assailing the decision of the Court of
Appeals. MICO likewise filed a separate petition for
review on certiorari, docketed as G.R. No. 117914,
with this Court assailing the same decision
rendered by the Court of Appeals. Upon motion
filed by petitioners, the two (2) petitions were
consolidated on January 11, 1995.[32]
Petitioners contend that there was no proof that
the proceeds of the loans or the goods under the
trust receipts were ever delivered to and received
by MICO. But the record shows otherwise.
Petitioners-sureties further contend that assuming
that there was delivery by PBCom of the proceeds
of the loans and the goods, the contracts were
executed by an unauthorized person, more
specifically Chua Siok Suy who acted fraudulently
and in collusion with PBCom to defraud MICO.
The pertinent issues raised in the consolidated
cases at bar are: a) whether or not the proceeds of
the loans and letters of credit transactions were
ever delivered to MICO, and b) whether or not the
individual petitioners, as sureties, may be held
liable under the two (2) Surety Agreements
executed on March 26, 1979 and July 28, 1980.
In civil cases, the party having the burden of proof
must establish his case by preponderance of
evidence.[33] Preponderance of evidence means
evidence which is more convincing to the court as
worthy of belief than that which is offered in
opposition thereto. Petitioners contend that the
alleged promissory notes, trust receipts and surety
agreements attached to the complaint filed
by PBCom did not ripen into valid and binding
contracts inasmuch as there is no evidence of the

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.

Private respondent PBCom presented the following

documentary evidence to prove petitioners
credit availments and liabilities:
1) Promissory Note No. BNA 26218 dated May 21,
1982 in the sum of P1,000,000.00 executed by
MICO in favor of PBCom.
2) Promissory Note No. BNA 26219 dated May 21,
1982 in the sum of P1,000,000.00 executed by
MICO in favor of PBCom.
3) Promissory Note No. BNA 26253 dated May 25,
1982 in the sum of P1,000,000.00 executed by
MICO in favor of PBCom.
4) Promissory Note No. BNA 7458 dated May 21,
1982 in the sum of P377,000.00 executed by MICO
in favor of PBCom.
5) Promissory Note No. TA 094 dated July 29,
1980 in the sum of P4,000.000.00 executed by
MICO in favor of PBCom.
6) Irrevocable letter of credit No. L-16060 dated
July 2,1981 issued in favor
of Perez Battery Center for account of Mico Metals
Corp.
7) Draft dated July 2, 1981 in the sum
of P348,000.00 issued by Perez Battery Center,
beneficiary of irrevocable Letter of Credit No. No. L16060 and accepted by MICO Metals corporation.
8) Letter dated July 2,
1981 from Perez Battery Center addressed to
private respondent PBCom showing that proceeds
of the irrevocable letter of credit No. L- 16060 was
received by Mr. MoisesRosete, representative
of Perez Battery Center.
9) Trust receipt dated July 2, 1981 executed by
MICO in favor of PBCom covering the merchandise
purchased under Letter of Credit No. 16060.
10) Irrevocable letter of credit No. L-16334 dated
September 22, 1981 issued in favor of Perez
Battery Center for account of MICO Metals Corp.
11) Draft dated September 22, 1981 in the sum
of P290,000.00 issued by Perez Battery Center and
accepted by MICO.
12) Letter dated September 17, 1981 from
Perez Battery addressed to PBCom showing that
the proceeds of credit no. L-16344 was received by
Mr. Moises Rosete, a representative
of Perez BatteryCenter.
13) Trust Receipt dated September 22,
1981 executed by MICO in favor
of PBCom covering the merchandise under Letter
of Credit No. L-16334.
14) Irrevocable Letter of Credit no. 61873
dated November 10, 1981 for US$11,960.00 issued
by PBCom in favor of TA JIH Enterprises Co. Ltd.,
through its correspondent bank, Irving Trust
Company of Taipei, Taiwan.
15) Trust Receipt dated December 15, 9181
executed by MICO in favor of PBCom showing that

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

corresponding letters of credit proved that said

suppliers were paid by PBCom for the account of
MICO. On the other hand, aside from their bare
denials petitioners did not present sufficient and
competent evidence to rebut the evidence of
private respondent PBCom. Petitioner MICO did not
proffer a single piece of evidence, apart from its
bare denials, to support its allegation that the loan
transactions, real estate mortgage, letters of credit
and trust receipts were issued allegedly without
any consideration.
Petitioners-sureties, for their part, presented the
By-Laws[34] of Mico Metals Corporation (MICO) to
prove that only the president of MICO is authorized
to borrow money, arrange letters of credit, execute
trust receipts, and promissory notes and
consequently, that the loan transactions, letters of
credit, promissory notes and trust receipts, most of
which were executed by Chua Siok Suy in
representation of MICO were not allegedly
authorized and hence, are not binding upon MICO.
A perusal of the By-Laws of MICO, however, shows
that the power to borrow money for the company
and issue mortgages, bonds, deeds of trust and
negotiable instruments or securities, secured by
mortgages or pledges of property belonging to the
company is not confined solely to the president of
the corporation. The Board of Directors of MICO
can also borrow money, arrange letters of
credit, execute trust receipts and promissory notes
on behalf of the corporation.[35] Significantly, this
power of the Board of Directors according to the
by-laws of MICO, may be delegated to any of its
standing committee, officer or agent.
[36] Hence, PBCom had every right to rely on the
Certification issued by MICO's corporate secretary,
P.B. Barrera, that Chua Siok Suy was duly
authorized by its Board of Directors to borrow
money and obtain credit facilities in behalf of MICO
from PBCom.
Petitioners-sureties also presented a letter of their
counsel dated October 9, 1982, addressed to
private respondent PBCom purportedly to show
that PBCom knew that Chua Siok Suyallegedly
used the credit and good names of the petitionersureties for his benefit, and that petitionersureties were made to sign blank documents and
were furnished copies of the same. The letter,
however, is in fact merely a reply of petitionerssureties counsel to PBComs demand for payment
of MICOs obligations, and appears to be an
inconsequential piece of self-serving evidence.
In addition to the foregoing, MICO and petitionerssureties cited the decision of the trial court which
stated that there was no proof that the proceeds of
the loans were ever delivered to MICO. Although
the private respondents witness, Mr. Gardiola,

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

Q: Before the recess Mr. Gardiola, you stated that

the proceeds of the three (3) promissory notes
were credited to the accounts of Mico Metals
Corporation, now do you know what kind of current
account was that which you are referring to?
ATTY. ACEJAS:
Objection your Honor, that is the disclose of the
deposit of defendant Mico Metals Corporation and
it cannot disclosed without the authority of the
depositor. (sic)[37]
That proceeds of the loans which were originally
availed of in 1979 were delivered to MICO is
bolstered by the fact that more than a year later,
specifically on July 14, 1980, MICO through its
president, petitioner-surety Charles Lee, requested
for an additional loan of Four Million Pesos
(P4,000,000.00) from PBCom. The fact that MICO
was requesting for an additional loan implied that
it has already availed of earlier loans from PBCom.
Petitioners allege that PBCom presented no
evidence that it remitted payments to cover the
domestic and foreign letters of credit. Petitioners
placed much reliance on the erroneous decision of
the trial court which stated that private
respondent PBCom allegedly failed to prove that it
actually made payments under the letters of credit
since the bank drafts presented as evidence show
that they were made in favor of the Bank of Taiwan
and First Commercial Bank.
Petitioners allegations are untenable.
Modern letters of credit are usually not made
between natural persons. They involve bank to
bank transactions. Historically, the letter of credit
was developed to facilitate the sale of goods
between, distant and unfamiliar buyers and sellers.
It was an arrangement under which a bank, whose
credit was acceptable to the seller, would at the
instance of the buyer agree to pay drafts drawn on
it by the seller, provided that certain documents
are presented such as bills of lading accompanied
the corresponding drafts. Expansion in the use of
letters of credit was a natural development in
commercial banking.[38] Parties to a commercial
letter of credit include (a) the buyer or the
importer, (b) the seller, also referred to as
beneficiary, (c) the opening bank which is usually
the buyers bank which actually issues the letter of
credit, (d) the notifying bank which is the
correspondent bank of the opening bank through
which it advises the beneficiary of the letter of
credit, (e) negotiating bank which is usually any
bank in the city of the beneficiary. The services of
the notifying bank must always be utilized if the
letter of credit is to be advised to the beneficiary
through cable, (f) the paying bank which buys or
discounts the drafts contemplated by the letter of
credit, if such draft is to be drawn on the opening

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

loan transactions did not ripen into valid and

binding contracts since no part of the proceeds of
the loan transactions were delivered to MICO or to
any of the petitioners-sureties. Petitioners-sureties
allege that Chua Siok Suywas the beneficiary of
the proceeds of the loans and that the latter made
them sign the surety agreements in blank. Thus,
they maintain that they should not be held
accountable for any liability that might
arise therefrom.
It has not escaped our notice that it was petitionersurety Charles Lee, as president of MICO Metals
Corporation, who first requested for a
discounting loan of Three Million Pesos
(P3,000,000.00) from PBCom as evidenced by his
letter dated March 2, 1979.[40] On the same day,
Charles Lee, as President of MICO, requested for a
Letter of Credit and Trust Receipt line in the sum of
Three Million Pesos (P3,000,000.00).[41] Still, on
the same day, Charles Lee again as President of
MICO, wrote another letter to PBCOM requesting
for a financing line in the sum of One Million Five
Hundred Thousand Pesos (P1,500,000.00) to be
used exclusively as marginal deposit for the
opening of MICOs foreign and local letters of credit
with PBCom.[42] More than a year later, it was also
Charles Lee, again in his capacity as president of
MICO, who asked for an additional loan in the sum
of Four Million Pesos (P4,000,000.00). The claim
therefore of petitioners that it was Chua Siok Suy,
in connivance with the respondent PBCom, who
applied for and obtained the loan transactions and
letters of credit strains credulity considering that
even the Deed of the Real Estate Mortgage in favor
of PBCom was executed by petitioner-surety
Mariano Sio in his capacity as general manager of
MICO[43] to secure the loan accommodations
obtained by MICO from PBCom.
Petitioners-sureties allege that they were made to
sign the surety agreements in blank by
Chua Siok Suy. Petitioner Alfonso Yap, the
corporate treasurer, for his part testified that he
signed booklets of checks, surety agreements and
promissory notes in blank; that he signed the
documents in blank despite his misgivings since
Chua Siok Suy assured him that the transaction
can easily be taken cared of since
Chua Siok Suy personally knew the Chairman of
the Board of PBCom; that he was not receiving
salary as treasurer of Mico Metals and since
Chua Siok Suy had a direct hand in the
management of Malayan Sales Corporation, of
which Yap is an employee, he (Yap) signed the
documents in blank as consideration for his
continued employment in Malayan Sales
Corporation. Petitioner Antonio Co testified that he
worked as office manager for MICO from 1978-

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

secretary of PBCom, Atty. P.B. Barrera,

that MICO's Board of Directors gave
Chua Siok Suy full authority to negotiate for loans
in behalf of MICO with PBCom. In fact, the
Certification even provided that
Chua Siok Suys authority continues until and
unless PBCom is notified in writing of the
withdrawal thereof by the said Board. Notably,
petitioners failed to contest the genuineness of the
said Certification which is notarized and to show
any written proof of any alleged withdrawal of the
said authority given by the Board of Directors to
Chua Siok Suy to negotiate for loans in behalf of
MICO.
There was no need for PBCom to personally inform
the petitioners-sureties individually about the
terms of the loans, letters of credit and other loan
documents. The petitioners-sureties themselves
happen to comprise the Board of Directors of
MICO, which gave full authority to Chua Siok Suy to
negotiate for loans in behalf of MICO. Notice
to MICOs authorized representative,
Chua Siok Suy, was notice to MICO. The
Certification issued by PBComs corporate
secretary, Atty. P.B. Barrera, indicated that
Chua Siok Suy had full authority to negotiate and
sign the necessary documents, in behalf of MICO
for loans from PBCom.
Respondent PBCom therefore had the right to rely
on the said notarized Certification
of MICOs Corporate Secretary.
Anent petitioners-sureties contention that they
obtained no consideration whatsoever on the
surety agreements, we need only point out that
the consideration for the sureties is the very
consideration for the principal obligor, MICO, in the
contracts of loan. In the case of Willex Plastic
Industries Corporation vs. Court of Appeals,[46] we
ruled that the consideration necessary to support a
surety obligation need not pass directly to the
surety, a consideration moving to the principal
alone being sufficient. For a guarantor or surety is
bound by the same consideration that makes the
contract effective between the parties thereto. It is
not necessary that a guarantor or surety should
receive any part or benefit, if such there be,
accruing to his principal.
Petitioners placed too much reliance on the rule in
evidence that the burden of proof does not shift
whereas the burden of going forward with the
evidence does pass from party to party. It is true
that said rule is not changed by the fact that the
party having the burden of proof has introduced
evidence which established prima facie his
assertion because such evidence does not shift the
burden of proof; it merely puts the adversary to
the necessity of producing evidence to meet

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

cubic meters of lauan logs at $27.00 per cubic

meter FOB.
After inspecting the logs, Christiansen issued
purchase order No. 76171.
On the arrangements made and upon the
instructions of the consignee, Hanmi Trade
Development, Ltd., de Santa Ana, California, the
Security Pacific National Bank of Los Angeles,
California issued Irrevocable Letter of Credit No. IC46268 available at sight in favor of Villaluz for the
sum of $54,000.00, the total purchase price of the
lauan logs.
The letter of credit was mailed to the Feati Bank
and Trust Company (now Citytrust) with the
instruction to the latter that it "forward the
enclosed letter of credit to the beneficiary."
(Records, Vol. I, p. 11)
The letter of credit further provided that the draft
to be drawn is on Security Pacific National Bank
and that it be accompanied by the following
documents:
1. Signed Commercial Invoice in four copies
showing the number of the purchase order and
certifying that
a. All terms and conditions of the purchase order
have been complied with and that all logs are fresh
cut and quality equal to or better than that
described in H.A. Christiansen's telex #201 of May
1, 1970, and that all logs have been marked "BEVEX."
b. One complete set of documents, including 1/3
original bills of lading was airmailed to Consignee
and Parties to be advised by Hans-Axel
Christiansen, Ship and Merchandise Broker.
c. One set of non-negotiable documents was
airmailed to Han Mi Trade Development Company
and one set to Consignee and Parties to be advised
by Hans-Axel Christiansen, Ship and Merchandise
Broker.
2. Tally sheets in quadruplicate.
3. 2/3 Original Clean on Board Ocean Bills of
Lading with Consignee and Parties to be advised
by Hans Axel Christiansen, showing Freight Prepaid
and marked Notify:
Han Mi Trade Development Company, Ltd., Santa
Ana, California.
Letter of Credit No. 46268 dated June 7, 1971
Han Mi Trade Development Company, Ltd., P.O. Box
10480, Santa Ana, California 92711 and Han Mi
Trade Development Company, Ltd., Seoul, Korea.
4. Certification from Han-Axel Christiansen, Ship
and Merchandise Broker, stating that logs have
been approved prior to shipment in accordance
with terms and conditions of corresponding
purchase Order. (Record, Vol. 1 pp. 11-12)

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

against Christiansen and the Feati Bank and Trust

Company (now Citytrust) before the then Court of
First Instance of Rizal. The petitioner was
impleaded as defendant before the lower court
only to afford complete relief should the court a
quo order Christiansen to execute the required
certification.
The complaint prayed for the following:
1. Christiansen be ordered to issue the certification
required of him under the Letter of Credit;
2. Upon issuance of such certification, or, if the
court should find it unnecessary, FEATI BANK be
ordered to accept negotiation of the Letter of
Credit and make payment thereon to Villaluz;
3. Order Christiansen to pay damages to the
plaintiff. (Rollo, p. 39)
On or about 1979, while the case was still pending
trial, Christiansen left the Philippines without
informing the Court and his counsel. Hence,
Villaluz, filed an amended complaint to make the
petitioner solidarily liable with Christiansen.
The trial court, in its order dated August 29, 1979,
admitted the amended complaint.
After trial, the lower court found:
The liability of the defendant CHRISTIANSEN is
beyond dispute, and the plaintiffs right to demand
payment is absolute. Defendant CHRISTIANSEN
having accepted delivery of the logs by having
them loaded in his chartered vessel the "Zenlin
Glory" and shipping them to the consignee, his
buyer Han Mi Trade in Inchon, South Korea (Art.
1585, Civil Code), his obligation to pay the
purchase order had clearly arisen and the plaintiff
may sue and recover the price of the goods (Art.
1595, Id).
The Court believes that the defendant
CHRISTIANSEN acted in bad faith and deceit and
with intent to defraud the plaintiff, reflected in and
aggravated by, not only his refusal to issue the
certification that would have enabled without
question the plaintiff to negotiate the letter of
credit, but his accusing the plaintiff in his answer
of fraud, intimidation, violence and deceit. These
accusations said defendant did not attempt to
prove, as in fact he left the country without even
notifying his own lawyer. It was to the Court's mind
a pure swindle.
The defendant Feati Bank and Trust Company, on
the other hand, must be held liable together with
his (sic) co-defendant for having, by its wrongful
act, i.e., its refusal to negotiate the letter of credit
in the absence of CHRISTIANSEN's certification (in
spite of the Central Bank's ruling that the
requirement was illegal), prevented payment to
the plaintiff. The said letter of credit, as may be
seen on its face, isirrevocable and
the issuing bank, the Security Pacific National Bank

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

will of the debtor, the defendant CHRISTIANSEN.

(Art. 1182, Civil Code) (Rollo, pp. 29-31)
On the basis of the foregoing the trial court on
October 20, 1986, ruled in favor of the private
respondent. The dispositive portion of its decision
reads:
WHEREFORE, judgment is hereby rendered for the
plaintiff, ordering the defendants to pay the
plaintiff, jointly and severally, the following sums:
a) $54,000.00 (US), or its peso equivalent at the
prevailing rate as of the time payment is actually
made, representing the purchase price of the logs;
b) P17,340.00, representing government fees and
charges paid by plaintiff in connection with the
logs shipment in question;
c) P10,000.00 as temperate damages (for trips
made to Bacolod and Korea).
All three foregoing sums shall be with interest
thereon at 12% per annum from September 1,
1971, when the complaint was filed, until fully
paid:
d) P70,000.00 as moral damages;
e) P30,000.00 as exemplary damages; and
f) P30,000.00 as attorney's fees and litigation
expense.
(Rollo, p. 28)
The petitioner received a copy of the decision on
November 3, 1986. Two days thereafter, or on
November 5, 1986, it filed a notice of appeal.
On November 10, 1986, the private respondent
filed a motion for the immediate execution of the
judgment on the ground that the appeal of the
petitioner was frivolous and dilatory.
The trial court ordered the immediate execution of
its judgment upon the private respondent's filing of
a bond.
The petitioner then filed a motion for
reconsideration and a motion to suspend the
implementation of the writ of execution. Both
motions were, however, denied. Thus, petitioner
filed before the Court of Appeals a petition
forcertiorari and prohibition with preliminary
injunction to enjoin the immediate execution of the
judgment.
The Court of Appeals in a decision dated April 9,
1987 granted the petition and nullified the order of
execution, the dispositive portion of the decision
states:
WHEREFORE, the petition for certiorari is granted.
Respondent Judge's order of execution dated
December 29, 1986, as well as his order dated
January 14, 1987 denying the petitioner's urgent
motion to suspend the writ of execution against its
properties are hereby annulled and set aside
insofar as they are sought to be enforced and
implemented against the petitioner Feati Bank &
Trust Company, now Citytrust Banking Corporation,

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)

Such being the case, when Christiansen refused to

issue the certification, it was as though refusal was
made by Feati Bank itself. Feati Bank should have
taken steps to secure the certification from
Christiansen; and, if the latter should still refuse to
comply, to hale him to court. In short, Feati Bank
should have honored Villaluz's demand for
payment of his logs by virtue of the irrevocable
letter of credit issued in Villaluz's favor and
guaranteed by Feati Bank.
3. The decision promulgated by this Court in CAG.R. Sp No. 11051, which contained the statement
"Since Villaluz" draft was not drawn strictly in
compliance with the terms of the letter of credit,
Feati Bank's refusal to negotiate it was justified,"
did not dispose of this question on the merits. In
that case, the question involved was jurisdiction or
discretion, and not judgment. The quoted
pronouncement should not be taken as a
preemptive judgment on the merits of the present
case on appeal.
4. The original action was for "Mandamus and/or
specific performance." Feati Bank may not be a
party to the transaction between Christiansen and
Security Pacific National Bank on the one hand,
and Villaluz on the other hand; still, being
guarantor or agent of Christiansen and/or Security
Pacific National Bank which had directly dealt with
Villaluz, Feati Bank may be sued properly on
specific performance as a procedural means by
which the relief sought by Villaluz may be
entertained. (Rollo, pp. 32-33)
The dispositive portion of the decision of the Court
of Appeals reads:
WHEREFORE, the decision appealed from is
affirmed; and accordingly, the appeal is hereby
dismissed. Costs against the petitioner. (Rollo, p.
33)
Hence, this petition for review.
The petitioner interposes the following reasons for
the allowance of the petition.
First Reason
THE RESPONDENT COURT ERRONEOUSLY
CONCLUDED FROM THE ESTABLISHED FACTS AND
INDEED, WENT AGAINST THE EVIDENCE AND
DECISION OF THIS HONORABLE COURT, THAT
PETITIONER BANK IS LIABLE ON THE LETTER OF
CREDIT DESPITE PRIVATE RESPONDENTS NONCOMPLIANCE WITH THE TERMS THEREOF,
Second Reason
THE RESPONDENT COURT COMMITTED AN ERROR
OF LAW WHEN IT HELD THAT PETITIONER BANK, BY
NOTIFYING PRIVATE RESPONDENT OF THE LETTER
OF CREDIT, CONFIRMED SUCH CREDIT AND MADE
THE SAME ALSO ITS OBLIGATION AS GUARANTOR
OF THE ISSUING BANK.
Third Reason

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

of Commerce. Article 2 of the Code of Commerce

enunciates that in the absence of any particular
provision in the Code of Commerce, commercial
transactions shall be governed by the usages and
customs generally observed.
There being no specific provision which governs
the legal complexities arising from transactions
involving letters of credit not only between the
banks themselves but also between banks and
seller and/or buyer, the applicability of the U.C.P. is
undeniable.
The pertinent provisions of the U.C.P. (1962
Revision) are:
Article 3.
An irrevocable credit is a definite undertaking on
the part of the issuing bank and constitutes the
engagement of that bank to the beneficiary and
bona fide holders of drafts drawn and/or
documents presented thereunder, that the
provisions for payment, acceptance or negotiation
contained in the credit will be duly
fulfilled, provided that all the terms and conditions
of the credit are complied with.
An irrevocable credit may be advised to a
beneficiary through another bank (the advising
bank) without engagement on the part of that
bank, but when an issuing bank authorizes or
requests another bank to confirm its irrevocable
credit and the latter does so, such confirmation
constitutes a definite undertaking of the
confirming bank. . . .
Article 7.
Banks must examine all documents with
reasonable care to ascertain that they appear on
their face to be in accordance with the terms and
conditions of the credit,"
Article 8.
Payment, acceptance or negotiation against
documents which appear on their face to be in
accordance with the terms and conditions of a
credit by a bank authorized to do so, binds the
party giving the authorization to take up
documents and reimburse the bank which has
effected the payment, acceptance or negotiation.
(Emphasis Supplied)
Under the foregoing provisions of the U.C.P., the
bank may only negotiate, accept or pay, if the
documents tendered to it are on their face in
accordance with the terms and conditions of the
documentary credit. And since a correspondent
bank, like the petitioner, principally deals only with
documents, the absence of any document required
in the documentary credit justifies the refusal by
the correspondent bank to negotiate, accept or
pay the beneficiary, as it is not its obligation to
look beyond the documents. It merely has to rely

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

draft under the letter of credit. Its liability is

dependent upon the stage of the negotiation. If
before negotiation, it has no liability with respect
to the seller but after negotiation, a contractual
relationship will then prevail between the
negotiating bank and the seller. (Scanlon v. First
National Bank of Mexico, 162 N.E. 567 [1928];
Shaterian, Export-Import Banking, p. 293, cited in
Agbayani, Commercial Laws of the Philippines, Vol.
1, p. 76)
In the case of a confirming bank, the
correspondent bank assumes a direct obligation to
the seller and its liability is a primary one as if the
correspondent bank itself had issued the letter of
credit. (Shaterian, Export-Import Banking, p. 294,
cited in Agbayani Commercial Laws of the
Philippines, Vol. 1, p. 77)
In this case, the letter merely provided that the
petitioner "forward the enclosed original credit to
the beneficiary." (Records, Vol. I, p. 11) Considering
the aforesaid instruction to the petitioner by the
issuing bank, the Security Pacific National Bank, it
is indubitable that the petitioner is only a notifying
bank and not a confirming bank as ruled by the
courts below.
If the petitioner was a confirming bank, then a
categorical declaration should have been stated in
the letter of credit that the petitioner is to honor all
drafts drawn in conformity with the letter of credit.
What was simply stated therein was the instruction
that the petitioner forward the original letter of
credit to the beneficiary.
Since the petitioner was only a notifying bank, its
responsibility was solely to notify and/or transmit
the documentary of credit to the private
respondent and its obligation ends there.
The notifying bank may suggest to the seller its
willingness to negotiate, but this fact alone does
not imply that the notifying bank promises to
accept the draft drawn under the documentary
credit.
A notifying bank is not a privy to the contract of
sale between the buyer and the seller, its
relationship is only with that of the issuing bank
and not with the beneficiary to whom he assumes
no liability. It follows therefore that when the
petitioner refused to negotiate with the private
respondent, the latter has no cause of action
against the petitioner for the enforcement of his
rights under the letter. (See Kronman and Co., Inc.
v. Public National Bank of New York, supra)
In order that the petitioner may be held liable
under the letter, there should be proof that the
petitioner confirmed the letter of credit.
The records are, however, bereft of any evidence
which will disclose that the petitioner has
confirmed the letter of credit. The only evidence in

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

confirmed the letter of credit or has actually

negotiated with the private respondent, the refusal
by the petitioner to accept the tender of the
private respondent is justified.
In regard to the finding that the petitioner became
a "trustee in relation to the plaintiff (private
respondent) as the beneficiary of the letter of
credit," the same has no legal basis.
A trust has been defined as the "right, enforceable
solely in equity, to the beneficial enjoyment of
property the legal title to which is vested to
another." (89 C.J.S. 712)
The concept of a trust presupposes the existence
of a specific property which has been conferred
upon the person for the benefit of another. In order
therefore for the trust theory of the private
respondent to be sustained, the petitioner should
have had in its possession a sum of money as
specific fund advanced to it by the issuing bank
and to be held in trust by it in favor of the private
respondent. This does not obtain in this case.
The mere opening of a letter of credit, it is to be
noted, does not involve a specific appropriation of
a sum of money in favor of the beneficiary. It only
signifies that the beneficiary may be able to draw
funds upon the letter of credit up to the designated
amount specified in the letter. It does not convey
the notion that a particular sum of money has
been specifically reserved or has been held in
trust.
What actually transpires in an irrevocable credit is
that the correspondent bank does not receive in
advance the sum of money from the buyer or the
issuing bank. On the contrary, when the
correspondent bank accepts the tender and pays
the amount stated in the letter, the money that it
doles out comes not from any particular fund that
has been advanced by the issuing bank, rather it
gets the money from its own funds and then later
seeks reimbursement from the issuing bank.
Granting that a trust has been created, still, the
petitioner may not be considered a trustee. As the
petitioner is only a notifying bank, its acceptance
of the instructions of the issuing bank will not
create estoppel on its part resulting in the
acceptance of the trust. Precisely, as a notifying
bank, its only obligation is to notify the private
respondent of the existence of the letter of credit.
How then can such create estoppel when that is its
only duty under the law?
We also find erroneous the statement of the Court
of Appeals that the petitioner "acted as a
guarantor of the issuing bank and in effect also of
the latter's principal or client, i.e., Hans Axel
Christiansen."
It is a fundamental rule that an irrevocable credit is
independent not only of the contract between the

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

for its only engagement is to notify and/or transmit

to the seller the letter of credit.
Finally, even if we assume that the petitioner is a
confirming bank, the petitioner cannot be forced to
pay the amount under the letter. As we have
previously explained, there was a failure on the
part of the private respondent to comply with the
terms of the letter of credit.
The failure by him to submit the certification was
fatal to his case.1wphi1 The U.C.P. which is
incorporated in the letter of credit ordains that the
bank may only pay the amount specified under the
letter if all the documents tendered are on their
face in compliance with the credit. It is not tasked
with the duty of ascertaining the reason or reasons
why certain documents have not been submitted,
as it is only concerned with the documents. Thus,
whether or not the buyer has performed his
responsibility towards the seller is not the bank's
problem.
We are aware of the injustice committed by
Christiansen on the private respondent but we are
deciding the controversy on the basis of what the
law is, for the law is not meant to favor only those
who have been oppressed, the law is to govern
future relations among people as well. Its
commitment is to all and not to a single individual.
The faith of the people in our justice system may
be eroded if we are to decide not what the law
states but what we believe it should declare. Dura
lex sed lex.
Considering the foregoing, the materiality of ruling
upon the validity of the certificate of approval
required of the private respondent to submit under
the letter of credit, has become insignificant.
In any event, we affirm the earlier ruling of the
Court of Appeals dated April 9, 1987 in regard to
the petition before it for certiorari and prohibition
with preliminary injunction, to wit:
There is no merit in the respondent's contention
that the certification required in condition No. 4 of
the letter of credit was "patently illegal." At the
time the letter of credit was issued there was no
Central Bank regulation prohibiting such a
condition in the letter of credit. The letter of credit
(Exh. C) was issued on June 7, 1971, more than
two months before the issuance of the Central
Bank Memorandum on August 16, 1971 disallowing
such a condition in a letter of credit. In fact the
letter of credit had already expired on July 30,
1971 when the Central Bank memorandum was
issued. In any event, it is difficult to see how such
a condition could be categorized as illegal or
unreasonable since all that plaintiff Villaluz, as
seller of the logs, could and should have done was
to refuse to load the logs on the vessel "Zenlin
Glory", unless Christiansen first issued the required

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.

Ramos, and Receipts Nos. 18086, 18087 and

18062 were negotiated and endorsed to Cresencia
K. Zoleta. Ramos and Zoleta then used the
quedans as security for two loan agreements one
for P15.6 million and the other for P23.5 million
obtained by them from the Philippine National
Bank. The aforementioned quedans were endorsed
by them to the Philippine National Bank.
Luis T. Ramos and Cresencia K. Zoleta failed to pay
their loans upon maturity on January 9,
1990. Consequently, on March 16, 1990, the
Philippine National Bank wrote to Noahs Ark Sugar
Refinery demanding delivery of the sugar stocks
covered by the quedans endorsed to it by Zoleta
and Ramos. Noahs Ark Sugar Refinery refused to
comply with the demand alleging ownership
thereof, for which reason the Philippine National
Bank filed with the Regional Trial Court of Manila a
verified complaint for Specific Performance with
Damages and Application for Writ of Attachment
against Noahs Ark Sugar Refinery, Alberto T.
Looyuko, Jimmy T. Go and Wilson T. Go, the last
three being identified as the sole proprietor,
managing partner, and Executive Vice President of
Noahs Ark, respectively.
Respondent Judge Benito C. Se, Jr., [to] whose sala
the case was raffled, denied the Application for
Preliminary Attachment. Reconsideration therefor
was likewise denied.
Noahs Ark and its co-defendants filed an Answer
with Counterclaim and Third-Party Complaint in
which they claimed that they [were] the owners of
the subject quedans and the sugar represented
therein, averring as they did that:
9. *** In an agreement dated April 1, 1989,
defendants agreed to sell to Rosa Ng Sy of RNS
Merchandising and Teresita Ng of St. Therese
Merchandising the total volume of sugar indicated
in the quedans stored at Noahs Ark Sugar Refinery
for a total consideration of P63,000,000.00, *** The
corresponding payments in the form of checks
issued by the vendees in favor of defendants were
subsequently dishonored by the drawee banks by
reason of payment stopped and drawn against
insufficient funds, *** Upon proper notification to
said vendees and plaintiff in due course,
defendants refused to deliver to vendees therein
the quantity of sugar covered by the subject
quedans.
10. *** Considering that the vendees and first
endorsers of subject quedans did not acquire
ownership thereof, the subsequent endorsers and
plaintiff itself did not acquire a better right of
ownership than the original vendees/first
endorsers.
The Answer incorporated a Third-Party Complaint
by Alberto T. Looyuko, Jimmy T. Go and Wilson 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

relief to which it is plainly entitled would be further

delayed to its prejudice.
In issuing the questioned Orders, We find the
respondent Court to have acted in grave abuse of
discretion which justify holding null and void and
setting aside the Orders dated May 2 and July 4,
1990 of respondent Court, and that a summary
judgment be rendered forthwith in favor of the PNB
against Noahs Ark Sugar Refinery, et al., as prayed
for in petitioners Motion for Summary Judgment.
On December 13, 1991, the Court of Appeals
nullified and set aside the orders of May 2 and July
4, 1990 of the Regional Trial Court and ordered the
trial court to render summary judgment in favor of
the PNB. On June 18, 1992, the trial court rendered
judgment dismissing plaintiffs complaint against
private respondents for lack of cause of action and
likewise dismissed private respondents
counterclaim against PNB and of the Third-Party
Complaint and the Third-Party Defendants
Counterclaim. On September 4, 1992, the trial
court denied PNBs Motion for Reconsideration.
On June 9, 1992, the PNB filed an appeal from the
RTC decision with the Supreme Court, G.R. No.
107243, by way of a Petition for Review
on Certiorari under Rule 45 of the Rules of
Court. This Court rendered judgment on
September 1, 1993, the dispositive portion of
which reads:
WHEREFORE, the trial judges decision in Civil Case
No. 90-53023, dated June 18, 1992, is reversed
and set aside and a new one rendered conformably
with the final and executory decision of the Court
of Appeals in CA-G.R. SP No. 25938, ordering the
private respondents Noahs Ark Sugar Refinery,
Alberto T. Looyuko, Jimmy T. Go and Wilson T. Go,
jointly and severally:
(a) to deliver to the petitioner Philippine National
Bank, the sugar stocks covered by the Warehouse
Receipts/Quedans which are now in the latters
possession as holder for value and in due course;
or alternatively, to pay (said) plaintiff actual
damages in the amount of P39.1 million, with legal
interest thereon from the filing of the complaint
until full payment; and
(b) to pay plaintiff Philippine National Bank
attorneys fees, litigation expenses and judicial
costs hereby fixed at the amount of One Hundred
Fifty Thousand Pesos (P150,000.00) as well as the
costs.
SO ORDERED.
On September 29, 1993, private respondents
moved for reconsideration of this decision. A
Supplemental/Second Motion for Reconsideration
with leave of court was filed by private
respondents on November 8, 1993. We denied
private respondents motion on January 10, 1994.

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

DECRETAL PORTION OF SAID SUPREME COURT

DECISION.
II
RESPONDENT RTC IS WITHOUT JURISDICTION TO
HEAR PRIVATE RESPONDENTS OMNIBUS
MOTION. THE CLAIMS SET FORTH IN SAID MOTION:
(1) WERE ALREADY REJECTED BY THE SUPREME
COURT IN ITS MARCH 9, 1994 RESOLUTION
DENYING PRIVATE RESPONDENTS MOTION FOR
CLARIFICATION OF DECISION IN G.R. NO. 107243;
AND (2) ARE BARRED FOREVER BY PRIVATE
RESPONDENTS FAILURE TO INTERPOSE THEM IN
THEIR ANSWER, AND FAILURE TO APPEAL FROM
THE JUNE 18, 1992 DECISION IN CIVIL CASE NO.
90-52023.
III
RESPONDENT RTCS ONLY JURISDICTION IS TO
ISSUE THE WRIT TO EXECUTE THE SUPREME
COURT DECISION. THUS, PNB IS ENTITLED TO: (1)
A WRIT OF CERTIORARI TO ANNUL THE RTC
RESOLUTION DATED DECEMBER 20, 1994 AND THE
ORDER DATED FEBRUARY 7, 1995 AND ALL
PROCEEDINGS TAKEN BY THE RTC THEREAFTER; (2)
A WRIT OF PROHIBITION TO PREVENT
RESPONDENT RTC FROM FURTHER PROCEEDING
WITH CIVIL CASE NO. 90-53023 AND COMMITTING
OTHER ACTS VIOLATIVE OF THE SUPREME COURT
DECISION IN G.R. NO. 107243; AND (3) A WRIT
OF MANDAMUS TO COMPEL RESPONDENT RTC TO
ISSUE THE WRIT TO EXECUTE THE SUPREME
COURT JUDGMENT IN FAVOR OF PNB.
In our decision of 18 April 1996 in G.R. No. 119231,
we held against herein petitioner as to these
issues and concluded:
In view of the foregoing, the rule may be simplified
thus: While the PNB is entitled to the stocks of
sugar as the endorsee of the quedans, delivery to
it shall be effected only upon payment of the
storage fees.
Imperative is the right of the warehouseman to
demand payment of his lien at this juncture,
because, in accordance with Section 29 of the
Warehouse Receipts Law, the warehouseman loses
his lien upon goods by surrendering possession
thereof. In other words, the lien may be lost where
the warehouseman surrenders the possession of
the goods without requiring payment of his lien,
because a warehousemans lien is possessory in
nature.
We, therefore, uphold and sustain the validity of
the assailed orders of public respondent, dated
December 20, 1994 and March 1, 1995.
In fine, we fail to see any taint of abuse of
discretion on the part of the public respondent in
issuing the questioned orders which recognized
the legitimate right of Noahs Ark, after being
declared as warehouseman, to recover storage

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

evidence by the defendants, in the amount

of P734,341,595.06 as of January 31, 1995 for the
86,356.41 50 kg. bags of sugar, being in order and
with sufficient basis, the same should be
granted. This Court consequently rejects PNBs
claim of no sugar no lien, since it is undisputed
that the amount of the accrued storage fees is
substantially in excess of the alternative award
of P39.1 Million in favor of PNB, including
legal interest and P150,000.00 in attorneys fees,
which PNB is however entitled to be credited x x x.
xxxxxxxxx
WHEREFORE, premises considered and finding
merit in the defendants motion for execution of
their claim for lien as warehouseman, the same is
hereby GRANTED. Accordingly, let a writ of
execution issue for the amount
of P662,548,611.50, in accordance with the above
disposition.
SO ORDERED. (Emphasis supplied.)
3.28 On 23 April 1997, PNB was immediately
served with a Writ of Execution for the amount
of P662,548,611.50 in spite of the fact that it had
not yet been served with the Order of the court a
quo dated 15 April 1997. PNB thus filed an Urgent
Motion dated 23 April 1997 seeking the deferment
of the enforcement of the Writ of Execution. A
photocopy of the Writ of Execution is attached
hereto as Annex J.
3.29 Nevertheless, the Sheriff levied on execution
several properties of PNB. Firstly, a Notice of Levy
dated 24 April 1997 on a parcel of land with an
area of Ninety-Nine Thousand Nine Hundred
Ninety-Nine (99,999) square meters, covered by
Transfer Certificate of Title No. 23205 in the name
of PNB, was served upon the Register of Deeds of
Pasay City. Secondly, a Notice of Garnishment
dated 23 April 1997 on fund deposits of PNB was
served upon the Bangko Sentral ng
Pilipinas. Photocopies of the Notice of Levy and the
Notice of Garnishment are attached hereto as
Annexes K and L, respectively.
3.30 On 28 April 1997, petitioner filed a Motion for
Reconsideration with Urgent Prayer for Quashal of
Writ of Execution dated 15 April 1997. Petitioners
Motion was based on the following grounds:
(1) Noahs Ark is not entitled to a warehousemans
lien in the humongous amount of P734,341,595.06
because the same has been waived for not having
been raised earlier as either counterclaim or
defense against PNB;
(2) Assuming said lien has not been waived, the
same, not being registered, is already barred by
prescription and/or laches;
(3) Assuming further that said lien has not been
waived nor barred, still there was no complaint

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

February 1995 until 15 April 1997, the date of the

questioned Order granting their Motion for
Execution.
3.32.2 In the same manner, private respondents
prayed for a continuing amount of P345,424.00 as
daily storage fees after 15 April 1997 until the total
amount of the storage fees is satisfied.
3.33 On 19 May 1997, PNB filed its Reply with
Opposition (To Defendants Opposition with Partial
Motion for Reconsideration), containing therein the
following motions: (i) Supplemental Motion for
Reconsideration; (ii) Motion to Strike out the
Testimony of Noahs Arks Accountant Last February
21, 1995; and (iii) Motion for the Issuance of a Writ
of Execution in favor of PNB.In support of its
pleading, petitioner raised the following:
(1) Private respondents failed to pay the
appropriate docket fees either for its principal
claim or for its additional claim, as said claims for
warehousemans lien were not at all mentioned in
their answer to petitioners Complaint;
(2) The amount awarded by the court a quo was
grossly and manifestly unreasonable, excessive,
and oppressive;
(3) It is the dispositive portion of the decision
which shall be controlling in any execution
proceeding. If no specific award is stated in the
dispositive portion, a writ of execution supplying
an amount not included in the dispositive portion
of the decision being executed is null and void;
(4) Private respondents failed to prove the
existence of the sugar stocks in Noahs Arks
warehouses. Thus, private respondents claims are
mere paper liens which cannot be the subject of
execution;
(5) The attendant circumstances, particularly Judge
Ses Order of 1 March 1995 onwards, were tainted
with fraud and absence of due process, as PNB was
not given a fair opportunity to present its evidence
on the matter of the warehousemans lien. Thus, all
orders prescinding thereform, including the
questioned Order dated 15 April 1997, must
perforce be set aside and the execution
proceedings against PNB be permanently stayed.
3.34 On 6 May 1997, petitioner also filed an Urgent
Motion to Lift Garnishment of PNB Funds with
Bangko Sentral ng Pilipinas.
3.35 On 14 July 1997, respondent Judge issued the
second Order (Annex B), the questioned part of the
dispositive portion of which states:
WHEREFORE, premises considered, the plaintiff
Philippine National Banks subject Motion for
Reconsideration With Urgent Prayer for Quashal of
Writ of Execution dated April 28, 1997 and undated
Urgent Motion to Lift Garnishment of PNB Funds
With Bangko Sentral ng Pilipinas filed on May 6,

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.

D. THE COURT A QUO ACTED WITH GRAVE ABUSE

OF DISCRETION IN NOT HOLDING THAT PRIVATE
RESPONDENTS HAVE LONG WAIVED THEIR RIGHT
TO CLAIM ANY WAREHOUSEMANS LIEN.
4.8 Private respondents raised the matter of their
entitlement to a warehousemans lien for storage
fees and preservation expenses for the first time
only during the execution proceedings of the
Decision in favor of PNB.
4.9 Private respondents claim for warehousemans
lien is in the nature of a compulsory counterclaim
which should have been included in private
respondents answer to the Complaint.Private
respondents failed to include said claim in their
answer either as a counterclaim or as an
alternative defense to PNBs Complaint.
4.10 Private respondents claim is likewise lost by
virtue of a specific provision of the Warehouse
Receipts Law and barred by prescription and
laches.
E. PUBLIC RESPONDENT JUDGE ACTED WITH
GRAVE ABUSE OF DISCRETION IN REFUSING TO
LIFT THE ORDER OF GARNISHMENT OF THE FUNDS
OF PNB WITH THE BANGKO SENTRAL NG PILIPINAS.
4.11 Public respondent judge failed to consider
PNBs arguments in support of its Urgent Motion to
Lift Garnishment.[8]
In arguing its cause, petitioner explained that this
Courts decision in G.R. No. 119231 merely affirmed
the trial courts resolutions of 20 December 1994
and 1 March 1995. The earlier resolution set
private respondents reception of evidence for
hearing to prove their warehousemans lien and,
pending determination thereof, deferred
petitioners motion for execution of the summary
judgment rendered in petitioners favor in G.R. No.
107243. The subsequent resolution recognized the
existence of a valid warehousemans lien without,
however, specifying the amount, and required its
full satisfaction by petitioner prior to the execution
of the judgment in G.R. No. 107243.
Under said circumstances, petitioner reiterated
that neither this Courts decision nor the trial courts
resolutions specified any amount for the
warehousemans lien, either in the bodies or
dispositive portions thereof. Petitioner therefore
questioned the propriety of the computation of the
warehousemans lien in the assailed order of 15
April 1997.
Petitioner further characterized as highly irregular
the trial courts final determination of such lien in a
mere interlocutory order without explanation, as
such should or could have been done only by way
of a judgment on the merits. Petitioner likewise
reasoned that a writ of execution was proper only
to implement a final and executory decision, which
was not present in the instant case. Petitioner then

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

investigator[14] and his report[15] indicating that

Noahs Ark only had 1,490 50kg. bags, and not
86,356.41 50kg. bags, of sugar in its warehouse;
(2) Noahs Arks reports[16] for 1990-94 showing
that it did not have sufficient sugar stock to cover
the quantity specified in the subject quedans; (3)
Circular Letter No. 18 (s. 1987-88)[17] of the Sugar
Regulatory Administration requiring sugar mill
companies to submit reports at weeks end to
prevent the issuance of warehouse receipts not
covered by actual inventory; and (4) an affidavit of
petitioners assistant vice president[18] alleging
that Noahs Arks daily storage fee of P4/bag
exceeded the prevailing industry rate.
Petitioner, moreover, laid stress on the fact that in
the questioned order of 14 July 1997, the trial
court relied solely on the Annual Synopsis of
Production & Performance Date/Annual
Compendium of Performance by Philippine Sugar
Refineries from 1989 to 1994, in disregard of
Noahs Arks certified reports that it did not have
sufficient sugar stock to cover the quantity
specified in the subject quedans. Between the two,
petitioner urged, the latter should have been
accorded greater evidentiary weight.
Petitioner then argued that the trial courts second
assailed order of 14 July 1997 misinterpreted our
decision in G.R. No. 119231 by ruling that the
Refining Contract under which the subject sugar
stock was produced bound the parties. According
to petitioner, the Refining Contract never existed,
it having been denied by Rosa Ng Sy; thus, the trial
court could not have properly based its
computation of the warehousemans lien on the
Refining Contract. Petitioner maintained that a
separate trial was necessary to settle the issue of
the warehousemans lien due Noahs Ark, if at all
proper.
Petitioner further asserted that Noahs Ark could no
longer recover its lien, having raised the issue for
the first time only during the execution
proceedings of this Courts decision in G.R. No.
107243. As said claim was a separate cause of
action which should have been raised in private
respondents answer with counterclaim to
petitioners complaint, private respondents failure
to raise said claim should have been deemed a
waiver thereof.
Petitioner likewise insisted that under Section
29[19] of the Warehouse Receipts Law, private
respondents were barred from claiming the
warehousemans lien due to their refusal to deliver
the goods upon petitioners demand. Petitioner
further raised that private respondents failed to
timely assert their claim within the five-year
prescriptive period, citing Article 1149[20]of the
New Civil Code.

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

five quedans, Refining Contracts with petitioner

and other quedan holders, and the computation
resulting in the amount ofP734,341,595.06, among
other documents. Private respondents even
attached a copy of the transcript of stenographic
notes[22] to their comment. In refuting petitioners
argument that no writ of execution could issue in
absence of a specific amount in the dispositive
portion of this Courts decision in G.R. No. 119231,
private respondents argued that any ambiguity in
the decision could be resolved by referring to the
entire record of the case,[23] even after the
decision had become final.
Private respondents next alleged that the award
of P734,341,595.06 to satisfy their
warehousemans lien was in accordance with the
stipulations provided in the quedans and the
corresponding Refining Contracts, and that the
validity of said documents had been recognized by
this Court in our decision in G.R. No. 119231.
Private respondents then questioned petitioners
failure to oppose or rebut the evidence they
presented and bewailed its belated attempts to
present contrary evidence through its pleadings.
Nonetheless, said evidence was even considered
by the trial court when petitioner sought a
reconsideration of the first assailed order of 15
April 1997, thus further precluding any claim of
denial of due process.
Private respondents next pointed to the fact that
they consistently claimed that they had not been
paid for storing the sugar stock, which prompted
them to file criminal charges of estafa and
violation of Batas Pambansa (BP) Blg. 22 against
Rosa Ng Sy and Teresita Ng. In fact, Sy was
eventually convicted of two counts of violation of
BP Blg. 22. Private respondents, moreover,
incurred, and continue to incur, expenses for the
storage and preservation of the sugar stock; and
denied having waived their warehousemans lien,
an issue already raised and rejected by this Court
in G.R. No. 119231.
Private respondents further claimed that the
garnishment order was proper, only that it was
rendered ineffective. In a letter[24] received by the
sheriff from the Bangko Sentral ng Pilipinas, it was
stated that the garnishment could not be enforced
since petitioners deposits with the Bangko Sentral
ng Pilipinas consisted solely of legal reserves which
were exempt from garnishment. Petitioner
therefore suffered no damage from said
garnishment. Private respondents likewise deemed
immaterial petitioners argument that the writ of
execution issued against its real property in Pasay
City was sufficient, considering its prevailing
market value of P6,000,000,000 was in excess of
the warehousemans lien; and invoked Rule 39 of

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

concluded, private respondents could not claim

that the more recent and increased rates where
those which prevailed in 1989.
Finally, petitioner asserted that in the event that
this Court should uphold the trial courts
determination of the amount of the
warehousemans lien, petitioner should be allowed
to exercise its option as a judgment obligor to
specify which of its properties may be levied upon,
citing Section 9(b), Rule 39 of the 1997 Rules of
Civil Procedure. Petitioner claimed to have been
deprived of this option when the trial court issued
the garnishment and levy orders.
The petition was set for oral argument on 24
November 1997 where the parties addressed the
following issues we formulated for them to discuss:
(1) Is this special civil action the appropriate
remedy?
(2) Has the trial court the authority to issue a writ
of execution on Noahs Arks claims for storage fees
considering that this Court in G.R. No. 119231
merely sustained the trial courts order of 20
December 1994 granting the Noahs Ark Omnibus
Motion and setting the reception of evidence on its
claims for storage fees, and of 1 March 1995
finding that there existed in favor of Noahs Ark a
warehousemans lien under Section 27 of R.A. No.
2137 and directing that the execution of the
judgment in favor of PNB be stayed and/or
precluded until the full amount of Noahs Arks lien
is satisfied conformably with Section 31 of R.A. No.
2137?
(3) Is [petitioner] liable for storage fees (a) from
the issuance of the quedans in 1989 to Rosa Sy, St.
Therese Merchandising and RNS Merchandising, up
to their assignment by endorsees Ramos and
Zoleta to [petitioner] for their loan; or (b) after
[petitioner] has filed an action for specific
performance and damages (Civil Case No. 9053023) against Noahs Ark for the latters failure to
comply with [petitioners] demand for the delivery
of the sugar?
(4) Did respondent Judge commit grave abuse of
discretion as charged?[28]
In our resolution of 24 November 1997, we
summarized the positions of the parties on these
issues, thus:
Expectedly, counsel for petitioner submitted
that certiorari under Rule 65 of the Rules of Court
is the proper remedy and not an ordinary appeal,
contending, among others, that the order of
execution was not final. On the other hand,
counsel for respondents maintained that petitioner
PNB disregarded the hierarchy of courts as it
bypassed the Court of Appeals when it filed the
instant petition before this Court.

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.

A careful perusal of the first assailed order shows

that the trial court not only granted the motion for
execution, but also appreciated the evidence in the
determination of the warehousemans lien;
formulated its computation of the lien; and
adopted an offsetting of the parties claims.
Ineluctably, the order as in the nature of a final
order for it left nothing else to be resolved
thereafter. Hence, petitioners remedy was
to appeal therefrom.[31] Nevertheless, petitioner
was not precluded from availing of the
extraordinary remedy of certiorari under Rule 65 of
the Rules of Court. It is well-settled that the
availability of an appeal does not foreclose
recourse to the extraordinary remedies
of certiorari or prohibition where appeal is not
adequate, or equally beneficial, speedy and
sufficient.[32]
Petitioner assailed the challenged orders as having
been issued without or in excess of jurisdiction or
with grave abuse of discretion and alleged that it
had no other plain, speedy and adequate remedy
in the ordinary course of law. As hereafter shown,
these claims were not unfounded, thus the
propriety of this special civil action is beyond
question.
This Court has original jurisdiction, concurrent with
that of Regional Trial Courts and the Court of
Appeals, over petitions for certiorari,
prohibition, mandamus, quo warranto and habeas
corpus,[33] and we entertain direct resort to us in
cases where special and important reasons or
exceptional and compelling circumstances justify
the same.[34] These reasons and circumstances
are present here.
B. Under the Special Circumstances in This Case,
Private Respondents May Enforce Their
Warehousemans Lien in Civil Case No. 90-53023.
The remedies available to a warehouseman, such
as private respondents, to enforce his
warehousemans lien are:
(1)To refuse to deliver the goods until his lien is
satisfied, pursuant to Section 31 of the Warehouse
Receipt Law;
(2) To sell the goods and apply the proceeds
thereof to the value of the lien pursuant to
Sections 33 and 34 of the Warehouse Receipts
Law; and
(3) By other means allowed by law to a creditor
against his debtor, for the collection from the
depositor of all charges and advances which the
depositor expressly or impliedly contracted with
the warehouseman to pay under Section 32 of the
Warehouse Receipt Law; or such other remedies
allowed by law for the enforcement of a lien
against personal property under Section 35 of said

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

consent of the owner to sell them so as to satisfy

the obligation from the proceeds of the sale, this
for the simple reason that the transaction involved
is not a sale but only a mortgage or pledge, and
that if the property covered by the quedans or
warehouse receipts is lost without the fault or
negligence of the mortgagee or pledgee or the
transferee or endorsee of the warehouse receipt or
quedan, then said goods are to be regarded as lost
on account of the real owner, mortgagor or
pledgor.
The indorsement and delivery of the warehouse
receipts (quedans) by Ramos and Zoleta to
petitioner was not to convey title to or ownership
of the goods but to secure (by way of pledge) the
loans granted to Ramos and Zoleta by
petitioner. The indorsement of the warehouse
receipts (quedans), to perfect the pledge,
[39] merely constituted a symbolical or
constructive delivery of the possession of the thing
thus encumbered.[40]
The creditor, in a contract of real security, like
pledge, cannot appropriate without foreclosure the
things given by way of pledge.[41] Any stipulation
to the contrary, termed pactum commissorio, is
null and void.[42] The law requires foreclosure in
order to allow a transfer of title of the good given
by way of security from its pledgor,[43] and before
any such foreclosure, the pledgor, not the pledgee,
is the owner of the goods. In Philippine National
Bank v. Atendido,[44] we said:
The delivery of the palay being merely by way of
security, it follows that by the nature of the
transaction its ownership remains with the pledgor
subject only to foreclosure in case of nonfulfillment of the obligation. By this we mean that
if the obligation is not paid upon maturity the most
that the pledgee can do is to sell the property and
apply the proceeds to the payment of the
obligation and to return the balance, if any, to the
pledgor (Art. 1872, Old Civil Code [Art. 2112, New
Civil Code]). This is the essence of this contract,
for, according to law, a pledgee cannot become
the owner of, nor appropriate to himself, the thing
given in pledge (Article 1859, Old Civil Code [Art.
2088, New Civil Code]) The fact that the
warehouse receipt covering palay was delivered,
endorsed in blank, to the bank does not alter the
situation, the purpose of such endorsement being
merely to transfer the juridical possession of the
property to the pledgees and to forestall any
possible disposition thereof on the part of the
pledgor. This is true notwithstanding the provisions
of the Warehouse Receipt Law.
The warehouseman, nevertheless, is entitled to the
warehousemans lien that attaches to the goods

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

the deposit for storage, or from the

warehousemans lien. (Sec. 16, Act No. 2137)
(3) That the warehouseman has legally set up the
title or right of third persons as lawful defense for
non-delivery of the goods as follows:
(a) Where the warehouseman has been requested,
by or on behalf of the person lawfully entitled to a
right of property of or possession in the goods, not
to make such delivery (Sec. 10, Act No. 2137), in
which case, the warehouseman may, either as a
defense to an action brought against him for
nondelivery of the goods, or as an original suit,
whichever is appropriate, require all known
claimants to interplead (Sec. 17, Act No. 2137);
(b) Where the warehouseman had information that
the delivery about to be made was to one not
lawfully entitled to the possession of the
goods (Sec. 10, Act No. 2137), in which case, the
warehouseman shall be excused from liability for
refusing to deliver the goods, either to the
depositor or person claiming under him or to the
adverse claimant, until the warehouseman has had
a reasonable time to ascertain the validity of the
adverse claims or to bring legal proceedings to
compel all claimants to interplead (Sec. 18, Act No.
2137); and
(c) Where the goods have already been lawfully
sold to third persons to satisfy a warehousemans
lien, or have been lawfully sold or disposed of
because of their perishable or hazardous
nature. (Sec. 36, Act No. 2137).
(4) That the warehouseman having a lien valid
against the person demanding the goods refuses
to deliver the goods to him until the lien is
satisfied. (Sec. 31, Act No. 2137)
(5) That the failure was not due to any fault on the
part of the warehouseman, as by showing that,
prior to demand for delivery and refusal, the goods
were stolen or destroyed by fire, flood, etc.,
without any negligence on his part, unless he has
contracted so as to be liable in such case, or that
the goods have been taken by the mistake of a
third person without the knowledge or implied
assent of the warehouseman, or some other
justifiable ground for non-delivery. (67 C.J. 532)[45]
Regrettably, the factual settings do not sufficiently
indicate whether the demand to obtain possession
of the goods complied with Section 8 of the
law. The presumption, nevertheless, would be that
the law was complied with, rather than breached,
by petitioner. Upon the other hand, it would appear
that the refusal of private respondents to deliver
the goods was not anchored on a valid excuse, i.e.,
non-satisfaction of the warehousemans lien over
the goods, but on an adverse claim of
ownership. Private respondents justified their
refusal to deliver the goods, as stated in their

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]

Nowhere in the transcript of stenographic notes,

however, does it show that petitioner was afforded
an opportunity to comment on, much less, object
to, private respondents offer of exhibits, or even
present its evidence on the matter in dispute. In
fact, petitioner immediately moved to nullify the
proceedings conducted during that hearing, but its
motion was ignored and never resolved by the trial
court. Moreover, it cannot be said that petitioners
filing of subsequent pleadings, where it attached
its affidavits and documents to contest the
warehousemans lien, was sufficient to fully satisfy
the requirements of due process. The subsequent
pleadings were filed only to show that petitioner
had evidence to refute the claims of private
respondents or that the latter were not entitled
thereto, but could not have adequately substituted
for a full-blown opportunity to present its evidence,
given the exorbitant amounts involved. This, when
coupled with the fact that the motion to postpone
the hearing filed by petitioners counsel was not
unreasonable, leads us to conclude that petitioners
right to fully present its case was rendered
nugatory. It is thus evident to us that there was
undue and unwarranted haste on the part of
respondent court to rule in favor of private
respondents. We do not hesitate to say that any tilt
of the scales of justice, no matter how slight,
evokes suspicion and erodes a litigants faith and
hope in seeking recourse before courts of law.
Likewise do we refuse to give credence to private
respondents allegation that the parties agreed that
petitioners presentation of evidence would be
submitted on the basis of affidavits,[49] without,
however, specifying any order or written
agreement to that effect.
It is interesting to note that among the evidence
petitioner wanted to present were reports obtained
from Noahs Ark, disclosing that the latter failed to
maintain a sufficient inventory to satisfy the sugar
stock covered by the subject quedans. This was a
serious allegation, and on that score alone, the
trial court should have allowed a hearing on the
matter, especially in light of the magnitude of the
claims sought. If it turns out to be true that the
stock of sugar Noahs Ark had in possession was
below the quantities specified in the quedans, then
petitioner should not be made to pay for storage
and preservation expenses for non-existent goods.
It was likewise grave abuse of discretion on the
part of respondent court to order immediate
execution of the 15 April 1997 order. We ruled
earlier that said order was in the nature of a final
order fixing the amount of the warehousemans
charges and fees, and petitioners net liability, after
the set-off of the money judgment in its favor in
G.R. No. 107243. Section 1 of Rule 39 of the Rules

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

Centre. PBC approved the letter of

credit[3] for P22,389.80 to cover the full invoice
value of the goods.Petitioners signed a pro-forma
trust receipt[4] as security. The loan was due on 29
January 1980.
On 31 October 1979, PBC debited P6,720 from
Petitioners marginal deposit as partial payment of
the loan.[5]
On 7 May 1980, PBC wrote[6] to Petitioners
demanding that the amount be paid within seven
days from notice. Instead of complying with PBCs
demand, Veloso confessed that they
lost P19,195.83 in the Carmelite Monastery Project
and requested for a grace period of until 15 June
1980 to settle the account.[7]
PBC sent a new demand letter[8]to Petitioners on
16 October 1980 and informed them that their
outstanding balance as of 17 November 1979
was P20,824.40 exclusive of attorneys fees of 25%.
[9]
On 2 December 1980, Petitioners
proposed[10] that the terms of payment of the
loan be modified as follows: P2,000 on or before 3
December 1980, and P1,000 per month starting 31
January 1980 until the account is fully
paid. Pending approval of the proposal, Petitioners
paid P1,000 to PBC on 4 December 1980,[11] and
thereafter P500 on 11 February 1981,[12] 16
March 1981,[13] and 20 April 1981.
[14] Concurrently with the separate demand for
attorneys fees by PBCs legal counsel, PBC
continued to demand payment of the balance.[15]
On 14 January 1983, Petitioners were charged with
the violation of P.D. No. 115 (Trust Receipts Law) in
relation to Article 315 of the Revised Penal Code in
an Information which was filed with Branch 18,
Regional Trial Court of Cagayan de Oro City. The
accusatory portion of the Information reads:
That on or about October 31, 1979, in the City of
Cagayan de Oro, Philippines, and within the
jurisdiction of this Honorable Court, the abovenamed accused entered into a trust receipt
agreement with the Philippine Banking Corporation
at Cagayan de Oro City wherein the accused, as
entrustee, received from the entruster the
following goods to wit:
Solatone Acoustical board
Tanguile Wood Tiles
Marcelo Cement Tiles
Umylin Cement Adhesive
with a total value of P22,389.80, with the
obligation on the part of the accused-entrustee to
hold the aforesaid items in trust for the entruster
and/or to sell on cash basis or otherwise dispose of
the said items and to turn over to the entruster the
proceeds of the sale of said goods or if there be no
sale to return said items to the entruster on or

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

increasing the penalty to six years and one day

of prision mayor as minimum to fourteen years
eight months and one day of reclusion temporal as
maximum. It held that the documentary evidence
of the prosecution prevails over Velosos testimony,
discredited Petitioners claim that the documents
they signed were in blank, and disbelieved that
they were coerced into signing them.
On 25 March 1989, Petitioners filed a Motion for
New Trial/Reconsideration[21] alleging that the
Disclosure Statement on Loan/Credit
Transaction[22] (hereafter Disclosure Statement)
signed by them and Tuiza was suppressed by PBC
during the trial. That document would have proved
that the transaction was indeed a loan as it bears a
14% interest as opposed to the trust receipt which
does not at all bear any interest. Petitioners further
maintained that when PBC allowed them to pay in
installment, the agreement was novated and a
creditor-debtor relationship was created.
In its resolution[23]of 16 October 1989 the Court of
Appeals denied the Motion for New
Trial/Reconsideration because the alleged newly
discovered evidence was actually forgotten
evidence already in existence during the trial, and
would not alter the result of the case.
Hence, Petitioners filed with us the petition in this
case on 16 November 1989. They raised the
following issues:
I. WHETHER OR NOT THE DENIAL OF THE MOTION
FOR NEW TRIAL ON THE GROUND OF NEWLY
DISCOVERED EVIDENCE, NAMELY, DISCLOSURE ON
LOAN/CREDIT TRANSACTION, WHICH IF
INTRODUCED AND ADMITTED, WOULD CHANGE
THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL
OF DUE PROCESS.
2. ASSUMING THERE WAS A VALID TRUST RECEIPT,
WHETHER OR NOT THE ACCUSED WERE PROPERLY
CHARGED, TRIED AND CONVICTED FOR VIOLATION
OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE
315 PARAGRAPH (I) (B) NOTWITHSTANDING THE
NOVATION OF THE SO-CALLED TRUST RECEIPT
CONVERTING THE TRUSTOR-TRUSTEE
RELATIONSHIP TO CREDITOR-DEBTOR SITUATION.
In its Comment of 22 January 1990, the Office of
the Solicitor General urged us to deny the petition
for lack of merit.
On 28 February 1990 Petitioners filed a Motion to
Dismiss the case on the ground that they had
already fully paid PBC on 2 February 1990 the
amount of P70,000 for the balance of the loan,
including interest and other charges, as evidenced
by the different receipts issued by PBC,[24] and
that the PBC executed an Affidavit of desistance.
[25]
We required the Solicitor General to comment on
the Motion to Dismiss.

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

never did. Petitioners have miserably failed to

establish the second requisite of the rule on newly
discovered evidence.
Petitioners themselves admitted that they
searched again their voluminous records,
meticulously and patiently, until they discovered
this new and material evidence only upon learning
of the Court of Appeals decision and after they
were shocked by the penalty imposed.[31] Clearly,
the alleged newly discovered evidence is mere
forgotten evidence that jurisprudence excludes as
a ground for new trial.[32]
However, the second issue should be resolved in
favor of Petitioners.
Section 4, P.D. No. 115, the Trust Receipts Law,
defines a trust receipt transaction as any
transaction by and between a person referred to as
the entruster, and another person referred to as
the entrustee, whereby the entruster who owns or
holds absolute title or security interest 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 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.
There are two possible situations in a trust receipt
transaction. The first is covered by the provision
which refers to money received under the
obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise
sold. The second is covered by the provision which
refers to merchandise received under the
obligation to return it (devolvera) to the owner.[33]
Failure of the entrustee to turn over the proceeds
of the sale of the goods, covered by the trust
receipt to the entruster or to return said goods if
they were not disposed of in accordance with the
terms of the trust receipt shall be punishable as
estafa under Article 315 (1) of the Revised Penal
Code,[34] without need of proving intent to
defraud.
A thorough examination of the facts obtaining in
the case at bar reveals that the transaction
intended by the parties was a simple loan, not a
trust receipt agreement.
Petitioners received the merchandise from CM
Builders Centre on 30 October 1979. On that day,
ownership over the merchandise was already
transferred to Petitioners who were to use the

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)

Q Do you know if the goods subject matter of this

letter of credit and trust receipt agreement were
received by the accused?
A Yes, sir
Q Do you have evidence to show that these goods
subject matter of this letter of credit and trust
receipt were delivered to the accused?
A Yes, sir.
Q I am showing to you this charge invoice, are you
referring to this document?
A Yes, sir.
xxx
Q What is the date of the charge invoice?
A October 31, 1979.
COURT:
Make it of record as appearing in Exhibit D, the
zero in 30 has been superimposed with numeral 1.
[42]
During the cross and re-direct examinations he
also impliedly admitted that the transaction was
indeed a loan. Thus:
Q In short the amount stated in your Exhibit C, the
trust receipt was a loan to the accused you admit
that?
A Because in the bank the loan is considered part
of the loan.
xxx
RE-DIRECT BY ATTY. CABANLET:
ATTY. CABANLET (to the witness)
Q What do you understand by loan when you were
asked?
A Loan is a promise of a borrower from the value
received. The borrower will pay the bank on a
certain specified date with interest[43]
Such statement is akin to an admission against
interest binding upon PBC.
Petitioner Velosos claim that they were made to
believe that the transaction was a loan was also
not denied by PBC. He declared:
Q Testimony was given here that that was covered
by trust receipt. In short it was a special kind of
loan. What can you say as to that?
A I dont think that would be a trust receipt because
we were made to understand by the manager who
encouraged us to avail of their facilities that they
will be granting us a loan[44]
PBC could have presented its former bank
manager, Cayo Garcia Tuiza, who contracted with
Petitioners, to refute Velosos testimony, yet it only
presented credit investigator Grego Mutia.Nowhere
from Mutias testimony can it be gleaned that PBC
represented to Petitioners that the transaction they
were entering into was not a pure loan but had
trust receipt implications.
The Trust Receipts Law does not seek to enforce
payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the

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

PD 115, otherwise known as the Trust Receipts

Law, it ruled:
When PRUDENTIAL BANK released possession of
the subject properties, over which it holds absolute
title to LITEX upon the latters execution of the trust
receipts, the latter was bound to hold said
properties in trust for the former, and (a) to sell or
otherwise dispose of the same and to turn over to
PRUDENTIAL BANK the amount still owing; or (b) to
return the goods if unsold. Since LITEX was allowed
to sell the properties being claimed by
PRUDENTIAL BANK, all the more was it authorized
to mortgage the same, provided of course LITEX
turns over to PRUDENTIAL BANK all amounts
owing. When DBP, well aware of the status of the
properties, acquired the same in the public
auction, it was bound by the terms of the trust
receipts of which LITEX was the entrustee. Simply
stated, DBP held no better right than LITEX, and is
thus bound to turn over whatever amount was due
PRUDENTIAL BANK. Being a trustee ex maleficio of
PRUDENTIAL BANK, DBP is necessarily liable
therefor. In fact, DBP may well be considered as an
agent of LITEX when the former sold the properties
being claimed by PRUDENTIAL BANK, with the
corresponding responsibility to turn over the
proceeds of the same to PRUDENTIAL BANK.
[3] (Citations omitted)
The dispositive portion of the decision read:
WHEREFORE, judgment is hereby rendered
ordering defendant DEVELOPMENT BANK OF THE
PHILIPPINES to pay plaintiff PRUDENTIAL BANK:
a)
P3,261,834.00, as actual damages, with
interest thereon computed from 10 August 1985
until the entire amount shall have been fully paid;
b)

P50,000.00 as exemplary damages; and

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

form until the entrustee has complied fully with his

obligation under the trust receipt; or (c) to load,
unload, ship or tranship or otherwise deal with
them in a manner preliminary or necessary to their
sale; or
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.
xxxxxxxxx
In a trust receipt transaction, the goods are
released by the entruster (who owns or holds
absolute title or security interests over the said
goods) to the entrustee on the latters execution
and delivery to the entruster of a trust receipt. The
trust receipt evidences the absolute title or
security interest of the entruster over the goods.
As a consequence of the release of the goods and
the execution of the trust receipt, a two-fold
obligation is imposed on the entrustee, namely: (1)
to hold the designated goods, documents or
instruments in trust for the purpose of selling or
otherwise disposing of them and (2) to turn over to
the entruster either 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. In the case of goods, they may also be
released for other purposes substantially
equivalent to (a) their sale or the procurement of
their sale; or (b) their manufacture or processing
with the purpose of ultimate sale, in which case
the entruster retains his title over the said goods
whether in their original or processed form until
the entrustee has complied fully with his obligation
under the trust receipt; or (c) the loading,
unloading, shipment or transshipment or otherwise
dealing with them in a manner preliminary or
necessary to their sale.[4] Thus, in a trust receipt
transaction, the release of the goods to the
entrustee, on his execution of a trust receipt, is
essentially for the purpose of their sale or is
necessarily connected with their ultimate or
subsequent sale.
Here, Litex was not engaged in the business of
selling spinning machinery, its accessories and
spare parts but in manufacturing and producing
textile and various kinds of fabric. The articles
were not released to Litex to be sold. Nor was the
transfer of possession intended to be a preliminary

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:

The articles were owned by Prudential Bank and

they were only held by Litex in trust. While it was
allowed to sell the items, Litex had no authority to
dispose of them or any part thereof or their
proceeds through conditional sale, pledge or any
other means.
Article 2085 (2) of the Civil Code requires that, in a
contract of pledge or mortgage, it is essential that
the pledgor or mortgagor should be the absolute
owner of the thing pledged or mortgaged. Article
2085 (3) further mandates that the person
constituting the pledge or mortgage must have the
free disposal of his property, and in the absence
thereof, that he be legally authorized for the
purpose.
Litex had neither absolute ownership, free disposal
nor the authority to freely dispose of the articles.
Litex could not have subjected them to a chattel
mortgage. Their inclusion in the mortgage was
void[7] and had no legal effect.[8] There being no
valid mortgage, there could also be no valid
foreclosure or valid auction sale.[9] Thus, DBP
could not be considered either as a mortgagee or
as a purchaser in good faith.[10]
No one can transfer a right to another greater than
what he himself has.[11] Nemo dat quod non
habet. Hence, Litex could not transfer a right that
it did not have over the disputed items. Corollarily,
DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise
higher than its source.[12] DBP merely stepped
into the shoes of Litex as trustee of the imported
articles with an obligation to pay their value or to
return them on Prudential Banks demand. By its
failure to pay or return them despite Prudential
Banks repeated demands and by selling them to
Lyon without Prudential Banks knowledge and
conformity, DBP became a trustee ex maleficio.

Marks &On the matter of actual damages adjudged by the

trial court and affirmed by the Court of Appeals,
Nos.
DBP wants this Court to review the evidence
presented during the trial and to reverse the
factual findings of the trial court. This Court is,
and in consideration thereof, I/We hereby agree to
however, not a trier of facts and it is not its
hold said goods in trust for the BANK and as its
function to analyze or weigh evidence anew.
property with liberty to sell the same for its
[13] The rule is that factual findings of the trial
account but without authority to make any other
court, when adopted and confirmed by the CA, are
disposition whatsoever of the said goods or any
binding and conclusive on this Court and generally
part thereof (or the proceeds thereof) either by
will not be reviewed on appeal.[14] While there are
way of conditional sale, pledge, or otherwise.
recognized exceptions to this rule, none of the
established exceptions finds application here.
x x x x x x x x x[6] (Emphasis supplied)
Amount of
Bill

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

BANKERS SAVINGS AND TRUST

COMPANY,respondent.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the petition for review
on certiorari assailing the Decision[1] of the Court
of Appeals dated March 31, 1998 in CA-G.R. CV No.
48708 and its Resolution dated January 12, 1999.
The facts of the case as found by the Court of
Appeals are:
Sometime in 1989, Rosario Textile Mills Corporation
(RTMC) applied from Home Bankers Savings &
Trust Co. for an Omnibus Credit Line for P10
million. The bank approved RTMCs credit line but
for only P8 million. The bank notified RTMC of the
grant of the said loan thru a letter dated March 2,
1989 which contains terms and conditions
conformed by RTMC thru Edilberto V. Yujuico. On
March 3, 1989, Yujuico signed a Surety Agreement
in favor of the bank, in which he bound himself
jointly and severally with RTMC for the payment of
all RTMCs indebtedness to the bank from 1989 to
1990. RTMC availed of the credit line by making
numerous drawdowns, each drawdown being
covered by a separate promissory note and trust
receipt. RTMC, represented by Yujuico, executed in
favor of the bank a total of eleven (11) promissory
notes.
Despite the lapse of the respective due dates
under the promissory notes and notwithstanding
the banks demand letters, RTMC failed to pay its
loans. Hence, on January 22, 1993, the bank filed a
complaint for sum of money against RTMC and
Yujuico before the Regional Trial Court, Br. 16,
Manila.
In their answer (OR, pp. 44-47), RTMC and Yujuico
contend that they should be absolved from liability.
They claimed that although the grant of the credit
line and the execution of the suretyship agreement
are admitted, the bank gave assurance that the
suretyship agreement was merely a formality
under which Yujuico will not be personally liable.
They argue that the importation of raw materials
under the credit line was with a grant of option to
them to turn-over to the bank the imported raw
materials should these fail to meet their
manufacturing requirements. RTMC offered to
make such turn-over since the imported materials
did not conform to the required specifications.
However, the bank refused to accept the same,
until the materials were destroyed by a fire which
gutted down RTMCs premises.
For failure of the parties to amicably settle the
case, trial on the merits proceeded. After the trial,
the Court a quo rendered a decision in favor of the
bank, the decretal part of which reads:

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

RAW MATERIALS BY THE PETITIONERSDEFENDANTS TO THE RESPONDENT-PLAINTIFF AND

THE EXPRESS STIPULATION IN THEIR CONTRACT
THAT OWNERSHIP OF THE GOODS REMAINS WITH
THE RESPONDENT-PLAINTIFF.
III
THE HONORABLE COURT OF APPEALS VIOLATED
ARTICLE 1370 OF THE CIVIL CODE AND THE LONGSTANDING JURISPRUDENCE THAT INTENTION OF
THE PARTIES IS PRIMORDIAL IN ITS FAILURE TO
UPHOLD THE INTENTION OF THE PARTIES THAT THE
SURETY AGREEMENT WAS A MERE FORMALITY AND
DID NOT INTEND TO HOLD PETITIONER YUJUICO
LIABLE UNDER THE SAME SURETY AGREEMENT.
IV
ASSUMING ARGUENDO THAT THE SURETYSHIP
AGREEMENT WAS VALID AND EFFECTIVE, THE
HONORABLE COURT OF APPEALS VIOLATED THE
BASIC LEGAL PRECEPT THAT A SURETY IS NOT
LIABLE UNLESS THE DEBTOR IS HIMSELF LIABLE.
V
THE HONORABLE COURT OF APPEALS VIOLATED
THE PURPOSE OF TRUST RECEIPT LAW IN HOLDING
THE PETITIONERS LIABLE TO THE RESPONDENT.
The above assigned errors boil down to the
following issues: (1) whether the Court of Appeals
erred in holding that petitioners are not relieved of
their obligation to pay their loan after they tried to
tender the goods to the bank which refused to
accept the same, and which goods were
subsequently lost in a fire; (2) whether the Court of
Appeals erred when it ruled that petitioners are
solidarily liable for the payment of their obligations
to the bank; and (3) whether the Court of Appeals
violated the Trust Receipts Law.
On the first issue, petitioners theorize that when
petitioner RTMC imported the raw materials
needed for its manufacture, using the credit line, it
was merely acting on behalf of the bank, the true
owner of the goods by virtue of the trust receipts.
Hence, under the doctrine of res perit domino, the
bank took the risk of the loss of said raw materials.
RTMCs role in the transaction was that of end user
of the raw materials and when it did not accept
those materials as they did not meet the
manufacturing requirements, RTMC made a valid
and effective tender of the goods to the bank.
Since the bank refused to accept the raw
materials, RTMC stored them in its warehouse.
When the warehouse and its contents were gutted
by fire, petitioners obligation to the bank was
accordingly extinguished.
Petitioners stance, however, conveniently ignores
the true nature of its transaction with the bank. We
recall that RTMC filed with the bank an application
for a credit line in the amount ofP10 million, but
only P8 million was approved. RTMC then made

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

manner it wants, which it cannot do, just to give

consistency with purpose of the trust receipt of
giving a stronger security for the loan obtained by
the importer. To consider the bank as the true
owner from the inception of the transaction would
be to disregard the loan feature thereof...[12]
Thus, petitioners cannot be relieved of their
obligation to pay their loan in favor of the bank.
Anent the second issue, petitioner Yujuico
contends that the suretyship agreement he signed
does not bind him, the same being a mere
formality.
We reject petitioner Yujuicos contentions for two
reasons.
First, there is no record to support his allegation
that the surety agreement is a mere formality; and
Second, as correctly held by the Court of Appeals,
the Suretyship Agreement signed by petitioner
Yujuico binds him. The terms clearly show that he
agreed to pay the bank jointly and severally with
RTMC. The parole evidence rule under Section 9,
Rule 130 of the Revised Rules of Court is in point,
thus:
SEC. 9. Evidence of written agreements. When the
terms of an agreement have been reduced in
writing, it is considered as containing all the terms
agreed upon and there can be, between the
parties and their successors in interest, no
evidence of such terms other than the contents of
the written agreement.
However, a party may present evidence to modify,
explain, or add to the terms of the written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection
in the written agreement;
(b) The failure of the written agreement to express
the true intent and agreement of the parties
thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the
parties or their successors in interest after the
execution of the written agreement.
x x x.
Under this Rule, the terms of a contract are
rendered conclusive upon the parties and
evidence aliunde is not admissible to vary or
contradict a complete and enforceable agreement
embodied in a document.[13] We have carefully
examined the Suretyship Agreement signed by
Yujuico and found no ambiguity therein.
Documents must be taken as explaining all the
terms of the agreement between the parties when
there appears to be no ambiguity in the language
of said documents nor any failure to express the
true intent and agreement of the parties.[14]
As to the third and final issue At the risk of being
repetitious, we stress that the contract between

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

02P370,332 200 pcs.

19-81 .52
ingot moulds

20
42

013081

04P469,669 High Fired

30-81 .29
Refractory
Nozzle Bricks

18
01

112180

02P2,001,7
19-81 15.17

18
57

120980

03P197,843 3,000 pcs.

09-81 .61
(15 bundles
calorized
lance pipes
[)]

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

03P198,150 3,000 pcs.

06-81 .67
(15 bundles)
Calorized
Lance Pipes

05P210,748 Spare parts

12-81 .00
for
Lacolaborato
ry
Equipment5

18
24

1128-

02P707,879 One Lot High

26-81 .71
Fired

Under the receipts, petitioner agreed to hold the

goods in trust for the said bank, with authority to
sell but not by way of conditional sale, pledge or
otherwise; and in case such goods were sold, to
turn over the proceeds thereof as soon as
received, to apply against the relative acceptances

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.

Preliminary investigation ensued. On December 8,

1995, the City Prosecutor ruled that there was no
probable cause to charge petitioner with violating
P.D. No. 115, as petitioners liability was only civil,
not criminal, having signed the trust receipts as
surety.13 Respondent bank appealed the resolution
to the Department of Justice (DOJ) via petition for
review, alleging that the City Prosecutor erred in
ruling:
1. That there is no evidence to show that
respondent participated in the misappropriation of
the goods subject of the trust receipts;
2. That the respondent is a mere surety of the trust
receipts; and
3. That the liability of the respondent is only civil in
nature.14
On July 13, 1999, the Secretary of Justice issued
Resolution No. 25015 granting the petition and
reversing the assailed resolution of the City
Prosecutor. According to the Justice Secretary, the
petitioner, as Senior Vice-President of PBMI,
executed the 13 trust receipts and as such, was
the one responsible for the offense. Thus, the
execution of said receipts is enough to indict the
petitioner as the official responsible for violation of
P.D. No. 115. The Justice Secretary also declared
that petitioner could not contend that P.D. No. 115
covers only goods ultimately destined for sale, as
this issue had already been settled in Allied
Banking Corporation v. Ordoez,16where the Court
ruled that P.D. No. 115 is "not limited to
transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a
component of 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 not otherwise disposed of in accordance with
the terms of the trust receipts."
The Justice Secretary further stated that the
respondent bound himself under the terms of the
trust receipts not only as a corporate official of
PBMI but also as its surety; hence, he could be
proceeded against in two (2) ways: first, as surety
as determined by the Supreme Court in its decision
in Rizal Commercial Banking Corporation v. Court
of Appeals;17 and second, as the corporate official
responsible for the offense under P.D. No. 115, via
criminal prosecution. Moreover, P.D. No. 115
explicitly allows the prosecution of corporate
officers "without prejudice to the civil liabilities
arising from the criminal offense." Thus, according
to the Justice Secretary, following Rizal Commercial
Banking Corporation, the civil liability imposed is
clearly separate and distinct from the criminal
liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary
of Justice, the City Prosecutor filed 13 Informations

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

CONDUCT OF THE PRELIMINARY INVESTIGATION OF

THE CASE, JUSTIFYING ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR
CERTIORARI, PROHIBITION AND MANDAMUS IS NOT
THE PROPER MODE OF REVIEW FROM THE
RESOLUTION OF THE DEPARTMENT OF JUSTICE.
THE PRESENT PETITION MUST THEREFORE BE
DISMISSED.21
On April 22, 2004, the CA rendered judgment
dismissing the petition for lack of merit, and on
procedural grounds. On the procedural issue, it
ruled that (a) the certification of non-forum
shopping executed by petitioner and incorporated
in the petition was defective for failure to comply
with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of the Revised Rules
of Civil Procedure; and (b) the petition for
certiorari, prohibition and mandamus was not the
proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the
assailed resolutions of the Secretary of Justice
were correctly issued for the following reasons: (a)
petitioner, being the Senior Vice-President of PBMI
and the signatory to the trust receipts, is criminally
liable for violation of P.D. No. 115; (b) the issue
raised by the petitioner, on whether he violated
P.D. No. 115 by his actuations, had already been
resolved and laid to rest in Allied Bank Corporation
v. Ordoez;22 and (c) petitioner was estopped
from raising the
City Prosecutors delay in the final disposition of
the preliminary investigation because he failed to
do so in the DOJ.
Thus, petitioner filed the instant petition, alleging
that:
I
THE COURT OF APPEALS ERRED WHEN IT
DISMISSED THE PETITION ON THE GROUND THAT
THE CERTIFICATION OF NON-FORUM SHOPPING
INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED
THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WAS COMMITTED BY THE SECRETARY OF JUSTICE
IN COMING OUT WITH THE ASSAILED
RESOLUTIONS.23
The Court will delve into and resolve the issues
seriatim.
The petitioner avers that the CA erred in
dismissing his petition on a mere technicality. He
claims that the rules of procedure should be used
to promote, not frustrate, substantial justice. He
insists that the Rules of Court should be construed
liberally especially when, as in this case, his
substantial rights are adversely affected; hence,

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

Compliance with the certification against forum

shopping is separate from and independent of the
avoidance of forum shopping itself. The
requirement is mandatory. The failure of the
petitioner to comply with the foregoing
requirement shall be sufficient ground for the
dismissal of the petition without prejudice, unless
otherwise provided.26
Indubitably, the first paragraph of petitioners
certification is incomplete and unintelligible.
Petitioner failed to certify that he "had not
heretofore commenced any other action involving
the same issues in the Supreme Court, the Court of
Appeals or the different divisions thereof or any
other tribunal or agency" as required by paragraph
4, Section 3, Rule 46 of the Revised Rules of Court.
We agree with petitioners contention that the
certification is designed to promote and facilitate
the orderly administration of justice, and therefore,
should not be interpreted with absolute literalness.
In his works on the Revised Rules of Civil
Procedure, former Supreme Court Justice Florenz
Regalado states that, with respect to the contents
of the certification which the pleader may prepare,
the rule of substantial compliance may be availed
of.27 However, there must be a special
circumstance or compelling reason which makes
the strict application of the requirement clearly
unjustified. The instant petition has not alleged
any such extraneous circumstance. Moreover, as
worded, the certification cannot even be regarded
as substantial compliance with the procedural
requirement. Thus, the CA was not informed
whether, aside from the petition before it,
petitioner had commenced any other action
involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the
petitioner failed to establish that the Secretary of
Justice committed grave abuse of discretion in
finding probable cause against the petitioner for
violation of estafa under Article 315, paragraph
1(b) of the Revised Penal Code, in relation to P.D.
No. 115. Thus, the appellate court ratiocinated:
Be that as it may, even on the merits, the
arguments advanced in support of the petition are
not persuasive enough to justify the desired
conclusion that respondent Secretary of Justice
gravely abused its discretion in coming out with his
assailed Resolutions. Petitioner posits that, except
for his being the Senior Vice-President of the PBMI,
there is no iota of evidence that he was a
participes crimines in violating the trust receipts
sued upon; and that his liability, if at all, is purely
civil because he signed the said trust receipts
merely as a xxx surety and not as the entrustee.
These assertions are, however, too dull that they

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

distinct from his criminal liability under PD

115."28
Petitioner asserts that the appellate courts ruling
is erroneous because (a) the transaction between
PBMI and respondent bank is not a trust receipt
transaction; (b) he entered into the transaction
and was sued in his capacity as PBMI Senior VicePresident; (c) he never received the goods as an
entrustee for PBMI, hence, could not have
committed any dishonesty or abused the
confidence of respondent bank; and (d) PBMI
acquired the goods and used the same in
operating its machineries and equipment and not
for resale.
The OSG, for its part, submits a contrary view, to
wit:
34. Petitioner further claims that he is not a person
responsible for the offense allegedly because
"[b]eing charged as the Senior Vice-President of
Philippine Blooming Mills (PBM), petitioner cannot
be held criminally liable as the transactions sued
upon were clearly entered into in his capacity as
an officer of the corporation" and that [h]e never
received the goods as an entrustee for PBM as he
never had or took possession of the goods nor did
he commit dishonesty nor "abuse of confidence in
transacting with RCBC." Such argument is bereft of
merit.
35. Petitioners being a Senior Vice-President of the
Philippine Blooming Mills does not exculpate him
from any liability. Petitioners responsibility as the
corporate official of PBM who received the goods in
trust is premised on Section 13 of P.D. No. 115,
which provides:
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. 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. (Emphasis
supplied)
36. Petitioner having participated in the
negotiations for the trust receipts and having

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

cause needs only to rest on evidence showing that

more likely than not, a crime has been committed
by the suspect.36
However, while probable cause should be
determined in a summary manner, there is a need
to examine the evidence with care to prevent
material damage to a potential accuseds
constitutional right to liberty and the guarantees of
freedom and fair play37 and to protect the State
from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials
arising from false, fraudulent or groundless
charges.38
In this case, petitioner failed to establish that the
Secretary of Justice committed grave abuse of
discretion in issuing the assailed resolutions.
Indeed, he acted in accord with law and the
evidence.
Section 4 of P.D. No. 115 defines a trust receipt
transaction, thus:
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 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 form
until the entrustee has complied fully with his
obligation under the trust receipt; or (c) to load,
unload, ship or otherwise deal with them in a
manner preliminary or necessary to their sale; or

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:

And in consideration thereof, I/we hereby agree to

hold said goods in trust for the said BANK as its
property with liberty to sell the same within
____days from the date of the execution of this
Trust Receipt and for the Banks account, but
without authority to make any other disposition
whatsoever of the said goods or any part thereof
(or the proceeds) either by way of conditional sale,
pledge or otherwise.
I/we agree to keep the said goods insured to their
full value against loss from fire, theft, pilferage or
other casualties as directed by the BANK, the sum
insured to be payable in case of loss to the BANK,
with the understanding that the BANK is, not to be
chargeable with the storage premium or insurance
or any other expenses incurred on said goods.
In case of sale, I/we further agree to turn over the
proceeds thereof as soon as received to the BANK,
to apply against the relative acceptances (as
described above) and for the payment of any other
indebtedness of mine/ours to the BANK. In case of
non-sale within the period specified herein, I/we
agree to return the goods under this Trust Receipt
to the BANK without any need of demand.
I/we agree to keep the said goods, manufactured
products or proceeds thereof, whether in the form
of money or bills, receivables, or accounts
separate and capable of identification as property
of the BANK.42
It must be stressed that P.D. No. 115 is a
declaration by legislative authority that, as a
matter of public policy, the failure of person to turn
over the proceeds of the sale of the goods covered
by a trust receipt or to return said goods, if not
sold, is a public nuisance to be abated by the
imposition of penal sanctions.43
The Court likewise rules that the issue of whether
P.D. No. 115 encompasses transactions involving
goods procured as a component of a product
ultimately sold has been resolved in the affirmative
in Allied Banking Corporation v. Ordoez.44 The
law applies to goods used by the entrustee in the
operation of its machineries and equipment. The
non-payment of the amount covered by the trust
receipts or the non-return of the goods covered by
the receipts, if not sold or otherwise not disposed
of, violate the entrustees obligation to pay the
amount or to return the goods to the entruster.
In Colinares v. Court of Appeals,45 the Court
declared that there are two possible situations in a
trust receipt transaction. The first is covered by the
provision which refers to money received under
the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold.
The second is covered by the provision which
refers to merchandise received under the
obligation to return it (devolvera) to the

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

such amount exceeds the latter sum, the penalty

provided in this paragraph shall be imposed in its
maximum period, adding one year for each
additional 10,000 pesos; but the total penalty
which may be imposed shall not exceed twenty
years. In such cases, and in connection with the
accessory penalties which may be imposed and for
the purpose of the other provisions of this Code,
the penalty shall be termed prision mayor or
reclusion temporal, as the case may be;
2nd. The penalty of prision correccional in its
minimum and medium periods, if the amount of
the fraud is over 6,000 pesos but does not exceed
12,000 pesos;
3rd. The penalty of arresto mayor in its maximum
period to prision correccional in its minimum
period, if such amount is over 200 pesos but does
not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum
periods, if such amount does not exceed 200
pesos, provided that in the four cases mentioned,
the fraud be committed by any of the following
means; xxx
Though the entrustee is a corporation,
nevertheless, the law specifically makes the
officers, employees or other officers or persons
responsible for the offense, without prejudice to
the civil liabilities of such corporation and/or board
of directors, officers, or other officials or
employees responsible for the offense. The
rationale is that such officers or employees are
vested with the authority and responsibility to
devise means necessary to ensure compliance
with the law and, if they fail to do so, are held
criminally accountable; thus, they have a
responsible share in the violations of the law.48
If the crime is committed by a corporation or other
juridical entity, the directors, officers, employees
or other officers thereof responsible for the offense
shall be charged and penalized for the crime,
precisely because of the nature of the crime and
the penalty therefor. A corporation cannot be
arrested and imprisoned; hence, cannot be
penalized for a crime punishable by
imprisonment.49 However, a corporation may be
charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute
prescribes both fine and imprisonment as penalty,
a corporation may be prosecuted and, if found
guilty, may be fined.50
A crime is the doing of that which the penal code
forbids to be done, or omitting to do what it
commands. A necessary part of the definition of
every crime is the designation of the author of the
crime upon whom the penalty is to be inflicted.
When a criminal statute designates an act of a
corporation or a crime and prescribes punishment

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:

WHEREFORE, in view of all the foregoing, judgment

is hereby rendered ordering defendants Lorenzo
Sarmiento, Jr. and Gregorio Limpin, Jr. to pay jointly
and severally, the plaintiff bank the principal sum
of P495,000.00 plus interest thereon at the legal
rate from December 6, 1978 until the full amount
is paid; the sum of P49,500.00 as the agreed
attorneys fees and the costs of suit.
Defendant Sarmientos counterclaim is DISMISSED.
SO ORDERED.[3]
The facts of the case as found by the trial court
and affirmed by the Court of Appeals are as
follows:
On September 6, 1978, defendant Gregorio Limpin,
Jr. and Antonio Apostol, doing business under the
name and style of Davao Libra Industrial Sales,
filed an application for an Irrevocable Domestic
Letter of Credit with the plaintiff Bank for the
amount of P495,000.00 in favor of LS Parts
Hardware and Machine Shop (herein after referred
to as LS Parts) for the purchase of assorted scrap
irons. Said application was signed by defendant
Limpin and Apostol (Exh. A). The aforesaid
application was approved, and plaintiff Bank issued
Domestic Letter of Credit No. DLC No. DVO-78-006
in favor of LS Parts for P495,000.00 (Exh. B).
Thereafter, a Trust Receipt dated September 6,
1978, was executed by defendant Limpin and
Antonio Apostol (Exh. C). In said Trust Receipt, the
following stipulation, signed by defendant Lorenzo
Sarmiento, Jr. appears: In consideration of the Associated Banking
Corporation releasing to Gregorio Limpin and
Antonio Apostol goods mentioned in the trust
receipt, we hereby jointly and severally undertake
and agree to pay, on demand, to the Associated
Bank Corporation all sums and amount of money
which said Associated Banking Corporation may
call upon us to pay arising out of, pertaining to,
and/or any manner connected with the trust
receipt, WE FURTHER AGREE that our liability in
this undertaking shall be direct and immediate and
not contingent upon the pursuit by the Associated
Banking Corporation of whatever remedies it may
have against the aforesaid Gregorio Limpin and
Antonio Apostol.
SGD. T/LORENZO SARMIENTO, JR.
Surety/Guarantor (Exh. C-1)
Among others, the Trust Receipt (Exh. C) provided
that:
The defendants acknowledged to have received in
trust from the plaintiff Bank the merchandise
covered by the documents and agreed to hold said
merchandise in storage as the property of the
Bank, with liberty to sell the same for cash for its
accounts provided the proceeds thereof are turned
over in their entirety to the bank to be applied

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

judgment of the trial court, and, denied the Motion

for Reconsideration of herein petitioner.
Hence, herein petition assigning the following
errors:
1. THE RESPONDENT COURT OF APPEALS IN ITS
AFOREQUOTED RULING HAD DEPARTED FROM THE
APPLICABLE BASIC PRINCIPLE AND PROCEDURE TO
THE INSTANT CIVIL CASE EMBODYING THE
OFFENDED PARTYS (ASSOCIATED BANK) CLAIM
FOR THE CIVIL LIABILITY OF P495,000.00, NOT
HAVING BEEN EXPRESSLY RESERVED BY IT, HAS
BEEN NOT ONLY IMPLIEDLY, BUT IN FACT
EXPRESSLY INSTITUTED ALREADY IN CRIMINAL
CASE NO. 14,126, THE INFORMATION FOR WHICH
HAD BEEN FILED AHEAD AND THE PROCEEDINGS
CONDUCTED PRIOR TO THE PRESENT CIVIL CASE
BEFORE THE SAME REGIONAL TRIAL COURT OF
DAVAO CITY IS PROCEDURALLY BARRED.
2. THE RESPONDENT COURT OF APPEALS HAD
DISREGARDED BY JUDICIAL FIAT THAT THE RTC OF
DAVAO CITY IN CRIMINAL CASE No. 14,126 HAD IN
FACT ALREADY ADJUDGED CIVIL LIABILITY OF THE
SAME CLAIM AS HEREIN IN FAVOR OF
COMPLAINANT ASSOCIATED BANK AS AGAINST
PETITIONER GREGORIO LIMPIN, JR.
3. THE RESPONDENT COURT OF APPEALS HAD
IGNORED THE CLEAR ADMITTED FACT OF RECORD
THAT FORMAL APPEARANCE OF COMPLAINANT
BANKS COUNSEL HAD BEEN ENTERED IN CRIMINAL
CASE NO. 14,126.[5]
With respect to the second assigned error, we find
no cogent reason to disturb the finding of the RTC
of Davao City (Branch 12) in its Order dated
December 16, 1988[6] that the decision
promulgated by the RTC of Davao City (Branch 15)
in Criminal Case No. 14,126 did not contain an
award of civil liability as it appears in the
dispositive portion of the latter courts Decision
dated July 14, 1988.[7]
Being interrelated, we shall discuss jointly the first
and third assigned errors.
At the outset, it should be stated that in the
Amended Information, dated April 1, 1987, filed in
Criminal Case No. 14,126, Lorenzo Sarmiento, Jr.
was dropped as an accused.[8] Hence, with
respect to Sarmiento Jr., Criminal Case No. 14,126
cannot, in any way, bar the filing by private
respondent of the present civil action against him.
With respect to Limpin, Jr., petitioners claim that
private respondents right to institute separately
the civil action for the recovery of civil liability is
already barred on the ground that the same was
not expressly reserved in the criminal action
earlier filed against said respondent.
Pertinent to this issue is the then prevailing Rule
111 of the 1985 Rules on Criminal Procedure.
Section 1 thereof provides:

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

acquitted on the ground that the element of

misappropriation or conversion was inexistent.
Subsequently, IBAA filed a civil case to recover the
value of the goods allegedly misappropriated or
converted. The lower court initially dismissed the
complaint holding that Vintolas acquittal in the
criminal case barred the complaint, but on motion
for reconsideration filed by IBAA the lower court
ruled in favor of the latter. On appeal, the Vintolas
contended that the civil action is already barred by
the judgment in the criminal case because IBAA
did not reserve in the criminal case its right to
enforce separately the Vintolas civil liability. They
claim that by actively intervening in the
prosecution of the criminal case through a private
prosecutor, IBAA had chosen to file the civil action
impliedly with the criminal action, pursuant to
Section 1, Rule 111 of the 1985 Rules on Criminal
Procedure. In ruling that the Estafa case is not a
bar to the institution of a civil action for collection,
this Court held that:
[i]t is inaccurate for the VINTOLAS to claim that the
judgment in the estafa case had declared that the
facts from which the civil action might arise, did
not exist, for it will be recalled that the decision of
acquittal expressly declared that the remedy of the
Bank is civil and not criminal in nature. This
amounts to a reservation of the civil action in
IBAAs favor for the Court would not have dwelt on
a civil liability that it had intended to extinguish by
the same decision.
In the Bernaldes case, plaintiffs spouses Nicasio
Bernaldes, Sr. and Perpetua Besas together with
their minor son, Jovito, filed a complaint for
damages against defendant Bohol Land
Transportation Co. for the death of Jovitos brother
Nicasio, Jr. and for serious physical injuries
obtained by Jovito when the bus in which they
were riding, fell off a deep precipice.Defendant bus
company moved to dismiss the complaint on the
ground that in the criminal case earlier filed
against its bus driver, plaintiffs intervened through
their counsel but did not reserve therein their right
to file a separate action for damages. The lower
court sustained defendants motion to dismiss. On
appeal, this Court held that the dismissal was
improper and ruled thus:
True, appellants, through private prosecutors, were
allowed to intervene whether properly or
improperly we do not decide here in the criminal
action against appellees driver, but if that
amounted inferentially to submitting in said case
their claim for civil indemnity, the claim could have
been only against the driver but not against
appellee who was not a party therein. As a matter
of fact, however, inspite of appellees statements to
the contrary in its brief, there is no showing in the

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

claim for damages in the same action.[19] In the

present case, it can be said with reasonable
certainty that by withdrawal of appearance of its
counsel in the early stage of the criminal
proceedings, the private respondent, indeed, had
no intention of submitting its claim for civil liability
against petitioners in the criminal action filed
against the latter.
Furthermore, private respondents right to file a
separate complaint for a sum of money is
governed by the provisions of Article 31 of the Civil
Code, to wit:
Article 31. When the civil action is based on an
obligation not arising from the act or omission
complained of as a felony, such civil action may
proceed independently of the criminal proceedings
and regardless of the result of the latter.
In the present case, private respondents complaint
against petitioners was based on the failure of the
latter to comply with their obligation as spelled out
in the Trust Receipt executed by them.[20] This
breach of obligation is separate and distinct from
any criminal liability for misuse and/or
misappropriation of goods or proceeds realized
from the sale of goods, documents or instruments
released under trust receipts, punishable under
Section 13 of the Trust Receipts Law (P.D. 115) in
relation to Article 315(1), (b) of the Revised Penal
Code. Being based on an obligation ex
contractu and not ex delicto, the civil action may
proceed independently of the criminal proceedings
instituted against petitioners regardless of the
result of the latter.[21]
WHEREFORE, the petition is denied and the
assailed Decision and Resolution of the Court of
Appeals are hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.