G.R. No. 74886 December 8, 1992 PRUDENTIAL BANK, petitioner, vs.

INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI, respondents.

textile machineries and installed the same at its factory site at 69 Obudan Street, Quezon City. Sometime in 1967, the defendant-appellant ceased business operation ( sic). On December 29, 1969, defendant-appellant's factory was leased by Yupangco Cotton Mills for an annual rental of P200,000.00 (Exhibit I, Ibid., p. 22). The lease was renewed on January 3, 1973 (Exhibit J, Ibid., p. 26). On January 5, 1974, all the textile machineries in the defendant-appellant's factory were sold to AIC Development Corporation for P300,000.00 (Exhibit K, Ibid., p. 29). The obligation of the defendant-appellant arising from the letter of credit and the trust receipt remained unpaid and unliquidated. Repeated formal demands (Exhibits U, V, and W, Ibid., pp. 62, 63, 64) for the payment of the said trust receipt yielded no result Hence, the present action for the collection of the principal amount of P956,384.95 was filed on October 3, 1974 against the defendant-appellant and Anacleto R. Chi. In their respective answers, the defendants interposed identical special defenses, viz., the complaint states no cause of action; if there is, the same has prescribed; and the plaintiff is guilty of laches. 2 On 15 June 1978, the trial court rendered its decision the dispositive portion of which reads:

DAVIDE, JR., J.: Petitioner seeks to review and set aside the decision 1 of public respondent; Intermediate Appellate Court (now Court of Appeals), dated 10 March 1986, in AC-G.R. No. 66733 which affirmed in toto the 15 June 1978 decision of Branch 9 (Quezon City) of the then Court of First Instance (now Regional Trial Court) of Rizal in Civil Case No. Q-19312. The latter involved an action instituted by the petitioner for the recovery of a sum of money representing the amount paid by it to the Nissho Company Ltd. of Japan for textile machinery imported by the defendant, now private respondent, Philippine Rayon Mills, Inc. (hereinafter Philippine Rayon), represented by co-defendant Anacleto R. Chi. The facts which gave rise to the instant controversy are summarized by the public respondent as follows: On August 8, 1962, defendant-appellant Philippine Rayon Mills, Inc. entered into a contract with Nissho Co., Ltd. of Japan for the importation of textile machineries under a five-year deferred payment plan (Exhibit B, Plaintiff's Folder of Exhibits, p 2). To effect payment for said machineries, the defendantappellant applied for a commercial letter of credit with the Prudential Bank and Trust Company in favor of Nissho. By virtue of said application, the Prudential Bank opened Letter of Credit No. DPP-63762 for $128,548.78 (Exhibit A, Ibid., p. 1). Against this letter of credit, drafts were drawn and issued by Nissho (Exhibits X, X-1 to X-11, Ibid., pp. 65, 66 to 76), which were all paid by the Prudential Bank through its correspondent in Japan, the Bank of Tokyo, Ltd. As indicated on their faces, two of these drafts (Exhibit X and X-1, Ibid., pp. 65-66) were accepted by the defendant-appellant through its president, Anacleto R. Chi, while the others were not (Exhibits X-2 to X-11, Ibid., pp. 66 to 76). Upon the arrival of the machineries, the Prudential Bank indorsed the shipping documents to the defendant-appellant which accepted delivery of the same. To enable the defendant-appellant to take delivery of the machineries, it executed, by prior arrangement with the Prudential Bank, a trust receipt which was signed by Anacleto R. Chi in his capacity as President ( sic) of defendantappellant company (Exhibit C, Ibid., p. 13). At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the defendant-appellant fail to pay the total amount or any portion of the drafts issued by Nissho and paid for by Prudential Bank. The defendant-appellant was able to take delivery of the

WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22, the amounts due under Exhibits "X" & "X-1", with interest at 6% per annum beginning September 15, 1974 until fully paid. Insofar as the amounts involved in drafts Exhs. "X" ( sic) to "X-11", inclusive, the same not having been accepted by defendant Philippine Rayon Mills, Inc., plaintiff's cause of action thereon has not accrued, hence, the instant case is premature. Insofar as defendant Anacleto R. Chi is concerned, the case is dismissed. Plaintiff is ordered to pay defendant Anacleto R. Chi the sum of P20,000.00 as attorney's fees. With costs against defendant Philippine Rayon Mills, Inc. SO ORDERED. 3 Petitioner appealed the decision to the then Intermediate Appellate Court. In urging the said court to reverse or modify the decision, petitioner alleged in its Brief that the trial court erred in (a) disregarding its right to reimbursement from the private respondents for the entire unpaid balance of the imported machines, the total amount of which was paid to the Nissho Company Ltd., thereby violating the principle of the third party payor's right to reimbursement provided for in the second paragraph of Article 1236 of the Civil Code and under the rule against unjust enrichment; (b) refusing to hold Anacleto R. Chi, as the responsible officer of defendant corporation, liable under Section 13 of P.D No 115 for the entire unpaid balance of the imported machines covered by the bank's trust receipt (Exhibit "C"); (c) finding that the solidary guaranty clause signed by Anacleto R. Chi is not a guaranty at all; (d) controverting the judicial admissions of Anacleto R. Chi that he is at least a simple

guarantor of the said trust receipt obligation; (e) contravening, based on the assumption that Chi is a simple guarantor, Articles 2059, 2060 and 2062 of the Civil Code and the related evidence and jurisprudence which provide that such liability had already attached; (f) contravening the judicial admissions of Philippine Rayon with respect to its liability to pay the petitioner the amounts involved in the drafts (Exhibits "X", "X-l" to "X-11''); and (g) interpreting "sight" drafts as requiring acceptance by Philippine Rayon before the latter could be held liable thereon. 4 In its decision, public respondent sustained the trial court in all respects. As to the first and last assigned errors, it ruled that the provision on unjust enrichment, Article 2142 of the Civil Code, applies only if there is no express contract between the parties and there is a clear showing that the payment is justified. In the instant case, the relationship existing between the petitioner and Philippine Rayon is governed by specific contracts, namely the application for letters of credit, the promissory note, the drafts and the trust receipt. With respect to the last ten (10) drafts (Exhibits "X-2" to "X-11") which had not been presented to and were not accepted by Philippine Rayon, petitioner was not justified in unilaterally paying the amounts stated therein. The public respondent did not agree with the petitioner's claim that the drafts were sight drafts which did not require presentment for acceptance to Philippine Rayon because paragraph 8 of the trust receipt presupposes prior acceptance of the drafts. Since the ten (10) drafts were not presented and accepted, no valid demand for payment can be made. Public respondent also disagreed with the petitioner's contention that private respondent Chi is solidarily liable with Philippine Rayon pursuant to Section 13 of P.D. No. 115 and based on his signature on the solidary guaranty clause at the dorsal side of the trust receipt. As to the first contention, the public respondent ruled that the civil liability provided for in said Section 13 attaches only after conviction. As to the second, it expressed misgivings as to whether Chi's signature on the trust receipt made the latter automatically liable thereon because the so-called solidary guaranty clause at the dorsal portion of the trust receipt is to be signed not by one (1) person alone, but by two (2) persons; the last sentence of the same is incomplete and unsigned by witnesses; and it is not acknowledged before a notary public. Besides, even granting that it was executed and acknowledged before a notary public, Chi cannot be held liable therefor because the records fail to show that petitioner had either exhausted the properties of Philippine Rayon or had resorted to all legal remedies as required in Article 2058 of the Civil Code. As provided for under Articles 2052 and 2054 of the Civil Code, the obligation of a guarantor is merely accessory and subsidiary, respectively. Chi's liability would therefore arise only when the principal debtor fails to comply with his obligation. 5 Its motion to reconsider the decision having been denied by the public respondent in its Resolution of 11 June 1986, 6 petitioner filed the instant petition on 31 July 1986 submitting the following legal issues: I. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN DENYING PETITIONER'S CLAIM FOR FULL REIMBURSEMENT AGAINST THE PRIVATE RESPONDENTS FOR THE PAYMENT PETITIONER MADE TO NISSHO CO. LTD. FOR THE BENEFIT OF PRIVATE RESPONDENT UNDER ART. 1283 OF THE NEW CIVIL CODE OF THE PHILIPPINES AND UNDER THE GENERAL PRINCIPLE AGAINST UNJUST ENRICHMENT; II. WHETHER OR NOT RESPONDENT CHI IS SOLIDARILY LIABLE UNDER THE TRUST RECEIPT (EXH. C);

III. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS OF RESPONDENT CHI HE IS LIABLE THEREON AND TO WHAT EXTENT; IV. WHETHER OR NOT RESPONDENT CHI IS MERELY A SIMPLE GUARANTOR; AND IF SO; HAS HIS LIABILITY AS SUCH ALREADY ATTACHED; V. WHETHER OR NOT AS THE SIGNATORY AND RESPONSIBLE OFFICER OF RESPONDENT PHIL. RAYON RESPONDENT CHI IS PERSONALLY LIABLE PURSUANT TO THE PROVISION OF SECTION 13, P.D. 115; VI. WHETHER OR NOT RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE TRUST RECEIPT (EXH. C); VII. WHETHER OR NOT ON THE BASIS OF THE JUDICIAL ADMISSIONS RESPONDENT PHIL. RAYON IS LIABLE TO THE PETITIONER UNDER THE DRAFTS (EXHS. X, X-1 TO X-11) AND TO WHAT EXTENT; VIII. WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM RESPONDENT PHIL. RAYON BEFORE THE LATTER BECOMES LIABLE TO PETITIONER. 7 In the Resolution of 12 March 1990, 8 this Court gave due course to the petition after the filing of the Comment thereto by private respondent Anacleto Chi and of the Reply to the latter by the petitioner; both parties were also required to submit their respective memoranda which they subsequently complied with. As We see it, the issues may be reduced as follows: 1. Whether presentment for acceptance of the drafts was indispensable to make Philippine Rayon liable thereon; 2. Whether Philippine Rayon is liable on the basis of the trust receipt; 3. Whether private respondent Chi is jointly and severally liable with Philippine Rayon for the obligation sought to be enforced and if not, whether he may be considered a guarantor; in the latter situation, whether the case should have been dismissed on the ground of lack of cause of action as there was no prior exhaustion of Philippine Rayon's properties. Both the trial court and the public respondent ruled that Philippine Rayon could be held liable for the two (2) drafts, Exhibits "X" and "X-1", because only these appear to have been accepted by the latter after due presentment. The liability for the remaining ten (10) drafts (Exhibits "X-2" to "X-11"

inclusive) did not arise because the same were not presented for acceptance. In short, both courts concluded that acceptance of the drafts by Philippine Rayon was indispensable to make the latter liable thereon. We are unable to agree with this proposition. The transaction in the case at bar stemmed from Philippine Rayon's application for a commercial letter of credit with the petitioner in the amount of $128,548.78 to cover the former's contract to purchase and import loom and textile machinery from Nissho Company, Ltd. of Japan under a five-year deferred payment plan. Petitioner approved the application. As correctly ruled by the trial court in its Order of 6 March 1975: 9 . . . By virtue of said Application and Agreement for Commercial Letter of Credit, plaintiff bank 10 was under obligation to pay through its correspondent bank in Japan the drafts that Nisso (sic) Company, Ltd., periodically drew against said letter of credit from 1963 to 1968, pursuant to plaintiff's contract with the defendant Philippine Rayon Mills, Inc. In turn, defendant Philippine Rayon Mills, Inc., was obligated to pay plaintiff bank the amounts of the drafts drawn by Nisso (sic) Company, Ltd. against said plaintiff bank together with any accruing commercial charges, interest, etc. pursuant to the terms and conditions stipulated in the Application and Agreement of Commercial Letter of Credit Annex "A". A letter of credit is defined as an engagement by a bank or other person made at the request of a customer that the issuer will honor drafts or other demands for payment upon compliance with the conditions specified in the credit. 11 Through a letter of credit, the bank merely substitutes its own promise to pay for one of its customers who in return promises to pay the bank the amount of funds mentioned in the letter of credit plus credit or commitment fees mutually agreed upon. 12 In the instant case then, the drawee was necessarily the herein petitioner. It was to the latter that the drafts were presented for payment. In fact, there was no need for acceptance as the issued drafts are sight drafts. Presentment for acceptance is necessary only in the cases expressly provided for in Section 143 of the Negotiable Instruments Law (NIL). 13 The said section reads: Sec. 143. When presentment for acceptance must be made . Presentment for acceptance must be made: (a) Where the bill is payable after sight, or in any other case, where presentment for acceptance is necessary in order to fix the maturity of the instrument; or (b) Where the bill expressly stipulates that it shall be presented for acceptance; or (c) Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. In no other case is presentment for acceptance necessary in order to render any party to the bill liable. Obviously then, sight drafts do not require presentment for acceptance.

The acceptance of a bill is the signification by the drawee of his assent to the order of the drawer; 14 this may be done in writing by the drawee in the bill itself, or in a separate instrument. 15 The parties herein agree, and the trial court explicitly ruled, that the subject, drafts are sight drafts. Said the latter: . . . In the instant case the drafts being at sight, they are supposed to be payable upon acceptance unless plaintiff bank has given the Philippine Rayon Mills Inc. time within which to pay the same. The first two drafts (Annexes C & D, Exh. X & X-1) were duly accepted as indicated on their face ( sic), and upon such acceptance should have been paid forthwith. These two drafts were not paid and although Philippine Rayon Mills ought to have paid the same, the fact remains that until now they are still unpaid. 16 Corollarily, they are, pursuant to Section 7 of the NIL, payable on demand. Section 7 provides: Sec. 7. When payable on demand. An instrument is payable on demand (a) When so it is expressed to be payable on demand, or at sight, or on presentation; or (b) In which no time for payment in expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand. (emphasis supplied) Paragraph 8 of the Trust Receipt which reads: "My/our liability for payment at maturity of any accepted draft, bill of exchange or indebtedness shall not be extinguished or modified" 17 does not, contrary to the holding of the public respondent, contemplate prior acceptance by Philippine Rayon, but by the petitioner. Acceptance, however, was not even necessary in the first place because the drafts which were eventually issued were sight drafts And even if these were not sight drafts, thereby necessitating acceptance, it would be the petitioner and not Philippine Rayon which had to accept the same for the latter was not the drawee. Presentment for acceptance is defined an the production of a bill of exchange to a drawee for acceptance. 18 The trial court and the public respondent, therefore, erred in ruling that presentment for acceptance was an indispensable requisite for Philippine Rayon's liability on the drafts to attach. Contrary to both courts' pronouncements, Philippine Rayon immediately became liable thereon upon petitioner's payment thereof. Such is the essence of the letter of credit issued by the petitioner. A different conclusion would violate the principle upon which commercial letters of credit are founded because in such a case, both the beneficiary and the issuer, Nissho Company Ltd. and the petitioner, respectively, would be placed at the mercy of Philippine Rayon even if the latter had already received the imported machinery and the petitioner had fully paid for it. The typical setting and purpose of a letter of credit are described in Hibernia Bank and Trust Co. vs. J. Aron & Co., Inc., 19 thus:

Commercial letters of credit have come into general use in international sales transactions where much time necessarily elapses between the sale and the receipt by a purchaser of the merchandise, during which interval great price changes may occur. Buyers and sellers struggle for the advantage of position. The seller is desirous of being paid as surely and as soon as possible, realizing that the vendee at a distant point has it in his power to reject on trivial grounds merchandise on arrival, and cause considerable hardship to the shipper. Letters of credit meet this condition by affording celerity and certainty of payment. Their purpose is to insure to a seller payment of a definite amount upon presentation of documents. The bank deals only with documents. It has nothing to do with the quality of the merchandise. Disputes as to the merchandise shipped may arise and be litigated later between vendor and vendee, but they may not impede acceptance of drafts and payment by the issuing bank when the proper documents are presented. The trial court and the public respondent likewise erred in disregarding the trust receipt and in not holding that Philippine Rayon was liable thereon. In People vs. Yu Chai Ho, 20 this Court explains the nature of a trust receipt by quoting In re Dunlap Carpet Co., 21 thus: By this arrangement a banker advances money to an intending importer, and thereby lends the aid of capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade could hardly be carried on by any other means, and therefore it is of the first importance that the fundamental factor in the transaction, the banker's advance of money and credit, should receive the amplest protection. Accordingly, in order to secure that the banker shall be repaid at the critical point that is, when the imported goods finally reach the hands of the intended vendee the banker takes the full title to the goods at the very beginning; he takes it as soon as the goods are bought and settled for by his payments or acceptances in the foreign country, and he continues to hold that title as his indispensable security until the goods are sold in the United States and the vendee is called upon to pay for them. This security is not an ordinary pledge by the importer to the banker, for the importer has never owned the goods, and moreover he is not able to deliver the possession; but the security is the complete title vested originally in the bankers, and this characteristic of the transaction has again and again been recognized and protected by the courts. Of course, the title is at bottom a security title, as it has sometimes been called, and the banker is always under the obligation to reconvey; but only after his advances have been fully repaid and after the importer has fulfilled the other terms of the contract. As further stated in National Bank vs. Viuda e Hijos de Angel Jose, 22 trust receipts: . . . [I]n a certain manner, . . . partake of the nature of a conditional sale as provided by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon an he has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or in the person who has 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. Under P.D. No. 115, otherwise known an the Trust Receipts Law, which took effect on 29 January 1973, a trust receipt transaction is defined as "any transaction by and between a person referred to in

this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests' over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called the "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trusts receipt, or for other purposes substantially equivalent to any one of the following: . . ." It is alleged in the complaint that private respondents "not only have presumably put said machinery to good use and have profited by its operation and/or disposition but very recent information that ( sic) reached plaintiff bank that defendants already sold the machinery covered by the trust receipt to Yupangco Cotton Mills," and that "as trustees of the property covered by the trust receipt, . . . and therefore acting in fiduciary (sic) capacity, defendants have willfully violated their duty to account for the whereabouts of the machinery covered by the trust receipt or for the proceeds of any lease, sale or other disposition of the same that they may have made, notwithstanding demands therefor; defendants have fraudulently misapplied or converted to their own use any money realized from the lease, sale, and other disposition of said machinery." 23 While there is no specific prayer for the delivery to the petitioner by Philippine Rayon of the proceeds of the sale of the machinery covered by the trust receipt, such relief is covered by the general prayer for "such further and other relief as may be just and equitable on the premises." 24 And although it is true that the petitioner commenced a criminal action for the violation of the Trust Receipts Law, no legal obstacle prevented it from enforcing the civil liability arising out of the trust, receipt in a separate civil action. Under Section 13 of the Trust Receipts Law, the failure of an entrustee to turn over the proceeds of the sale of goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appear in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article 315, paragraph 1(b) of the Revised Penal Code. 25Under Article 33 of the Civil Code, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party in cases of defamation, fraud and physical injuries. Estafa falls underfraud. We also conclude, for the reason hereinafter discussed, and not for that adduced by the public respondent, that private respondent Chi's signature in the dorsal portion of the trust receipt did not bind him solidarily with Philippine Rayon. The statement at the dorsal portion of the said trust receipt, which petitioner describes as a "solidary guaranty clause", reads: In consideration of the PRUDENTIAL BANK AND TRUST COMPANY complying with the foregoing, we jointly and severally agree and undertake to pay on demand to the PRUDENTIAL BANK AND TRUST COMPANY all sums of money which the said PRUDENTIAL BANK AND TRUST COMPANY may call upon us to pay arising out of or pertaining to, and/or in any event connected with the default of and/or non-fulfillment in any respect of the undertaking of the aforesaid: PHILIPPINE RAYON MILLS, INC. We further agree that the PRUDENTIAL BANK AND TRUST COMPANY does not have to take any steps or exhaust its remedy against aforesaid:

before making demand on me/us.26 Petitioner insists that by virtue of the clear wording of the statement, specifically the clause ". . . we jointly and severally agree and undertake . . .," and the concluding sentence on exhaustion, Chi's liability therein is solidary. In holding otherwise, the public respondent ratiocinates as follows: With respect to the second argument, we have our misgivings as to whether the mere signature of defendant-appellee Chi of ( sic) the guaranty agreement, Exhibit "C-1", will make it an actionable document. It should be noted that Exhibit "C-1" was prepared and printed by the plaintiff-appellant. A perusal of Exhibit "C-1" shows that it was to be signed and executed by two persons. It was signed only by defendant-appellee Chi. Exhibit "C-1" was to be witnessed by two persons, but no one signed in that capacity. The last sentence of the guaranty clause is incomplete. Furthermore, the plaintiff-appellant also failed to have the purported guarantee clause acknowledged before a notary public. All these show that the alleged guaranty provision was disregarded and, therefore, not consummated. But granting arguendo that the guaranty provision in Exhibit "C-1" was fully executed and acknowledged still defendant-appellee Chi cannot be held liable thereunder because the records show that the plaintiff-appellant had neither exhausted the property of the defendant-appellant nor had it resorted to all legal remedies against the said defendant-appellant as provided in Article 2058 of the Civil Code. The obligation of a guarantor is merely accessory under Article 2052 of the Civil Code and subsidiary under Article 2054 of the Civil Code. Therefore, the liability of the defendant-appellee arises only when the principal debtor fails to comply with his obligation. 27 Our own reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. Elsewise stated, their liability is not divisible as between them, i.e., it can be enforced to its full extent against any one of them. Furthermore, any doubt as to the import, or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; 28 as such, it must be strictly construed against the party responsible for its preparation. 29

Neither can We agree with the reasoning of the public respondent that this solidary guaranty clause was effectively disregarded simply because it was not signed and witnessed by two (2) persons and acknowledged before a notary public. While indeed, the clause ought to have been signed by two (2) guarantors, the fact that it was only Chi who signed the same did not make his act an idle ceremony or render the clause totally meaningless. By his signing, Chi became the sole guarantor. The attestation by witnesses and the acknowledgement before a notary public are not required by law to make a party liable on the instrument. The rule is that contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present; however, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that it be proved in a certain way, that requirement is absolute and indispensable. 30 With respect to a guaranty, 31 which is a promise to answer for the debt or default of another, the law merely requires that it, or some note or memorandum thereof, be in writing. Otherwise, it would be unenforceable unless ratified. 32 While the acknowledgement of a surety before a notary public is required to make the same a public document, under Article 1358 of the Civil Code, a contract of guaranty does not have to appear in a public document. And now to the other ground relied upon by the petitioner as basis for the solidary liability of Chi, namely the criminal proceedings against the latter for the violation of P.D. No. 115. Petitioner claims that because of the said criminal proceedings, Chi would be answerable for the civil liability arising therefrom pursuant to Section 13 of P.D. No. 115. Public respondent rejected this claim because such civil liability presupposes prior conviction as can be gleaned from the phrase "without prejudice to the civil liability arising from the criminal offense." Both are wrong. The said section reads: Sec. 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. A close examination of the quoted provision reveals that it is the last sentence which provides for the correct solution. It is clear that if the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense. The penalty referred to is imprisonment, the duration of which would depend on the amount of the fraud as provided for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporations, partnerships, associations and other juridical entities cannot be put in jail. However, it is these entities which are made liable for the civil liability arising from the criminal offense. This is the import of the clause "without prejudice to the civil liabilities arising from the criminal offense." And, as We stated earlier, since that violation of a trust receipt constitutes fraud under Article 33 of the Civil Code, petitioner was acting well within its rights in filing an independent civil action to enforce the civil liability arising therefrom against Philippine Rayon. The remaining issue to be resolved concerns the propriety of the dismissal of the case against private respondent Chi. The trial court based the dismissal, and the respondent Court its affirmance thereof, on the theory that Chi is not liable on the trust receipt in any capacity either as surety or as

guarantor because his signature at the dorsal portion thereof was useless; and even if he could be bound by such signature as a simple guarantor, he cannot, pursuant to Article 2058 of the Civil Code, be compelled to pay until after petitioner has exhausted and resorted to all legal remedies against the principal debtor, 33 Philippine Rayon. The records fail to show that petitioner had done so Reliance is thus placed on Article 2058 of the Civil Code which provides: Art. 2056. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. Simply stated, there is as yet no cause of action against Chi. We are not persuaded. Excussion is not a condition sine qua non for the institution of an action against a guarantor. In Southern Motors, Inc. vs. Barbosa, 34 this Court stated: 4. Although an ordinary personal guarantor not a mortgagor or pledgor may demand the aforementioned exhaustion, the creditor may, prior thereto, secure a judgment against said guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him until after the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the case. There was then nothing procedurally objectionable in impleading private respondent Chi as a codefendant in Civil Case No. Q-19312 before the trial court. As a matter of fact, Section 6, Rule 3 of the Rules of Court on permissive joinder of parties explicitly allows it. It reads: Sec. 6. Permissive joinder of parties. All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist, whether jointly, severally, or in the alternative, may, except as otherwise provided in these rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest. This is the equity rule relating to multifariousness. It is based on trial convenience and is designed to permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact. It will save the parties unnecessary work, trouble and expense. 35 However, Chi's liability is limited to the principal obligation in the trust receipt plus all the accessories thereof including judicial costs; with respect to the latter, he shall only be liable for those costs incurred after being judicially required to pay. 36 Interest and damages, being accessories of the principal obligation, should also be paid; these, however, shall run only from the date of the filing of the complaint. Attorney's fees may even be allowed in appropriate cases. 37 In the instant case, the attorney's fees to be paid by Chi cannot be the same as that to be paid by Philippine Rayon since it is only the trust receipt that is covered by the guaranty and not the full

extent of the latter's liability. All things considered, he can be held liable for the sum of P10,000.00 as attorney's fees in favor of the petitioner. Thus, the trial court committed grave abuse of discretion in dismissing the complaint as against private respondent Chi and condemning petitioner to pay him P20,000.00 as attorney's fees. In the light of the foregoing, it would no longer necessary to discuss the other issues raised by the petitioner WHEREFORE, the instant Petition is hereby GRANTED. The appealed Decision of 10 March 1986 of the public respondent in AC-G.R. CV No. 66733 and, necessarily, that of Branch 9 (Quezon City) of the then Court of First Instance of Rizal in Civil Case No. Q-19312 are hereby REVERSED and SET ASIDE and another is hereby entered: 1. Declaring private respondent Philippine Rayon Mills, Inc. liable on the twelve drafts in question (Exhibits "X", "X-1" to "X-11", inclusive) and on the trust receipt (Exhibit "C"), and ordering it to pay petitioner: (a) the amounts due thereon in the total sum of P956,384.95 as of 15 September 1974, with interest thereon at six percent (6%) per annum from 16 September 1974 until it is fully paid, less whatever may have been applied thereto by virtue of foreclosure of mortgages, if any; (b) a sum equal to ten percent (10%) of the aforesaid amount as attorney's fees; and (c) the costs. 2. Declaring private respondent Anacleto R. Chi secondarily liable on the trust receipt and ordering him to pay the face value thereof, with interest at the legal rate, commencing from the date of the filing of the complaint in Civil Case No. Q-19312 until the same is fully paid as well as the costs and attorney's fees in the sum of P10,000.00 if the writ of execution for the enforcement of the above awards against Philippine Rayon Mills, Inc. is returned unsatisfied. Costs against private respondents. SO ORDERED. Gutierrez, Jr., Bidin, Romero and Melo, JJ., concur

G.R. No. 116863 February 12, 1998 KENG HUA PAPER PRODUCTS CO. INC., petitioner, vs. COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE, INC.,respondents.

PANGANIBAN, J.: What is the nature of a bill of lading? When does a bill of lading become binding on a consignee? Will an alleged overshipment justify the consignee's refusal to receive the goods described in the bill of lading? When may interest be computed on unpaid demurrage charges? Statement of the Case These are the main questions raised in this petition assailing the Decision 1 of the Court of Appeals 2 promulgated on May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the decision 3 dated September 28, 1990 in Civil Case No. 85-33269 of the Regional Trial Court of Manila, Branch 21. The dispositive portion of the said RTC decision reads: WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause of action and right to relief. Accordingly, judgment is hereby rendered in favor of the Plaintiff and against Defendant, ordering the Defendant to pay plaintiff: 1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of the extrajudicial demand until fully paid; 2. A sum equivalent to ten (10%) percent of the total amount due as Attorney's fees and litigation expenses. Send copy to respective counsel of the parties. SO ORDERED. 4 The Facts The factual antecedents of this case as found by the Court of Appeals are as follows: Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed container, Container No. SEAU 67523, containing seventy-six bales of "unsorted waste paper" for shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading (Exh. A) to cover the shipment was issued by the plaintiff.

On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of arrival were transmitted to the defendant but the latter failed to discharge the shipment from the container during the "free time" period or grace period. The said shipment remained inside the plaintiff's container from the moment the free time period expired on July 29, 1982 until the time when the shipment was unloaded from the container on November 22, 1983, or a total of four hundred eighty-one (481) days. During the 481-day period, demurrage charges accrued. Within the same period, letters demanding payment were sent by the plaintiff to the defendant who, however, refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were made on the defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil action for collection and damages. In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty (50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in Letter of Credit No. 824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking Corporation, with partial shipment permitted; that under the letter of credit, the remaining balance of the shipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original Record); that the shipment plaintiff was asking defendant to accept was twenty (20) metric tons which is ten (10) metric tons more than the remaining balance; that if defendant were to accept the shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that plaintiff had no cause of action against the defendant because the latter did not hire the former to carry the merchandise; that the cause of action should be against the shipper which contracted the plaintiff's services and not against defendant; and that the defendant duly notified the plaintiff about the wrong shipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for defendant, p. 5. Folder of Exhibits). As previously mentioned, the RTC found petitioner liable for demurrage; attorney's fees and expenses of litigation. The petitioner appealed to the Court of Appeals, arguing that the lower court erred in (1) awarding the sum of P67,340 in favor of the private respondent, (2) rejecting petitioner's contention that there was overshipment, (3) ruling that petitioner's recourse was against the shipper, and (4) computing legal interest from date of extrajudicial demand. 5 Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto. In a subsequent resolution, 6 it also denied the petitioner's motion for reconsideration. Hence, this petition for review. 7 The Issues In its memorandum, petitioner submits the following issues: I. Whether or not petitioner had accepted the bill of lading; II. Whether or not the award of the sum of P67,340.00 to private respondent was proper;

III. Whether or not petitioner was correct in not accepting the overshipment; IV. Whether or not the award of legal interest from the date of private respondent's extrajudicial demand was proper; 8 In the main, the case revolves around the question of whether petitioner bound by the bill of lading. We shall, thus, discuss the above four issues as they intertwine with this main question. The Court's Ruling The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify the interest rate thereon. Main Issue: Liability Under the Bill of Lading A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume stipulated obligations. 9 A "bill of lading delivered and accepted constitutes the contract of carriage even though not signed," 10 because the "(a)cceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive notice." 11 In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding contract. 12 In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract between the shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land). Section 17 of the bill of lading provided that the shipper and the consignee were liable for the payment of demurrage charges for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules. Applying said stipulation, both lower courts found petitioner liable. The aforementioned section of the bill of lading reads: 17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and ship and hold them harmless against , and the carrier shall have a lien on the goods for, all expenses and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van, trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever nature, sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by reason of the goods being or having been on board, or because of shipper's failure to procure consular or other proper permits, certificates or any papers that may be required at any port or place or shipper's failure to supply information or otherwise to comply with all laws, regulations and requirements of law in connection with the goods of from any other act or omission of the shipper or consignee: (Emphasis supplied.)

Petitioner contends, however, that it should not be bound by the bill of lading because it never gave its consent thereto. Although petitioner admits "physical acceptance" of the bill of lading, it argues that its subsequent actions belie the finding that it accepted the terms and conditions printed therein. 13 Petitioner cites as support the "Notice of Refused or On Hand Freight" it received on November 2, 1982 from private respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner adds that it sent a copy of the said notice to the shipper on December 23, 1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing "that its acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had imported (with full documentary support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of lading" and "could lay them vulnerable to legal sanctions for violation of customs and tariff as well as Central Bank laws." 14 Petitioner further argues that the demurrage "was a consequence of the shipper's mistake" of shipping more than what was bought. The discrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-avis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment. 15 Petitioner the Bill of Lading Bound by

We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the arrival of the shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine the said document, petitioner did not immediately object to or dissent from any term or stipulation therein. It was only six months later, on January 24, 1983, that petitioner sent a letter to private respondent saying that it could not accept the shipment. Petitioner's inaction for such a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said letter spoke only of petitioner's inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper's failure to comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping documents were returned by the "banks" to the shipper. 18 The letter merely proved petitioner's refusal to pick up the cargo, not its rejection of the bill of lading. Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill of lading, is of no consequence. Said notice was not written by petitioner; it was sent by private respondent to petitioner in November 1982, or four months after petitioner received the bill of lading. If the notice has any legal significance at all, it is to highlight petitioner's prolonged failure to object to the bill of lading. Contrary to petitioner's contention, the notice and the letter support not belie the findings of the two lower courts that the bill of lading was impliedly accepted by petitioner. As aptly stated by Respondent Court of Appeals: In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the bill of lading from the shipper. Hence, the terms and conditions as well as the various entries contained therein were brought to its knowledge. (Herein petitioner) accepted the bill of lading without interposing any objection as to its contents. This raises the presumption that (herein petitioner) agreed to the entries and stipulations imposed therein. Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be exact, before notifying (herein private respondent) of the "wrong shipment". It was only on January 24, 1983 that (herein petitioner) sent (herein private respondent) such a letter of notification (Exh D for plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the duration of those six months

(herein private respondent never knew the reason for (herein petitioner's) refusal to discharge the shipment. After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object thereto, (herein petitioner) cannot now deny that it is bound by the terms in the bill of lading. If it did not intend to be bound, (herein petitioner) would not have waited for six months to lapse before finally bringing the matter to (herein private respondent's attention. The most logical reaction in such a case would be to immediately verify the matter with the other parties involved. In this case, however, (herein petitioner) unreasonably detained (herein private respondent's) vessel to the latter's prejudice. 19 Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause it to violate customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said laws, without a clear demonstration that taking delivery of the shipment has become legally impossible, 20 cannot defeat the petitioner's contractual obligation and liability under the bill of lading. In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time only in petitioner's memorandum before this Court. Clearly, we cannot now entertain an issue raised for the very first time on appeal, in deference to the well-settled doctrine that "(a)n issue raised for the first time on appeal and not raised timely in the proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal." 21 In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private respondent's vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to the former. In The Apollon, 22 Justice Story made the following relevant comment on the nature of demurrage: In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It is often a matter of contract, but not necessarily so. The very circumstance that in ordinary commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto. What fairer rule can be adopted than that which founds itself upon mercantile usage as to indemnity, and fixes a recompense upon the deliberate consideration of all the circumstances attending the usual earnings and expenditures in common voyages? It appears to us that an allowance, by way of demurrage, is the true measure of damages in all cases of mere detention, for that allowance has reference to the ship's expenses, wear and tear, and common employment.23 Amount of Demurrage Charges Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of the complaint, private respondent made no demand for the sum of P67,340. Moreover, private respondent's loss and prevention manager, Loi Gillera, demanded P50,260; but its counsel, Sofronio Larcia, subsequently asked for a different amount of P37,800.

Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a factual conclusion of the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court. 24 Besides, such factual finding is supported by the extant evidence. 25 The apparent discrepancy was a result of the variance of the dates when the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus, while in his letter dated April 24, 1983, 26 private respondent's counsel demanded payment of only P37,800, the additional demurrage incurred petitioner due to its continued refusal to receive delivery of the cargo ballooned to P67,340 by November 22, 1983. The testimony of Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz: Q Now, after you sent this letter, do you know what happened? A Defendant continued to refuse to take delivery of the shipment and the shipment stayed at the port for a longer period. Q So, what happened to the shipment? A The shipment incurred additional demurrage charges which amounted to P67,340.00 as of November 22, 1983 or more than a year after almost a year after the shipment arrived at the port. Q So, what did you do? A We requested our collection agency to pursue the collection of this amount. 27 Bill of Lading Other Letter of Credit Arrangements In a letter of credit, there are three distinct and independent contracts: (1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3) the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated therein. "Few things are more clearly settled in law than that the three contracts which make up the letter of credit arrangement are to be maintained in a state of perpetual separation." 28 A transaction involving the purchase of goods may also require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are not in the same locale or country, and the goods purchased have to be transported to the latter. Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit between the buyer and the issuing bank. Any discrepancy between the amount of the goods described in the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look beyond the documents presented to it by the seller pursuant to the letter of credit, 29neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-viz the Separate from

commercial invoice and the letter of a credit. Thus, the discrepancy between the amount of goods indicated in the invoice and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract of transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents of the container. The contract of carriage was under the arrangement known as "Shipper's Load And Count," and shipper was solely responsible for the loading of the container while carrier was oblivious to the contents of the shipment. Petitioner's remedy in case of overshipment lies against the seller/shipper, not against the carrier. Payment of Interest

should state the reason for the award of attorney's fees, for without such justification, its award would be a "conclusion without a premise, its basis being improperly left to speculation and conjecture." 35 WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six percent per annum shall be computed from September 28, 1990 until its full payment before finality of judgment. The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became final and executory until full satisfaction. The award of attorney's fees is DELETED. SO ORDERED.

Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, by summons, private respondent's complaint. Hence, interest may not be allowed to run from the date of private respondent's extrajudicial demands on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, "there was no demand for interest." 30 We agree. Jurisprudence teaches us: 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 31 The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article 2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill of lading did not specify the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total amount demanded cannot be deemed to have been established with reasonable certainty until the trial court rendered its judgment. Indeed, "(u)nliquidated damages or claims, it is said, are those which are not or cannot be known until definitely ascertained, assessed and determined by the courts after presentation of proof. " 32Consequently, the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial court's decision. And in accordance with Philippine National Bank 33 and Eastern Shipping, 34 the rate of twelve percent per annum shall be charged on the total then outstanding, from the time the judgment becomes final and executory until its satisfaction. Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive portion of the trial court's decision. This falls short of the settled requirement that the text of the decision

10

G.R. No. L-47011 September 30, 1981 FEATI BANK & TRUST COMPANY, petitioner, vs. COURT OF APPEALS AND QUALITY TOBACCO CORPORATION, respondents.

On January 18, 1968, U.S. Tobacco Corporation shipped the tobacco to Switzerland and as a result letter of Credit No. 20678 was issued by Swiss Credit Bank in its favor upon application of Tatran Corporation. The said letter of credit showed that the tobacco shipment was made on "FOB Manila" basis. ("FOB" stands for "free on board," wherein the seller shall deliver and load the goods at seller's point at his expense or free of charge to the buyer but the duty to pay freight charges from seller's point to the point of destination is on the buyer.) The discrepancy was discovered by the auditors of the Central Bank and both the Feati Bank and U.S. Tobacco were asked to explain. Whereupon, in a letter to Feati Bank, U.S. Tobacco explained that a mistake was made when Swiss Credit Bank, on order of Tatran Corporation, issued Letter of Credit No. 20678 in that it appeared that the shipment of tobacco was made on "FOB Manila" basis, instead of "C & F" basis. The foregoing explanation did not satisfy the Central Bank which accordingly issued Monetary Board Resolution No. 1054, dated July 1, 1969, directing the Feati Bank to advise U.S. Tobacco to have the amount of $110,000.00 remitted back to the Philippines under pain of having its foreign exchange privileges suspended. In compliance with the resolution, U.S. Tobacco repatriated on April 7, 1971, the $110,000.00 through Commercial Bank and Trust Co. which paid it P6,402 for every dollar. On April 14, 1971, Quality Tobacco Corporation (successor lo U.S. Tobacco) requested Feati Bank to pay back the amount of P30,312.29 corresponding to P10,000.00 which was not remitted to Tatran. Feati Bank replied thus: This is to acknowledge receipt of your letter dated April 14, 1971, requesting that we refund to you the excess payment of P30,312.29. However, before we make any refund and/or reimbursement to you, we request that the dollar proceeds of our LC No. 67-511 in the amount of $110,000.00 which was debited from our account when said LC was negotiated, be remitted to us in accordance with the Central Bank Monetary Board Resolution No. 1054 and not to the Commercial Bank and Trust Company. Please note that the $110,000.00 had been debited from Feati Bank and Trust Company's dollar account with the negotiating bank abroad and in compliance with the Monetary Board Resolution No. 1054, and the letter of the Director, Foreign Exchange Department dated December 6, 1968, the same should be remitted to Feati Bank and Trust Company. We, therefore, suggest that you request Commercial Bank and Trust Company to credit the account of Feati Bank and Trust Company for $110,000.00 with Chase Manhattan and we shall in turn reimburse you for the fun peso value of the aforementioned dollar amount (US $110,000.00) computed at the rate of P 3.93 together with the unutilized portion of LC No. 67-51 1, computed at the same rate. (Record on Appeal, pp. 20-21.) Quality Tobacco rejected Feati Bank's suggestion and insisted on the payment of P30,312.29. Since the parties could not agree, Quality Tobacco filed suit on September 14, 1971, in the Court of First Instance of Manila against Feati Bank praying for the return of P30,312.29, with interest in addition to damages, attorney's fees and costs.

ABAD SANTOS, J.: On June 13, 1973, the Court of First Instance of Manila, Branch XVI, rendered a decision in Civil Case No. 84509, brought by Quality Tobacco Corporation (formerly U.S. Tobacco Corporation) against Feati Bank and Trust Co., with the following dispositive portion: IN VIEW OF THE FOREGOING, the Court renders judgment as follows: 1) Plaintiff's claim for the amount of P30,312.29 is hereby denied; 2) Defendant is entitled to there turn of $110,000.00 and plaintiff is ordered to return the same to defendant upon reimbursement of the amount of P471,600.00 paid by plaintiff to the defendant. No cost or attorney's fees. On appeal by Quality Tobacco Corporation to the Court of Appeals (CA-G.R. No. 53640-R), the decision of the trial court was reversed; the counter-claim was dismissed; and the appellee was ordered to pay the appellant the sum of P30,312.29, and the costs. Its motion for reconsideration of the judgment having been denied, Feati Bank elevated the case to Us for review. The antecedents are the following: On December 7, 1967, U.S. Tobacco Corporation (predecessor of Quality Tobacco Corporation) opened with Feati Bank and Trust Co. a letter of credit No. 67-571 for US $120,000.00 in favor of Tatran Corporation, in the principality of Liechtenstein to cover the freight charges in its exportation of 1,980.194 kilos of local Virginia leaf tobacco, to be shipped "C & F" to Tatran Corporation. (Shipment under "C & F" basis, symbol for "cost" and "freight," means that the seller or shipper pays for freight charges from the point of origin to the point of destination, as the price quoted to the buyer includes the cost and freight.) U.S. Tobacco Corporation paid P471,600.00 at P3.939 for every dollar for the letter of credit. Of the amount covered by the letter of credit, Feati Bank (through the National Bank of North America), remitted to Tatran Corporation US $110,000.00, leaving an unremitted amount of US $10,000.00. After the remittance to Tatran Feati Bank's account with the National Bank of North America was debited in the amount of $110,221.00 including charges.

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In its answer, Feati Bank denied any liability or obligation for the return of P30,312.29. As a counterclaim, it demanded the return of $110,000.00 in the same foreign exchange for which it was willing to return the purchase price thereof in Philippine currency. It contended that the use of letter of credit No. 67-571 was nullified by the Central Bank without its fault; and that since the amount was debited from its account with National Bank of North America, it was deprived of the use of its dollar reserves. Feati Bank also asked for damages in the form of unrealized profits as a result of the denial of its use of $110,000.00 from December 7, 1967. Quality Tobacco Corporation replied that upon payment of the letter of credit, it became the owner of US $120,000.00 and Feati Bank had, thereby, lost any right thereto. Based on the parties' stipulations of facts, the Court of First Instance of Manila rendered the judgment above-quoted but which was reversed by the Court of Appeals as aforesaid without stating the law upon which it based its decision. The resolution of the petition hinges on how We view the contract between Feati Bank and U.S. Tobacco. The petitioner invokes Articles 1409, 1411 and 1412 of the Civil Code and argues that since the ground on which the Central Bank nullified the purchase by private respondent from petitioner of the dollars in question was the illegal object or purpose behind the purchase, i.e., the illegal exportation of the dollars, the transaction was, therefore, inexistent and void from the beginning; consequently, no valid transmission of the ownership of the dollars from petitioner to private respondent ever took place; since the illegality is imputable alone to private respondent, petitioner as the innocent party is entitled to recover back the dollars. The petitioner prays that judgment be rendered setting aside that of the Court of Appeals and reinstating and affirming that of the trial court denying plaintiff's claim for the amount of P30,312.29 and ordering plaintiff to return $110,000.00 to defendant upon the reimbursement of P471,600.00 paid by plaintiff to the defendant, with costs in this instance against private respondents. Upon the other hand, Quality Tobacco rejects these arguments and prays that the petitioner be ordered to pay the private respondent the amount of P30,312.29 with interest at the legal rate from December 7, 1967 until fully paid, and the costs. Treating the contract between the parties in the most favorable light by ascribing the existence of good faith on both sides since the Central Bank took no action on the contract except simply to order the repatriation of the dollars, We hold that it is not illegal or void ab initio but merely voidable because of the statement of a false cause. (Art. 1353, Civil Code; Concepcion vs. Sta. Ana, 87 Phil. 787 [1950].) The result will be that the parties will have to be restored to their previous situations by making mutual restitution. (Art. 1398, Civil Code.) WHEREFORE, the petition is granted; the judgment of the Court of Appeals is reversed; the petitioner shall return to the private respondent the cost of the US $120,000.00 in the amount of P471,600.00 and reciprocally the private respondent shall restore the petitioner's U.S. dollar account with the National Bank of North America or any other bank which petitioner may designate in the amount of $110,000.00 No costs. SO ORDERED.

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G.R. No. 105387 November 11, 1993 JOHANNES SCHUBACK & SONS PHILIPPINE TRADING CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS, RAMON SAN JOSE, JR., doing business under the name and style "PHILIPPINE SJ INDUSTRIAL TRADING," respondents. Hernandez, Velicaria, Vibar & Santiago for petitioner. Ernesto M. Tomaneng for private respondent.

On December 29, 1981, defendant personally submitted the quantities he wanted to Mr. Dieter Reichert, General Manager of plaintiff, at the latter's residence (t.s.n., 13 December, 1984, p. 36). The quantities were written in ink by defendant in the same Purchase Order previously submitted. At the bottom of said Purchase Order, defendant wrote in ink above his signature: "NOTE: Above P.O. will include a 3% discount. The above will serve as our initial P.O." (Exhs. G to G-3-a). Plaintiff immediately ordered the items needed by defendant from Schuback Hamburg to enable defendant to avail of the old prices. Schuback Hamburg in turn ordered (Order No. 12204) the items from NDK, a supplier of MAN spare parts in West Germany. On January 4, 1982, Schuback Hamburg sent plaintiff a proforma invoice (Exhs. N-1 to N-3) to be used by defendant in applying for a letter of credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg. Defendant acknowledged receipt of the invoice (t.s.n., 19 December 1984, p. 40). An order confirmation (Exhs. I, I-1) was later sent by Schuback Hamburg to plaintiff which was forwarded to and received by defendant on February 3, 1981 (t.s.n., 13 Dec. 1984, p. 42). On February 16, 1982, plaintiff reminded defendant to open the letter of credit to avoid delay in shipment and payment of interest (Exh. J). Defendant replied, mentioning, among others, the difficulty he was encountering in securing: the required dollar allocations and applying for the letter of credit, procuring a loan and looking for a partner-financier, and of finding ways 'to proceed with our orders" (Exh. K). In the meantime, Schuback Hamburg received invoices from, NDK for partial deliveries on Order No.12204 (Direct Interrogatories., 07 Oct, 1985, p. 3). Schuback Hamburg paid NDK. The latter confirmed receipt of payments made on February 16, 1984 (Exh.C-Deposition). On October 18, 1982, Plaintiff again reminded defendant of his order and advised that the case may be endorsed to its lawyers (Exh. L). Defendant replied that he did not make any valid Purchase Order and that there was no definite contract between him and plaintiff (Exh. M). Plaintiff sent a rejoinder explaining that there is a valid Purchase Order and suggesting that defendant either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse the case to its lawyers (Exh. N). Schuback Hamburg issued a Statement of Account (Exh. P) to plaintiff enclosing therewith Debit Note (Exh. O) charging plaintiff 30% cancellation fee, storage and interest charges in the total amount of DM 51,917.81. Said amount was deducted from plaintiff's account with Schuback Hamburg (Direct Interrogatories, 07 October, 1985). Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and June 9, 1983 were to no avail (Exhs R and S).

ROMERO, J.: In this petition for review on certiorari, petitioner questions the reversal by the Court of Appeals 1 of the trial court's ruling that a contract of sale had been perfected between petitioner and private respondent over bus spare parts. The facts as quoted from the decision of the Court of Appeals are as follows: Sometime in 1981, defendant 2 established contact with plaintiff 3 through the Philippine Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from Germany. Plaintiff communicated with its trading partner. Johannes Schuback and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts defendant wanted to order. On October 16, 1981, defendant submitted to plaintiff a list of the parts (Exhibit B) he wanted to purchase with specific part numbers and description. Plaintiff referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, plaintiff sent to defendant a letter dated 25 November, 1981 (Exh. C) enclosing its offer on the items listed by defendant. On December 4, 1981, defendant informed plaintiff that he preferred genuine to replacement parts, and requested that he be given 15% on all items (Exh. D). On December 17, 1981, plaintiff submitted its formal offer (Exh. E) containing the item number, quantity, part number, description, unit price and total to defendant. On December, 24, 1981, defendant informed plaintiff of his desire to avail of the prices of the parts at that time and enclosed Purchase Order No. 0101 dated 14 December 1981 (Exh. F to F-4). Said Purchase Order contained the item number, part number and description. Defendant promised to submit the quantity per unit he wanted to order on December 28 or 29 (Exh. F).

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Consequently, petitioner filed a complaint for recovery of actual or compensatory damages, unearned profits, interest, attorney's fees and costs against private respondent. In its decision dated June 13, 1988, the trial court 4 ruled in favor of petitioner by ordering private respondent to pay petitioner, among others, actual compensatory damages in the amount of DM 51,917.81, unearned profits in the amount of DM 14,061.07, or their peso equivalent. Thereafter, private respondent elevated his case before the Court of Appeals. On February 18, 1992, the appellate court reversed the decision of the trial court and dismissed the complaint of petitioner. It ruled that there was no perfection of contract since there was no meeting of the minds as to the price between the last week of December 1981 and the first week of January 1982. The issue posed for resolution is whether or not a contract of sale has been perfected between the parties. We reverse the decision of the Court of Appeals and reinstate the decision of the trial court. It bears emphasizing that a "contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. . . . " 5 Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer and acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter offer." The facts presented to us indicate that consent on both sides has been manifested. The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its proposal containing the item number, quantity, part number, description, the unit price and total to private respondent. On December 24, 1981, private respondent informed petitioner of his desire to avail of the prices of the parts at that time and simultaneously enclosed its Purchase Order No. 0l01 dated December 14, 1981. At this stage, a meeting of the minds between vendor and vendee has occurred, the object of the contract: being the spare parts and the consideration, the price stated in petitioner's offer dated December 17, 1981 and accepted by the respondent on December 24,1981. Although said purchase order did not contain the quantity he wanted to order, private respondent made good, his promise to communicate the same on December 29, 1981. At this juncture, it should be pointed out that private respondent was already in the process of executing the agreement previously reached between the parties. Below Exh. G-3, marked as Exhibit G-3-A, there appears this statement made by private respondent: "Note. above P.O. will include a 3% discount. The above will serve as our initial P.O." This notation on the purchase order was another indication of acceptance on the part of the vendee, for by requesting a 3% discount, he implicitly accepted the price as first offered by the vendor. The immediate acceptance by the vendee of the offer was impelled by the fact that on January 1, 1982, prices would go up, as in fact, the petitioner informed him that there would be a 7% increase, effective January 1982. On the other hand, concurrence by the vendor with the said discount requested by the vendee was manifested when petitioner immediately ordered the items needed by private respondent from Schuback Hamburg which in turn ordered from NDK, a supplier of MAN spare parts in West Germany.

When petitioner forwarded its purchase order to NDK, the price was still pegged at the old one. Thus, the pronouncement of the Court Appeals that there as no confirmed price on or about the last week of December 1981 and/or the first week of January 1982 was erroneous. While we agree with the trial court's conclusion that indeed a perfection of contract was reached between the parties, we differ as to the exact date when it occurred, for perfection took place, not on December 29, 1981. Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of December 24, 1981, these essential elements had already occurred. On the part of the buyer, the situation reveals that private respondent failed to open an irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg, Germany. This omission, however. does not prevent the perfection of the contract between the parties, for the opening of the letter of credit is not to be deemed a suspensive condition. The facts herein do not show that petitioner reserved title to the goods until private respondent had opened a letter of credit. Petitioner, in the course of its dealings with private respondent, did not incorporate any provision declaring their contract of sale without effect until after the fulfillment of the act of opening a letter of credit. The opening of a etter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of which will prevent the perfection of the contract from taking place. To adopt the Court of Appeals' ruling that the contract of sale was dependent on the opening of a letter of credit would be untenable from a pragmatic point of view because private respondent would not be able to avail of the old prices which were open to him only for a limited period of time. This explains why private respondent immediately placed the order with petitioner which, in turn promptly contacted its trading partner in Germany. As succinctly stated by petitioner, "it would have been impossible for respondent to avail of the said old prices since the perfection of the contract would arise much later, or after the end of the year 1981, or when he finally opens the letter of credit." 6 WHEREFORE, the petition is GRANTED and the decision of the trial court dated June 13, 1988 is REINSTATED with modification. SO ORDERED.

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Consequently, the bank sued TOMCO, Inc. and Abad in Civil Case No. 75767-CFI Manila entitled, "Philippine Commercial and Industrial Bank vs. TOMCO, Inc. and Ramon Abad." PCIB presented in evidence a "Statement of Draft Drawn" showing that TOMCO was obligated to it in the total sum of P125,766.13 as of August 26, 1970. TOMCO did not deny its liability to PCIB under the letter of credit but it alleged that inasmuch as it made a marginal deposit of P28,000, this amount should have been deducted from its principal obligation, leaving a balance of P52,000 only, on which the bank should have computed the interest, bank charges, and attorney's fees. On February 5, 1972, the trial court rendered judgment in favor of PCIB ordering TOMCO, Inc. and Abad to pay jointly and severally to the bank the sum of P125,766.13 as of August 26, 1970, with interest and other charges until complete payment is made, plus attorney's fees and costs. Abad appealed to the Court of Appeals which, in a decision dated November 21, 1975, affirmed in toto the decision of the trial court. Abad filed this petition for review raising the issue of whether TOMCO's marginal deposit of P28,000 in the possession of the bank should first be deducted from its principal indebtedness before computing the interest and other charges due. Petitioner alleges that by not deducting the marginal deposit from TOMCO's indebtedness, the bank unjustly enriched itself at the expense of the debtor (TOMCO) and its surety (Abad). The petition is impressed with merit. The nature and mercantile usage of a trust receipt was explained in the case of PNB vs. General Acceptance & Finance Corporation , et al., G.R. No. L-30751, 24 May 1988 and Vintola vs. Insular Bank of Asia and America, 150 SCRA 578, as follows: . . . . 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, ... . The bank does not become the real owner of the goods. It is merely the holder of a security title for the advances it had made to the importer. The goods the importer had purchased through the bank financing, remain the importer's property and he holds it at his own risk. The trust receipt arrangement does not convert the bank into an investor; it remains a lender and creditor. This is so because the bank had previously extended a loan which the letter of credit represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature involved. . . . . A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the letter of credit, with the trust receipt as a security for the loan. In

G.R. No. L-42735 January 22, 1990 RAMON L. ABAD, petitioner, vs. HON. COURT OF APPEALS & THE PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, respondents. Manuel T. De Guia for petitioner. San Juan, Africa, Gonzales & San Agustin Law Offices for private respondent.

GRINO-AQUINO, J.: The bone of contention in this petition for review of the decision dated November 21, 1975 of the Court of Appeals in C.A. G.R. No. 51649-R entitled, "Philippine Commercial and Industrial Bank vs. TOMCO, Inc., Oregon Industries, Inc., and Ramon L. Abad" is whether the debtor (or its surety) is entitled to deduct the debtor's cash marginal deposit from the principal obligation under a letter of credit and to have the interest charges computed only on the balance of the said obligation. On October 31, 1963, TOMCO, Inc., now known as Southeast Timber Co. (Phils.), Inc., applied for, and was granted by the Philippine Commercial and Industrial Bank (hereafter called "PCIB"), a domestic letter of credit for P 80,000 in favor of its supplier, Oregon Industries, Inc., to pay for one Skagit Yarder with accessories. PCIB paid to Oregon Industries the cost of the machinery against a bill of exchange for P 80,000, with recourse, presentment and notice of dishonor waived, and with date of maturity on January 4, 1964. After making the required marginal deposit of P28,000 on November 5, 1963, TOMCO, Inc. signed and delivered to the bank a trust receipt acknowledging receipt of the merchandise in trust for the bank, with the obligation "to hold the same in storage" as property of PCIB, with a right to sell the same for cash provided that the entire proceeds thereof are turned over to the bank, to be applied against acceptance(s) and any other indebtedness of TOMCO, Inc. In consideration of the release to TOMCO, Inc. by PCIB of the machinery covered by the trust receipt, petitioner Ramon Abad signed an undertaking entitled, "Deed of Continuing Guaranty" appearing on the back of the trust receipt, whereby he promised to pay the obligation jointly and severally with TOMCO, Inc. Except for TOMCO's P28,000 marginal deposit in the bank, no payment has been made to PCIB by either TOMCO, Inc. or its surety, Abad, on the P80,000 letter of credit.

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other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. . . . . 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. The marginal deposit requirement is a Central Bank measure to cut off excess currency liquidity which would create inflationary pressure. It is a collateral security given by the debtor, and is supposed to be returned to him upon his compliance with his secured obligation. Consequently, the bank pays no interest on the marginal deposit, unlike an ordinary bank deposit which earns interest in the bank. As a matter of fact, the marginal deposit requirement for letters of credit has been discontinued, except in those cases where the applicant for a letter of credit is not known to the bank or does not maintain a good credit standing therein (Bankers Associations of the Philippines Policy, Rules 6 and 7). It is only fair then that the importer's marginal deposit (if one was made, as in this case), should be set off against his debt, for while the importer earns no interest on his marginal deposit, the bank, apart from being able to use said deposit for its own purposes, also earns interest on the money it loaned to the importer. It would be onerous to compute interest and other charges on the face value of the letter of credit which the bank issued, without first crediting or setting off the marginal deposit which the importer paid to the bank. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount (Art. 1290, Civil Code). Although Abad is only a surety, he may set up compensation as regards what the creditor owes the principal debtor, TOMCO (Art. 1280, Civil Code). It is not farfetched to assume that the bank used TOMCO's marginal deposit to partially fund the P80,000 letter of credit it issued to TOMCO, hence, the interests and other charges on said letter of credit should be levied only on the balance of P52,000 which was the portion that was actually funded or loaned by the bank from its own funds. Requiring the importer to pay interest on the entire letter of credit without deducting first him marginal deposit, would be a clear case of unjust enrichment by the bank. WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is modified by deducting TOMCO's marginal deposit of P28,000 from the principal amount of P80,000 covered by its letter of credit. The interests and other charges of the bank should be computed on the outstanding loan balance of P52,000 only. The decision is affirmed in other respects, with costs against the respondent Philippine Commercial and Industrial Bank. SO ORDERED.

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"WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED, with the modification that instead of P18,961,372.43, all the defendants are hereby ordered to pay, jointly and severally to plaintiff the amount of P3,060,406.25, Philippine Currency, inclusive of stipulated interest, service charges, litigation expenses and attorneys fees, with interest thereon at the legal rate from February 15, 1988, until fully paid. "All other disquisitions of the trial court are hereby AFFIRMED. G.R. No. 133877 November 14, 2001 "SO ORDERED." In this petition, RCBC questions the Court of Appeals decision insofar as it modified the RTC decision by decreasing the award in its favor from P18,961.372.43 to P3,060,406.25. In assailing the Court of Appeals decision, petitioner RCBC raises a question of law, that is, whether or not the Court of Appeals can deviate from the provisions of the contract between the parties, which contract is the law between them. The facts as summarized by the Court of Appeals are: "From the records of the case, it appears that defendant Alfa RTW Manufacturing Corporation (Alfa RTW), on separate instances, had applied for and was granted by the plaintiff Rizal Commercial Banking Corporation (RCBC) four Letters of Credit (RO80/2487, RO-80/2789, RO-80/D-1795 and RO-81/D-1800 marked as Exhibits "A", "D", "G", and "J", respectively) to facilitate its purchase of raw materials for its garments business. Upon such letters of credit, corresponding bills of exchange (Exhibits "B", "E", "H", and "K") of various amounts were drawn, and charged to the account of said defendants. The defendant Alfa RTW, in turn, had executed four Trust Receipts (Exhibits "C", "F", "I" and "L"), stipulating that it had received in trust for the plaintiff bank the goods and merchandise described therein, and which were purchased with the drawings upon the letters of credit. When the obligations upon the said commercial documents became due, the plaintiff demanded payment of the defendants undertakings, citing two documents allegedly executed by the individual defendants Johnny Teng, Ramon Lee, Antonio D. Lacdao and Ramon Uy and Alfa Integrated Textile Mills Inc. (Alfa ITM), labeled Comprehensive Surety Agreements (Exhibits "N" and "M") dated September 8, 1978 and October 10, 1979. Under such Comprehensive Surety Agreements, it was essentially agreed that for and in consideration of any existing indebtedness to plaintiff bank of defendant Alfa RTW and/or in order to induce the plaintiff bank at any time thereafter to make loans or advances or increases thereof or to extend credit in any other manner to or for the account of defendant, Alfa ITM and the signatory officers agreed to guarantee in joint and several capacity the punctual payment at maturity to plaintiff bank of any and all such indebtedness and/or other obligations and also any and all indebtedness of every kind which was then or may thereafter become due or owing to plaintiff bank by the defendant Alfa RTW, together with any and all expenses of collection, etc., provided, however, that the liability of individual defendants and defendant Alfa Integrated Textile Mills, Inc. thereunder shall not exceed the sum of P4,000,000.00 and P7,500,000.00 and such interest

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. ALFA RTW MANUFACTURING CORPORATION, BA FINANCE CORPORATION, NORTH AMERICAN GARMENTS CORPORATION, JOHNNY TENG, RAMON LEE, ANTONIO LACDAO, RAMON LUY and ALFA INTEGRATED TEXTILE MILLS, respondents. SANDOVAL-GUTIERREZ, J.: Petitioner for review on certiorari assailing the decision of the Court of Appeals in CA-G.R. C.V. no. 42293. On March 12, 1982, Rizal Banking Corporation (RCBC) filed with the Regional Trial Court of Makati, Branch 145, Civil Case No. 2624 for a sum of money against Alfa RTW Manufacturing Corporation, Johnny Teng, Ramon Lee, Antonio Lacdao, Ramon Luy and Alfa Integrated Textile Mills. Asserting a superior right over the property involved in the suit, North Atlantic Garments Corporation filed a complaint in intervention. BA Finance Corporation, claiming as mortgagee of the same property, filed an answer in intervention. After hearing, the trial court rendered judgment on August 19, 1991, the dispositive portion1 of which reads: "WHEREFORE, judgment is rendered in favor of plaintiff as follows: 1. Ordering all defendants to pay, jointly and severally, to plaintiff the amount of Eighteen Million Nine Hundred Sixty-one Thousand Three Hundred Seventy-two Pesos and Fortythree Centavos (P18,961,372.43), Philippine Currency, (inclusive of interest, service charges, litigation expenses and attorneys fees), with interest thereon at the legal rate from February 15, 1988 until fully paid. The proceeds from the sale of defendant Alfas ready to wear apparel, in the sum of P73,133.70, should be deducted from the principal obligation of P18,961,372.43; 2. Declaring that the respective liens of intervenors BA Finance Corporation and North American Garments Corporation over the properties attached by the sheriff are inferior to that of plaintiff. 3. Ordering defendants and intervenors to pay the proportionate costs. "SO ORDERED." On appeal, the Court of Appeals affirmed with modification2 the RTC decision, thus:

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as may accrue thereon and expenses as may be incurred by plaintiff bank. (p. 4, Complaint)" Petitioner RCBC contends that the Court of Appeals erred in awarding to it the minimal sum of P3,060,406.25 instead of P18,961,372.43 granted by the trial court. The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals via Rule 45 of the 1997 Rules of Civil Procedure, as amended, is limited to reviewing errors of law. Findings of fact of the latter court are conclusive, except in a number of instances. In Siguan vs. Lim3 this Court enumerated those instances when the factual findings of the Court of Appeals are not deemed conclusive, to wit: (1) when the conclusion is a finding grounded entirely on speculations, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both the appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record. In the case at bar, exception No. 6 is present. Here, the Court of Appeals made findings "contrary to the admissions" of the parties. We refer to the terms and conditions agreed upon by petitioner RCBC and respondent borrowers in the Trust Receipts4 and the Comprehensive Surety Agreements.5 Significantly, the validity of those contracts is not being questioned. It follows that the very terms and conditions of the same contracts become the law between the parties. Herein lies the reversible error on the part of the Court of Appeals. When it ruled that only P3,060,406.25 should be awarded to petitioner RCBC, the Appellate Court disregarded the parties stipulations in their contracts of loan, more specifically, those pertaining to the agreed (1) interest rates, (2) service charges and (3) penalties in case of any breach thereof. 6 Indeed, the Court of Appeals failed to apply this time-honored doctrine: "That which is agreed to in a contract is the law between the parties. Thus, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."7 "The Court cannot vary the terms and conditions therein stipulated unless such stipulation is contrary to law, morals, good customs, public order or public policy."8 In relation to the determination and computation of interest payments, this Court, in Eastern Shipping Lines, Inc. vs. Court of Appeals,9 through Mr. Justice Jose C. Vitug, held: "The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest, in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6%per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.." (Emphasis supplied). The case now before us involves an obligation arising from a letter of credit-trust receipt transaction. Under this arrangement, a bank extends to a borrower a loan covered by the letter of credit, with the trust receipt as security of the loan. 10 A trust receipt is "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 thru utilization, as collateral, of the merchandise imported or purchased."11 In contracts contained in trust receipts, the contracting parties may establish agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public order.12 In the case at bar, there are specific amounts of interest, service charges and penalties agreed upon by the parties. Pertinent provisions in the four (4) trust receipts (TR. No. 1909, TR. No. 1932, TR. No. 1732, and TR No. 2065)13 read:

18

"All obligations of the undersigned under this Trust Receipt shall bear interest at the rate of sixteen per centum (16%) per annum plus service charge of two per centum (2%) per annum from the date of the execution of this Trust Receipt until paid. It is expressly agreed and understood that regardless of the maturity date hereof, I/we hereby authorize the said Bank to correspondingly increase the interest of this Trust Receipt to the extent allowed by law without notice to me/us whenever the Central Bank of the Philippines raises the interest on borrowings of Banks or the interest provided for in the Usury Law, or whenever, in the sole judgment of the holder of this Trust Receipt is warranted by the increase in money market rates or by similar events. Without prejudice to the criminal action that may be brought by the Bank against the entrustee by reason of default or breach of this Trust Receipt, I/we agree to pay a penalty and/or liquidated damages equivalent to six per centum (6%) per annum of the amount due and unpaid. In the event of the bringing of any action or suit by you or any default of the undersigned hereunder: I/we shall on demand pay you reasonable attorneys and other fees and cost of collection, which shall in no case be less than ten per centum (10%) of the value of the property and the amount involved by the action or suit. If there are two or more signatories on this Trust Receipt, our obligations hereunder shall in all cases be joint and several." Applying the above-quoted rules of thumb in the computation of interest, as enunciated by this Court in Eastern Shipping Lines, Inc., 14 the principal amount of loans corresponding to each trust receipt must earn an interest at the rate of sixteen percent (16%) per annum 15 with the stipulated service charge of two percent (2%) per annum on the loan principal or the outstanding balance thereof, 16 from the date of execution until finality of this Decision. 17 A penalty of six percent (6%) per annum of the amount due and unpaid must also be imposed computed from the date of demand (in this case on March 9, 1982),18 until finality of Judgment.19 The interest of 16% percent per annum, as long as unpaid, also earns interest, computed from the date of the filing of the complaint (March 12, 1982) until finality of this Courts Decision.20 From such date of finality, the total unpaid amount (principal + interest + service charge + penalty + interest on the interest) computed shall earn interest of 12% per annum until satisfied.1wphi1.nt The Court of Appeals awarded only the sum of P3,060,406.25 as it was the amount prayed for in the complaint. The Appellate Court, however, failed to consider that the complaint was filed on March 12, 1982, or just a year after the execution of the trust receipts. The computed interests then, the service charge, the penalty and the attorneys fees corresponded only to one year. The interest on the interest could not have been computed then since the finality of judgment could not yet be ascertained. Significantly, from the filing of the complaint on March 12, 1982 up to the time the Appellate Courts decision was promulgated, on May 14, 1998, there had been a lapse of sixteen years. The computed interest in 1982 would no longer be true in 1998. What the Appellate Court should have done then was to compute the total amount due in accordance with the rules of thumb laid down by this Court in Eastern Shipping Lines, Inc.,21 the resulting formula of which is as follows: TOTAL AMOUNT DUE = principal + interest + service charge + penalty + interest on interest Interest = principal x 16 % per annum x no. of years from date of execution until finality of judgment

Service charge = principal x 2% per annum x no. of years from date of execution until finality of judgment Penalty = principal x 6% per annum x no. of years from demand (March 9, 1982) until finality of judgment Interest on interest = Interest computed as of the filing of the complaint (March 12, 1982) x 12% x no. of years until finality of judgment Attorneys fees is 10% of the total amount computed as of finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. The total amount due corresponding to each of the four (4) contracts of loan may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties. WHEREFORE, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is MODIFIED in the sense that the award to petitioner RCBC of P3,060,406.25 is SET ASIDE and substituted with an amount to be computed by the trial court, upon finality of this Decision, in accordance with the formula indicated above. SO ORDERED. Melo, Vitug, Panganiban, and Carpio, JJ., concur.

19

Oct. 10, 1961 61/1413 $57,658.38 P43,407.33 Oct. 23, 1961 61/1483 $25,867.34 19,473.64 Oct. 30, 1961 61/1495 $19,408.39 14,610.88 Nov. 10, 1961 61/1564 $26,687.64 20,090.90 G.R. No. L-24821 October 16, 1970 BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. DE RENY FABRIC INDUSTRIES, INC., AURORA T. TUYO and AURORA CARCERENY alias AURORA C. GONZALES, defendants-appellants. Aviado and Aranda for plaintiff-appellee. S. Emiliano Calma for defendants-appellants. TOTAL .... $129,621.75 P97,582.75 By virtue of the foregoing transactions, the Bank issued irrevocable commercial letters of credit addressed to its correspondent banks in the United States, with uniform instructions for them to notify the beneficiary thereof, the J.B. Distributing Company, that they have been authorized to negotiate the latter's sight drafts up to the amounts mentioned the respectively, if accompanied, upon presentation, by a full set of negotiable clean "on board" ocean bills of lading covering the merchandise appearing in the LCs that is, dyestuffs of various colors. Consequently, the J.B. Distributing Company drew upon, presented to and negotiated with these banks, its sight drafts covering the amounts of the merchandise ostensibly being exported by it, together with clean bills of lading, and collected the full value of the drafts up to the amounts appearing in the L/Cs as above indicated. These correspondent banks then debited the account of the Bank of the Philippine Islands with them up to the full value of the drafts presented by the J.B. Distributing Company, plus commission thereon, and, thereafter, endorsed and forwarded all documents to the Bank of the Philippine Islands. In the meantime, as each shipment (covered by the above-mentioned letters of credit) arrived in the Philippines, the De Reny Fabric Industries, Inc. made partial payments to the Bank amounting, in the aggregate, to P90,000. Further payments were, however, subsequently discontinued by the corporation when it became established, as a result of a chemical test conducted by the National Science Development Board, that the goods that arrived in Manila were colored chalks instead of dyestuffs. The corporation also refused to take possession of these goods, and for this reason, the Bank caused them to be deposited with a bonded warehouse paying therefor the amount of P12,609.64 up to the filing of its complaint with the court below on December 10, 1962. On October 24, 1963 the lower court rendered its decision ordering the corporation and its codefendants (the herein appellants) to pay to the plaintiff-appellee the amount of P291,807.46, with interest thereon, as provided for in the L/C Agreements, at the rate of 7% per annum from October 31, 1962 until fully paid, plus costs. It is the submission of the defendants-appellants that it was the duty of the foreign correspondent banks of the Bank of the Philippine Islands to take the necessary precaution to insure that the goods shipped under the covering L/Cs conformed with the item appearing therein, and, that the foregoing banks having failed to perform this duty, no claim for recoupment against the defendants-appellants, arising from the losses incurred for the non-delivery or defective delivery of the articles ordered, could accrue. We can appreciate the sweep of the appellants' argument, but we also find that it is nestled hopelessly inside a salient where the valid contract between the parties and the internationally accepted customs of the banking trade must prevail.1

CASTRO, J.:. This is an appeal from the decision of the Court of First Instance of Manila ordering the defendantsappellants to pay to the Bank of the Philippine Islands (hereinafter referred to as the Bank), jointly and severally, the value of the credit it extended to them in several letters of credit which the Bank opened at the behest of the defendants appellants to finance their importation of dyestuffs from the United States, which however turned out to be mere colored chalk upon arrival and inspection thereof at the port of Manila. The record shows that on four (4) different occasions in 1961, the De Reny Fabric Industries, Inc., a Philippine corporation through its co-defendants-appellants, Aurora Carcereny alias Aurora C. Gonzales, and Aurora T. Tuyo, president and secretary, respectively of the corporation, applied to the Bank for four (4) irrevocable commercial letters of credit to cover the purchase by the corporation of goods described in the covering L/C applications as "dyestuffs of various colors" from its American supplier, the J.B. Distributing Company. All the applications of the corporation were approved, and the corresponding Commercial L/C Agreements were executed pursuant to banking procedures. Under these agreements, the aforementioned officers of the corporation bound themselves personally as joint and solidary debtors with the corporation. Pursuant to banking regulations then in force, the corporation delivered to the Bank peso marginal deposits as each letter of credit was opened. The dates and amounts of the L/Cs applied for and approved as well as the peso marginal deposits made were, respectively, as follows:. Date Application & L/C No. Deposit Amount Marginal

20

Under the terms of their Commercial Letter of Credit Agreements with the Bank, the appellants agreed that the Bank shall not be responsible for the "existence, character, quality, quantity, conditions, packing, value, or delivery of the property purporting to be represented by documents; for any difference in character, quality, quantity, condition, or value of the property from that expressed in documents," or for "partial or incomplete shipment, or failure or omission to ship any or all of the property referred to in the Credit," as well as "for any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with the property the shippers or vendors and ourselves [purchasers] or any of us." Having agreed to these terms, the appellants have, therefore, no recourse but to comply with their covenant. 2 But even without the stipulation recited above, the appellants cannot shift the burden of loss to the Bank on account of the violation by their vendor of its prestation. It was uncontrovertibly proven by the Bank during the trial below that banks, in providing financing in international business transactions such as those entered into by the appellants, do not deal with the property to be exported or shipped to the importer, but deal only with documents. The Bank introduced in evidence a provision contained in the "Uniform Customs and Practices for Commercial Documentary Credits Fixed for the Thirteenth Congress of International Chamber of Commerce," to which the Philippines is a signatory nation. Article 10 thereof provides: . In documentary credit operations, all parties concerned deal in documents and not in goods. Payment, negotiation or acceptance against documents 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 the documents and reimburse the Bank making the payment, negotiation or acceptance. The existence of a custom in international banking and financing circles negating any duty on the part of a bank to verify whether what has been described in letters of credits or drafts or shipping documents actually tallies with what was loaded aboard ship, having been positively proven as a fact, the appellants are bound by this established usage. They were, after all, the ones who tapped the facilities afforded by the Bank in order to engage in international business. ACCORDINGLY, the judgment a quo is affirmed, at defendants-appellants' cost. This is without prejudice to the Bank, in proper proceedings in the court below in this same case proving and being reimbursed additional expenses, if any, it has incurred by virtue of the continued storage of the goods in question up to the time this decision becomes final and executory. Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur. Concepcion, C.J., is on leave.

21

IBAA P100,000.00 plus 19% p.a. interest on 23 June 1979. Both Notes authorized IBAA "to sell at public or private sale such securities or things for the purpose of applying their proceeds to such payments" of many particular obligation or obligations" the Mendozas may have to IBAA. (Exhibits "34" and "35"-IBAA, Annex "D" p. 131, Rollo) The Mendozas failed to pay Philam Life the amortization that fell due on 1 June 1978 so that Philam Life informed IBAA that it was declaring both loans as "entirely due and demandable" and demanded payment of P492,996.30 (Exhibit "H"). However, because IBAA contested the propriety of calling ill the entire loan, Philam Life desisted and resumed availing of the L/Cs by drawing on them for five (5) more amortizations. On 7 September 1979, because the Mendozas defaulted on their amortization due on 1 September 1979, Philam Life again informed IBAA that it was declaring the entire balance outstanding on both loans, including liquidated damages, "immediately due and payable." Philam Life then demanded the payment of P274,779.56 from IBAA but the latter took the position that, as a melee guarantor of the Mendozas who are the principal debtors, its remaining outstanding obligation under the two (2) standby L/Cs was only P30,100.60. Later, IBAA corrected the latter amount and showed instead an overpayment arrived at as follows:

G.R. No. 74834 November 17, 1988 INSULAR BANK OF ASIA & AMERICA (NOW PHILIPPINE COMMERCIAL INTERNATIONAL BANK), petitioner, vs. HON. INTERMEDIATE APPELLATE COURT, THE PHILIPPINE AMERICAN LIFE INSURANCE CO., SPS. BEN MENDOZA & JUANITA M. MENDOZA, respondents. Balili, Parado, Cavada & Maamo for petitioner. Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles for respondent Spouses Mendozas.

Limit of Liability Francisco, Zulueta & Associates for respondent Philam Life. Less: MELENCIO-HERRERA, J.: An appeal by certiorari under Rule 45 of the Rules of Court by petitioner, the Insular Bank of Asia and America (IBAA) [now the Philippine Commercial International Bank], from the judgment of the public respondent, then the Intermediate Appellate Court, * in CA-G.R. CV No. 03224. Briefly, the antecedent facts disclose that sometime in 1976 and 1977 respondent spouses Ben S. Mendoza and Juanita M. Mendoza (the Mendozas, for brevity), obtained two (2) loans from respondent Philippine American Life Insurance Co. (Philam Life) in the total amount of P600,000.00 to finance the construction of their residential house at Mandaue City. The said loans, with a 14% nominal interest rate, were to be liquidated in equal amortizations over a period of five (5) years from March 1977 to March 1982. To secure payment, Philam Life required that amortizations be guaranteed by an irrevocable standby letter of credit of a commercial bank. Thus, the Mendozas contracted with petitioner Insular Bank of Asia and America (IBAA) for the issuance of two (2) irrevocable standby Letters of Credit in favor of Philam Life for the total amount of P600,000.00. The first L/C for P500,000.00 was to expire on 1 October 1981 (Exhibit "7", IBAA) and the second for P100,000.00 on 1 January 1982 (Exhibit "8", IBAA) These two (2) irrevocable standby L/Cs were, in turn, secured by a real estate mortgage for the same amount on the property of Respondent Spouses in favor of IBAA. On 11 May 1977, the Mendozas executed a promissory note (No. L-562/77) in favor of IBAA promising to pay the sum of P100,000.00 plus 19% p.a. interest on 31 May 1979. Again, on 3 June 1977, Respondent Spouses executed another Promissory Note (No. 564/77) binding themselves to pay a) Payment Mendozas of

P 600,000.00

P 280, 293.11

b) Payment IBAA

of

372,227.65 652,520.76

Overpayment IBAA

by

( P 52,520.76)

On 21 April 1980 the Real Estate Mortgage, which secured the two (2) standby L/Cs. was extrajudicially foreclosed by, and sold at public auction for P775,000.00, to petitioner IBAA as the lone and highest bidder (Exhibit "17-Mendoza"). The bid price of P775,000.00 by petitioner IBAA was arrived at as follows:

Principal (unpaid advances under the 2

22

4 3 2 , 3 8 6 . 0 7

9 5

c) Expenses of foreclosure

P 7 2 . 2 0

standby LCs) plus interest & charges TOTAL Add: P 7 7 5 , 0 0 0 . 4 2 On a date that does not appear of record, Philam Life filed suit against Respondent Spouses and IBAA before the Regional Trial Court of Manila, Branch XXXXI, for the recovery of the sum of P274,779.56, the amount allegedly still owing under the loan. After trial, said Court rendered a Decision finding that IBAA had paid Philam Life only P342,127.05 and not P372,227.65, as claimed by IBAA, because of a stale IBAA Manager's check in the amount of P30,100.60, which had to be deducted. With this deduction, the Trial Court arrived at the following computation:

a) Stipulated Attorney's fees (20%)

P 8 6 , 4 7 7 . 2 0

b) Principals (clean loans) plus accrued

interest under P/Ns Nos. 562/77 and

Limit of Liability IBAA Less: P 2 5 5 , 3 4 6 .

of

P 600,000.00

564/77

a) Payment by Mendozas

P 280, 293.11

b) Payment by IBAA

P342,127.05 P 622,420.16

Overpayment by IBAA

P 22,420.16

23

Thus, the Trial Court ruled: ACCORDINGLY, judgment is hereby rendered ordering: (1) Defendants-spouses Ben S. Mendoza and Juanita M. Mendoza to pay plaintiff Philippine American Life Insurance Company the sum of P322,000.00 plus 2% per month as penalty interest from September 12, 1979 until the whole amount is fully paid, P10,000 as attorney's fees, and costs. (2) Plaintiff Philippine American Life Insurance Company to refund the sum of P22,420.16 to the defendant Insular Bank of Asia and America plus legal interest from March 31, 1980 until the whole amount is fully paid; and (3) Dismissal of the counterclaim and crossclaim filed by the defendantsspouses against the plaintiff and the defendant IBAA, as well as the counterclaim filed by defendant IBAA against the plaintiff. (pp. 28-29, Rollo) In so deciding, the Trial Court took the position that IBAA, "as surety" was discharged of its liability to the extent of the payment made by the Mendozas, as the principal debtors, to the creditor, Philam Life. Both Philam Life and Respondent Spouses appealed to respondent Appellate Court, which reversed the Trial Court and ruled instead that IBAA's liability was not reduced by virtue of the payments made by the Mendozas. Accordingly, the Appellate Court decreed: WHEREFORE, premises considered, judgment is hereby rendered ordering: 1. Defendants-appellant spouses Ben S. Mendoza and Juanita M. Mendoza and defendant-appellee IBAA to pay jointly and severally plaintiff-appellant Philamlife, the sum of P222,000.00 plus 2% per month as penalty interest from September 12, 1979 until the whole amount is fully paid; plus P25,000.00, as attorney's fees, and costs; however, defendant-appellee IBAA shall only be liable up to the amount of P296,294.05; 2. Dismissal of the claim by the IBAA for a refund of P22,420.16 from the Phil-American Life Insurance Co.; and 3. Dismissal of the counterclaim and cross-claim filed by the defendantspouses against the plaintiff and the defendant IBAA, as well as the counterclaim filed by defendant IBAA against the plaintiff. No special pronouncement as to costs in this instance. (p. 51, Rollo). Availing of the instant Petition, IBAA seeks a reversal of the aforesaid judgment and the affirmance instead of that of the Trial Court. We resolved to give due course. The issues addressed, as posited by IBAA, are:

1. Whether or not the partial payments made by the principal obligors (respondent MENDOZAS) would have the corresponding effect of reducing the liability of the petitioner as guarantor or surety under the terms of the standby LCs in question. 2. Whether or not respondent Intermediate Appellate Court is correct in disregarding a documentary evidence (O.R. No. 74323, Exhibit 28-IBAA) showing the amount paid by petitioner and which was admitted as evidence without objection on the paint of the counsel for the respondent Philam. 3. Whether or not the Intermediate Appellate Court is correct in passing subsilencio the following points raised by the petitioner in its Brief to sustain the decision of the Trial Court on some other grounds. a. Effective rate of interest imposed by respondent Philam exceeded the allowable ceiling; b. Respondent Philam has no right to call in at one time the two standby letters of credit; c. Respondent Philam failed to follow the condition in the two (2) standby letters of credit: which could have otherwise altered the result of the decision. 4. Whether or not the award of attorney's fees to respondent Philam is proper in so far as petitioner is affected. (p. 15, Rollo) The pivotal issue is the first one. IBAA stresses that it has no more liability to Philam Life under the two (2) standby Letters of Credit and, instead, is entitled to a refund. Whereas Philam Life and the Mendoza spouses separately maintain that IBAA's obligation under said two (2) L/Cs is original and primary and is not reduced by the direct payments made by the Mendozas to Philam Life. 1. In construing the terms of a Letter of Credit, as in other contracts, it is the intention of the parties that must govern. Letters of credit and contracts for the issuance of such letters are subject to the same rules of construction as are ordinary commercial contracts. They are to receive a reasonable and not a technical construction and although usage and custom cannot control express terms in letters of credit, they are to be construed with reference to all the surrounding facts and circumstances, to the particular and often varying terms in which they may be expressed, the circumstances and intention of the parties to them, and the usages of the particular trade of business contemplated. (International Banking Corp. vs. Irving National Bank, CCA N.Y. 283 F. 103, affirming DC 274 F. 122; Old Colony Trust Co. vs. Lawyers' Title and Trust Co., CAA NY, 297 F. 152, cited in Vol. 72, CJS sec. 178, pp. 387-388).<re||an1w> The terms of the subject Irrevocable Standby Letters of Credit read, in part, as follows:

24

This credit secures the payment of any obligation of the accountee to you under that Loan Agreement hereto attached as Annex 'A' and made a part hereof, including those pertaining to (a) surcharges on defaulted account; stallments, (b) increased interest charges (in the event the law should authorize this increase), and (c) liabilities connected with taxes stipulated to be for Accountee's and provided however, that our maximum liabilities hereunder shall not exceed the amount of P500,000.00 (Pl00.000.00 for the other LC). Each drawing under this credit shall be available at any time after one (1) day from due date of the obligations therein secured. Each drawing under this credit shall be accomplished by your signed statement in duplicate that the amount drawn represents payment due and unpaid by the accountee. (pp. 11-12, Decision, pp. 38-39, Rollo). [Emphasis our ]. Unequivocally, the subject standby Letters of Credit secure the payment of any obligation of the Mendozas to Philam Life including all interests, surcharges and expenses thereon but not to exceed P600,000.00. But while they are a security arrangement, they are not converted thereby into contracts of guaranty. That would make themultra vires rather than a letter of credit, which is within the powers of a bank (Section 74[e], RA 337, General Banking Act). 1 The standby L/Cs are, "in effect an absolute undertaking to pay the money advanced or the amount for which credit is given on the faith of the instrument." (Scribner v. Rutherford, 22 N.W. 670, 65 Iowa 551; Duval v. Trask,, 12 Mass. 154, cited in 38 CJS, Sec. 7, p. 1142). They are primary obligations and not accessory contracts. Being separate and independent agreements, the payments made by the Mendozas cannot be added in computing IBAA's liability under its own standby letters of credit. Payments made by the Mendozas directly to Philam Life are in compliance with their own prestation under the loan agreements. And although these payments could result in the reduction of the actual amount which could ultimately be collected from IBAA, the latter's separate undertaking under its L/Cs remains. Both the Trial Court and the Appellate Court found, as a fact, that there still remains a balance on the loan, Pursuant to its absolute undertaking under the L/Cs, therefore, IBAA cannot escape the obligation to pay Philam Life for this unexpended balance. The Appellate Court found it to be P222,000.00, arrived at by the Trial Court and adopted by the Appellate Court, as follows: ... In the summary of application of payments (Exhibit "KK") the plaintiff applied Pl,918.00 as commitment fee, P4,397.66 as surcharges, P199,683.40 as interests, and P320,000.00 on the principal. The P58,000.00 which is covered by OR No. 74396 was also applied "against the total loan." Since plaintiff applied P378,000.00 against the total indebtedness of P600,000.00 there still remains an outstanding balance on the principal P322,000.00 (should be P222,000.00) aside from the agreed penalty interest until the whole amount is fully paid. ... (Decision, Trial Court, p. 50, Rollo) The amount of P222,000.00, therefore, considered as "any obligation of the accountee" under the L/Cs will still have to be paid by IBAA under the explicit terms thereof, which IBAA had itself supplied. Letters of credit are strictly construed to the end that the rights of those directly parties to them may be preserved and their interest safeguarded (Moss vs. Old Colony Trust Co., 140 N.E. 803, 246 Mass. 138, 152).<re||an1w> Like any other writing, it will be construed most strongly against the writer and so as to be reasonable and consistent with honest intentions. On the whole, the construction will be generally a strict one (Lamborn vs. National Park Bank of New York, 208 N.Y.S. 428, 212 App. Div. 25, affirming Id , 204 N.Y.S. 557,123 Misc. 211, affirmed Id.. 148 N.E. 664, 240 N.Y. 520). As found by the Appellate Court, however, the amount payable should not exceed

P296,294,05 (P600,000.00 less P303,705.95, the total amount found by the Appellate Court to have been paid by IBAA to Philam Life). 2. The second issue as to whether or not documentary evidence was disregarded by the Appellate Court regarding the amount actually paid by IBAA to Philam Life, or P303,705.95 (not P342,127.05 as found by the Trial Court), questions a finding of fact, which should be accorded not only respect but even finality. It is not the function of this Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by lower Courts. 3. The third issue faults respondent Appellate Court with having passed sub-silencio over certain points raised by petitioner IBAA in his Brief sustaining the Decision of the Trial Court. It is accepted judicial practice, however, that Courts are not required to resolve all issues raised in pleadings unless necessary for the resolution of the case. Apparently, respondent Appellate Court deemed it unnecessary to pass upon those points. Be that as it may, suffice it to state: a) It is a matter of common knowledge in lending procedures that the nominal interest is different from the effective rate of interest and that the discounting interest scheme as well as the principal amortization scheme are practices commonly resorted to by lending institutions. If IBAA disagreed with the computation scheme adopted by Philam Life, which could have been detected in the early stages of the controversy, IBAA could have interposed its objections. b) The right to call in at one time the two standby L/Cs was specifically provided for in the Loan Agreement, which was specifically made an integral part of the L/Cs Section 8 thereof read: ... 8. The Lender shall have the light to declare the entire balance of the loans and all obligations of the borrower to the lender as immediately due and payable in case the borrower fails for any reason to comply with any payment or other obligations of the Lender. (p. 248, Rollo) c) The omission by Philam Life to draw the required drafts on the standby L/Cs can be explained by the fact that all the drafts were pre-prepared, pre-dated and pre-accepted by the Mendozas. Philam Life, therefore, could not have complied to the letter with the provision in the L/Cs that drawings therefrom were to be made by drafts for each due and unpaid amortization. Besides, the accelaration of the entire balance of the loan was sufficient notice of dishonor of the pre-drawn and pre-accepted drafts. 4. Coming now to the award of attorney's fees of P25,000.00, the same appears reasonable under the circumstances of the case specially considering that in the foreclosure of the mortgage in its favor IBAA charged the Mendozas attorney's fees in the amount of P86,477.20, supra. As to the liability of the Mendozas to IBAA, it bears recalling that the Mendozas, upon their application for the opening and issuance of the Irrevocable Standby Letters of Credit in favor of Philam Life, had executed a Real Estate Mortgage as security to IBAA for any payment that the latter may remit to Philam Life on the strength of said Letters of Credit; and that IBAA had recovered from the Mendozas the amount of P432,386.07 when it foreclosed on the mortgaged property of said spouses in the concept of "principal (unpaid advances under the 2 standby L/Cs plus interest and charges)." In addition, IBAA had recovered P255,364.95 representing its clean loans to the Mendozas plus accrued interest besides the fact that it now has the foreclosed property. As between IBAA and the Mendozas, therefore, there has been full liquidation. The remaining obligation of P222,000.00 on the loan of the Mendozas, therefore, is now IBAA's sole responsibility to pay to Philam Life by virtue

25

of its absolute and irrevocable undertaking under the standby L/Cs. Specially so, since the promissory notes executed by the Mendozas in favor of IBAA authorized the sale of the mortgaged security "for the purpose of applying their proceeds to ... payments" of their obligations to IBAA. WHEREFORE, the Decision of respondent Intermediate Appellate Court, dated 20 December 1985, is hereby MODIFIED. Petitioner IBAA (now the Philippine Commercial International Bank) shall pay Philippine American Life Insurance Company the sum of P222,000.00 plus 2% per month as penalty interest from 12 September 1979 until the whole amount is fully paid, but in no case to exceed P296,294.05, plus P25,000.00 as attorney's fees. No costs. SO ORDERED.

PARAS, J.: In these petition and supplemental petition for Certiorari, Prohibition and mandamus with Preliminary Injunction, petitioner Philippine Virginia Tobacco Administration seeks to annul and set aside the following Orders of respondent Judge of the Court of First Instance of Rizal, Branch IV (Quezon City) in Civil Case No. Q-10351 and prays that the Writ of Preliminary Injunction (that may be) issued by this Court enjoining enforcement of the aforesaid Orders be made permanent. (Petition, Rollo, pp. 1-9) They are: The Order of July 17, 1967: AS PRAYED FOR, the Prudential Bank & Trust Company is hereby directed to release and deliver to the herein plaintiff, Timoteo A. Sevilla, the amount of P800,000.00 in its custody representing the marginal deposit of the Letters of Credit which said bank has issued in favor of the defendant, upon filing by the plaintiff of a bond in the um of P800,000.00, to answer for whatever damage that the defendant PVTA and the Prudential Bank & Trust Company may suffer by reason of this order. (Annex "A," Rollo, p. 12) The Order of November 3,1967: IN VIEW OF THE FOREGOING, the petition under consideration is granted, as follows: (a) the defendant PVTA is hereby ordered to issue the corresponding certificate of Authority to the plaintiff, allowing him to export the remaining balance of his tobacco quota at the current world market price and to make the corresponding import of American high-grade tobacco; (b) the defendant PVTA is hereby restrained from issuing any Certificate of Authority to export or import to any persons and/or entities while the right of the plaintiff to the balance of his quota remains valid, effective and in force; and (c) defendant PVTA is hereby enjoined from opening public bidding to sell its Virginia leaf tobacco during the effectivity of its contract with the plaintiff. xxx xxx xxx In order to protect the defendant from whatever damage it may sustain by virtue of this order, the plaintiff is hereby directed to file a bond in the sum of P20,000.00. (Annex "K," Rollo, pp. 4-5) The Order of March 16, 1968: WHEREFORE, the motion for reconsideration of the defendant against the order of November 3, 1967 is hereby DENIED. (Annex "M," Rollo, P. 196) The facts of the case are as follows:

G.R. No. L-27829 August 19, 1988 PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION, petitioner, vs. HON. WALFRIDO DE LOS ANGELES, Judge of the Court of First Instance of Rizal, Branch IV (Quezon City) and TIMOTEO A. SEVILLA, doing business under the name and style of PHILIPPINE ASSOCIATED RESOURCES and PRUDENTIAL BANK AND TRUST COMPANY, respondents. Lorenzo F. Miravite for respondent Timoteo Sevilla. Ferrer & Ranada Law Office for respondent Prudential Bank & Trust Co.

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Respondent Timoteo Sevilla, proprietor and General Manager of the Philippine Associated Resources (PAR) together with two other entities, namely, the Nationwide Agro-Industrial Development Corp. and the Consolidated Agro-Producers Inc. were awarded in a public bidding the right to import Virginia leaf tobacco for blending purposes and exportation by them of PVTA and farmer's low-grade tobacco at a rate of one (1) kilo of imported tobacco for every nine (9) kilos of leaf tobacco actually exported. Subsequently, the other two entities assigned their rights to PVTA and respondent remained the only private entity accorded the privilege. The contract entered into between the petitioner and respondent Sevilla was for the importation of 85 million kilos of Virginia leaf tobacco and a counterpart exportation of 2.53 million kilos of PVTA and 5.1 million kilos of farmer's and/or PVTA at P3.00 a kilo. (Annex "A," p. 55 and Annex "B," Rollo, p. 59) In accordance with their contract respondent Sevilla purchased from petitioner and actually exported 2,101.470 kilos of tobacco, paying the PVTA the sum of P2,482,938.50 and leaving a balance of P3,713,908.91. Before respondent Sevilla could import the counterpart blending Virginia tobacco, amounting to 525,560 kilos, Republic Act No. 4155 was passed and took effect on June 20, 1 964, authorizing the PVTA to grant import privileges at the ratio of 4 to 1 instead of 9 to 1 and to dispose of all its tobacco stock at the best price available. Thus, on September 14, 1965 subject contract which was already amended on December 14, 1963 because of the prevailing export or world market price under which respondent will be exporting at a loss, (Complaint, Rollo, p. 3) was further amended to grant respondent the privileges under aforesaid law, subject to the following conditions: (1) that on the 2,101.470 kilos already purchased, and exported, the purchase price of about P3.00 a kilo was maintained; (2) that the unpaid balance of P3,713,908.91 was to be liquidated by paying PVTA the sum of P4.00 for every kilo of imported Virginia blending tobacco and; (3) that respondent Sevilla would open an irrevocable letter of credit No. 6232 with the Prudential Bank and Trust Co. in favor of the PVTA to secure the payment of said balance, drawable upon the release from the Bureau of Customs of the imported Virginia blending tobacco. While respondent was trying to negotiate the reduction of the procurement cost of the 2,101.479 kilos of PVTA tobacco already exported which attempt was denied by petitioner and also by the Office of the President, petitioner prepared two drafts to be drawn against said letter of credit for amounts which have already become due and demandable. Respondent then filed a complaint for damages with preliminary injunction against the petitioner in the amount of P5,000,000.00. Petitioner filed an answer with counterclaim, admitting the execution of the contract. It alleged however that respondent, violated the terms thereof by causing the issuance of the preliminary injunction to prevent the former from drawing from the letter of credit for amounts due and payable and thus caused petitioner additional damage of 6% per annum. A writ of preliminary injunction was issued by respondent judge enjoining petitioner from drawing against the letter of credit. On motion of respondent, Sevilla, the lower court dismissed the complaint on April 19, 1967 without prejudice and lifted the writ of preliminary injunction but petitioner's motion for reconsideration was granted on June 5,1967 and the Order of April 19,1967 was set aside. On July 1, 1967 Sevilla filed an urgent motion for reconsideration of the Order of June 5, 1967 praying that the Order of dismissal be reinstated. But pending the resolution of respondent's motion and without notice to the petitioner, respondent judge issued the assailed Order of July 17, 1967 directing the Prudential Bank & Trust Co. to make the questioned release of funds from the Letter of Credit. Before petitioner could file a motion for reconsideration of said order, respondent Sevilla was able to secure the releaseof P300,000.00 and the rest of the amount. Hence this petition, followed by the supplemental petition when respondent filed with the lower court an urgent ex-parte petition for the issuance of preliminary mandatory and preventive injunction which was granted in the resolution of respondent Judge on November 3, 1967, above quoted. On March 16, 1968, respondent Judge denied petitioner's motion for reconsideration. (Supp. Petition, Rollo, pp. 128- 130)

Pursuant to the resolution of July 21, 1967, the Supreme Court required respondent to file an answer to the petition within 10 days from notice thereof and upon petitioner's posting a bond of fifty thousand pesos (P50,000.00), a writ of preliminary mandatory injunction was issued enjoining respondent Judge from enforcing and implementing his Order of July 17,1967 and private respondents Sevilla and Prudential Bank and Trust Co. from complying with and implementing said order. The writ further provides that in the event that the said order had already been complied with and implemented, said respondents are ordered to return and make available the amounts that might have been released and taken delivery of by respondent Sevilla. (Rollo, pp. 16-17) In its answer, respondent bank explained that when it received the Order of the Supreme Court to stop the release of P800,000.00 it had already released the same in obedience to ailieged earlier Order of the lower Court which was reiterated with ailieged admonition in a subsequent Order. (Annex "C," Rollo, pp. 37-38) A Manifestation to that effect has already been filed c,irrency respondent bank (Rollo, pp. 19-20) which was noted c,irrency this Court in the resolution of August 1, 1967, a copy of which was sent to the Secretary of Justice. (Rollo, p. 30) Before respondent Sevilla could file his answer, petitioner filed a motion to declare him and respondent bank in contempt of court for having failed to comply with the resolution to this court of July 21, 1967 to the effect that the assailed order has already been implemented but respondents failed to return and make available the amounts that had been released and taken delivery of by respondent Sevilla. (Rollo, pp. 100-102) In his answer to the petition, respondent Sevilla claims that petitioner demanded from him a much higher price for Grades D and E tobacco than from the other awardees; that petitioner violated its contract by granting indiscriminately to numerous buyers the right to export and import tobacco while his agreement is being implemented, thereby depriving respondent of his exclusive right to import the Virginia leaf tobacco for blending purposes and that respondent Judge did not abuse his discretion in ordering the release of the amount of P800,000.00 from the Letter of Credit, upon his posting a bond for the same amount. He argued further that the granting of said preliminary injunction is within the sound discretion of the court with or without notice to the adverse party when the facts and the law are clear as in the instant case. He insists that petitioner caretaker.2 claim from him a price higher than the other awardees and that petitioner has no more right to the sum in controversy as the latter has already been overpaid when computed not at the price of tobacco provided in the contract which is inequitable and therefore null and void but at the price fixed for the other awardees. (Answer of Sevilla, Rollo, pp. 105-111) In its Answer to the Motion for Contempt, respondent bank reiterates its allegations in the Manifestation and Answer which it filed in this case. (Rollo, pp. 113-114) In his answer, (Rollo, pp. 118-119) to petitioner's motion to declare him in contempt, respondent Sevilla explains that when he received a copy of the Order of this Court, he had already disbursed the whole amount withdrawn, to settle his huge obligations. Later he filed a supplemental answer in compliance with the resolution of this Court of September 15, 1967 requiring him to state in detail the amounts allegedly disbursed c,irrency him out of the withdrawn funds. (Rollo, pp. 121-123) Pursuant to the resolution of the Supreme Court on April 25, 1968, a Writ of Preliminary Injunction was issued upon posting of a surety bond in the amount of twenty thousand pesos (P20,000.00) restraining respondent Judge from enforcing and implementing his orders of November 3, 1967 and March 16, 1968 in Civil Case No. Q-10351 of the Court of First Instance of Rizal (Quezon City).

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Respondent Sevilla filed an answer to the supplemental petition (Rollo, pp. 216-221) and so did respondent bank (Rollo, p. 225). Thereafter, all the parties filed their respective memoranda (Memo for Petitioners, Rollo, pp. 230-244 for Resp. Bank, pp. 246-247; and for Respondents, Rollo, pp. 252257). Petitioners filed a rejoinder (rollo, pp. 259-262) and respondent Sevilla filed an Amended Reply Memorandum (Rollo, pp. 266274). Thereafter the case was submitted for decision:' in September, 1968 (Rollo, p. 264). Petitioner has raised the following issues: 1. Respondent Judge acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of July 17, 1967, for the following reasons: (a) the letter of credit issued by respondent bank is irrevocable; (b) said Order was issued without notice and (c) said order disturbed the status quo of the parties and is tantamount to prejudicing the case on the merits. (Rollo, pp. 7-9) 2. Respondent Judge likewise acted without or in excess of jurisdiction or with grave abuse of discretion when he issued the Order of November 3, 1967 which has exceeded the proper scope and function of a Writ of Preliminary Injunction which is to preserve the status quo and caretaker.2 therefore assume without hearing on the merits, that the award granted to respondent is exclusive; that the action is for specific performance a d that the contract is still in force; that the conditions of the contract have already been complied with to entitle the party to the issuance of the corresponding Certificate of Authority to import American high grade tobacco; that the contract is still existing; that the parties have already agreed that the balance of the quota of respondent will be sold at current world market price and that petitioner has been overpaid. 3. The alleged damages suffered and to be suffered by respondent Sevilla are not irreparable, thus lacking in one essential prerequisite to be established before a Writ of Preliminary Injunction may be issued. The alleged damages to be suffered are loss of expected profits which can be measured and therefore reparable. 4. Petitioner will suffer greater damaaes than those alleged by respondent if the injunction is not dissolved. Petitioner stands to lose warehousing storage and servicing fees amounting to P4,704.236.00 yearly or P392,019.66 monthly, not to mention the loss of opportunity to take advantage of any beneficial change in the price of tobacco. 5. The bond fixed by the lower court, in the amount of P20,000.00 is grossly inadequate, (Rollo, pp. 128-151) The petition is impressed with merit. In issuing the Order of July 17, 1967, respondent Judge violated the irrevocability of the letter of credit issued by respondent Bank in favor of petitioner. An irrevocable letter of credit caretaker.2 during its lifetime be cancelled or modified Without the express permission of the beneficiary (Miranda and Garrovilla, Principles of Money Credit and Banking, Revised Edition, p. 291). Consequently, if the finding agricul- the trial on the merits is that respondent Sevilla has ailieged unpaid balance due the petitioner, such unpaid obligation would be unsecured. In the issuance of the aforesaid Order, respondent Judge likewise violated: Section 4 of Rule 15 of the Relatiom, Rules of Court which requires that notice of a motion be served by the applicant to all parties concerned at least three days before the hearing thereof; Section 5 of the same Rule which provides that the notice shall be directed to the parties concerned; and shall state the time and place

for the hearing of the motion; and Section 6 of the same Rule which requires proof of service of the notice thereof, except when the Court is satisfied that the rights of the adverse party or parties are not affected, (Sunga vs. Lacson, L-26055, April 29, 1968, 23 SCRA 393) A motion which does not meet the requirements of Sections 4 and 5 of Rule 15 of the Relatiom, Rules of Court is considered a worthless piece of paper which the Clerk has no right to receiver and the respondent court a quo he has no authority to act thereon. (Vda. de A. Zarias v. Maddela, 38 SCRA 35; Cledera v. Sarn-j-iento, 39 SCRA 552; and Sacdalan v. Bautista, 56 SCRA 175). The three-day notice required by law in the filing of a motion is intended not for the movant's benefit but to avoid surprises upon the opposite party and to give the latter time to study and meet the arguments of the motion. (J.M. Tuason and Co., Inc. v. Magdangal, L-1 5539. 4 SCRA 84). More specifically, Section 5 of Rule 58 requires notice to the defendant before a preliminary injunction is granted unless it shall appear from facts shown bv affidavits or by the verified complaint that great or irreparable injury would result to the applyin- before the matter can be heard on notice. Once the application is filed with the Judge, the latter must cause ailieged Order to be served on the defendant, requiring him to show cause at a given time and place why the injunction should not be granted. The hearing is essential to the legality of the issuance of a preliminary injunction. It is ailieged abuse of discretion on the part of the court to issue ailieged injunction without hearing the parties and receiving evidence thereon (Associated Watchmen and Security Union, et al. v. United States Lines, et al., 101 Phil. 896). In the issuance of the Order of November 3, 1967, with notice and hearing notwithstanding the discretionary power of the trial court to Issue a preliminary mandatory injunction is not absolute as the issuance of the writ is the exception rather than the rule. The party appropriate for it must show a clear legal right the violation of which is so recent as to make its vindication an urgent one (Police Commission v. Bello, 37 SCRA 230). It -is granted only on a showing that (a) the invasion of the right is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is ailieged urgent and permanent necessity for the writ to prevent serious decision ( Pelejo v. Court of Appeals, 117 SCRA 665). In fact, it has always been said that it is improper to issue a writ of preliminary mandatory injunction prior to the final hearing except in cases of extreme urgency, where the right of petitioner to the writ is very clear; where considerations of relative inconvenience bear strongly in complainant's favor; where there is a willful and unlawful invasion of plaintiffs right against his protest and remonstrance the injury being a contributing one, and there the effect of the mandatory injunctions is rather to re-establish and maintain a pre-existing continuing relation between the parties, recently and arbitrarily interrupted c,irrency the defendant, than to establish a new relation (Alvaro v. Zapata, 11 8 SCRA 722; Lemi v. Valencia, February 28, 1963, 7 SCRA 469; Com. of Customs v. Cloribel, L-20266, January 31, 1967,19 SCRA 234. In the case at bar there appears no urgency for the issuance of the writs of preliminary mandatory injunctions in the Orders of July 17, 1967 and November 3, 1967; much less was there a clear legal right of respondent Sevilla that has been violated by petitioner. Indeed, it was ailieged abuse of discretion on the part of respondent Judge to order the dissolution of the letter of credit on the basis of assumptions that cannot be established except by a hearing on the merits nor was there a showing that R.A. 4155 applies retroactively to respondent in this case, modifying his importation / exportation contract with petitioner. Furthermore, a writ of preliminary injunction's enjoining any withdrawal from Letter of Credit 6232 would have been sufficient to protect the rights of respondent Sevilla should the finding be that he has no more unpaid obligations to petitioner. Similarly, there is merit in petitioner's contention that the question of exclusiveness of the award is ailieged issue raised by the pleadings and therefore a matter of controversy, hence a preliminary mandatory injunction directing petitioner to issue respondent Sevilla a certificate of authority to import Virginia leaf tobacco and at the same time restraining petitioner from issuing a similar certificate of authority to others is premature and improper.

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The sole object of a preliminary injunction is to preserve the status quo until the merit can be heard. It is the last actual peaceable uncontested status which precedes the pending controversy (Rodulfo v. Alfonso, L-144, 76 Phil. 225), in the instant case, before the Case No. Q-10351 was filed in the Court of First Instance of Rizal. Consequently, instead of operating to preserve the status quo until the parties' rights can be fairly and fully investigated and determined (De los Reyes v. Elepano, et al., 93 Phil. 239), the Orders of July 17, 1966 and March 3, 1967 serve to disturb the status quo. Injury is considered irreparable if it is of such constant and frequent recurrence that no fair or reasonable redress can be had therefor in a court of law (Allundorff v. Abrahanson, 38 Phil. 585) or where there is no standard c,irrency which their amount can be measured with reasonable accuracy, that is, it is not susceptible of mathematical computation (SSC v. Bayona, et al., L-13555, May 30, 1962). Any alleged damage suffered or might possibly be suffered by respondent Sevilla refers to expected profits and claimed by him in this complaint as damages in the amount of FIVE Million Pesos (P5,000,000.00), a damage that can be measured, susceptible of mathematical computation, not irreparable, nor do they necessitate the issuance of the Order of November 3, 1967. Conversely, there is truth in petitioner's claim that it will suffer greater damage than that suffered by respondent Sevilla if the Order of November 3, 1967 is not annulled. Petitioner's stock if not made available to other parties will require warehouse storage and servicing fees in the amount of P4,704,236.00 yearly or more than P9,000.000.00 in two years time. Parenthetically, the alleged insufficiency of a bond fixed by the Court is not by itself ailieged adequate reason for the annulment of the three assailed Orders. The filing of ailieged insufficient or defective bond does not dissolve absolutely and unconditionally ailieged injunction. The remedy in a proper case is to order party to file a sufficient bond (Municipality of La Trinidad v. CFI of Baguio - Benguet, Br. I, 123 SCRA 81). However, in the instant case this remedy is not sufficient to cure the defects already adverted to. PREMISES CONSIDERED, the petition is given due course and the assailed Orders of July 17, 1967 and November 3, 1967 and March 16, 1968 are ANNULLED and SET ASIDE; and the preliminary injunctions issued c,irrency this Court should continue until the termination of Case No. Q-10351 on the merits. SO ORDERED,

The case is a petition to set aside the decision 1 of the Court of Appeals, the dispositive portion of which reads: "WHEREFORE, premises considered, the appealed Decision (as amended by that Order of July 22, 1992) of the lower court in Civil Case No. 21944 is hereby AFFIRMED with the MODIFICATION that defendant-appellee South City Homes, Inc. is hereby ordered to pay, jointly and severally, with Fortune Motors Corporation, Palawan Lumber Manufacturing Corporation and Joseph L. G. Chua, the outstanding amounts due under the six (6) drafts and trust receipts, with interest thereon at the legal rate from the date of filing of this case until said amounts shall have been fully paid, as follows:

Date of Draft July 26, 1983 July 27, 1983 July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983

Amount Balance P244,269.00 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10

Due P198,659.52 324,767.41 1,138,941.00 244,269.00 275,079.60 475,046.10

and the attorney's fees and costs of suit. "SO ORDERED."2 The Facts The facts, as found by the Court of Appeals, are as follows:

G.R. No. 135462

December 7, 2001 "The present controversy relates to the rights of an assignee (financing company) of drafts and trust receipts backed up by sureties, in the event of default by the debtor (car dealer) to whom the assignor creditor (car manufacturer) sold and delivered motor vehicles for resale. A consistent ruling on these cases is hereby reiterated: that a surety may secure obligations incurred subsequent to the execution of the surety contract. "Prior to the transactions covered by the subject drafts and trust receipts, defendantappellant Fortune Motors Corporation (Phils.) has been availing of the credit facilities of plaintiff-appellant BA Finance Corporation. On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant a

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING CORPORATION, petitioners, vs. BA FINANCE CORPORATION, respondent. PARDO, J.: The Case

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Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 21-22). "On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement in which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in which said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 17-18). "Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Drafts in its own favor, payable thirty (30) days after sight, charged to the account of Fortune Motors Corporation, as follows:

Date of Draft July 26, 1983 July 27, 1983 July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983

Amount P244,269.00 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10

"Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp. 29-37). Since the defendantsappellants failed to settle their outstanding account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary attachment, with the Regional Trial Court of Manila, Branch 1, which was docketed as Civil Case No. 83-21944 (Record, pp. 1-12). Plaintiff-appellant filed a surety bond in the amount of P3,391,546.56 and accordingly, Judge Rosalio C. Segundo ordered the issuance of a writ of preliminary attachment on January 3, 1984 (Record, pp. 37-47). Defendants Fortune Motors Corporation, South City Homes, Inc., Edgar C. Rodrigueza, Aurelio F. Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar filed a Motion to Discharge Attachment, which was opposed by plaintiff-appellant (Record, pp. 49-56). In an Order dated January 11, 1984, Judge Segundo dissolved the writ of attachment except as against defendant Fortune Motors Corporation and set the said incident for hearing (Record, p. 57). On January 19, 1984, the defendants filed a Motion to Dismiss. Therein, they alleged that conventional subrogation effected a novation without the consent of the debtor (Fortune Motors Corporation) and thereby extinguished the latter's liability; that pursuant to the trust receipt transaction, it was premature under P. D. No. 115 to immediately file a complaint for a sum of money as the remedy of the entruster is an action for specific performance; that the suretyship agreements are null and void for having been entered into without an existing principal obligation; and that being such sureties does not make them solidary debtors (Record, pp. 58-64). "After due hearing, the court denied the motion to discharge attachment with respect to defendant Fortune Motors Corporation as well as the motion to dismiss by the defendants (Record, pp. 68 and 87). In their Answer, defendants stressed that their obligations to the creditor (CARCO) was extinguished by the assignment of the drafts and trust receipts to plaintiff-appellant without their knowledge and consent, and pursuant to legal provision on conventional subrogation a novation was effected, thereby extinguishing the liability of the sureties; that plaintiff-appellant failed to immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by the entruster as provided for under P. D. No. 115; and that at the time the suretyship agreements were entered into, there were no principal obligations, thus rendering them null and void. A counterclaim for the award of actual, moral and exemplary damages was prayed for by defendants (Record, pp. 91-110). "During the pre-trial, efforts to reach a compromise was not successful, and in view of the retirement of Judge Rosalio C. Segundo of RTC Manila, Branch 1, the case was-re-raffled off to Branch XXXIII, presided over by Judge Felix V. Barbers (Record, pp. 155-160). "Fortune Motors Corporation filed a motion to lift the writ of attachment covering three (3) vehicles described in the Third-Party Claim filed with the Office of Deputy Sheriff Jorge C. Victorino (RTC, Branch 1) by Fortune Equipment, Inc. which was opposed by plaintiff-appellant (Record, pp. 173-181). On June 15, 1984, Deputy Sheriff Jorge C. Victorino issued a "Notice of Levy Upon Personal Properties Pursuant to Order of Attachment" which was duly served on defendant Fortune Motors Corporation (Record, pp. 191-199). In an Order dated April 28, 1986, the court a quo denied the motion to lift the writ of attachment on three (3) vehicles described in the Third-Party Claim filed by Fortune Equipment Inc. (Record, p. 207). On motion of their respective counsel, the trial court granted the parties time to sit down and appraise the machineries and spare parts

"(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14). "Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining unsold vehicles (Folder of Exhibits, pp. 2, 5, 7-A, 9, 12 and 15). The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO (Folder of Exhibits, pp. 3, 6, 7-B, 10, 13 and 16).

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owned by defendant Fortune Motors Corporation which are now in the possession of plaintiff corporation by virtue of the attachment. A series of conferences was allowed by the court, as means toward possible compromise agreement. In an Order dated June 2, 1987, the case was returned to Branch I, now presided over by Judge Rebecca G. Salvador (Record, p. 237). The pre-trial period was terminated and the case was set for trial on the merits (Record, p. 259). "Acting on the motion to sell levied properties filed by defendant George D. Tan, the trial court ordered the public sale of the attached properties (Record, p. 406). The court likewise allowed the complaint-in-intervention filed by Fortune Equipment Inc. and South Fortune Motors Corporation who claimed ownership of four (4) vehicles earlier seized and attached (Record, p. 471-475). Plaintiff corporation admitted the allegations contained in the complaint-in-intervention only with respect to one truck so attached but denied the rest of intervenors' allegations (Record, pp. 479-482). Thereafter, the parties submitted their respective pre-trial briefs on the complaint-in-intervention, and after the submission of evidence thereon, the case was submitted for decision (Record, pp. 573-577). "On November 25, 1991, the lower court rendered its judgment, the dispositive portion of which reads as follows: "WHEREFORE, judgment is hereby rendered: "1. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua, jointly and severally to pay the plaintiff on the July 27, 1983 Draft, the sum of P324,767.41 with the interest thereon at the legal rate from the date of filing of this case, December 21, 1983 until the amount shall have been fully paid; "2. Ordering defendants Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the July 26, 1983 Draft, the sum of P198,659.52 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "3. Ordering defendant Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the July 28, 1983 Draft the sum of P1,138,941.00 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "4. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 2, 1983 Draft, the sum of P244,269.00 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "5. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 5, 1983 Draft the sum of P275,079.60 with interest thereon at the legal rate from the date of the filing of this case, until the amount shall have been fully paid; "6. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 8, 1983 Draft the

sum of P475,046.10 with interest thereon at legal rate from the date of the filing of this case, until the amount shall been fully paid; "7. Ordering defendant Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay the sum of P300,000.00 as attorney's fees and the costs of this suit; "8. Dismissing plaintiff's complaint against South City Homes, Aurelio Tablante, Joselito Baltazar, George Tan and Edgar Rodrigueza and the latter's counterclaim for lack of basis; "9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor Fortune Equipment the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; "10. Dismissing the complaint-in-intervention in so far as the three other vehicles mentioned in the complaint-in-intervention are concerned for lack of cause of action; "11. Dismissing the complaint-in-intervention against Fortune Motor for lack of basis; and "12. Ordering the parties-in-intervention to bear their respective damages, attorneys fees and the costs of the suit. "Upon execution, the sheriff may cause the judgment to be satisfied out of the properties attached with the exception of one (1) unit Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234, if they be sufficient for that purpose. The officer shall make a return in writing to the court of his proceedings. Whenever the judgment shall have been paid, the officer, upon reasonable demand must return to the judgment debtor the attached properties remaining in his hand, and any of the proceeds of the properties not applied to the judgment. "SO ORDERED. "On two (2) separate motions for reconsideration, one filed by plaintiffs-intervenors dated December 18, 1991 and the other by plaintiff dated December 26, 1991, the trial court issued an Order dated July 22, 1992 amending its Decision dated November 25, 1991. Specifically, said Order amended paragraphs 9 and 10 thereof and deleted the last paragraph of the said Decision. "Paragraphs 9 and 10 now read: "9. Ordering Deputy Sheriff Jorge C. Victorino to return to Intervenor Fortune Equipment, Inc. the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; Mitsubishi Truck Canter with Motor No. 4D30-313012 and Chassis No. 513696, and Fuso Truck with Motor No. 006769 and Chassis No. 20756, and to Intervenor South Fortune Motors Corporation the Cimaron Jeepney with Plate No. NET-849; "10. Ordering the plaintiff, in the event the motor vehicles could no longer be returned to pay the estimated value thereof i.e., P750,000.00 for the three trucks, and P5,000.00 for the Cimaron Jeepney, to the plaintiffs-intervenors.

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"x x x" (Records, pp. 664-665) "Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp. (Phils.) and Palawan Lumber Manufacturing Corporation, and intervenors Fortune Equipment and South Fortune Motors, interposed the present appeal and filed their respective Briefs." 3 On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive portion of which is quoted in the opening paragraph of this decision. Hence, this appeal.4 The Issues The issues presented are: (1) whether the suretyship agreement is valid; (2) whether there was a novation of the obligation so as to extinguish the liability of the sureties; and (3) whether respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts transactions.5 The Court's Ruling On the first issue, petitioners assert that the suretyship agreement they signed is void because there was no principal obligation at the time of signing as the principal obligation was signed six (6) months later. The Civil Code, however, allows a suretyship agreement to secure future loans even if the amount is not yet known. Article 2053 of the Civil Code provides that: "Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known. x x x" In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we held: "To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract?

"x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. "Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor." Petitioners next posit (second issue) that a novation, as a result of the assignment of the drafts and trust receipts by the creditor (CARCO) in favor of respondent BAFC without the consent of the principal debtor (Fortune Motors), extinguished their liabilities. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.7 As a consequence, the third party steps into the shoes of the original creditor as subrogee of the latter. Petitioners' obligations were not extinguished. Thus: "x x x Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). "Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. "The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented. "We have ruled in Sison & Sison vs. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtor's refusal to give consent. "What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent (National Investment and Development Co. v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform that debtor

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from the date of the assignment, payment should be made to the assignee and not to the original creditor."8 Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature. A trust receipt is 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.9 In the event of default by the entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We ruled: "x x x Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any alternative action, such as a third party claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement."10 The Judgment

G.R. No. 114286

April 19, 2001

THE COSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE,respondents. YNARES-SANTIAGO, J.: The instant petition for review seeks to partially set aside the July 26, 1993 Decision 1 of respondent Court of Appeals in CA-GR. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the amount of P490, 228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside the March 8, 1994 Resolution2 of respondent Court of Appeals denying its Motion for Reconsideration. The facts are as follows: On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P 1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount of P 1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory. Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary attachment3 before the Regional Trial Court of Manila. In answer to the complaint, respondents averred that the transaction between them was a simple loan and not a trust receipt transaction, and that the amount claimed by petitioner did not take into account payments already made by them. Respondent Lim also denied any personal liability in the subject transactions. In a Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to petitioner of the amount of P490,228.90. At the pre-trial conference, the parties agreed on the following issues: 1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction; 2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the letter of credit, trust receipt and under existing rules or regulations of the Central Bank;

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3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the defendant corporation on July 13, 1982 as payment for the latters account; and 4) Whether or not the defendants are personally liable under the transaction sued for in this case.4 On September 17, 1990, the trial court rendered its Decision, 5 dismissing the Complaint and ordering petitioner to pay respondents the following amounts under their counterclaim: P490,228.90 representing overpayment of respondent Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorney's fees; and costs. Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorney's fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorney's fees and litigation expenses. Hence, the instant petition raising the following issues: 1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE. 2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE. 3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF THECENTRAL BANK. 4. WHETHER OR NO THE RESPONDENT APPELLATE COUR GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR. 5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION.6 The petition must be denied. On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals

especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by evidence.7 Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment made. While such a computation may not have appeared in the Decision itself, we note that the trial court's finding of overpayment is supported by evidence presented before it. At any rate, we painstakingly reviewed and computed the payments together with the interest and penalty charges due thereon and found that the amount of overpayment made by respondent Bank to petitioner, i.e., P263,070.13, was more than what was ordered reimbursed by the lower court. However, since respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court should stand. Moreover, petitioner's contention that the marginal deposit made by respondent Corporation should not be deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interest and other charges. However, to sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favour of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.8 Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation. Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the trust receipt agreement of the parties fixing the interest rate states: I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of 1% per month until the amount/s or instalments/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid.9 We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner. 1wphi1.nt While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals. 10 In that case, the contractual provision stating that "if there occurs any change in the prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on the outstanding obligation without need of serving notice to the Cardholder other than the required posting on the monthly statement served to the Cardholder" 11 was considered valid. The aforequoted provision was upheld notwithstanding that it may partake of the nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in case the prevailing market

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rates dictate its reduction. In other words, unlike the stipulation subject of the instant case, the interest rate involved in the Polotan case is designed to be based on the prevailing market rate. On the other hand, a stipulation ostensibly signifying an agreement to "any increase or decrease in the interest rate," without more, cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of what interest rate to charge against an outstanding loan. Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals. The recent case of Colinares v. Court of Appeals 12 appears to be foursquare with the facts obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted. In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent Corporation's Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982.13Further, the oil was used up by respondent Corporation in its normal operations by August, 1982.14 On the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982. The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit: The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. 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 resale, 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.

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. Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty , abuse of confidence or mishandling of funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, Respondent Corporation is not an importer, which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed. The fact that ownership of the oil belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by petitioner's own account officer on the witness stand, to wit: Q -After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants thereby paying the value of the bunker fuel oil what transpired next after that? A -Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were transferred to them. Q -You mentioned them to whom are you referring to? A -To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make. Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom? A - By the Continental Cement Corp. Q So by your statement who really owns the bunker fuel oil? A TTY. RACHON: Objection already answered, COURT: Give time to the other counsel to object.

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A TTY. RACHON : He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already been answered. A TTY. BANAGA: That is why I made a follow up question asking ownership of the bunker fuel oil. COURT: Proceed. A TTY .BANAGA: Q - Who owns the bunker fuel oil after purchase from Petrophil Corp. ? A - Gregory Lim.
15

G.R. No. 112592 December 19, 1995 PRUDENTIAL BANK, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, CECILIA ORQUELLO, et al., ZENAIDA UCHI, et al., ALU-INTERASIA CONTAINER INDUSTRIES, INC., and RAUL REMODO, respondents.

BELLOSILLO, J.: This petition for certiorari impugns the Resolutions of the National Labor Relations Commission (NLRC) dated 18 August and 12 November 1993 in NLRC Cases Nos. RAB-III-580-82 (Orquillo v. Interasia Container Industries, Inc.), RAB-III-3-585-82, (Uchi v. Interasia Container Industries, Inc.) and RAB-III-08-0049-87, (ALU-Interasia Container Industries, Inc. v. Interasia Container Industries, Inc.) dismissing the appeal of petitioner from the order of the Labor Arbiter denying its third-party claim to the personal properties subject of levy on execution based on its trust receipts. The records show that Interasia Container Industries, Inc. (INTERASIA), was embroiled in three (3) labor cases which were eventually resolved against it. Thus in NLRC Cases Nos. RAB-III-03-580-82 and RAB-III-03-585-82 monetary awards consisting of 13th-month pay differentials and other benefits were granted to complainants. Subsequently the monetary award was recomputed to include separation pay in the total sum of P126,788.30 occasioned by the closure of operations of INTERASIA. In RAB-03-08-0049-87 the Labor Arbiter declared the closure or shutdown of operations effected by INTERASIA as illegal and awarded to complainants the sum of P1,188,466.32 as wage differentials, separation pay and other benefits. With the finality of the three (3) decisions, writs of execution were issued. The Sheriff levied on execution personal properties located in the factory of INTERASIA thus " For Case 580 and 585 : One (1) lot-plastic sacks (scrap, one (1) lot sling sacks, one (1) lot plastic in spools; and, For Case 0049: Five hundred (500) bags plastic resins, one (1) lot plastic resins sweaping (scrap) and one (1) lot all plastic linings." Petitioner filed an Affidavit of Third-Party Claim asserting ownership over the seized properties on the strength of trust receipts executed by INTERASIA in its favor. As a result, the Sheriff suspended the public auction sale. But on 18 September 1992 the Labor Arbiter denied the claim of petitioner and directed the Sheriff to proceed with the levy of the properties. Petitioner then filed separate appeals to the NLRC. On 14 October 1992 the Sheriff posted Notices of levy and Sale of the seized properties on 21 October 1992. However, no bidder appeared on the scheduled date hence the public auction sale was postponed to 5 November 1992. At the rescheduled date the Sheriff declared Angel Peliglorio the highest bidder with an offer of P128,000.00 on the properties levied in Cases Nos. 580 (RAB-III-58082) and 585 (RAB-III-3-585-82), and P1,191,110.00 in Case No. 0049 (RAB-111-08-0049-87).

By all indications, then, it is apparent that there was really no trust receipt transaction that took place. Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had extended to the former. Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the subject trust receipt. Petitioner's argument that respondent Corporation and respondent Lim and his spouse are one and the same cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of respondent Corporation. We stress the hornbook law that corporate personality is a shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. The personality of the corporation is separate and distinct from the persons composing it.16 WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CY No.29950 is AFFIRMED. SO ORDERED. Davide Jr., Puno, Pardo, Pardo, JJ., concur.

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On 12 December 1992 the Labor Arbiter ordered the release of the properties to Peliglorio prompting INTERASIA to file a Motion to Set Aside and/or Declare Public Auction Sale Null and Void Ab Initio for non-compliance with legal requisites. On 23 December 1992 the Labor Arbiter denied the motion and directed the Sheriff to break open the plant of INTERASIA in order that Peliglorio could enter and take possession of the auctioned properties. INTERASIA moved to reconsider the order. On 12 January 1993 the Labor Arbiter inhibited himself from the case because of INTERASIAS's accusation of partiality. The records were then forwarded to the NLRC. On the other hand, petitioner filed a Third-Party Claimant's Appeal/Memorandum. On 18 August 1993 the NLRC dismissed petitioner's appeal as well as INTERASIA's Motion for Reconsideration of the resolution dated 23 December 1992. INTERASIA and petitioner separately moved to reconsider the ruling but on 12 November 1993 their motions were denied. 1 Hence petitioner brought this present recourse raising questions on the validity not only of the NLRC resolutions of 18 August and 12 November 1993 but also of the public auction sale. 2 Petitioner rails against the public auction of 5 November 1992 which was allegedly conducted without notice and in a place other than the premises of INTERASIA as required by the Manual of Instructions for Sheriffs. It also raises issue on the extent of its security title over the properties subject of the levy on execution, submitting that while it may not have absolute ownership over the properties, still it has right, interest and ownership consisting of a security title which attaches to the properties. Petitioner differentiates a trust receipt, which is a security for the payment of the obligations of the importer, from a real estate mortgage executed as security for the payment of an obligation of a borrower. Petitioner argues that in the latter the ownership of the mortgagor may not necessarily have any bearing on its acquisition, whereas in the case of a trust receipt the acquisition of the goods by the borrower results from the advances made by the bank. It concludes that the security title of the bank in a trust receipt must necessarily be of the same or greater extent than the nature of the security arising from a real estate mortgage. Petitioner maintains that it is a preferred claimant to the proceeds from the foreclosure to the extent of its security title in the goods which are valued at P46,100,253.92 otherwise its security title will become useless. 3 In their comment, private respondents support the findings of the NLRC. They submit that petitioner's negligence to immediately assert its right to cancel the Trust Receipt Agreements, upon INTERASIA's failure to comply with its obligation, is fatal to its claim. For its part, the NLRC claims to rely on our pronouncement on trust receipts in Vintola v. Insular Bank of Asia and America. 4 It justifies the dismissal of petitioner's third-party claim on the ground that trust receipts are mere security transactions which do not vest upon petitioner any title of ownership, and that although the Trust Receipt Agreements described petitioner as owner of the goods, there was no showing that it canceled the trust receipts and took possession of the goods. 5 The petition is impressed with merit. We cannot subscribe to NLRC's simplistic interpretation of trust receipt arrangements. In effect, it has reduced the Trust Receipt Agreements to a pure and simple loan transaction. This perception was clearly dispelled in People v. Nitafan, 6 citing the Vintola and Samo cases, where we explained the nature of a trust receipt thus (A) trust receipt arrangement does not involve a simple loan transaction between a creditor and debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by the trust receipt itself. (Vintola v. Insular Bank of Asia and America, 150 SCRA 578 [1987] That second feature is what provides the much needed financial assistance to our traders in the importation or purchase of goods or merchandise through the use of those goods or merchandise as collateral for the advancements made by

a bank (Samo v. People, 115 Phil 346 [1962]). The title of the bank to the security is the one sought to be protected and not the loan which is a separate and distinct agreement. Reliance cannot be placed upon the Vintola case as an excuse for the dismissal of petitioner's claim. For in that case we sustained, rather than frustrated, the claim of the bank for payment of the advances it had made to the purchaser of the goods, notwithstanding that it was not the factual owner thereof and that petitioners had already surrendered the goods to it due to their inability to sell them. We stated that the fact that the Vintolas were unable to sell the seashells in question did not affect IBAA's right to recover the advances it had made under the loan covered by the Letter of Credit, with the trust receipt as a security for the loan. Thus, except for our disquisition on the nature of a trust receipt as restated in Nitafan, Vintola hardly has any bearing on the case at bench since the issue here involves the effect and enforcement of the security aspect whereas the former case deals with the loan aspect of a trust receipt transaction. Apparently, the NLRC was confused about the nature of a trust receipt, specifically the security aspect thereof. The mechanics and effects flowing from a trust receipt transaction, particularly the importance given to the security held by the entruster, i.e., the person holding title over the goods, were fully discussed in earlier decisions, as follows By this arrangement a banker advances money to an intending importer, and thereby lends the aid of capital, of credit, or of business facilities and agencies abroad, to the enterprise of foreign commerce. Much of this trade could hardly be carried on by any other means, and therefore it is of the first importance that the fundamental factor in the transaction, the banker's advance of money and credit, should receive the amplest protection. Accordingly, in order to secure that the banker shall be repaid at the critical point that is, when the imported goods finally reach the hands of the intended vendee the banker takes the full title to the goods at the very beginning ; he takes it as soon as the goods are bought and settled for by his payments or acceptances in the foreign country, and he continues to hold that title as his indispensable security until the goods are sold in the United States and the vendee is called upon to pay for them. This security is not an ordinary pledge by the importer to the banker, for the importer has never owned the goods, and moreover, he is not able to deliver the possession; but the security is the complete title vested originally in the bankers, and this characteristic of the transaction has again and again been recognized and protected by the courts . Of course, the title is at bottom a security title, as it has sometimes been called, and the banker is always under the obligation to reconvey;but only after his advances have been fully repaid and after the importer has fulfilled the other terms of the contract (emphasis supplied). 7 . . . . [I]n a certain manner, (trust receipt contracts) partake of the nature of a conditional sale as provided by the Chattel Mortgage Law, that is, the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. The ownership of the merchandise continues to be vested in the owner thereof or in the person who has 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 (emphasis supplied). 8

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More importantly, owing to the vital role trust receipts play in international and domestic commerce, Sec. 12 of P.D. No. 115 9 assures the entruster of the validity of his claim against all creditors Sec. 12. Validity of entruster's security interest as against creditors. The entruster's security interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement. From the legal and jurisprudential standpoint it is clear that the security interest of the entruster is not merely an empty or idle title. To a certain extent, such interest, such interest becomes a "lien" on the goods because the entruster's advances will have to be settled first before the entrustee can consolidate his ownership over the goods. A contrary view would be disastrous. For to refuse to recognize the title of the banker under the trust receipt as security for the advance of the purchase price would be to strike down a bona fide and honest transaction of great commercial benefit and advantage founded upon a well-recognized custom by which banking credit is officially mobilized for manufacturers and importers of small means. 10 The NLRC argues that inasmuch as petitioner did not cancel the Trust Receipt Agreements and took possession of the properties it could not claim ownership of the properties. We do not agree. Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take possession of the goods. 11 Consequently, petitioner has the discretion to avail of such right or seek any alternative action, such as a third-party claim or a separate civil action which it deems best to protect its right, at anytime upon default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement. Besides, as earlier stated, the law warrants the validity of petitioner's security interest in the goods pursuant to the written terms of the trust receipt as against all creditors of the trust receipt agreement. 12 The only exception to the rule is when the properties are in the hands of an innocent purchaser for value and in good faith. The records however do not show that the winning bidder is such purchaser. Neither can private respondents plead preferential claims to the properties as petitioner has the primary right to them until its advances are fully paid. In fine, we hold that under the law and jurisprudence the NLRC committed grave abuse of discretion in disregarding the third-party claim of petitioner. Necessarily the auction sale held on 5 November 1992 should be set aside. For there would be neither justice nor equity in taking the funds from the party whose means had purchased the property under the contract. 13 WHEREFORE, the petition for certiorari is GRANTED. The Resolutions of the National Labor Relations Commission dated 18 August and 12 November 1993 are SET ASIDE and a new judgment is entered GRANTING the Third-Party Claim and ORDERING the Sheriff or his representative to immediately deliver to petitioner PRUDENTIAL BANK the properties subject of the Trust Receipt Agreements. SO ORDERED.

G.R. No. 119845 July 5, 1996 ANTONIO M. GARCIA, petitioner, vs. COURT OF APPEALS and SECURITY BANK & TRUST COMPANY, respondents.

MELO, J.:p This has reference to a petition for review on certiorari of the decision of the Court of Appeals dated August 12, 1994, in CA-G.R. No. 38329 entitled, "Security Bank and Trust Co. plaintiff-appellant vs. Dynetics, Inc., defendant-appellant and Antonio M. Garcia, defendant-appellee", modifying the trial court's judgment dated March 9, 1992, in that said decision of the Court of Appeals held herein petitioner Antonio M. Garcia jointly and severally liable with then defendant-appellant Dynetics, Inc. to plaintiff-appellant Security Bank and Trust Co. for the unpaid obligation under the Export Loan Line in the amount of P24,743,935.35 and a Swap Loan Facility in the deficiency balance of P3,596,758.72, both of which amounts appear to have now ballooned to P2 billion due to interests, penalties, and attorney's fees (pp. 27-28, CA Decision; 175-176, Rollo). Dynetics, Inc. is not a petitioner herein and accepts its liability. The only issue is whether petitioner Garcia is jointly and severally liable with Dynetics, Inc. for such loans. The relevant facts of the case are as follows: On November 19, 1980, respondent Security Bank and Trust Co. (SBTC) granted Dynetics, Inc. a short-term EXPORT loan line in the amount of P25 million pursuant to an Advisory LetterAgreement (Exh. A, A-1). The loan was secured by a deed of assignment with pledge on export letters of credit and/or purchase orders equivalent to 100% of their face value. The said credit line was subsequently renewed on various dates and in various amounts, the last renewal having been made on January 24, 1985 in the increased amount of P26 million evidenced by the Renewal Credit Line Agreement (Exh. B). Pursuant to said Renewal Credit Line Agreement, Dynetics availed itself of the export loan for the period of February to May 1985 in the total amount of P25,074,906.16, executing and signing for said purpose 34 promissory notes of various dates covering the aforementioned period (Exhs. C to JJ), and trust receipts (pp. 7-8, CA Decision; pp. 155-156, Rollo). Prior to this 1985 availment, particularly on April 20, 1982, Dynetics obtained another credit accommodation or SWAP loan from SBTC in the amount of $700,000.00. To secure payment thereof, petitioner Antonio Garcia, with Vicente B. Chuidian, executed an Indemnity Agreement in favor of SBTC on April 26, 1982 (Exh. NN). It appears that Dynetics did not avail itself of this SWAP loan. Subsequently, however, in 1983, the SWAP loan facility was renewed in the reduced amount of $500,000.00 and it was this loan which Dynetics availed of in 1985 and concerning which it issued a promissory note (Exh. PP). The SWAP

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loan was renewed in 1984, this time on a quarterly basis, the last quarterly renewal having been made on April 22, 1985. By this time, SBTC required Dynetics to execute a continuing suretyship undertaking (Exh. OO, OO-1) in accordance with, and in pursuance of, which petitioner Garcia bound himself jointly and severally with Dynetics to pay all the latter's obligations with respondent SBTC. Subsequent thereto, however, and without the consent and knowledge of Garcia, SBTC required Dynetics to execute a chattel mortgage over various pieces of machinery to secure the SWAP loan (Exh. LL). Dynetics failed to pay the SWAP loan upon its maturity on July 22, 1985, prompting SBTC to foreclose on the chattel mortgage. The mortgaged chattels were sold at public auction on September 15, 1985 to SBTC as highest bidder for the amount of P6,850,861.30. This amount was applied as partial payment of the SWAP loan, leaving a deficiency balance of P3,596,758.72. Dynetics also defaulted in the payment of the EXPORT loan which amounted to over P464 million, exclusive of attorney's fees and costs, as of June 30, 1989 (Exh. KK). In view of Dynetics' failure to settle its account with SBTC relative to the EXPORT loan and the deficiency balance of the SWAP loan, despite repeated demands, a complaint was filed in court by SBTC against Dynetics, petitioner Garcia, and his co-surety Vicente Chuidian for recovery of a sum of money. Dynetics, in its answer, contended that the promissory notes had no consideration; that the names of the executive officers of SBTC were stamped on the blank promissory notes; and that the chattel mortgage was not registered, hence it was converted into a pledge, thus barring recovery of the deficiency balance of the obligation after foreclosure, as the principal obligation was extinguished. Petitioner Garcia, for his part, asserted that no prior or written demand was made by SBTC or its counsel upon any of the defendants prior to the filing of the case in court; that the loans had long been paid and extinguished; and that the chattel mortgage discarded the Indemnity Agreement and the Continuing Suretyship. After trial, Branch 58 of the Regional Trial Court of the National Capital Judicial Region stationed in Makati, rendered its judgment on March 9, 1992, disposing as follows: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against defendant Dynetics Incorporated which is hereby ordered: 1) to pay plaintiff the principal sum of P24,743,935.35 as consequence of and in connection with the promissory notes (Exhs. C to JJ), plus accrued interests thereon, compounded quarterly effective from their respective maturity dates until fully paid, and monthly penalty charges of five percent (5%) of the total outstanding obligation and accrued interests due and unpaid; 2) to pay plaintiff the sum of P3,596,758.72 (or its dollar equivalent of US$187,550.97) as deficiency balance on the chattel mortgage (Exh. LL); and, 3) to pay plaintiff attorney's fees equivalent to twenty percent (20%) of the aforestated entire amounts due and outstanding, litigation expenses of P250,000.00, plus the costs of suit.

The case against defendant Antonio M. Garcia is hereby DISMISSED, together with said defendant's counterclaim for damages. Plaintiff is however ordered to pay defendant Garcia the amount of P100,000.00 as attorney's fees. Furthermore, the writ of preliminary attachment dated September 8, 1989 insofar only as affecting defendant Garcia's properties is hereby quashed, dissolved and/or lifted. (p. 11, RTC Decision; p. 193, Rollo.) SBTC, as well as defendant Dynetics, appealed to the Court of Appeals. On August 12, 1994, the Court of Appeals rendered its now assailed decision modifying that of the trial court by holding Garcia solidarily liable with Dynetics to SBTC for the unpaid balance under the EXPORT loan and the deficiency balance on the SWAP loan, together with interests, attorney's fees, litigation expenses, and costs. Disposed thus respondent court: WHEREFORE, foregoing premises considered, the judgment of the court a quo is hereby MODIFIED and defendant-appellant Dynetics and defendantappellee Antonio Garcia are hereby ordered to pay jointly and severally unto plaintiff-appellee SBTC the following: 1) P24,743,935.35 representing the unpaid principal obligation under the promissory notes sued upon, plus accrued interests, compounded quarterly reckoned from the respective maturity dates of the promissory notes until fully paid, and monthly penalty charges of 5% of the total outstanding obligation; 2) P3,596,758.72 representing deficiency balance on the chattel mortgage with legal interest from 1 September 1989 (date of filing of complaint); and 3) attorney's fees equivalent to 20% of the amounts due and outstanding, and litigation expenses of P100,000.00, plus costs. The award of attorney's fees in favor of appellee Antonio Garcia is eliminated and the writ of attachment issued by the court a quo over the shares of stock owned by appellee Antonio Garcia in Chemphil is hereby declared to be valid and subsisting until full satisfaction of the aforementioned amounts. (pp. 27-28, CA Decision; pp. 175-176, Rollo.) A motion for reconsideration was seasonably filed by Garcia, but the same was denied by respondent court on April 7, 1995. Hence, the instant petition filed on August 4, 1995, wherein Garcia assigns the following alleged errors: I

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The Court of Appeals erred in holding Garcia liable as surety for the export loans granted by SBTC to Dynetics because the suretyship he assumed was intended only for another loan, the SWAP LOAN facility, II The Court of Appeals erred in holding that the chattel mortgage executed by Dynetics on 26 April 1985 to secure the promissory note it issued upon availment of the SWAP LOAN facility ($500,000.00) did not replace and extinguish the 1983 suretyship undertaking of Garcia for the same obligation. III On the assumption that the SBTC claim against Garcia as surety is partly or wholly valid, the Court of Appeals erred in awarding so exorbitant amounts of damages, that is P1,747,359,429.30 as penalty charges (5% monthly of total outstanding obligation or 60% per year on the export loan, excluding those on the swap loan) and P408,652,357.42 as attorney's fees (20% of the amounts due and outstanding) on top of P267,558,663.80 as interest earning on the principal obligation of only P24,743,935.35 as export loan and P3,596,758.72 as SWAP LOAN. Involved in the case at bar are two loans an EXPORT loan and a SWAP loan obtained by Dynetics from SBTC, with Garcia as surety in the SWAP loan. The controversy arose when Dynetics failed to pay said loans, giving rise to the issue of whether or not petitioner Garcia as surety is liable jointly and solidarily with Dynetics to SBTC for the unpaid obligations of Dynetics under both the EXPORT loan and the SWAP loan, together with the interests, penalty charges, attorney's fees, litigation expenses, and costs, by virtue of the Indemnity Agreement (Exh. NN) and the Continuing Suretyship (Exh. OO, OO-1). In other words, does the liability of Garcia as surety in the SWAP loan cover or extend to the EXPORT loan? It is the stand of Garcia that he is not liable as surety to SBTC for the EXPORT loan because the Indemnity Agreement and Continuing Suretyship he executed covered only the SWAP loan, which, however, were later replaced and extinguished by the chattel mortgage executed by Dynetics in favor of SBTC. On the other hand, SBTC contends that Garcia is liable for both the EXPORT loan and SWAP loan transactions by virtue of the comprehensive provisions of the Indemnity Agreement (Exh. NN) and the Continuing Suretyship (Exh. OO, OO-1) he signed and executed jointly and severally with Dynetics in favor of SBTC. After a painstaking study of the records before us, we find for petitioner Garcia. We hold that he is not liable for the EXPORT loan. Stated differently, Garcia's liability as surety for the SWAP loan under the Indemnity Agreement and the Continuing Surety, if any at all, does not extend to the EXPORT loan. In holding Garcia liable for both the EXPORT loan and the SWAP loan, respondent Court of Appeals relied heavily on the provisions of the Indemnity Agreement dated April 26, 1982 executed by Garcia together with Dynetics (Exh. NN) that:

. . . Antonio Garcia . . . hereby bind(s) himself/themselves jointly and severally with the CLIENT in favor of the BANK for the payment, upon demand and without benefit of excusion, of whatever amount or amounts the CLIENT may be indebted to the BANK under and by virtue of aforesaid credit accommodation(s) including the substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit accommodation(s), as well as of the amount or amounts of such other obligations that the CLIENT may owe the BANK, whether direct or indirect, principal or secondary, as appears in the accounts, books, and records of the BANK, plus interest and expenses arising from any agreement or agreements that may have heretofore been made or hereafter executed by and between the parties. . . . (p. 349, Rollo). At first glance, from the words "as well as of the amount or amounts of such other obligations, . . . that the client may owe the BANK", it would appear that SBTC was also referring to the obligation of Dynetics under the EXPORT loan. But the above quoted phrase, to our mind, and contrary to the claim of SBTC, did not impose on Garcia the obligation to pay the EXPORT loan in addition to the SWAP loan. Particular attention must be paid to the statement appearing on the face of the Indemnity Agreement (Exh. NN) "evidenced by those certain loan documents dated April 20, 1982" (Exh. 1-B, Garcia). From this statement, it is clear that the Indemnity Agreement refers only to the loan document of April 20, 1982 which is the SWAP loan. It did not include the EXPORT loan. Hence, petitioner cannot be held answerable for the EXPORT loan. The Indemnity Agreement specifically secured the $700,000.00 SWAP loan which was not availed of. The Continuing Suretyship, on the other hand, specifically secured the reduced $500,000.00 SWAP loan. The Indemnity Agreement is not involved in the reduced SWAP loan. There was no reason for SBTC to require the execution of the Continuing Suretyship if its intention were to have the earlier Indemnity Agreement secure the SWAP loan in both the original and in the reduced amounts. It may be added that the execution of this Continuing Suretyship for the reduced amount of the SWAP loan confirms our conclusion that SBTC's "present and hereafter obligation" clauses are not binding on Garcia, and that a particular collateral secures only such obligation identified in the document evidencing the security. Other important considerations negate respondent court's finding that petitioner's liability as surety under the SWAP loan extends or covers the EXPORT loan. Reviewing once more the record, it may be noticed that the EXPORT loan was secured by: 1. A Deed of Assignment with pledge on the export LC's and PO's equivalent to 100% of their face value, (Par. 3, Letter-Agreement, Exh. A, pp. 242-243, Rollo), by virtue of which the right of the assignor is transferred to the assignee, who would then be allowed to proceed against the debtor. This assignment had the effect similar to that of a sale (Wyco Sales Corp. vs. BA Finance Corp., 200 SCRA 637 [1991]). 2. Trust Receipts (Pars. 2 & 3, Exh. B, Renewal Credit Line, p. 246, Rollo) which is a separate and independent security transaction intended to aid in financing importers whereby the imported goods are held as security by the lending institution for the loan obligation.

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In this regard, Justice Melencio-Herrera's statements in Vintola vs. Insular Bank of Asia and America (150 SCRA 578 [1987]), later re-echoed in Nacu vs. Court of Appeals (231 SCRA 237 [1994]), are instructional, to wit: . . . A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up a bank extends a loan covered by the letter of credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit and a security feature which is the covering trust receipt. xxx xxx xxx 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 . . ." . . . as elucidated in Samo vs. People [footnote deleted] "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 (at pp. 583-584.) Thus, by virtue of the trust receipt agreement, SBTC should proceed against the trust receipt because the bank, through said trust receipt agreement theoretically acquired ownership of the imported personal property (Nacu vs. Court of Appeals, supra.). 3. Thirty-four Promissory notes (Exh. C to JJ, pp. 245-346, Rollo) signed by Dynetics' VicePresident for Treasury and Finance, making the latter liable on its due date for the amount stated. 4. Hold-Out Arrangement Proviso (Par. 6, Exh. B) providing for the right of SBTC to apply even without notice to the debtor, in payment of and all obligations of Dynetics, whatever funds or property of Dynetics which may be under the control or possession of SBTC on deposit or otherwise. 5. Deposit Balances to be maintained subject to hold-out, authorizing SBTC to apply all deposit funds of Dynetics in payment of its unpaid obligations. Prescinding from the foregoing, it is obvious that the EXPORT loan was more than fully secured. SBTC can proceed against these securities in payment of said loan. The EXPORT loan transaction and SWAP loan transaction are totally alien to each other. Noteworthy is the fact that the EXPORT loan, its renewal of credit line containing the trust receipts and hold-out provisos were extended to Dynetics and the only participation of Garcia was to sign in his capacity as President of Dynetics. The promissory notes were signed by the Vice-President for Treasury and Finance Luvina Maglaya for Dynetics. On the other hand, the SWAP loan was applied for and

extended to Dynetics as principal, with Garcia as surety under the Indemnity Agreement. While Garcia is a party in both transactions, he acted in different capacities. Clearly, the two loan transactions involved two sets of parties. The Indemnity Agreement signed by Garcia is a distinct contract and can not in anyway be related to the EXPORT loan. Even if we momentarily disregard the foregoing circumstances, and confine ourselves to the provisions of the Indemnity Agreement, still the conclusion can not be escaped that the same does not cover the EXPORT loan. To say otherwise would be to make the provision too comprehensive and all-encompassing as to amount to absurdity. The phrase "such other obligations" in the Indemnity Agreement is vague, equivocal, and patently ambiguous. It raises doubt as to its real meaning. It is, therefore, subject to interpretation. If the parties intended the 1982 SWAP loan to apply to and cover the 1980 EXPORT loan transaction, SBTC should have clearly and categorically stated so in the said Indemnity Agreement. Respondent bank failed in this regard. It is a well-stated legal principle that if there is any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety (Philippine National Bank vs. Court of Appeals 198 SCRA 767 [1991]). Ambiguous contracts are construed against the party who caused the ambiguity (De Leon vs. Court of Appeals 186 SCRA 345 [1990]). An additional point to consider is that the Indemnity Agreement is set out in a printed contract form of SBTC. Its provisions appear to be the standard stipulations imposed by SBTC upon all persons seeking to secure surety bonds. To this extent, the Indemnity Agreement is a contract of adhesion, having been prepared by respondent SBTC. Consequently, any ambiguity is to be taken contra proferentum, that is, construed against the party who caused the ambiguity which could have avoided it by the exercise of a little more care (Orient Air Services and Hotel Representatives vs. Court of Appeals, 197 SCRA 645 [1991]; Nacu vs. Court of Appeals, 231 SCRA 237 [1994]; De Leon vs. Court of Appeals, 186 SCRA 345 [1990]; Equitable Banking Corporation vs. Intermediate Appellate Court, 161 SCRA 518 [1988]; Eastern Assurance and Surety Corp. vs. IAC, 179 SCRA 562 [1989]). To be more emphatic, any ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who drafted it (Orient Air Service and Hotel Representatives vs. Court of Appeals, supra.; Cadalin vs POEA's Administrator, 238 SCRA 721 [1994]). The foregoing pronouncements are, of course, based on Article 1377 of the Civil Code which provides: Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. On the matter of petitioner's liability for the deficiency balance under the SWAP LOAN, it is of course correct to say that the chattel mortgage executed between Dynetics and SBTC was merely for additional security which did not alter, affect, or modify the terms and conditions of the Indemnity Agreement executed between Garcia and SBTC, even if, it must be admitted, the chattel mortgage was entered into without the knowledge of or notice to Garcia. Hence, Garcia, contrary to his submission, was not released as surety by virtue of execution of the aforementioned chattel mortgage.

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Nonetheless, under the prevailing facts of the case, we believe that Garcia still cannot be held liable for the deficiency of P3,596,758.72, the reason being that SBTC expressly and judicially waived the Indemnity Agreement (Exh. NN) and the Continuing Surety (Exh. OO) through no less than Atty. Bello, counsel for SBTC, during the cross-examination by petitioner's lawyer of one of SBTC's witnesses, thusly: ATTY. GANGOSO: But, I'm not asking what the counsel is after. I'm trying to show that the Swap Agreement is not covered by a Continuing Agreement of Mr. Garcia, because, the Swap Loan Agreement is . . . ATTY. BELLO: But we are willing to admit, Your Honor. ATTY. GANGOSO: There was a statement, that the Continuing Agreement did not cover the Swap Agreement. ATTY. BELLO: I'm admitting that as far as the Swap Loan is concerned, this was secured; the chattel mortgage only secured the swap loan. ATTY. GANGOSO: Considering then, for that matter that I will stop asking Mrs. Marquez between the relations of the Swap Loan Agreement, and the Continuing Suretyship. ATTY. BELLO III: I was saying that the chattel mortgage more or less, secures the swap loan. (tsn. May 10, 1991 p. 36-37) In fine, insofar as the SWAP loan was concerned, SBTC did away with the Indemnity Agreement and the Continuing Surety, opting instead to rely solely on the chattel mortgage. The aforequoted declarations of Atty. Bello in the course of the trial are conclusive. Such admission is binding and no amount of contradictory evidence can offset it.

. . . Judicial admissions verbal or written made by the parties in the pleadings or in the course of the trial or other proceedings in the same case are conclusive, no evidence being required to prove the same and cannot be contradicted unless shown to have been made through palpable mistake or that no such admission was made. (Philippine American General Insurance Co. Inc. vs. Sweet Lines Inc., 212 SCRA 194; 204 [1992]). We cannot allow SBTC at this time to water down the admission it made in open court, more so after the opposing party relied upon such judicial admission and accordingly dispensed with further proof of the fact already admitted. An admission made by a party in the course of the proceedings does not require proof. The record here does not show any attempt on the part of SBTC to contradict such judicial admission on the ground of palpable mistake. Finally, it should be noted that the chattel mortgage was entered into by Dynetics and SBTC. Garcia was not a party to the chattel mortgage nor was he aware of the contract or its provisions. It is a basic principle in law that contracts can only bind the parties who had entered into it, and it cannot favor or prejudice a third person (Oreano vs. Court of Appeals, 211 SCRA 40 [1992]). Only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract. And considering that it is Dynetics which executed the chattel mortgage, the liability for the deficiency therefor, must be adjudged against Dynetics alone. With the conclusions thus reached, we find it unnecessary to discuss the issue concerning the reasonableness of the damages awarded, the penalty charges, and attorney's fees the Court of Appeals ordered Garcia to pay SBTC. WHEREFORE, the decision of respondent Court of Appeals dated August 12, 1994 in its CA-G.R. CV No. 38329 is hereby REVERSED and SET ASIDE insofar as it held petitioner Antonio M. Garcia jointly and severally liable with Dynetics, Inc. to SBTC, and a new decision is hereby entered DISMISSING the complaint against petitioner Antonio M. Garcia. SO ORDERED.

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G.R. No. 122539 March 4, 1999 JESUS V. TIOMICO, petitioner, vs. THE HON. COURT OF APPEALS (FORMER FIFTH DIVISION) and PEOPLE OF THE PHILIPPINES, respondent.

PURISIMA, J.: This is a petition for review by certiorari under Section 2, Rule 125, in relation to Section 1, Rule 45 of the Rules of Court to correct, reverse and annul the decision 1 of the Court of Appeals which affirmed the judgment 2 of the trial court convicting the petitioner herein for a violation of the Trust Receipts Law. Petitioner Jesus V. Tiomico, (Tiomico) opened a Letter of Credit with the Bank of the Philippine Islands (BPI) for $5,600 to be used for the importation of two (2) units of Forklifts, Shovel loader and a truck mounted with crane. On October 29, 1982, the said machineries were received by the accused, as evidenced by the covering trust receipt. Upon maturity of the trust receipt, on December 28, 1982, he made a partial payment of US$855.94, thereby leaving an unpaid obligation of US$4,770.46. As of December 21, 1989, Tiomico owed BPI US$4,770.46, or P109,386.65, computed at P22.93 per US dollar, the rate of exchange at the time. Failing to pay the said amount or to deliver subject machineries and equipments, despite several demands, the International Operations Department of BPI referred the matter to the Legal Department of the bank. But the letter of demand sent to him notwithstanding, Tiomico failed to satisfy his monetary obligation sued upon. Consequently, he was accused of a violation of PD 115, otherwise known as the Trust Receipts Law, under an Information 3 alleging: That on or about the 29th day of October, 1982, in the Municipality of Makati, Metro, Manila, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, executed a Trust Receipt Agreement for and in behalf of Paramount Calibrators Merchandising of which he is the sole proprietor in favor of the Bank of the Philippine Islands. In consideration of the receipt by the said accused of three (3) bares one unit Forklift Model FD-30 Toyota Branch 2-J70 Hp and one unit Forklift Model LM-301 Toyota Branch 2-J 70 Hp and one unit shovel loader Model SOT 130 HP, 6 Cyl-LC #2-16860, for which there is now due the sum of US$5600.00, wherein the accused agreed to sell the same and with the express obligation to remit to the

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complainant-bank the proceeds of the sale, and/or to turn over the same if not sold, on demand, but the accused once in possession of the said items, far from complying with his obligation, with unfaithfulness and abuse of confidence, did then and there wilfully, unlawfully and feloniously misappropriate, misapply and convert the same to his own personal use and benefit despite repeated demands, failed and refused and still fails and refuses account for and/or remit the proceeds of the sale thereof, to the damage and prejudice of the said complainant-bank as represented by Lourdes V. Palomo in the aforementioned amount of US $5600 or its equivalent in Philippine currency. Contrary to law. Arraigned thereunder, Tiomico entered a plea of Not Guilty, at which juncture, Assistant Provincial Prosecutor John B. Egana manisfested that he was authorizing the private prosecutor, Atty. Jose B. Soncuya, to prosecute the case subject to his direction, supervision and control. On October 16, 1989, Gretel S. Donato was presented to testify for the prosecution. According to her, she worked for the Bank of the Philippine Islands (BPI) in 1981 and in 1982, she was assigned as one of the Letter of Credit processors in the International Operations Department of BPI. Her duty, among others, was to process letter of credit applications which included that of Tiomico. The trust receipt executed by the latter was given to her as part of the documents supporting his Letter of Credit. The following documents presented in the course of the testimony of Donato were identified by her as follows: (1) Exhibit "A" Letter of Credit; (2) Exhibit "B" Pro Forma Invoice;

After the People rested its case, petitioner begged leave to file a demurrer to the evidence, theorizing that the evidence on record does not suffice to prove beyond reasonable doubt the accusation against him. But instead of granting the said motion of the defense, the trial court ordered a re-opening of the case, so as to enable the prosecution to adduce more evidence. The defense objected but to no avail. The trial court proceeded with the continuation of trial "in the interest of justice". On September 5, 1990, the-lower court denied the demurrer to evidence. The Motion for Reconsideration of the defense met the same fate. It was denied. The case was then set for continuation of trial on December 12, 1990. Reception of evidence for the defense was set on January 7, 1991. But on January 4, 1991, three days before the scheduled continuation of trial, the defense counsel filed an Urgent Motion for Postponement for the given reason that he had to appear before Branch 12 of the Metropolitan Trial Court of Manila on January 7, 1991. On January 7, 1991, the lower court denied the Urgent Motion for Postponement and adjudged petitioner to have waived the right to introduce evidence on his behalf. On January 30, 1991, the trial court promulgated its decision finding petitioner guilty of a violation of PD 115, and sentencing him accordingly. On appeal, the Court of Appeals came out with a judgment of affirmance, the dispositive portion which, is to the following effect: WHEREFORE, the Court finds JESUS V. TIOMICO guilty beyond reasonable doubt of violation of PD 115 and is hereby sentenced to suffer an indeterminate penalty of ten (10) years of prision mayor as minimum, to fifteen (15) years of reclusion temporal as maximum; to indemnify Bank of the Philippine Islands the sum of P109,386.65 and to pay the costs. SO ORDERED. 4

(3) Exhibit "C" Letter of Credit Confirmation; (4) Exhibit "D" Trust Receipt; Exhibit D1-D4 signatures thereon; (5) Exhibit "E" Statement of Account, the amount of P306,708.17 appearing therein, as Exhibit E-1, and the signature thereto of an unidentified bank officer, as Exhibit E-2; (6) Exhibit "F" Letter of Demand of the bank's legal department; a return card, as Exhibit F-1, and the signature of the addressee's agent, as Exhibit F-1 A. Counsel for petitioner objected to the admission of Exhibits "A", "B", "C" and "D" on the ground that witness failed to identify the said documents inasmuch as her testimony regarding the signatures appearing therein were evidently hearsay. But the trial court admitted the said documentary evidence, despite the objections raised thereto by the defense. Thereafter, the prosecution rested. Undaunted, petitioner found his way to this Court via the Petition for Review by Certiorari at bar, seeking to annul the decision 5 of the Court of Appeals; raising as issues: (1) WHETHER OR NOT PD 115 OR TRUST RECEIPTS LAW IS UNCONSTITUTIONAL; (2) WHETHER OR NOT A TESTIMONY CAN BE ADMITTED DESPITE THE ABSENCE OF FORMAL OFFER AS REQUIRED BY SECTIONS 34 AND 35, RULE 132, OF THE REVISED RULES OF COURT; (3) WHETHER OR NOT THE TESTIMONY OF WITNESS WITH REGARD TO THE LETTER OF CREDIT AND OTHER DOCUMENT IS HEARSAY AND; (4) WHETHER OR NOT THERE WAS DEPRIVATION OF DUE PROCESS ON THE RIGHTS OF THE ACCUSED WHEN THE TRIAL COURT

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DENIED THE MOTION FOR POSTPONEMENT BY THE DEFENSE COUNSEL. As regards the first issue, the Court has repeatedly upheld the validity of the Trust Receipts Law and consistently declared that the said law does not violate the constitutional proscription againts imprisonment for non-payment of debts. (People vs. Cuevo, 104 SCRA 312; People vs. Nitafan, 207 SCRA 726; Lee vs. Rodil, 175 SCRA 100). Such pronouncement was thoroughly explained in Lee vs. Rodil (supra) thus: Verily, PD 115 is a declaration by the legislative authority that, as a matter of public policy, the failure of a person to turn over the proceeds of the sale of 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. As held in Lozano vs. Martinez (146 SCRA 323, 338): . . . certainly, it is within the authority of the lawmaking body to prescribe certain act deemed pernicious and inimical to public welfare. Acts mala in se are not the only acts that the law can punish. An act may not be considered by society as inherently wrong, hence, not malum in se, but because of the harm that it inflicts on the community, it can be outlawed and criminally punished as malum prohibitum. The State can do this in the exercise of its police power. In fine, PD 115 is a valid exercise of police power and is not repugnant to the constitutional provision of non-imprisonment for non-payment of debt. In a similar vein, the case of People vs. Nitafan (supra) held: The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of a loan. Thus, there can be no violation of the right against imprisonment for nonpayment of a debt. Anent the second issue, the pivotal question is: Should the testimony of a witness be admitted despite the failure of the proponent to offer it formally in evidence, as required by Section 34 of Rule 132 6? We rule on this issue in the affirmative. Records disclose that the private prosecutor stated the purpose of the testimony in question although he did not formally offer the same. The proceedings 7 went on as follows: ATTY. SONCUYA: The purpose of the testimony of the witness is to prove that the accused applied for a letter of credit, for the opening of a letter of credit and for the importation of machinery from Japan and that those machinery were delivered and received

by the accused as evidenced by the trust receipt and that the accused failed to comply with the terms and conditions of the said trust receipt, your Honor. COURT: All right, proceed. As aptly stressed by the Solicitor General in his Comment, 8 "the absence of the words, 'we are formally offering the testimony for the purpose of . . .'" should be considered merely as an excusable oversight on the part of the private prosecutor. It should be borne in mind that the rationale behind Section 34 of Rule 132 9 is to inform the Court of the purpose of the testimony, to enable the judge to rule whether the said testimony is necessary or is irrelevant or immaterial. In the case under scrutiny, since the purpose of subject testimony was succinctly stated, the reason behind the requirement for its formal offer has been substantially complied with. What the defense counsel should have done should have been to interpose his objection the moment the private respondent was called to testify, on the ground that there was no prior offer made by the proponent. 10 The tendency of the rules on evidence, is towards substantial justice rather than strict adherence to technicalities. To condemn the disputed testimony as inadmissible due to the failure of the private prosecutor to properly observe the rules on presentation of evidence, would render nugatory, and defeat the proceedings before the lower court. On the third issue whether or not the witness can testify on subject documents introduced as evidence despite her admission that she did not see the accused sign the said exhibits, we likewise rule in the affirmative. As aptly held by the appellate court: 11 Gretel Donato testified that she was not present when appellant affixed his signature on the documents in question (p. 22 ibid). She, however, identified the signatures thereon (Exhs. "A-1", "A-2", "D-1", "D-2" and "D-3", Letter of Credit; Exhibit B Pro Forma Invoice; Exhibit C Letter of Credit Confirmation; Exhibit D-Trust Receipt; Exhibit D1-D4 signatures thereon; pp. 129 and 132 of Orig. Rec.) as those of the appellant Jesus V. Tiomico arising from her familiarity therewith inasmuch as she was the one who processed the papers pertinent to the transactions between the appellant and the complainant bank (TSN, Feb. 5, 1990, pp 4-6). Her testimony, therefore, cannot be considered hearsay because it is principally based on her personal knowledge of bank transactions and the documents and records which she processes in the regular course of the bank's business operations. It is not essential to the competence of a lay witness to express opinions on the genuineness of handwritings that he did see the person in question write. 12 It is enough that the witness has so adopted the same into business transactions as to induce a reasonable presumption and belief of genuineness of the document. This is due to the fact that in the ordinary course of business, documents purporting to be written or signed by that person have been

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habitually submitted to the witness, or where knowledge of handwriting is acquired by him in an official capacity. 13 Did the witness gain familiarity with the signature of the accused? The answer is yes. Exhibits "A" to "D": Letter of Credit, Pro-Forma Invoice, Letter of Credit Confirmation and Trust Receipt, respectively, were all familiar to the witness since the said documents bearing the signature of the accused were all submitted to her for processing. It is therefore beyond cavil that she acquired sufficient familiarity to make witness competent to testify on the signatures appearing in subject documents. From the time of the application to its approval and when Tiomico defaulted, she (witness) was the one who had overseen the transactions and recommended the actions to be taken thereon. As a matter of fact, she was the one who referred the failure of Tiomico to pay his balance to Tiomico to pay his balance to the Legal Department of BPI, prompting the said legal department to send him (Tiomico) a demand letter. Furthermore, whether there was due execution or authencity of such documents was impliedly admitted by the accused. On this point, we quote with approval the conclusion reached by the Court of Appeals, to wit: 14 On the other hand, appellant impliedly admitted the due execution of the assailed documents considering that he did not deny the fact that he opened a letter of credit. Neither did he deny that the signature appearing thereon is his. What appellant intended to dispute was merely the balance of his past due account with the complainant bank, thus: COURT Denied. What is the defense of the accused? Denial that he opened the letter of credit. ATTY. EBRO No, you honor. COURT: What is the defense? xxx xxx xxx ATTY. EBRO. Q: Now you identified signatures allegedly of the accused on Exhibit A, which is the application for the letter of credit, I ask you Miss Donato, were you personally present when this signature was affixed to the document?

A: (witness going over Exhibit A) I was the one of the ones who processed the letter of credit. ATTY. EBRO May we ask for an order directing that the witness respond to my question. COURT Just answer the question. WITNESS A: No, sir. COURT Does the accused deny the signature? ATTY. EBRO No, your Honor. I am just showing also that she has been exaggerating. (TSN, Feb. 5, 1990, pp. 12-13, p. 22) In light of the foregoing, it stands to reason and conclude that the documents under scrutiny are admissible in evidence, as held by the trial court. Anent the fourth issue, petitioner theorizes that the denial of the motion for postponement sent in by his lawyer violated his constitutional right to due process. It should be stressed that subject Urgent Motion for Postponement was not the first motion for resetting ever presented by the counsel for petitioner. On December 12, 1990, upon motion of the latter, and without objection on the part of the prosecution, the reception of evidence for the defense was reset once more to January 7, 1991, at 8:30 in the morning. The most basic tenet of due process is the right to be heard. Where a party had been afforded an opportunity to participate in the proceedings but failed to do so, he cannot complain of deprivation of due process. 15 Due process is satisfied as long as the party is accorded an opportunity to be heard. If it is not availed of, it is deemed waived or forfeited without violating the Bill of Rights. 16 It is further theorized by petitioner that the lower court should have at least granted him another trial date so as to enable him to present his evidence, so that the denial of his Urgent Motion for Postponement infringed his constitutional right to be heard by himself and by counsel. 17 This submission is unsustainable.

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When an accused is accorded a chance to present evidence on his behalf but due to his repeated unjustifiable failure to appear at the trial without any justification, the lower court order's the case submitted for decision on the basis of the evidence on record, said judicial action is not tainted with grave abuse of discretion because in such a case, the accused is deemed to have waived the right to adduce evidence on his behalf. 18 Furthermore, records show that in this case the defense counsel did not even bother to appear for the scheduled reception of evidence for his client on January 7, 1991, notwithstanding the fact that the trial court did not act upon, much less grant, the Urgent Motion for Postponement which he filed on January 4, 1991. Lawyers should never presume that their motions for postponement would be granted. 19 A motion for continue or postponement is not a matter of right. It is addressed to the sound discretion of the Court. Action thereon will not be disturbed by appellate courts, in the absence of clear and manifest abuse of discretion resulting in a denial of substantial justice. 20 Motions for postponement are generally frowned upon by Courts if there is evidence of bad faith, malice or inexcusable negligence on the part of the movant. 21 The inadvertence of the defense of the defense counsel in failing to take note of the trial dates and in belatedly informing the trial court of any conflict in his schedules of trial or court appearances, constitutes inexcusable negligence. It should be borne in mind that a client is bound by his counsel's conduct, negligence and mistakes in handling the case. 22 As gleanable from the records: . . . Attached to the motion is the Order of said court dated November 19, 1990. Obviously, when the case was called on December 12, 1990, the counsel for the accused had already known of the scheduled hearing before the Metropolitan Trial Court, yet he agreed to the hearing on January 7, 1991. Counsel's conduct is not consistent with the thrust of the Judiciary to expedite the termination of cases under the Mandatory Continuous Trial . . . 23 A lawyer as an officer of the court is part of the judicial machinery in the administration of justice. As such, he has a responsibility to assist in the proper and sound administration of justice. Like the court itself, he is an instrument to advance its ends and the speedy, efficient, impartial, correct and inexpensive adjudication of cases. A lawyer should not only help to attain these objectives. He should also avoid improper practices that impede, obstruct or prevent their realization, charged as he is with the primary task of assisting the court in the speedy and efficient administration of justice. 24 Petitioner invites attention to the Affidavit of Desistance by the Bank of the Philippine Islands (BPI). This issue raised by the petitioner cannot be entertained as it was only raised for the first time on appeal. 25 Considering that the assailed decision is firmly anchored on prevailing law and established jurisprudence, the Court cannot help but deny the petition. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals, dated May 31, 1995, affirming the judgment of conviction rendered on January 28, 1991 by the court of origin AFFIRMED. No pronouncement as to costs.

SO ORDERED. G.R. No. L-59640 July 15, 1991 DAMIAN ROBLES, petitioner, vs. THE COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents.

FELICIANO, J.:p In an information dated 2 March 1978, petitioner Damian Robles was charged before the then Court of First Instance of Manila with the crime of estafa, committed as follows: That in or about and during the period comprised between November 19, 1976 to March 9, 1977, inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously defraud the Paramount Business Machines, a business firm duly organized and doing business in said City, represented by Roberto Ng y Shiang Shee, in the following manner, to wit: the said accused received in trust from the said Roberto Ng y Shiang Shee office equipments consisting of adding machines, typewriters and calculators all amounting to P14,895.00 for the purpose of selling the same, under the express obligation of turning over the proceeds of the sale, if sold, or of returning the said office equipments if not sold, to the said Roberto Ng y Shiang Shee; but the said accused, once in possession of the said office equipments and far from complying with his obligation as aforesaid, failed and refused and still fails and refuses to remit the corresponding amount of the said office equipments or to return the said office equipments, despite repeated demands made upon him to do so, and instead, with grave abuse of confidence and with intent to defraud, did then and there wilfully, unlawfully and feloniously misappropriate, misapply and convert the same to his own personal use and benefit, to the damage and prejudice of the said Paramount Business Machines, in the said amount of P14,895.00, Philippine Currency. Contrary to law. 1 The trial court, in its decision dated 20 February 1979, convicted petitioner Robles of the crime charged. The dispositive portion of this decision reads: WHEREFORE, the Court finds the accused Damian Robles guilty beyond reasonable doubt of the crime of estafa defined and penalized under the provisions of Article 315 subdivision No. 1 (b) of the Revised Penal Code and there being no aggravating or mitigating circumstance present and applying the provisions of the Indeterminate Sentence Law, hereby sentences the said accused to suffer the penalty of imprisonment ranging from TWO (2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision correccional in its minimum and medium period as minimum, to SIX (6) YEARS, EIGHT (8) MONTHS and TWENTY (20) DAYS of prision mayor medium, as maximum, together with the accessory penalties provided for by law and to pay the costs.

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The accused is further ordered to indemnify the complainant the amount of P14,895.00 without subsidiary imprisonment in case of insolvency. SO ORDERED. 2 Dissatisfied, petitioner Robles appealed to the Court of Appeals. On 17 September 1981, the appellate court affirmed petitioner Robles' conviction but modified the penalty imposed by the trial court as follows: WHEREFORE, with the modification that accused-appellant DAMIAN ROBLES shall suffer the penalty of imprisonment from SIX (6) MONTHS of arresto mayor, as minimum, to TWO (2) YEARS, ELEVEN (11) MONTHS and TEN (10) DAYS of prision correccional, as maximum, and to indemnify the complainant the amount of P11,395.00, the appealed decision is hereby affirmed ill all other respects, and with costs against accused-appellant. SO ORDERED. 3 The facts as found by respondent Court of Appeals are as follows: Roberto Ng is the owner and the sales manager of the Paramount Business Machines, a firm dealing in office equipment and has offices located at 1027 Severino Reyes Street, Sta. Cruz, Manila, (pp. 10, 11, July 19, 1978). On November 19, 1976, Roberto Ng entrusted to Damian Robles the following items: one Casio electronic calculator P800.00 one Victor adding machine 600.00 which items were covered by a delivery trust receipt (Exhibit "A," Folder of Exhibits: pp. 14, 15, TSN., July 19, 1978). On February 8, 1977, Roberto Ng again entrusted to Damian Robles several office equipment, to wit: one Standard Imperial typewriter 16" carriage P3,500.00 one Standard Imperial typewriter 26" carriage 3,200.00 one Olympia, standard electric typewriter,

13" carriage 2,800.00 which items were covered by another delivery trust receipt (Exhibit "B", Folder of Exhibits; pp. 23, 24, 25, 26, TSN, July l9, 1978). For these items, Damian Robles gave Roberto Ng two postdated checks, PCIB Checks No. 15654 and 15655 dated March 25, 1977 and March 15, 1977, respectively (Exhibits "C" and "C-l," Folder of Exhibits; pp. 26, 27, TSN, July 19, 1978), for the respective amounts of P3,200.00 and P4,200.00 ( id.). On February 10, 1977, Damian Robles was again entrusted by Roberto Ng with an Olivetti Manual typewriter, 11 carriage worth P1,000.00, which item was covered by another delivery receipt (Exhibit "D", Folder of Exhibits; p. 33, TSN, July 19, 1978). On March 7, 1977, Damian Robles received from Roberto Ng one Olivetti adding machine worth P600.00 which item was covered by another delivery receipt (Exhibit "E" Folder of Exhibits; pp. 37, 38, TSN, July 19, 1978). And on March 8, 1977 and March 9, 1977, the same Damian Robles was again entrusted by Roberto Ng the following: one Olivetti standard typewriter 15 carriage P1,400.00 one Olympia portable typewriter 10 carriage 995.00 which items were covered by delivery trust receipts (Exhibits "F" and "G", Folder of Exhibits; pp. 39, 40, 41, 42, 45, TSN July 19, 1978). For all these items delivered to Damian Robles, the latter agreed to sell them and remit the proceeds of the sales to Roberto Ng, or to return the items if they are unsold (pp. 57, 58, 67, 68, TSN, July 19, 1978). The postdated check PCIB Check No. 15655 dated March 15, 1977 for the amount of P4,200.00 issued by Damian Robles was not honored by the drawee bank since Damian Robles caused the stoppage of its payment (pp. 29, 30, 31, 46, TSN, July 19, 1978). On the other hand, the accused-appellant admits having received from the complainant Roberto Ng the business machines enumerated in the delivery receipts, Exhibits "A", "B", "D", "E", "F", and "G", (pp. 4, 8, TSN, December 5, 1978) and admits likewise that it was his agreement with Roberto Ng that he (accused) would sell the office equipment and to turn over the proceeds to Roberto Ng (p. 8, TSN, December 5, 1978). He however, claims that the Imperial Standard Typewriter worth P3,500.00 was returned to Paramount as confirmed by the signature of Mr. Ng in Annex "B" (Original Exhibits, p. 12) after the notation 'return' was placed there by Fiscal Arranz (C.A. Decision, p. 11; Rollo, p. 38). The total value of the office equipment received by accused-appellant Damian Robles from the complainant is P14,895.00. 4

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In this Petition for Review, petitioner Robles makes the following arguments: 1. the Court of Appeals gravely erred in law in ruling that under the delivery trust receipts petitioner received the articles covered therein in trust or with the obligation to account for the proceeds thereof, or to return the same; and 2. the Court of Appeals committed serious error in law in finding petitioner guilty of estafa under Subdivision No. 1 (B), Article 315 of the Revised Penal Code. Petitioner, in respect of the first ground, insist that the delivery trust receipts which he had signed were "merely intended to evidence the fact that the articles therein listed were delivered to and received by him." The documents do not, petitioner contends, reflect the true intention of the parties considering that even before he could comply with the stipulations in those receipts, that is, to return the articles enumerated therein within the period of two (2) days from the date of the receipt, the complainant delivered to him other articles without demanding compliance with the condition imposed by the earlier delivery trust receipts. In short, it is his position that the delivery trust receipts are "mere formalities" whose printed terms and conditions appearing therein were not intended by the parties to govern their transactions; that those transactions referred to were in fact sales on trial basis for a period of two (2) days. Thus, when he failed to return the various pieces of equipment within the two-day period, he was deemed to have purchased the same and his liability should therefore be only civil, i.e., to pay the purchase price. The Court is not persuaded. The delivery trust receipts evidencing the transactions between Paramount Business Machines ("Paramount") and petitioner state, in relevant part: In trust for and as the property of said Paramount Business Machines the above described merchandise having been delivered to me/us for trial and with the obligation on my/our part to return the same in good order and condition within 2 days from the date hereof unless before the expiration of said period, I/we definitely purchase the same and pay the price hereof. In the meantime, pending the sales of the above described merchandise to me/us, I/we agree and undertake to be absolutely responsible as insurer for the proper care and conservation of said property and to be liable for any loss or destruction. I/we further agree to keep the said property in my/our residence or place of business at the address indicated herein above and not to remove the same from said promise without the previous knowledge and consent of Paramount Business Machines. 5 (Emphases supplied) The quoted provisions of the trust receipts show clearly (1) that Paramount retained ownership of the office equipment covered by the receipts; (2) that possession of the goods was conveyed to petitioner subject to a fiduciary obligation either to return them within a specified period of time or to pay or account for the price of proceeds thereof. Surrounding circumstances also showed that the transactions were not ordinary sales on trial basis. There were six (6) transactions involved, not just one. In each transaction, there were several items of equipment delivered to petitioner, instead of just one, thereby indicating that petitioner was not an ordinary buyer who would himself use the articles bought, but rather a commission merchant. Additional items of equipment were delivered to petitioner even before compliance with his duty under one trust receipt to return within two (2) days the office

equipment he had received. He admitted in his Affidavit 6 dated 21 October 1977 that he was Paramount's sales agent. Petitioner, however, failed to return the machines upon demand by Paramount and at the same time, failed to account for the sale proceeds thereof. We agree with the Court of Appeals and the trial court on this matter. The Court of Appeals said in part: We hereby agree in full and quote hereunder the following findings and conclusions of the court a quo in the appealed decision because the same are in accordance with the evidence and the law. A scrutiny of the evidence presented, the Court is more inclined to give more weight and credibility to the evidence of the prosecution. The printed conditions are clearly inscribed and forms [sic] part of the agreement between the accused and the complainant, for on the delivery trust receipts (Exh. A-1) of the Paramount Business Machines . . .: xxx xxx xxx The conditions (Exhibit A-1) stipulated on all the delivery trust receipts signed by the accused specifically stated that the [items] were received by the accused from the complainant "in trust for and as property of the said Paramount Business Machines" and the further stipulation that the same is "with the obligation on my/our part to return the same in good order and condition within 2 days from the date hereof." The ordinary and accepted meaning of the phrase "in trust" is an obligation upon a person arising out of a confidence reposed in him to apply properly, faithfully and according to such confidence (Bouvier's Law Dictionary, Baldwins Century Edition, page 1192.) That whatever articles are received in trust by the accused if sold by him the proceeds thereof are to be turned over to the owner, the complainant herein, and if not sold the same articles are to be returned to the complainant within two days front receipt of the same. The provisions of the conditions embodied in the trust receipts need no further interpretation or elucidation for the same is clear, specific and explicit. The Court has observed the accused to be an intelligent man far (sic) from his qualification of being a college professor and that he must have fully understood the contents of the stipulations appearing on the face of the delivery trust receipts which he actually signed upon receipt of the articles described therein. The period for him (accused) to return the articles is clear which is "2 days from the date hereof," meaning from the date he received the articles, the period mentioned being specifically typed on the blank provided therefore (sic) which the Court believes the accused could not have missed and is aware he signed these trust receipts. 7 (Emphasis supplied) We note in this connection that the delivery trust receipts here involved in fact constituted trust receipts within the meaning of Presidential Decree No. 115, known as the "Trust Receipts Law," which took effect on 29 January 1973. Section 4 thereof defines a "trust receipt" and a "trust receipt transaction" for purposes of the decree in the following terms: Sec. 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

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referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or 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, . . . . (Emphasis supplied) We note that under Section 13 of the Trust Receipts Law, the violation by an entrustee of his obligations under a trust receipt document, more specifically his failure to turnover the proceeds of the sale of the goods covered by the trust receipt, or to return said goods as they were not sold or disposed of, would constitute the crime of estafa under Article 315 (1) (b), Revised Penal Code. Section 13 reads as follows: Sec. 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 Number 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) In Lee v. Rodil, 8 which involved a criminal prosecution for estafa relating to goods covered by a trust receipt alleged to have been committed on 26 July 1982, this Court affirmed the conviction for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code and in the process, upheld Section 13 of Presidential Decree No. 115 against constitutional challenge. The Court, speaking through Mr. Justice Gutierrez, Jr., said: Acts involving the violation of trust receipt agreements occurring after 29 January 1973 would make the accused criminally liable for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code, pursuant to the explicit provision in Sec. 13 of P.D. 115 (Sia v. Court of Appeals, G.R. No. 40324, October 5, 1988). The petitioner questions the constitutionality of Sec. 13 of P.D. 115. She contends that it is violative of the constitutional right that "No person shall be imprisoned for debt or non-payment of a poll tax". The petitioner has failed to make out a strong case that P.D. 115 conflicts with the constitutional prohibition against imprisonment for non-payment of debt. A

convincing showing is needed to overcome the presumption of the validity of an existing statute. The criminal liability springs from the violation of the trust receipt. We bear in mind the nature of a trust receipt agreement. . . . xxx xxx xxx . . . The violation of a trust receipt committed by disposing of the goods covered thereby and failing to deliver the proceeds of such sale has been squarely made to fall under Art. 315 (1) (b) of the Revised Penal Code, . . .9 In the case at bar, the acts of petitioner which were complained of were committed between 19 November 1976 and 9 March 1977, that is, long after the beginning date of effectivity of Presidential Decree No. 115. In accordance with the provisions of Section 13, Presidential Decree No. 115, quoted above, the failure of petitioner Damian Robles to turnover to the entruster Paramount the proceeds of the sale of goods covered by the delivery trust receipts and to return the said goods, constituted estafa punishable under Article 315 (1) (b) of the Revised Penal Code. It is also pertinent to point out that quite apart from and even in the absence of the provisions of Section 13 of the Trust Receipt Law , the failure of Damian Robles to comply with his fiduciary obligation under the delivery trust receipts here involved, constituted the offense of estafa punishable under Article 315 (1) (b) of the Revised Penal Code. In other words, the elements of the offense of estafa set out in Article 315 (1) (b) are present in the instant case. Those elements are: (1) "unfaithfulness or abuse of confidence;" (2) "misappropriating . . . money or goods . . .; (3) received by the offender in trust or on commission . . . or under any other obligation involving the duty to make delivery of or to return the same . . .;" and (4) "to the prejudice of another." The delivery trust receipts, in the case at bar, admittedly signed by petitioner Damian Robles imposed on him the duty to return the article or the proceeds thereof to Paramount within two (2) days from the specified dates of the trust receipts. The failure to account, upon demand, for funds or property held in trust is evidence of misappropriation 10 which, not having been explained away or rebutted by petitioner Damian Robles, warranted his conviction for estafa under the Revised Penal Code. This was settled doctrine long before the promulgation of the Trust Receipts Law. 11 WHEREFORE, the present Petition for Review is hereby DENIED for lack of merit and the Decision of the Court of Appeals in C.A.-G.R. No. 23216-CR dated 17 September 1981, is hereby AFFIRMED. Costs against petitioner. SO ORDERED.

G.R. No. L-40324 October 5, 1988

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JOSE O. SIA, petitioner, vs. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, respondents. Faustino B. Tobia and Robert H. Tobia for petitioner. The Solicitor General for respondents.

money or bills, receivables or accounts, separate and capable of Identification as property of the Bank. xxx xxx xxx The Bank may at any time cancel this trust and take possession of said goods or the proceeds of the same as may then have been sold wherever the said goods or proceeds may then be found, and in the event of any suspensions, or failure, or assignment for the benefit of creditor on my/our part or non-fulfillment of any obligation, or of the non-payment at maturity of any acceptance specified hereon or under any credit issued by the Bank on my/our account, or of any indebtedness on my/our part, all of my/our obligations, acceptances, indebtedness, and liabilities whatsoever shall thereupon (with or without notice) mature and become due and payable. ... When the said trust receipt became due and demandable, the Metal Manufacturing of the Philippines, Inc. failed to pay or deliver the merchandise to the Bank despite the latter's demands (Exh. "D"). ... 1 Consequently, before the Court of First Instance of Manila, Branch XI, an information for estafa was filed against petitioner for violation of the trust receipt agreement executed by him in his capacity as President and General Manager of Metal Manufacturing of the Philippines, Inc. in favor of Continental Bank (docketed as Criminal Case No. 77092). Upon petitioner's plea of not guilty, trial proceeded. The trial court entered a verdict of guilty beyond reasonable doubt for the offense of estafa defined and penalized in paragraph 1(b), Article 315 of the Revised Penal Code, and sentenced the accused (petitioner) to an indeterminate penalty of from One (1) Month and One (1) Day of arresto mayor, as minimum, to One (1) Year of prison correccional, as maximum, to indemnify the offended party in the sum of P1,979.06 and to pay the costs. Elevating the trial court's decision to the Court of Appeals (docketed therein as CA G.R. No. 16026CR), the conviction of the accused, as aforestated, was affirmed with the modification to the effect that the accused is to indemnify the offended party in the sum of P1,278.65 only (after deducting the marginal deposit). A motion for reconsideration followed, but was denied for lack of merit. Hence, this petition for review on certiorari. From the assignment of errors submitted by the petitioner, the following issues are raised:

PADILLA, J.: The facts in this ease are not disputed. As stated by the Court of Appeals in its assailed decision, * dated 29 November 1974, rendered in CA-G.R. No. 12602-CR, they are as follows: ... on October 31, 1963 Jose O. Sia (appellant herein), President and General Manager of the Metal Manufacturing of the Philippines, Inc. for and in its behalf, applied for and was granted a Letter of Credit (Exhibit "A") with the Continental Bank, Manila to cover the importation of One Hundred (100) pieces of Safe-Deposit Locks No. 4440, complete with keys, amounting Pl,979.06. A marginal deposit was made with the Bank and the Letter of Credit was confirmed with its foreign correspondent. Thereafter, appellant, for and in behalf of the Metal Manufacturing of the Philippines, Inc., executed a trust receipt (Exhibit "C") in favor of the Continental Bank, the terms and conditions of which read, in part, 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 for its account but without any authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of conditional sale, pledge or otherwise. In case of sale I/We further agree to hand the proceeds as soon as received to the Bank to apply against the relative accept instance (as described above) and for the payment of any other indebtedness of mine/ours to Continental Bank. I/We agree to keep said goods insured to their full value against fire and 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 charged with the storage, premium of insurance or any other expenses incurred on said goods. I/We also agree to keep the said goods, manufactured products, or proceeds thereof, whether in the form of

1) whether petitioner Sia, as President and General Manager of Metal Manufacturing of the Phil., Inc. having acted for and on its behalf in executing the Trust Receipt Agreement in favor of the Continental Bank may be held liable for the crime charged; and 2) the real nature of a trust receipt agreement or transaction.

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This case presents issues similar to those resolved by the Court en banc in Sia vs. People. 2 The decision in the cited case calls for a reversal of the respondent appellate court's herein appealed judgment thereby resulting in the acquittal of the petitioner. There is no further point is discussing the issues raised by petitioner, as met by the respondents, because the Court's decision in the earlier Sia case has preempted the subject (although there are pronouncements in said decision which may be open to question so much so that the decision was not reached by a unanimous court). It should be pointed out, however, that if the acts herein involved occurred after 29 January 1975, petitioner would be criminally liable for estafa under paragraph l(b), Article 315 of the Revised Penal Code, pursuant to the following provisions of PD 115 Sec. 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 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. 3 WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The decision of the Court of Appeals is SET ASIDE. Defendant is ACQUITTED without prejudice to the institution of a civil action against the Metal Manufacturing of the Phil., Inc. for collection of the sum due plus damages if any. No costs. SO ORDERED. On August 20, 1975 the spouses Tirso and Loreta Vintola (the VINTOLAS, for short), doing business under the name and style "Dax Kin International," engaged in the manufacture of raw sea shells into finished products, applied for and were granted a domestic letter of credit by the Insular Bank of Asia and America (IBAA), Cebu City. 1 in the amount of P40,000.00. The Letter of Credit authorized the bank to negotiate for their account drafts drawn by their supplier, one Stalin Tan, on Dax Kin International for the purchase of puka and olive seashells. In consideration thereof, the VINTOLAS, jointly and severally, agreed to pay the bank "at maturity, in Philippine currency, the equivalent, of the aforementioned amount or such portion thereof as may be drawn or paid, upon the faith of the said credit together with the usual charges." On the same day, August 20, 1975, having received from Stalin Tan the puka and olive shells worth P40,000.00, the VINTOLAS executed a Trust Receipt agreement with IBAA, Cebu City. Under that Agreement, the VINTOLAS agreed to hold the goods in trust for IBAA as the "latter's property with liberty to sell the same for its account, " and "in case of sale" to turn over the proceeds as soon as received to (IBAA) the due date indicated in the document was October 19, 1975. Having defaulted on their obligation, IBAA demanded payment from the VINTOLAS in a letter dated January 1, 1976. The VINTOLAS, who were unable to dispose of the shells, responded by offering to

G.R. No. 73271 May 29, 1987 SPOUSES TIRSO I. VINTOLA and LORETO DY VINTOLA, defendants-appellants, vs. INSULAR BANK OF ASIA AND AMERICA, plaintiff-appellee.

MELENCIO-HERRERA, J.: This case was appealed to the Intermediate Appellate Court which, however, certified the same to this Court, the issue involved being purely legal. The facts are not disputed.

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return the goods. IBAA refused to accept the merchandise, and due to the continued refusal of the VINTOLAS to make good their undertaking, IBAA charged them with Estafa for having misappropriated, misapplied and converted for their own personal use and benefit the aforesaid goods. During the trial of the criminal case the VINTOLAS turned over the seashells to the custody of the Trial Court. On April 12, 1982, the then Court of First Instance of Cebu, Branch VII, acquitted the VINTOLAS of the crime charged, after finding that the element of misappropriation or conversion was inexistent. Concluded the Court: Finally, it should be mentioned that under the trust receipt, in the event of default and/or non-fulfillment on the part of the accused of their undertaking, the bank is entitled to take possession of the goods or to recover its equivalent value together with the usual charges. In either case, the remedy of the Bank is civil and not criminal in nature. ... 2 Shortly thereafter, IBAA commenced the present civil action to recover the value of the goods before the Regional Trial Court of Cebu, Branch XVI. Holding that the complaint was barred by the judgment of acquittal in the criminal case, said Court dismissed the complaint. However, on IBAA's motion, the Court granted reconsideration and: 1. Order(ed)defendants jointly and severally to pay the plaintiff the sum of Seventy Two Thousand Nine Hundred Eighty Two and 27/100 (P72,982.27), Philippine Currency, plus interest of 14% per annum and service charge of one (1%) per cent per annum computed from judicial demand and until the obligation is fully paid; 2. Ordered defendants jointly and severally to pay attorney's fees to the plaintiff in the sum of Four Thousand (P4,000.00) pesos, Philippine Currency, plus costs of the suit. 3 The VINTOLAS rest their present appeal on the principal allegation that their acquittal in the Estafa case bars IBAA's filing of the civil action because IBAA had not reserved in the criminal case its right to enforce separately their civil liability. They maintain that by intervening actively in the prosecution of the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly with the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, reading: Section 1. Institution of criminal and civil action. When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged is impliedly instituted with the criminal action, unless the offended party expressly waives the civil action or reserves his right to institute it separately. ... and that since the judgment in the criminal case had made a declaration that the facts from which the civil action might arise did not exist, the filing of the civil action arising from the offense is now barred, as provided by Section 3-b of Rule 111 of the same Rules providing:

(b) Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds from a declaration in a final judgment that the fact from which the civil might arise did not exist. In other cases, the person entitled to the civil action may institute it in the jurisdiction in the manner provided by law against the person who may be liable for restitution of the thing and reparation or indemnity for the damage suffered. Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they have relinguished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court. The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. Thus, Section 4 of P.D. No. 115 defines a trust receipt transaction as: ... any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as the entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter's execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instrument thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any one of the following: 1. In the case of goods or documents, (a) to sell the goods or procure their sale, ... A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. "It secures an indebtedness and there can be no such thing as security interest that secures no obligation." 4 As defined in our laws: (h) "Security Interest"means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. 5 As elucidated in Samo vs. People 6 "a trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased."

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Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. ... for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof. ... 7 Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. In so arguing, the VINTOLAS conveniently close their eyes to their application for a Letter of Credit wherein they expressly obligated themselves in these terms: IN CONSIDERATION THEREOF, I/we promise and agree to pay you at maturity in Philippine Currency the equivalent of the above amount or such portion thereof as may be drawn or paid upon the faith of said credit together with the usual charges. ... (Exhibit "A") They further agreed that their marginal deposit of P8,000.00, later increased to P11,000.00 be applied, without further proceedings or formalities to pay or reduce our obligation under this letter of credit or its corresponding Trust Receipt. (Emphasis supplied) 8 The foregoing premises considered, it follows that the acquittal of the VINTOLAS in the Estafa case is no bar to the institution of a civil action for collection. It is inaccurate for the VINTOLAS to claim that the judgment in the estafa case had declared that the facts from which the civil action might arise, did not exist, for, it will be recalled that the decision of acquittal expressly declared that "the remedy of the Bank is civil and not criminal in nature." This amounts to a reservation of the civil action in IBAA's favor, for the Court would not have dwelt on a civil liability that it had intended to extinguish by the same decision. 9 The VINTOLAS are liable ex contractu for breach of the Letter of Credit Trust Receipt, whether they did or they did not "misappropriate, misapply or convert" the merchandise as charged in the criminal case. 10 Their civil liability does not arise ex delicto, the action for the recovery of which would have been deemed instituted with the criminal-action (unless waived or reserved) and where acquittal based on a judicial declaration that the criminal acts charged do not exist would have extinguished the civil action. 11 Rather, the civil suit instituted by IBAA is based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Under the situational circumstances of the parties, they are governed by Article 31 of the Civil Code, explicitly providing:

Art. 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter. WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED. No costs. SO ORDERED. Yap (Chairman), Narvasa, Cruz, Gancayco, and Sarmiento, JJ., concur. Feliciano, J., is on leave.

G.R. No. 81559-60 April 6, 1992 PEOPLE OF THE PHILIPPINES, (public petitioner) and ALLIED BANKING CORPORATION (private petitioner), vs. HON. JUDGE DAVID G. NITAFAN (public respondent) and BETTY SIA ANG (private respondent).

GUTIERREZ, JR., J.: This petition for certiorari involves an issue that has been raised before this Court several times in the past. The petitioner, in effect, is asking for a re-examination of our decisions on the issue of whether or not an entrustee in a trust receipt agreement who fails to deliver the proceeds of the sale or to return the goods if not sold to the entruster-bank is liable for the crime of estafa. Petitioner Allied Banking Corporation charged Betty Sia Ang with estafa in Criminal Case No. 8753501 in an information which alleged: That on or about July 18, 1980, in the City of Manila, Philippines, the said accused, being then the proprietress of Eckart Enterprises, a business entity located at 756 Norberto Amoranto Avenue, Quezon City, did then and there wilfully, unlawfully and feloniously defraud the Allied Banking Corporation, a banking institution, represented by its Account Officer, Raymund S. Li, in the following manner, to wit: the said accused received in trust from the aforesaid bank Gordon Plastics, plastic sheeting and Hook Chromed, in the total amount of P398,000.00, specified in a trust receipt and covered by Domestic Letter of Credit No. DLC-002-801254, under the express obligation on the part of said accused to sell the same and account for the proceeds of the sale thereof, if sold, or to return said merchandise, if not sold, on or before October 16, 1980, or upon demand, but the said accused, once in possession of the said articles, far from complying with the aforesaid obligation, notwithstanding repeated

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demands made upon her to that effect, paid only the amount of P283,115.78, thereby leaving unaccounted for the amount of P114,884.22 which, once in her possession, with intent to defraud, she misappropriated, misapplied and converted to her own personal use and benefit, to the damage and prejudice of said Allied Banking Corporation in the aforesaid sum of P114,884.22, Philippine Currency. (Rollo, pp. 13-14) The accused filed a motion to quash the information on the ground that the facts charged do not constitute an offense. On January 7, 1988, the respondent judge granted the motion to quash. The order was anchored on the premise that a trust receipt transaction is an evidence of a loan being secured so that there is, as between the parties to it, a creditor-debtor relationship. The court ruled that the penal clause of Presidential Decree No. 15 on the Trust Receipts Law is inoperative because it does not actually punish an offense mala prohibita. The law only refers to the relevant estafa provision in the Revised Penal Code. The Court relied on the judicial pronouncements in People v. Cuevo, 104 SCRA 312 [1981] where, for lack of the required number of votes, this Court upheld the dismissal of a charge for estafa for a violation of a trust receipt agreement; and in Sia v. People, 121 SCRA 655 [1983] where we held that the violation merely gives rise to a civil obligation. At the time the order to quash was issued or on January 7, 1988, these two decisions were the only most recent ones. Hence, this petition. The private respondent adopted practically the same stance of the lower court. She likewise asserts that P.D. 115 is unconstitutional as it violates the constitutional prohibition against imprisonment for non-payment of a debt. She argues that where no malice exists in a breach of a purely commercial undertaking, P.D. 115 imputes it. This Court notes that the petitioner bank brought a similar case before this Court in G.R. No. 82495, entitled Allied Banking Corporation v. Hon. Secretary Sedfrey Ordoez and Alfredo Ching which we decided on December 10, 1990 (192 SCRA 246). In that case, the petitioner additionally questioned, and we accordingly reversed, the pronouncement of the Secretary of Justice limiting the application of the penal provision of P.D. 115 only to goods intended to be sold to the exclusion of those still to be manufactured. As in G.R. No. 82495, we resolve the instant petition in the light of the Court's ruling in Lee v. Rodil, 175 SCRA 100 [1989] and Sia v. Court of Appeals, 166 SCRA 263 [1988]. We have held in the latter cases that acts involving the violation of trust receipt agreements occurring after 29 January 1973 (date of enactment of P.D. 115) would make the accused criminally liable for estafa under paragraph 1 (b), Article 315 of the Revised Penal Code (RPC) pursuant to the explicit provision in Section 13 of P.D. 115. The relevant penal provision of P.D. 115 provides: Sec. 13 of P.D. No. 115 provides: . . . 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. Section 1 (b), Article 315 of the RPC under which the violation is made to fall, states: . . . Swindling (estafa). Any person who shall defraud another by any of the means mentioned herein below . . . : xxx xxx xxx b. By misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or by denying having received such money, good, or other property. The factual circumstances in the present case show that the alleged violation was committed sometime in 1980 or during the effectivity of P.D. 115. The failure, therefore, to account for the P114,884.22 balance is what makes the accused-respondent criminally liable for estafa. The Court reiterates its definitive ruling that, in the Cuevo and Sia(1983) cases relied upon by the accused, P.D. 115 was not applied because the questioned acts were committed before its effectivity. (Lee v. Rodil, supra, p. 108) At the time those cases were decided, the failure to comply with the obligations under the trust receipt was susceptible to two interpretations. The Court in Sia adopted the view that a violation gives rise only to a civil liability as the more feasible view "before the promulgation of P.D. 115," notwithstanding prior decisions where we ruled that a breach also gives rise to a liability for estafa. (People v. Yu Chai Ho, 53 Phil. 874 [1929]; Samo v. People, 115 Phil. 346 [1962]; Philippine National Bank v. Arrozal, 103 Phil. 213 [1958]; Philippine National Bank v. Viuda e Hijos de Angel Jose, 63 Phil. 814 [1936]). Contrary to the reasoning of the respondent court and the accused, a trust receipt arrangement does not involve a simple loan transaction between a creditor and debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by the trust receipt itself. (Vintola v. Insular Bank of Asia and America, 151 SCRA 578 [1987]) That second feature is what provides the much needed financial assistance to our traders in the importation or purchase of goods or merchandise through the use of those goods or merchandise as collateral for the advancements made by a bank. (Samo v. People, supra). The title of the bank to the security is the one sought to be protected and not the loan which is a separate and distinct agreement. The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. The law does not seek to enforce payment of the loan. Thus, there can be no violation of a right against imprisonment for non-payment of a debt. Trust receipts are indispensable contracts in international and domestic business transactions. The prevalent use of trust receipts, the danger of their misuse and/or misappropriation of the goods or proceeds realized from the sale of goods, documents or instruments held in trust for entruster-banks,

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and the need for regulation of trust receipt transactions to safeguard the rights and enforce the obligations of the parties involved are the main thrusts of P.D. 115. As correctly observed by the Solicitor General, P.D. 115, like Batas Pambansa Blg. 22, punishes the act "not as an offense against property, but as an offense against public order. . . ." The misuse of trust receipts therefore should be deterred to prevent any possible havoc in trade circles and the banking community (citing Lozano v. Martinez, 146 SCRA 323 [1986]; Rollo, p. 57) It is in the context of upholding public interest that the law now specifically designates a breach of a trust receipt agreement to be an act that "shall" make one liable for estafa. The offense is punished as a malum prohibitum regardless of the existence of intent or malice. A mere failure to deliver the proceeds of the sale or the goods if not sold, constitutes a criminal offense that causes prejudice not only to another, but more to the public interest. We are continually re-evaluating the opposite view which insists that the violation of a trust receipt agreement should result only in a civil action for collection. The respondent contends that there is no malice involved. She cites the dissent of the late Chief Justice Claudio Teehankee in Ong v. Court of Appeals, (124 SCRA 578 [1983]) to wit: The old capitalist orientation of putting importers in jail for supposed estafa or swindling for non-payment of the price of the imported goods released to them under trust receipts (a purely commercial transaction) under the fiction of the trust receipt device, should no longer be permitted in this day and age. As earlier stated, however, the law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the bank. The Court reiterates that the enactment of P.D. 115 is a valid exercise of the police power of the State and is, thus, constitutional. (Lee v. Rodil, supra; Lozano v. Martinez, supra) The arguments of the respondent are appropriate for a repeal or modification of the law and should be directed to Congress. But until the law is repealed, we are constrained to apply it. WHEREFORE, the petition is hereby GRANTED. The Order of the respondent Regional Trial Court of Manila, Branch 52 dated January 7, 1988 is SET ASIDE. Let this case be remanded to the said court for disposition in accordance with this decision. SO ORDERED. G.R. No. 135462 December 7, 2001

SOUTH CITY HOMES, INC., FORTUNE MOTORS (PHILS.), PALAWAN LUMBER MANUFACTURING CORPORATION, petitioners, vs. BA FINANCE CORPORATION, respondent. PARDO, J.: The Case The case is a petition to set aside the decision 1 of the Court of Appeals, the dispositive portion of which reads: "WHEREFORE, premises considered, the appealed Decision (as amended by that Order of July 22, 1992) of the lower court in Civil Case No. 21944 is hereby AFFIRMED with the MODIFICATION that defendant-appellee South City Homes, Inc. is hereby ordered to pay, jointly and severally, with Fortune Motors Corporation, Palawan Lumber Manufacturing Corporation and Joseph L. G. Chua, the outstanding amounts due under the six (6) drafts and trust receipts, with interest thereon at the legal rate from the date of filing of this case until said amounts shall have been fully paid, as follows:

Date of Draft July 26, 1983 July 27, 1983

Amount Balance P244,269.00 967,765.50

Due P198,659.52 324,767.41

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July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983

1,138,941.00 244,269.00 275,079.00 475,046.10

1,138,941.00 244,269.00 275,079.60 475,046.10

Date of Draft July 26, 1983 July 27, 1983 July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983

Amount P244,269.00 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10

and the attorney's fees and costs of suit. "SO ORDERED."2 The Facts The facts, as found by the Court of Appeals, are as follows:

"(Folder of Exhibits, pp. 1, 4, 7, 8, 11 and 14). "The present controversy relates to the rights of an assignee (financing company) of drafts and trust receipts backed up by sureties, in the event of default by the debtor (car dealer) to whom the assignor creditor (car manufacturer) sold and delivered motor vehicles for resale. A consistent ruling on these cases is hereby reiterated: that a surety may secure obligations incurred subsequent to the execution of the surety contract. "Prior to the transactions covered by the subject drafts and trust receipts, defendantappellant Fortune Motors Corporation (Phils.) has been availing of the credit facilities of plaintiff-appellant BA Finance Corporation. On January 17, 1983, Joseph L. G. Chua, President of Fortune Motors Corporation, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement, in which he "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 21-22). "On February 3, 1983, Palawan Lumber Manufacturing Corporation represented by Joseph L.G. Chua, George D. Tan, Edgar C. Rodrigueza and Joselito C. Baltazar, executed in favor of plaintiff-appellant a Continuing Suretyship Agreement in which, said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 19-20). On the same date, South City Homes, Inc. represented by Edgar C. Rodrigueza and Aurelio F. Tablante, likewise executed a Continuing Suretyship Agreement in which said corporation "jointly and severally unconditionally" guaranteed the "full, faithful and prompt payment and discharge of any and all indebtedness" of Fortune Motors Corporation to BA Finance Corporation (Folder of Exhibits, pp. 17-18). "Subsequently, Canlubang Automotive Resources Corporation (CARCO) drew six (6) Drafts in its own favor, payable thirty (30) days after sight, charged to the account of Fortune Motors Corporation, as follows: "Fortune Motors Corporation thereafter executed trust receipts covering the motor vehicles delivered to it by CARCO under which it agreed to remit to the Entruster (CARCO) the proceeds of any sale and immediately surrender the remaining unsold vehicles (Folder of Exhibits, pp. 2, 5, 7-A, 9, 12 and 15). The drafts and trust receipts were assigned to plaintiff-appellant, under Deeds of Assignment executed by CARCO (Folder of Exhibits, pp. 3, 6, 7-B, 10, 13 and 16). "Upon failure of the defendant-appellant Fortune Motors Corporation to pay the amounts due under the drafts and to remit the proceeds of motor vehicles sold or to return those remaining unsold in accordance with the terms of the trust receipt agreements, BA Finance Corporation sent demand letter to Edgar C. Rodrigueza, South City Homes, Inc., Aurelio Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar (Folder of Exhibits, pp. 29-37). Since the defendantsappellants failed to settle their outstanding account with plaintiff-appellant, the latter filed on December 22, 1983 a complaint for a sum of money with prayer for preliminary attachment, with the Regional Trial Court of Manila, Branch 1, which was docketed as Civil Case No. 83-21944 (Record, pp. 1-12). Plaintiff-appellant filed a surety bond in the amount of P3,391,546.56 and accordingly, Judge Rosalio C. Segundo ordered the issuance of a writ of preliminary attachment on January 3, 1984 (Record, pp. 37-47). Defendants Fortune Motors Corporation, South City Homes, Inc., Edgar C. Rodrigueza, Aurelio F. Tablante, Palawan Lumber Manufacturing Corporation, Joseph L. G. Chua, George D. Tan and Joselito C. Baltazar filed a Motion to Discharge Attachment, which was opposed by plaintiff-appellant (Record, pp. 49-56). In an Order dated January 11, 1984, Judge Segundo dissolved the writ of attachment except as against defendant Fortune Motors Corporation and set the said incident for hearing (Record, p. 57). On January 19, 1984, the defendants filed a Motion to Dismiss. Therein, they alleged that conventional subrogation effected a novation without the consent of the debtor (Fortune Motors Corporation) and thereby extinguished the latter's liability; that pursuant to the trust receipt transaction, it was premature under P. D. No. 115 to immediately file a complaint for a sum of money as

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the remedy of the entruster is an action for specific performance; that the suretyship agreements are null and void for having been entered into without an existing principal obligation; and that being such sureties does not make them solidary debtors (Record, pp. 58-64). "After due hearing, the court denied the motion to discharge attachment with respect to defendant Fortune Motors Corporation as well as the motion to dismiss by the defendants (Record, pp. 68 and 87). In their Answer, defendants stressed that their obligations to the creditor (CARCO) was extinguished by the assignment of the drafts and trust receipts to plaintiff-appellant without their knowledge and consent, and pursuant to legal provision on conventional subrogation a novation was effected, thereby extinguishing the liability of the sureties; that plaintiff-appellant failed to immediately demand the return of the goods under the trust receipt agreements or exercise the courses of action by the entruster as provided for under P. D. No. 115; and that at the time the suretyship agreements were entered into, there were no principal obligations, thus rendering them null and void. A counterclaim for the award of actual, moral and exemplary damages was prayed for by defendants (Record, pp. 91-110). "During the pre-trial, efforts to reach a compromise was not successful, and in view of the retirement of Judge Rosalio C. Segundo of RTC Manila, Branch 1, the case was-re-raffled off to Branch XXXIII, presided over by Judge Felix V. Barbers (Record, pp. 155-160). "Fortune Motors Corporation filed a motion to lift the writ of attachment covering three (3) vehicles described in the Third-Party Claim filed with the Office of Deputy Sheriff Jorge C. Victorino (RTC, Branch 1) by Fortune Equipment, Inc. which was opposed by plaintiff-appellant (Record, pp. 173-181). On June 15, 1984, Deputy Sheriff Jorge C. Victorino issued a "Notice of Levy Upon Personal Properties Pursuant to Order of Attachment" which was duly served on defendant Fortune Motors Corporation (Record, pp. 191-199). In an Order dated April 28, 1986, the court a quo denied the motion to lift the writ of attachment on three (3) vehicles described in the Third-Party Claim filed by Fortune Equipment Inc. (Record, p. 207). On motion of their respective counsel, the trial court granted the parties time to sit down and appraise the machineries and spare parts owned by defendant Fortune Motors Corporation which are now in the possession of plaintiff corporation by virtue of the attachment. A series of conferences was allowed by the court, as means toward possible compromise agreement. In an Order dated June 2, 1987, the case was returned to Branch I, now presided over by Judge Rebecca G. Salvador (Record, p. 237). The pre-trial period was terminated and the case was set for trial on the merits (Record, p. 259). "Acting on the motion to sell levied properties filed by defendant George D. Tan, the trial court ordered the public sale of the attached properties (Record, p. 406). The court likewise allowed the complaint-in-intervention filed by Fortune Equipment Inc. and South Fortune Motors Corporation who claimed ownership of four (4) vehicles earlier seized and attached (Record, p. 471-475). Plaintiff corporation admitted the allegations contained in the complaint-in-intervention only with respect to one truck so attached but denied the rest of intervenors' allegations (Record, pp. 479-482). Thereafter, the parties submitted their respective pre-trial briefs on the complaint-in-intervention, and after the submission of evidence thereon, the case was submitted for decision (Record, pp. 573-577). "On November 25, 1991, the lower court rendered its judgment, the dispositive portion of which reads as follows:

"WHEREFORE, judgment is hereby rendered: "1. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua, jointly and severally to pay the plaintiff on the July 27, 1983 Draft, the sum of P324,767.41 with the interest thereon at the legal rate from the date of filing of this case, December 21, 1983 until the amount shall have been fully paid; "2. Ordering defendants Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the July 26, 1983 Draft, the sum of P198,659.52 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "3. Ordering defendant Fortune Motors, Palawan Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the July 28, 1983 Draft the sum of P1,138,941.00 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "4. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 2, 1983 Draft, the sum of P244,269.00 with interest thereon at the legal rate from the date of filing of this case, until the amount shall have been fully paid; "5. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 5, 1983 Draft the sum of P275,079.60 with interest thereon at the legal rate from the date of the filing of this case, until the amount shall have been fully paid; "6. Ordering defendants Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay to the plaintiff on the August 8, 1983 Draft the sum of P475,046.10 with interest thereon at legal rate from the date of the filing of this case, until the amount shall been fully paid; "7. Ordering defendant Fortune Motors, Palawan Lumber Manufacturing Corporation and Joseph Chua jointly and severally to pay the sum of P300,000.00 as attorney's fees and the costs of this suit; "8. Dismissing plaintiff's complaint against South City Homes, Aurelio Tablante, Joselito Baltazar, George Tan and Edgar Rodrigueza and the latter's counterclaim for lack of basis; "9. Ordering Deputy Sheriff Jorge Victorino to return to Intervenor Fortune Equipment the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; "10. Dismissing the complaint-in-intervention in so far as the three other vehicles mentioned in the complaint-in-intervention are concerned for lack of cause of action; "11. Dismissing the complaint-in-intervention against Fortune Motor for lack of basis; and "12. Ordering the parties-in-intervention to bear their respective damages, attorneys fees and the costs of the suit.

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"Upon execution, the sheriff may cause the judgment to be satisfied out of the properties attached with the exception of one (1) unit Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234, if they be sufficient for that purpose. The officer shall make a return in writing to the court of his proceedings. Whenever the judgment shall have been paid, the officer, upon reasonable demand must return to the judgment debtor the attached properties remaining in his hand, and any of the proceeds of the properties not applied to the judgment. "SO ORDERED. "On two (2) separate motions for reconsideration, one filed by plaintiffs-intervenors dated December 18, 1991 and the other by plaintiff dated December 26, 1991, the trial court issued an Order dated July 22, 1992 amending its Decision dated November 25, 1991. Specifically, said Order amended paragraphs 9 and 10 thereof and deleted the last paragraph of the said Decision. "Paragraphs 9 and 10 now read: "9. Ordering Deputy Sheriff Jorge C. Victorino to return to Intervenor Fortune Equipment, Inc. the Mitsubishi Truck Canter with Motor No. 310913 and Chassis No. 513234; Mitsubishi Truck Canter with Motor No. 4D30-313012 and Chassis No. 513696, and Fuso Truck with Motor No. 006769 and Chassis No. 20756, and to Intervenor South Fortune Motors Corporation the Cimaron Jeepney with Plate No. NET-849; "10. Ordering the plaintiff, in the event the motor vehicles could no longer be returned to pay the estimated value thereof i.e., P750,000.00 for the three trucks, and P5,000.00 for the Cimaron Jeepney, to the plaintiffs-intervenors. "x x x" (Records, pp. 664-665) "Plaintiffs BA Finance Corporation, defendants Fortune Motors Corp. (Phils.) and Palawan Lumber Manufacturing Corporation, and intervenors Fortune Equipment and South Fortune Motors, interposed the present appeal and filed their respective Briefs." 3 On September 8, 1998, the Court of Appeals promulgated a decision, the dispositive portion of which is quoted in the opening paragraph of this decision. Hence, this appeal.4 The Issues The issues presented are: (1) whether the suretyship agreement is valid; (2) whether there was a novation of the obligation so as to extinguish the liability of the sureties; and (3) whether respondent BAFC has a valid cause of action for a sum of money following the drafts and trust receipts transactions.5 The Court's Ruling

On the first issue, petitioners assert that the suretyship agreement they signed is void because there was no principal obligation at the time of signing as the principal obligation was signed six (6) months later. The Civil Code, however, allows a suretyship agreement to secure future loans even if the amount is not yet known. Article 2053 of the Civil Code provides that: "Art. 2053. A guaranty may also be given as security for future debts, the amount of which is not yet known. x x x" In Fortune Motors (Phils.) Corporation v. Court of Appeals,6 we held: "To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract? "x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. "Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor." Petitioners next posit (second issue) that a novation, as a result of the assignment of the drafts and trust receipts by the creditor (CARCO) in favor of respondent BAFC without the consent of the principal debtor (Fortune Motors), extinguished their liabilities. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another,

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known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.7 As a consequence, the third party steps into the shoes of the original creditor as subrogee of the latter. Petitioners' obligations were not extinguished. Thus: "x x x Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). "Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. "The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented. "We have ruled in Sison & Sison vs. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtor's refusal to give consent. "What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent (National Investment and Development Co. v. De Los Angeles, 40 SCRA 489 [1971]. The purpose of the notice is only to inform that debtor from the date of the assignment, payment should be made to the assignee and not to the original creditor."8 Petitioners finally posit (third issue) that as an entruster, respondent BAFC must first demand the return of the unsold vehicles from Fortune Motors Corporation, pursuant to the terms of the trust receipts. Having failed to do so, petitioners had no cause of action whatsoever against Fortune Motors Corporation and the action for collection of sum of money was, therefore, premature. A trust receipt is 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.9 In the event of default by the entrustee on his obligations under the trust receipt agreement, it is not absolutely necessary that the entruster cancel the trust and take possession of the goods to be able to enforce his rights thereunder. We ruled: "x x x Significantly, the law uses the word "may" in granting to the entruster the right to cancel the trust and take possession of the goods. Consequently, petitioner has the discretion to avail of such right or seek any alternative action, such as a third party claim or a separate civil action which it deems best to protect its right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust agreement."10 The Judgment

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