G.R. No.

74886 December 8, 1992

PRUDENTIAL BANK vs.INTERMEDIATE APPELLATE COURT, PHILIPPINE RAYON MILLS, INC. and ANACLETO R. CHI 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 defendant-appellant 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 defendantappellant 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 defendant-appellant company (Exhibit C, Ibid., p. 13). At the back of the trust receipt is a printed form to be accomplished by two sureties who, by the very terms and conditions thereof, were to be jointly and severally liable to the Prudential Bank should the 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 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: 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. (Sgd.) ANACLETO R. CHI 26 Anacleto R. Chi

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 defendantappellee 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, Philippine Rayon. The records fail to show that petitioner had done so 33 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. Costs against private respondents. 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", SO ORDERED.

"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.

G.R. No. 134436. August 16, 2000 METROPOLITAN BANK and TRUST COMPANY vs. JOAQUIN TONDA and MA. CRISTINA TONDA DECISION GONZAGA_REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision[1] of the Court of Appeals[2]dated June 29, 1998 in CA-G.R. SP No. 38113 which: (1) reversed Resolution No. 417, s. 1994,[3] dated June 1, 1994 of the Department of Justice[4] directing to file the appropriate Information against herein respondents Joaquin P. Tonda and Ma. Cristina V. Tonda for violation of P.D. 115 in relation to Article 315 (1) (b) of the Revised Penal Code; and (2) effectively set aside the Resolutions dated April 7, 1995 [5] and July 12 1995[6] of the Department of Justice denying the motions for reconsideration. Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as the TONDAS, applied for and were granted commercial letters of credit by petitioner Metropolitan Bank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8) months beginning June 14, 1990 to February 1, 1991 in connection with the importation of raw textile materials to be used in the manufacturing of garments. The TONDAS acting both in their capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities, executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. The imported fabrics with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11 trust receipts executed by the TONDAS. Due to their failure to settle their obligations under the trust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10, 1992, making its final demand upon the TONDAS to settle their past due TR/LC accounts on or before August 15, 1992. They were informed that by said date, the obligations would amount to P4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with their

obligations stated in the trust receipts agreements, i.e. the TONDAS failed to account to METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trust receipts. Consequently, on November 9, 1992, Metrobank, through its account officer Eligio Labog, Jr., filed with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS for violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code. On February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted a Memorandum to the Provincial Prosecutor recommending that the complaint in I.S. No. 92-8703 be dismissed on the ground that the complainants had failed to establish the existence of the essential elements of Estafa as charged. The recommendation was approved by Rizal Provincial Prosecutor Mauro Castro on May 18, 1993. METROBANK then appealed to the Department of Justice (DOJ). On June 1, 1994, Undersecretary Ramon. S. Esguerra reversed the findings of the Provincial Prosecutor of Rizal and ordered the latter to file the appropriate information against the TONDAS as charged in the complaint. The TONDAS immediately sought a reconsideration of the DOJ Resolution but their motion was denied by the then acting Justice Secretary Demetrio G. Demetria in a LetterResolution dated April 7, 1995. A second motion for reconsideration by the TONDAS was likewise denied by then Justice Secretary Teofisto Guingona on July 12, 1995. Subsequently, the TONDAS filed with the Court of Appeals a special civil action for certiorari and prohibition with application for a temporary restraining order or a writ of preliminary injunction,[7] which was docketed as CA-G.R. SP No. 38113. They contended therein that the Secretary of Justice acted without or in excess of jurisdiction in issuing the aforementioned Resolution dated July 12, 1995 denying with finality their motion for the reconsideration of the Resolution dated April 7, 1995 of the Acting Secretary of Justice, which in turn denied their motion for the reconsideration of Resolution No. 417, s. 94, dated June 1, 1994, directing to file the appropriate Information against the TONDAS. The Court of Appeals granted the TONDAS' petition and ordered the criminal complaint against them dismissed. The Court of Appeals held that METROBANK had failed to show a prima facie case that the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal Code in the face of convincing proof that "that the amount of P2.8 Million representing the outstanding obligation of the TONDAS under the trust receipts account had already been settled by them in compliance with the loan restructuring proposal; and that in the absence of a loan restructuring agreement, METROBANK could still validly apply the amount as payment thereof." The relevant portions of the Court of Appeals decision are quoted as follows: "Petitioners admitted that in 1991 their company, the Honey Tree Apparel Corporation (HTAC), had some financial reversals making it difficult for them to comply with their loan obligations with Metrobank. They were then constrained to propose a loan restructuring agreement with the private respondent to enable them to finally settle all outstanding obligations with the latter. In a letter dated 23 September 1991, petitioner Joaquin Tonda submitted a proposed Loan Restructuring Scheme to Metrobank. In said letter, petitioner Tonda proposed to immediately pay in full the outstanding principal charges under the trust receipts account and the remaining obligations under a separate schedule of payment. Petitioners attached with said letter an itemized proposal (Attachment "A"), part of which reads: 1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will pay immediately the entire principal of the outstanding Trust Receipts amounting to P2,803,097.14. While the interest accrued up to September 13, 1991 amounting to P409,601.57 plus the additional interest shall be re-structured together with item no. 2 below. A joint sharing account in the name of Joaquin

G. Tonda and Wang Tien En equal to Trust Receipt amount of 1.8 Million will be opened at Metrobank Makati. (emphasis supplied) It would appear that the aforestated amount of 1.8 Million was erroneously written since the intention of the petitioners was to open an account ofP2.8 Million to pay the entire principal of the outstanding trust receipts account. In fact, also on 23 September 1991, petitioner Joaquin Tonda and Wang Tien En deposited four different checks with a total amount of P2,800,000.00 with Metrobank. The checks were received by a certain Flor C. Naanep. Notably, the petitioners had obtained a written acknowledgement of receipt of the checks totaling P2.8 Million from the Metrobank officer in order to show proof of compliance with the loan restructuring proposal. If the petitioners had intended it to be a simple deposit, then a deposit slip with a machine validation by the private respondent bank would have otherwise been sufficient. In a letter dated 22 October 1991, Metrobank wrote to the petitioners informing them that the bank had accepted their proposal subject to certain conditions, the first of which referred to the immediate payment of the amount of P2.8 Million, representing the outstanding trust receipts account. The petitioners appeared to have offered a counter proposal such that no final agreement had yet been reached. However, the succeeding negotiations between petitioners and Metrobank, after the initial offer of 23 September 1991 was made, dealt with the other outstanding obligations while the matter regarding the trust receipts account remained unchanged; therefore, it was settled between the parties that the amount of P2.8 Million should be paid to cover all outstanding obligations under the trust receipts account. Despite the inability of both parties to reach a mutually agreeable loan restructured agreement, the amount of P2.8 Million which was deposited on 23 September 1991 by the petitioners appears to remain intact and untouched as Metrobank had failed to show evidence that the money has been withdrawn from the savings account of the petitioners. Moreover, the deposit made by the petitioners was made known to Metrobank clearly as a compliance with the proposed loan restructuring agreement. As shown in the correspondence made by the petitioners on 28 February 1992 to Metrobank, after the latter had made a formal demand for payment of all outstanding obligations, the deposit was mentioned, to wit: "May we emphasize that to show sincerity and financial capability, soon after we received your letter dated October 22, 1991 informing us of your approval of the restructuring and consolidation of our firm's obligations, a personal account was opened by two (2) of our stockholders in the amount equivalent to the TR/LC, Account of about P2.8 Million which deposit is still maintained with your bank, free from any lien or encumbrance, and may be applied anytime to the payment of the TR/LC Account upon the implementation by the parties of the terms of restructuring.""(emphasis supplied) The contention of Metrobank that the money had not been actually applied as payment for petitioners' outstanding obligation under the trust receipts account is absolutely devoid of merit, considering that the petitioners were still in the process of negotiating for a reasonable loan restructuring arrangement with Metrobank when the latter abruptly abandoned all efforts to negotiate and instantly demanded from the petitioners the fulfillment of all their outstanding obligations. In the case of Tan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the Supreme Court had held that: When a depositor is indebted to a bank, and the debts are mutual - that is, between the same parties and in the, same right - the bank may apply the deposit, or such portion thereof as may

be necessary, to the payment of the debt due it by the depositor, provided there is no express agreement to the contrary and the deposit is not specifically applicable to some other particular purpose. Applying the above-mentioned ruling in this case, if the parties therefore fail to reach an agreement regarding the restructuring of HTAC's loan, Metrobank can validly apply the amount deposited by the petitioners as payment of the principal obligation under the trust receipts account. On the basis of all the evidence before Us, this Court is convinced that the amount of P2.8 Million representing the outstanding obligation of the petitioners under the trust receipts account had already been settled by the petitioners. The money remains deposited under the savings account of the petitioners awaiting a final agreement with Metrobank regarding the loan restructuring arrangement. Meanwhile, Metrobank has the right to use the deposited amount in connection with any of its banking business. With convincing proof that the amount of P2.8 Million deposited under petitioners' savings account with Metrobank was indeed intended to be applied as payment for the outstanding obligations of HTAC under the trust receipts, Metrobank, therefore, had failed to show a prima facie case that the petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to Art. 315 of the Revised Penal Code. Besides, there is absolutely no evidence suggesting that Metrobank has been damaged by the proposal and the deposit made by the petitioners. As noted by the prosecutor: It is clear from the evidence that complainant bank had, all the while, been informed of the steps undertaken by the respondents relative to the trust receipts and other financial obligations vis-a-vis HTAC's financial difficulties. Hardly therefore, could it be said that respondents were unfaithfully, deceptively, deceitfully and fraudulently dealing with complainant bank to warrant an indictment for Estafa.[8] Hence, this recourse to this Court where petitioner submits for the consideration of this Court the following issues: I. WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUST RECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE II. WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES THAT THE 2.8 MILLION DEPOSITED IN THE JOINT ACCOUNT OF JOAGUIN G. TONDA AND WANG TIEN EN WOULD BE CONSIDERED AS PAYMENT FOR THE OUTSTANDING OBLIGATIONS OF THE SPOUSES TONDA UNDER THE TRUST RECEIPTS III. WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE UPON A RESTRUCTURING AGREEMENT, METROBANK CAN STILL APPLY THE P2.8 MILLION DEPOSIT AS PAYMENT TO THE PRINCIPAL AMOUNT COVERED BY THE TRUST RECEIPTS IV. WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE OF THE PROPOSAL AND OF THE DEPOSIT V. WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE CASE A QUO VI. WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR CERTIORARI FILED WITH THIS HONORABLE COURT RAISES PURELY QUESTIONS OF FACTS[9]

In response to the foregoing, the TONDAS maintain that METROBANK has no legal standing to file the present petition without the conformity or authority of the prosecutor as it deals solely with the criminal aspect of the case, a separate action to recover civil liability having already been instituted; that the issues raised in the present petition are purely factual; and that the subject trust receipts obligations have been extinguished by payment or legal compensation. We find for petitioner bank. Preliminarily, we shall resolve the issues raised by the TONDAS regarding the standing of METROBANK to file the instant petition and whether the same raises questions of law. The general rule is that it is only the Solicitor General who is authorized to bring or defend actions on behalf of the People or the Republic of the Philippines once the case is brought before this Court or the Court of Appeals. However, an exception has been made that "if there appears to be grave error committed by the judge or lack of due process, the petition will be deemed filed by the private complainants therein as if it were filed by the Solicitor General." [10] In that case, the Court gave due course to the petition and allowed the petitioners to argue their case in lieu of the Solicitor General. We accord the same treatment to the instant petition on account of the grave errors committed by the Court of Appeals. We add that no information having been filed yet in court, there is, strictly speaking, no case yet for the People or the Republic of the Philippines. In answer to the second issue raised by the TONDAS, while the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, one exception to the rule is when the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misappreciation of facts [11], as will be shown to have happened in the instant case. In the main, the issue is whether or not the dismissal by the Court of Appeals of the charge for violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised Penal Code against the TONDAS is warranted by the evidence at hand and by law. The Court of Appeals gravely erred in reversing the Department of Justice on the finding of probable cause to hold the TONDAS for trial. The documentary evidence presented during the preliminary investigation clearly show that there was probable cause to warrant a criminal prosecution for violation of the Trust Receipts Law. The relevant penal provision of P.D. 115 provides: 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 judicial entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. Section 1 (b), Article 315 of the Revised Penal Code under which the violation is made to fall, states: "x x x Swindling (estafa). - Any person who shall defraud another by any of the mans mentioned herein below x x x:

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, goods, or other property. Based on the foregoing, it is plain to see that the Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale thereof, as a criminal offense punishable under Article 315 (1) (b) of the Revised Penal Code. The law is violated whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1) return the goods covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. The foregoing acts constitute estafa punishable under Article 315 (1) (b) of the Revised Penal Code. Given that various trust receipts were executed by the TONDAS and that as entrustees, they did not return the proceeds from the goods sold nor the goods themselves to METROBANK, there is no dispute that that the TONDAS failed to comply with the obligations under the trust receipts despite several demands from METROBANK. Finding favorably for the TONDAS, however, and ordering the dismissal of the complaint against them, the Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8 Million to pay the entire principal of the outstanding trust receipts account; (2) the TONDAS obtained from a METROBANK officer [12] a written acknowledgement of receipt of checks totaling P2.8 Million in order to show proof of compliance with the loan restructuring proposal; (3) it was settled between the parties that the amount of 2.8 Million should be paid to cover all outstanding obligations under the trust receipts account; (4) the money remains deposited under the savings account of petitioners awaiting a final agreement with METROBANK regarding the loan restructuring arrangement; and that (5) there is no evidence suggesting that METROBANK has been damaged by the proposal and the deposit or that the TONDAS employed fraud and deceit in their dealings with the bank. The foregoing findings and conclusions are palpably erroneous. First, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a letter dated February 28, 1992, signed by HTAC's Vice President for Finance, METROBANK was informed that the amount "may be applied anytime to the payment of the trust receipts account upon implementation of the parties of the terms of the restructuring."[13] The parties failed to agree on the terms of the loan restructuring agreement as the offer by the TONDAS to restructure the loan was followed by a series of counter-offers which yielded nothing. It is axiomatic that acceptance of an offer must be unqualified and absolute[14] to perfect a contract. The alleged payment of the trust receipts accounts never became effectual on account of the failure of the parties to finalize a loan restructuring arrangement. Second, the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to P2.8 Million made no reference to the TONDAS' trust receipt obligations, and we cannot presume that it was anything more than an ordinary bank deposit. The Court of Appeals citing the case of Tan Tiong Tick vs. American Apothecories [15] implied that in making the deposit, the TONDAS are entitled to set off, by way of compensation, their obligations to METROBANK. However, Article 1288 of the Civil Code provides that "compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense" as in the case at bar. The raison d'etre for this is that, "if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is imperative."[16]

Third, reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS and METROBANK is simply misplaced. The negotiations pertain and affect only the civil aspect of the case but does not preclude prosecution for the offense already committed. It has been held that "[a]ny compromise relating to the civil liability arising from an offense does not automatically terminate the criminal proceeding against or extinguish the criminal liability of the malefactor." [17] All told, the P2.8 Million deposit could not be considered as having settled the trust receipts obligations of the TONDAS to the end of extinguishing any incipient criminal culpability arising therefrom. Hence, it has been held in Office of the Court Administrator vs. Soriano[18] that: xxx it is too well-settled for any serious argument that whether in malversation of public funds or estafa, payment, indemnification, or reimbursement of, or compromise as to, the amounts or funds malversed or misappropriated, after the commission of the crime, affects only the civil liability of the offender but does not extinguish his criminal liability or relieve him from the penalty prescribed by law for the offense committed, because both crimes are public offenses against the people that must be prosecuted and penalized by the Government on its own motion, though complete reparation should have been made of the damage suffered by the offended parties. xxx." As to the statement of the Court of Appeals that there is no evidence that METROBANK has been damaged by the proposal and the deposit, it must be clarified that the damage can be traced from the non-fulfillment of an entrustee's obligation under the trust receipts. The nature of trust receipt agreements and the damage caused to trade circles and the banking community in case of violation thereof was explained in Vintola vs. IBAA[19] and echoed in People vs. Nitafan[20], as follows: "[t]rust receipt arrangements do not involve a simple loan transaction between a creditor and a debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by the trust receipt itself. The second feature is what provides the much needed financial assistance to 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 the bank. 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." xxx xxx xxx.

"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, 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 Bata Pambansa Blg. 22, punishes the act "not as an offense against property, but as an offense against public order. x x x The misuse of trust receipts therefore should be deterred to prevent any possible havoc in trade circles and the banking community. (citing Lozano vs. 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 foe estafa." The finding that there was no fraud and deceit is likewise misplaced Considering that the offense is punished as a malum prohibitumregardless 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.[21]

Finally, it is worthy of mention that a preliminary investigation proper - whether or not there is reasonable ground to believe that the accused is guilty of the offense and therefore, whether or not he should be subjected to the expense, rigors and embarrassment of trial - is the function of the prosecutor.[22] Preliminary investigation is an executive, not a judicial function. [23] Such investigation is not part of the trial, hence, a full and exhaustive presentation of the parties' evidence is not required, but only such as may engender a well-grounded belief that an offense has been committed and that the accused is probably guilty thereof.[24] Section 4, Rule 112 of the Rules of Court recognizes the authority of the Secretary of Justice to reverse the resolution of the provincial or city prosecutor or chief state prosecutor upon petition by a proper party. [25] Judicial review of the resolution of the Secretary of Justice is limited to a determination of whether there has been a grave abuse of discretion amounting to lack or excess of jurisdiction considering that the full discretionary authority has been delegated to the executive branch in the determination of probable cause during a preliminary investigation. Courts are not empowered to substitute their judgment for that of the executive branch; it may, however, look into the question of whether such exercise has been made in grave abuse of discretion.[26] Verily, there was no grave abuse of discretion on the part of the Secretary of Justice in directing the filing of the Information against the TONDAS, end the Court of Appeals overstepped its boundaries in reversing the same without basis in law and in evidence. We emphasize that for purposes of preliminary investigation, it is enough that there is evidence showing that a crime has been committed and that the accused is probably guilty thereof. [27] By reason of the abbreviated nature of preliminary investigations, a dismissal of the charges as a result thereof is not equivalent to a judicial pronouncement of acquittal, [28] a converso, the finding of a prima facie case to hold the accused for trial is not equivalent to a finding of guilt. WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

months beginning June 14, 1990 to February 1, 1991 in connection with the importation of raw textile materials to be used in the manufacturing of garments. The TONDAS acting both in their capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their personal capacities, executed eleven (11) trust receipts to secure the release of the raw materials to HTAC. The imported fabrics with a principal value of P2,803,000.00 were withdrawn by HTAC under the 11 trust receipts executed by the TONDAS. Due to their failure to settle their obligations under the trust receipts upon maturity, METROBANK through counsel, sent a letter dated August 10, 1992, making its final demand upon the TONDAS to settle their past due TR/LC accounts on or before August 15, 1992. They were informed that by said date, the obligations would amount to P4,870,499.13. Despite repeated demands therefor, the TONDAS failed to comply with their obligations stated in the trust receipts agreements, i.e. the TONDAS failed to account to METROBANK the goods and/or proceeds of sale of the merchandise, subject of the trust receipts. Consequently, on November 9, 1992, Metrobank, through its account officer Eligio Labog, Jr., filed with the Provincial Prosecutor of Rizal a complaint/affidavit against the TONDAS for violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code. On February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted a Memorandum to the Provincial Prosecutor recommending that the complaint in I.S. No. 92-8703 be dismissed on the ground that the complainants had failed to establish the existence of the essential elements of Estafa as charged. The recommendation was approved by Rizal Provincial Prosecutor Mauro Castro on May 18, 1993. METROBANK then appealed to the Department of Justice (DOJ). On June 1, 1994, Undersecretary Ramon. S. Esguerra reversed the findings of the Provincial Prosecutor of Rizal and ordered the latter to file the appropriate information against the TONDAS as charged in the complaint. The TONDAS immediately sought a reconsideration of the DOJ Resolution but their motion was denied by the then acting Justice Secretary Demetrio G. Demetria in a LetterResolution dated April 7, 1995. A second motion for reconsideration by the TONDAS was likewise denied by then Justice Secretary Teofisto Guingona on July 12, 1995. Subsequently, the TONDAS filed with the Court of Appeals a special civil action for certiorari and prohibition with application for a temporary restraining order or a writ of preliminary injunction,[7] which was docketed as CA-G.R. SP No. 38113. They contended therein that the Secretary of Justice acted without or in excess of jurisdiction in issuing the aforementioned Resolution dated July 12, 1995 denying with finality their motion for the reconsideration of the Resolution dated April 7, 1995 of the Acting Secretary of Justice, which in turn denied their motion for the reconsideration of Resolution No. 417, s. 94, dated June 1, 1994, directing to file the appropriate Information against the TONDAS. The Court of Appeals granted the TONDAS' petition and ordered the criminal complaint against them dismissed. The Court of Appeals held that METROBANK had failed to show a prima facie case that the TONDAS violated the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal Code in the face of convincing proof that "that the amount of P2.8 Million representing the outstanding obligation of the TONDAS under the trust receipts account had already been settled by them in compliance with the loan restructuring proposal; and that in the absence of a loan restructuring agreement, METROBANK could still validly apply the amount as payment thereof." The relevant portions of the Court of Appeals decision are quoted as follows: "Petitioners admitted that in 1991 their company, the Honey Tree Apparel Corporation (HTAC), had some financial reversals making it difficult for them to comply with their loan obligations with Metrobank. They were then constrained to propose a loan restructuring agreement with the private respondent to enable them to finally settle all outstanding obligations with the latter. In a letter dated 23 September 1991, petitioner Joaquin Tonda submitted a proposed Loan

G.R. No. 134436. August 16, 2000 METROPOLITAN BANK and TRUST COMPANY vs. JOAQUIN TONDA and MA. CRISTINA TONDA

DECISION GONZAGA_REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to set aside the Decision[1] of the Court of Appeals[2]dated June 29, 1998 in CA-G.R. SP No. 38113 which: (1) reversed Resolution No. 417, s. 1994,[3] dated June 1, 1994 of the Department of Justice[4] directing to file the appropriate Information against herein respondents Joaquin P. Tonda and Ma. Cristina V. Tonda for violation of P.D. 115 in relation to Article 315 (1) (b) of the Revised Penal Code; and (2) effectively set aside the Resolutions dated April 7, 1995 [5] and July 12 1995[6] of the Department of Justice denying the motions for reconsideration. Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to as the TONDAS, applied for and were granted commercial letters of credit by petitioner Metropolitan Bank and Trust Company, hereinafter referred to as METROBANK for a period of eight (8)

Restructuring Scheme to Metrobank. In said letter, petitioner Tonda proposed to immediately pay in full the outstanding principal charges under the trust receipts account and the remaining obligations under a separate schedule of payment. Petitioners attached with said letter an itemized proposal (Attachment "A"), part of which reads: 1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will pay immediately the entire principal of the outstanding Trust Receipts amounting to P2,803,097.14. While the interest accrued up to September 13, 1991 amounting to P409,601.57 plus the additional interest shall be re-structured together with item no. 2 below. A joint sharing account in the name of Joaquin G. Tonda and Wang Tien En equal to Trust Receipt amount of 1.8 Million will be opened at Metrobank Makati. (emphasis supplied) It would appear that the aforestated amount of 1.8 Million was erroneously written since the intention of the petitioners was to open an account ofP2.8 Million to pay the entire principal of the outstanding trust receipts account. In fact, also on 23 September 1991, petitioner Joaquin Tonda and Wang Tien En deposited four different checks with a total amount of P2,800,000.00 with Metrobank. The checks were received by a certain Flor C. Naanep. Notably, the petitioners had obtained a written acknowledgement of receipt of the checks totaling P2.8 Million from the Metrobank officer in order to show proof of compliance with the loan restructuring proposal. If the petitioners had intended it to be a simple deposit, then a deposit slip with a machine validation by the private respondent bank would have otherwise been sufficient. In a letter dated 22 October 1991, Metrobank wrote to the petitioners informing them that the bank had accepted their proposal subject to certain conditions, the first of which referred to the immediate payment of the amount of P2.8 Million, representing the outstanding trust receipts account. The petitioners appeared to have offered a counter proposal such that no final agreement had yet been reached. However, the succeeding negotiations between petitioners and Metrobank, after the initial offer of 23 September 1991 was made, dealt with the other outstanding obligations while the matter regarding the trust receipts account remained unchanged; therefore, it was settled between the parties that the amount of P2.8 Million should be paid to cover all outstanding obligations under the trust receipts account. Despite the inability of both parties to reach a mutually agreeable loan restructured agreement, the amount of P2.8 Million which was deposited on 23 September 1991 by the petitioners appears to remain intact and untouched as Metrobank had failed to show evidence that the money has been withdrawn from the savings account of the petitioners. Moreover, the deposit made by the petitioners was made known to Metrobank clearly as a compliance with the proposed loan restructuring agreement. As shown in the correspondence made by the petitioners on 28 February 1992 to Metrobank, after the latter had made a formal demand for payment of all outstanding obligations, the deposit was mentioned, to wit: "May we emphasize that to show sincerity and financial capability, soon after we received your letter dated October 22, 1991 informing us of your approval of the restructuring and consolidation of our firm's obligations, a personal account was opened by two (2) of our stockholders in the amount equivalent to the TR/LC, Account of about P2.8 Million which deposit is still maintained with your bank, free from any lien or encumbrance, and may be applied anytime to the payment of the TR/LC Account upon the implementation by the parties of the terms of restructuring.""(emphasis supplied) The contention of Metrobank that the money had not been actually applied as payment for petitioners' outstanding obligation under the trust receipts account is absolutely devoid of merit,

considering that the petitioners were still in the process of negotiating for a reasonable loan restructuring arrangement with Metrobank when the latter abruptly abandoned all efforts to negotiate and instantly demanded from the petitioners the fulfillment of all their outstanding obligations. In the case of Tan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the Supreme Court had held that: When a depositor is indebted to a bank, and the debts are mutual - that is, between the same parties and in the, same right - the bank may apply the deposit, or such portion thereof as may be necessary, to the payment of the debt due it by the depositor, provided there is no express agreement to the contrary and the deposit is not specifically applicable to some other particular purpose. Applying the above-mentioned ruling in this case, if the parties therefore fail to reach an agreement regarding the restructuring of HTAC's loan, Metrobank can validly apply the amount deposited by the petitioners as payment of the principal obligation under the trust receipts account. On the basis of all the evidence before Us, this Court is convinced that the amount of P2.8 Million representing the outstanding obligation of the petitioners under the trust receipts account had already been settled by the petitioners. The money remains deposited under the savings account of the petitioners awaiting a final agreement with Metrobank regarding the loan restructuring arrangement. Meanwhile, Metrobank has the right to use the deposited amount in connection with any of its banking business. With convincing proof that the amount of P2.8 Million deposited under petitioners' savings account with Metrobank was indeed intended to be applied as payment for the outstanding obligations of HTAC under the trust receipts, Metrobank, therefore, had failed to show a prima facie case that the petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to Art. 315 of the Revised Penal Code. Besides, there is absolutely no evidence suggesting that Metrobank has been damaged by the proposal and the deposit made by the petitioners. As noted by the prosecutor: It is clear from the evidence that complainant bank had, all the while, been informed of the steps undertaken by the respondents relative to the trust receipts and other financial obligations vis-a-vis HTAC's financial difficulties. Hardly therefore, could it be said that respondents were unfaithfully, deceptively, deceitfully and fraudulently dealing with complainant bank to warrant an indictment for Estafa.[8] Hence, this recourse to this Court where petitioner submits for the consideration of this Court the following issues: I. WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF THE TRUST RECEIPTS LAW IN RELATION TO ART. 315 OF THE REVISED PENAL CODE II. WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES THAT THE 2.8 MILLION DEPOSITED IN THE JOINT ACCOUNT OF JOAGUIN G. TONDA AND WANG TIEN EN WOULD BE CONSIDERED AS PAYMENT FOR THE OUTSTANDING OBLIGATIONS OF THE SPOUSES TONDA UNDER THE TRUST RECEIPTS III. WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE UPON A RESTRUCTURING AGREEMENT, METROBANK CAN STILL APPLY THE P2.8 MILLION

DEPOSIT AS PAYMENT TO THE PRINCIPAL AMOUNT COVERED BY THE TRUST RECEIPTS IV. WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE OF THE PROPOSAL AND OF THE DEPOSIT V. WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE CASE A QUO VI. WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR CERTIORARI FILED WITH THIS HONORABLE COURT RAISES PURELY QUESTIONS OF FACTS[9] In response to the foregoing, the TONDAS maintain that METROBANK has no legal standing to file the present petition without the conformity or authority of the prosecutor as it deals solely with the criminal aspect of the case, a separate action to recover civil liability having already been instituted; that the issues raised in the present petition are purely factual; and that the subject trust receipts obligations have been extinguished by payment or legal compensation. We find for petitioner bank. Preliminarily, we shall resolve the issues raised by the TONDAS regarding the standing of METROBANK to file the instant petition and whether the same raises questions of law. The general rule is that it is only the Solicitor General who is authorized to bring or defend actions on behalf of the People or the Republic of the Philippines once the case is brought before this Court or the Court of Appeals. However, an exception has been made that "if there appears to be grave error committed by the judge or lack of due process, the petition will be deemed filed by the private complainants therein as if it were filed by the Solicitor General." [10] In that case, the Court gave due course to the petition and allowed the petitioners to argue their case in lieu of the Solicitor General. We accord the same treatment to the instant petition on account of the grave errors committed by the Court of Appeals. We add that no information having been filed yet in court, there is, strictly speaking, no case yet for the People or the Republic of the Philippines. In answer to the second issue raised by the TONDAS, while the jurisdiction of the Supreme Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, one exception to the rule is when the factual findings complained of are devoid of support by the evidence on record or the assailed judgment is based on misappreciation of facts [11], as will be shown to have happened in the instant case. In the main, the issue is whether or not the dismissal by the Court of Appeals of the charge for violation of the Trust Receipts Law in relation to Art. 315(1) (b) of the Revised Penal Code against the TONDAS is warranted by the evidence at hand and by law. The Court of Appeals gravely erred in reversing the Department of Justice on the finding of probable cause to hold the TONDAS for trial. The documentary evidence presented during the preliminary investigation clearly show that there was probable cause to warrant a criminal prosecution for violation of the Trust Receipts Law. The relevant penal provision of P.D. 115 provides: 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 judicial entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other

officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. Section 1 (b), Article 315 of the Revised Penal Code under which the violation is made to fall, states: "x x x Swindling (estafa). - Any person who shall defraud another by any of the mans mentioned herein below x x x: 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, goods, or other property. Based on the foregoing, it is plain to see that the Trust Receipts Law declares the failure to turn over the goods or the proceeds realized from the sale thereof, as a criminal offense punishable under Article 315 (1) (b) of the Revised Penal Code. The law is violated whenever the entrustee or the person to whom the trust receipts were issued in favor of fails to: (1) return the goods covered by the trust receipts; or (2) return the proceeds of the sale of the said goods. The foregoing acts constitute estafa punishable under Article 315 (1) (b) of the Revised Penal Code. Given that various trust receipts were executed by the TONDAS and that as entrustees, they did not return the proceeds from the goods sold nor the goods themselves to METROBANK, there is no dispute that that the TONDAS failed to comply with the obligations under the trust receipts despite several demands from METROBANK. Finding favorably for the TONDAS, however, and ordering the dismissal of the complaint against them, the Court of Appeals held that: (1) the TONDAS opened a savings account of P2.8 Million to pay the entire principal of the outstanding trust receipts account; (2) the TONDAS obtained from a METROBANK officer [12] a written acknowledgement of receipt of checks totaling P2.8 Million in order to show proof of compliance with the loan restructuring proposal; (3) it was settled between the parties that the amount of 2.8 Million should be paid to cover all outstanding obligations under the trust receipts account; (4) the money remains deposited under the savings account of petitioners awaiting a final agreement with METROBANK regarding the loan restructuring arrangement; and that (5) there is no evidence suggesting that METROBANK has been damaged by the proposal and the deposit or that the TONDAS employed fraud and deceit in their dealings with the bank. The foregoing findings and conclusions are palpably erroneous. First, the amount of P2.8 million was not directly paid to METROBANK to settle the trust receipt accounts, but deposited in a joint account of Joaquin G. Tonda and a certain Wang Tien En. In a letter dated February 28, 1992, signed by HTAC's Vice President for Finance, METROBANK was informed that the amount "may be applied anytime to the payment of the trust receipts account upon implementation of the parties of the terms of the restructuring."[13] The parties failed to agree on the terms of the loan restructuring agreement as the offer by the TONDAS to restructure the loan was followed by a series of counter-offers which yielded nothing. It is axiomatic that acceptance of an offer must be unqualified and absolute[14] to perfect a contract. The alleged payment of the trust receipts accounts never became effectual on account of the failure of the parties to finalize a loan restructuring arrangement. Second, the handwritten note by the METROBANK officer acknowledging receipt of the checks amounting to P2.8 Million made no reference to the TONDAS' trust receipt obligations,

and we cannot presume that it was anything more than an ordinary bank deposit. The Court of Appeals citing the case of Tan Tiong Tick vs. American Apothecories [15] implied that in making the deposit, the TONDAS are entitled to set off, by way of compensation, their obligations to METROBANK. However, Article 1288 of the Civil Code provides that "compensation shall not be proper when one of the debts consists in civil liability arising from a penal offense" as in the case at bar. The raison d'etre for this is that, "if one of the debts consists in civil liability arising from a penal offense, compensation would be improper and inadvisable because the satisfaction of such obligation is imperative."[16] Third, reliance on the negotiations for the settlement of the trust receipts obligations between the TONDAS and METROBANK is simply misplaced. The negotiations pertain and affect only the civil aspect of the case but does not preclude prosecution for the offense already committed. It has been held that "[a]ny compromise relating to the civil liability arising from an offense does not automatically terminate the criminal proceeding against or extinguish the criminal liability of the malefactor." [17] All told, the P2.8 Million deposit could not be considered as having settled the trust receipts obligations of the TONDAS to the end of extinguishing any incipient criminal culpability arising therefrom. Hence, it has been held in Office of the Court Administrator vs. Soriano[18] that: xxx it is too well-settled for any serious argument that whether in malversation of public funds or estafa, payment, indemnification, or reimbursement of, or compromise as to, the amounts or funds malversed or misappropriated, after the commission of the crime, affects only the civil liability of the offender but does not extinguish his criminal liability or relieve him from the penalty prescribed by law for the offense committed, because both crimes are public offenses against the people that must be prosecuted and penalized by the Government on its own motion, though complete reparation should have been made of the damage suffered by the offended parties. xxx." As to the statement of the Court of Appeals that there is no evidence that METROBANK has been damaged by the proposal and the deposit, it must be clarified that the damage can be traced from the non-fulfillment of an entrustee's obligation under the trust receipts. The nature of trust receipt agreements and the damage caused to trade circles and the banking community in case of violation thereof was explained in Vintola vs. IBAA[19] and echoed in People vs. Nitafan[20], as follows: "[t]rust receipt arrangements do not involve a simple loan transaction between a creditor and a debtor-importer. Apart from a loan feature, the trust receipt arrangement has a security feature that is covered by the trust receipt itself. The second feature is what provides the much needed financial assistance to 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 the bank. 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." xxx xxx xxx.

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 foe estafa." The finding that there was no fraud and deceit is likewise misplaced Considering that the offense is punished as a malum prohibitumregardless 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.[21] Finally, it is worthy of mention that a preliminary investigation proper - whether or not there is reasonable ground to believe that the accused is guilty of the offense and therefore, whether or not he should be subjected to the expense, rigors and embarrassment of trial - is the function of the prosecutor.[22] Preliminary investigation is an executive, not a judicial function. [23] Such investigation is not part of the trial, hence, a full and exhaustive presentation of the parties' evidence is not required, but only such as may engender a well-grounded belief that an offense has been committed and that the accused is probably guilty thereof. [24] Section 4, Rule 112 of the Rules of Court recognizes the authority of the Secretary of Justice to reverse the resolution of the provincial or city prosecutor or chief state prosecutor upon petition by a proper party. [25] Judicial review of the resolution of the Secretary of Justice is limited to a determination of whether there has been a grave abuse of discretion amounting to lack or excess of jurisdiction considering that the full discretionary authority has been delegated to the executive branch in the determination of probable cause during a preliminary investigation. Courts are not empowered to substitute their judgment for that of the executive branch; it may, however, look into the question of whether such exercise has been made in grave abuse of discretion.[26] Verily, there was no grave abuse of discretion on the part of the Secretary of Justice in directing the filing of the Information against the TONDAS, end the Court of Appeals overstepped its boundaries in reversing the same without basis in law and in evidence. We emphasize that for purposes of preliminary investigation, it is enough that there is evidence showing that a crime has been committed and that the accused is probably guilty thereof. [27] By reason of the abbreviated nature of preliminary investigations, a dismissal of the charges as a result thereof is not equivalent to a judicial pronouncement of acquittal, [28] a converso, the finding of a prima facie case to hold the accused for trial is not equivalent to a finding of guilt. WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. SO ORDERED. Melo, (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

G.R. No. 90828. September 5, 2000 MELVIN COLINARES and LORDINO VELOSO vs. HONORABLE COURT OF APPEALS, and THE PEOPLE OF THE PHILIPPINES

"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, 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 Bata Pambansa Blg. 22, punishes the act "not as an offense against property, but as an offense against public order. x x x The misuse of trust receipts therefore should be deterred to prevent any possible havoc in trade circles and the banking community. (citing Lozano vs. Martinez, 146

DECISION DAVIDE, JR., C.J.:

In 1979 Melvin Colinares and Lordino Veloso (hereafter Petitioners) were contracted for a consideration of P40,000 by the Carmelite Sisters of Cagayan de Oro City to renovate the latters convent at Camaman-an, Cagayan de Oro City. On 30 October 1979, Petitioners obtained 5,376 SF Solatone acoustical board 2x4x, 300 SF tanguile wood tiles 12x12, 260 SF Marcelo economy tiles and 2 gallons UMYLIN cement adhesive from CM Builders Centre for the construction project.[1] The following day, 31 October 1979, Petitioners applied for a commercial letter of credit [2] with the Philippine Banking Corporation, Cagayan de Oro City branch (hereafter PBC) in favor of CM Builders Centre. PBC approved the letter of credit [3] for P22,389.80 to cover the full invoice value of the goods.Petitioners signed a pro-forma trust receipt[4] as security. The loan was due on 29 January 1980. On 31 October 1979, PBC debited P6,720 from Petitioners marginal deposit as partial payment of the loan.[5] On 7 May 1980, PBC wrote[6] to Petitioners demanding that the amount be paid within seven days from notice. Instead of complying with PBCs demand, Veloso confessed that they lost P19,195.83 in the Carmelite Monastery Project and requested for a grace period of until 15 June 1980 to settle the account.[7] PBC sent a new demand letter [8]to Petitioners on 16 October 1980 and informed them that their outstanding balance as of 17 November 1979 was P20,824.40 exclusive of attorneys fees of 25%.[9] On 2 December 1980, Petitioners proposed [10] that the terms of payment of the loan be modified as follows: P2,000 on or before 3 December 1980, and P1,000 per month starting 31 January 1980 until the account is fully paid. Pending approval of the proposal, Petitioners paid P1,000 to PBC on 4 December 1980, [11] and thereafter P500 on 11 February 1981, [12] 16 March 1981,[13] and 20 April 1981.[14]Concurrently with the separate demand for attorneys fees by PBCs legal counsel, PBC continued to demand payment of the balance.[15] On 14 January 1983, Petitioners were charged with the violation of P.D. No. 115 (Trust Receipts Law) in relation to Article 315 of the Revised Penal Code in an Information which was filed with Branch 18, Regional Trial Court of Cagayan de Oro City. The accusatory portion of the Information reads: That on or about October 31, 1979, in the City of Cagayan de Oro, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused entered into a trust receipt agreement with the Philippine Banking Corporation at Cagayan de Oro City wherein the accused, as entrustee, received from the entruster the following goods to wit: Solatone Acoustical board Tanguile Wood Tiles Marcelo Cement Tiles Umylin Cement Adhesive with a total value of P22,389.80, with the obligation on the part of the accused-entrustee to hold the aforesaid items in trust for the entruster and/or to sell on cash basis or otherwise dispose of the said items and to turn over to the entruster the proceeds of the sale of said goods or if there be no sale to return said items to the entruster on or before January 29, 1980 but that the said accused after receipt of the goods, with intent to defraud and cause damage to the entruster,

conspiring, confederating together and mutually helping one another, did then and there wilfully, unlawfully and feloniously fail and refuse to remit the proceeds of the sale of the goods to the entruster despite repeated demands but instead converted, misappropriated and misapplied the proceeds to their own personal use, benefit and gain, to the damage and prejudice of the Philippine Banking Corporation, in the aforesaid sum of P22,389.80, Philippine Currency. Contrary to PD 115 in relation to Article 315 of the Revised Penal Code.[16] The case was docketed as Criminal Case No. 1390. During trial, petitioner Veloso insisted that the transaction was a clean loan as per verbal guarantee of Cayo Garcia Tuiza, PBCs former manager. He and petitioner Colinares signed the documents without reading the fine print, only learning of the trust receipt implication much later. When he brought this to the attention of PBC, Mr. Tuiza assured him that the trust receipt was a mere formality.[17] On 7 July 1986, the trial court promulgated its decision [18] convicting Petitioners of estafa for violating P.D. No. 115 in relation to Article 315 of the Revised Penal Code and sentencing each of them to suffer imprisonment of two years and one day of prision correccional as minimum to six years and one day of prision mayor as maximum, and to solidarily indemnify PBC the amount of P20,824.44, with legal interest from 29 January 1980, 12 % penalty charge per annum, 25% of the sums due as attorneys fees, and costs. The trial court considered the transaction between PBC and Petitioners as a trust receipt transaction under Section 4, P.D. No. 115. It considered Petitioners use of the goods in their Carmelite monastery project an act of disposing as contemplated under Section 13, P.D. No. 115, and treated the charge invoice [19] for goods issued by CM Builders Centre as a document within the meaning of Section 3 thereof. It concluded that the failure of Petitioners to turn over the amount they owed to PBC constituted estafa. Petitioners appealed from the judgment to the Court of Appeals which was docketed as CA-G.R. CR No. 05408. Petitioners asserted therein that the trial court erred in ruling that they violated the Trust Receipt Law, and in holding them criminally liable therefor. In the alternative, they contend that at most they can only be made civilly liable for payment of the loan. In its decision[20] 6 March 1989, the Court of Appeals modified the judgment of the trial court by increasing the penalty to six years and one day of prision mayor as minimum to fourteen years eight months and one day of reclusion temporal as maximum. It held that the documentary evidence of the prosecution prevails over Velosos testimony, discredited Petitioners claim that the documents they signed were in blank, and disbelieved that they were coerced into signing them. On 25 March 1989, Petitioners filed a Motion for New Trial/Reconsideration [21] alleging that the Disclosure Statement on Loan/Credit Transaction [22] (hereafter Disclosure Statement) signed by them and Tuiza was suppressed by PBC during the trial. That document would have proved that the transaction was indeed a loan as it bears a 14% interest as opposed to the trust receipt which does not at all bear any interest.Petitioners further maintained that when PBC allowed them to pay in installment, the agreement was novated and a creditor-debtor relationship was created. In its resolution[23]of 16 October 1989 the Court of Appeals denied the Motion for New Trial/Reconsideration because the alleged newly discovered evidence was actually forgotten evidence already in existence during the trial, and would not alter the result of the case. Hence, Petitioners filed with us the petition in this case on 16 November 1989. They raised the following issues:

I. WHETHER OR NOT THE DENIAL OF THE MOTION FOR NEW TRIAL ON THE GROUND OF NEWLY DISCOVERED EVIDENCE, NAMELY, DISCLOSURE ON LOAN/CREDIT TRANSACTION, WHICH IF INTRODUCED AND ADMITTED, WOULD CHANGE THE JUDGMENT, DOES NOT CONSTITUTE A DENIAL OF DUE PROCESS. 2. ASSUMING THERE WAS A VALID TRUST RECEIPT, WHETHER OR NOT THE ACCUSED WERE PROPERLY CHARGED, TRIED AND CONVICTED FOR VIOLATION OF SEC. 13, PD NO. 115 IN RELATION TO ARTICLE 315 PARAGRAPH (I) (B) NOTWITHSTANDING THE NOVATION OF THE SO-CALLED TRUST RECEIPT CONVERTING THE TRUSTOR-TRUSTEE RELATIONSHIP TO CREDITOR-DEBTOR SITUATION. In its Comment of 22 January 1990, the Office of the Solicitor General urged us to deny the petition for lack of merit. On 28 February 1990 Petitioners filed a Motion to Dismiss the case on the ground that they had already fully paid PBC on 2 February 1990 the amount of P70,000 for the balance of the loan, including interest and other charges, as evidenced by the different receipts issued by PBC,[24]and that the PBC executed an Affidavit of desistance.[25] We required the Solicitor General to comment on the Motion to Dismiss. In its Comment of 30 July 1990, the Solicitor General opined that payment of the loan was akin to a voluntary surrender or plea of guilty which merely serves to mitigate Petitioners culpability, but does not in any way extinguish their criminal liability. In the Resolution of 13 August 1990, we gave due course to the Petition and required the parties to file their respective memoranda. The parties subsequently filed their respective memoranda. It was only on 18 May 1999 when this case was assigned to the ponente. Thereafter, we required the parties to move in the premises and for Petitioners to manifest if they are still interested in the further prosecution of this case and inform us of their present whereabouts and whether their bail bonds are still valid. Petitioners submitted their Compliance. The core issues raised in the petition are the denial by the Court of Appeals of Petitioners Motion for New Trial and the true nature of the contract between Petitioners and the PBC. As to the latter, Petitioners assert that it was an ordinary loan, not a trust receipt agreement under the Trust Receipts Law. The grant or denial of a motion for new trial rests upon the discretion of the judge. New trial may be granted if: (1) errors of law or irregularities have been committed during the trial prejudicial to the substantial rights of the accused; or (2) new and material evidence has been discovered which the accused could not with reasonable diligence have discovered and produced at the trial, and which, if introduced and admitted, would probably change the judgment.[26] For newly discovered evidence to be a ground for new trial, such evidence must be (1) discovered after trial; (2) could not have been discovered and produced at the trial even with the exercise of reasonable diligence; and (3) material, not merely cumulative, corroborative, or impeaching, and of such weight that, if admitted, would probably change the judgment. [27] It is essential that the offering party exercised reasonable diligence in seeking to locate the evidence before or during trial but nonetheless failed to secure it.[28] We find no indication in the pleadings that the Disclosure Statement is a newly discovered evidence.

Petitioners could not have been unaware that the two-page document exists. The Disclosure Statement itself states, NOTICE TO BORROWER: YOU ARE ENTITLED TO A COPY OF THIS PAPER WHICH YOU SHALL SIGN. [29] Assuming Petitioners copy was then unavailable, they could have compelled its production in court, [30] which they never did. Petitioners have miserably failed to establish the second requisite of the rule on newly discovered evidence. Petitioners themselves admitted that they searched again their voluminous records, meticulously and patiently, until they discovered this new and material evidence only upon learning of the Court of Appeals decision and after they were shocked by the penalty imposed.[31]Clearly, the alleged newly discovered evidence is mere forgotten evidence that jurisprudence excludes as a ground for new trial.[32] However, the second issue should be resolved in favor of Petitioners. Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. There are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which refers to merchandise received under the obligation to return it (devolvera) to the owner. [33] Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall be punishable as estafa under Article 315 (1) of the Revised Penal Code,[34] without need of proving intent to defraud. A thorough examination of the facts obtaining in the case at bar reveals that the transaction intended by the parties was a simple loan, not a trust receipt agreement. Petitioners received the merchandise from CM Builders Centre on 30 October 1979. On that day, ownership over the merchandise was already transferred to Petitioners who were to use the materials for their construction project. It was only a day later, 31 October 1979, that they went to the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan. The bank acquires a security interest in the goods as holder of a security title for the advances it had made to the entrustee.[35] The ownership of the merchandise continues to be vested in the person who had advanced payment until he has been paid in full, or if the merchandise has already been sold, the proceeds of the sale should be turned over to him by the importer or by his representative or successor in interest. [36] To secure that the bank shall be paid, it takes full title to the goods at the very beginning and continues to hold that title as his indispensable security until the goods are sold and the vendee is called upon to pay for them; hence, the importer has never owned the goods and is not able to deliver possession. [37] In a certain manner, trust receipts partake of the nature of a conditional sale where the importer becomes absolute owner of the imported merchandise as soon as he has paid its price. [38] Trust receipt transactions are intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise,

and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.[39] The antecedent acts in a trust receipt transaction consist of the application and approval of the letter of credit, the making of the marginal deposit and the effective importation of goods through the efforts of the importer.[40] PBC attempted to cover up the true delivery date of the merchandise, yet the trial court took notice even though it failed to attach any significance to such fact in the judgment. Despite the Court of Appeals contrary view that the goods were delivered to Petitioners previous to the execution of the letter of credit and trust receipt, we find that the records of the case speak volubly and this fact remains uncontroverted. It is not uncommon for us to peruse through the transcript of the stenographic notes of the proceedings to be satisfied that the records of the case do support the conclusions of the trial court. [41] After such perusal Grego Mutia, PBCs credit investigator, admitted thus: ATTY. CABANLET: (continuing) Q Do you know if the goods subject matter of this letter of credit and trust receipt agreement were received by the accused? A Yes, sir Q Do you have evidence to show that these goods subject matter of this letter of credit and trust receipt were delivered to the accused? A Yes, sir. Q I am showing to you this charge invoice, are you referring to this document? A Yes, sir. xxx Q What is the date of the charge invoice? A October 31, 1979. COURT: Make it of record as appearing in Exhibit D, the zero in 30 has been superimposed with numeral 1.[42] During the cross and re-direct examinations he also impliedly admitted that the transaction was indeed a loan. Thus: Q In short the amount stated in your Exhibit C, the trust receipt was a loan to the accused you admit that? A Because in the bank the loan is considered part of the loan. xxx RE-DIRECT BY ATTY. CABANLET: ATTY. CABANLET (to the witness) Q What do you understand by loan when you were asked? A Loan is a promise of a borrower from the value received. The borrower will pay the bank on a certain specified date with interest[43]

Such statement is akin to an admission against interest binding upon PBC. Petitioner Velosos claim that they were made to believe that the transaction was a loan was also not denied by PBC. He declared: Q Testimony was given here that that was covered by trust receipt. In short it was a special kind of loan. What can you say as to that? A I dont think that would be a trust receipt because we were made to understand by the manager who encouraged us to avail of their facilities that they will be granting us a loan[44] PBC could have presented its former bank manager, Cayo Garcia Tuiza, who contracted with Petitioners, to refute Velosos testimony, yet it only presented credit investigator Grego Mutia. Nowhere from Mutias testimony can it be gleaned that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust receipt implications. The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. [45] Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment of the loan. The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation. Also noteworthy is the fact that Petitioners are not importers acquiring the goods for 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.[46] The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as manifested by its Affidavit of Desistance. WHEREFORE, the challenged Decision of 6 March 1989 and the Resolution of 16 October 1989 of the Court of Appeals in CA-GR. No. 05408 are REVERSED and SET ASIDE. Petitioners are hereby ACQUITTED of the crime charged, i.e., for violation of P.D. No. 115 in relation to Article 315 of the Revised Penal Code. No costs. SO ORDERED. Kapunan, and Pardo, JJ., concur. Puno, J., no part. Ynares-Santiago, J., on leave.

G.R. No. 114286. April 19, 2001 THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK) vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE YNARES-SANTIAGO, J.: The instant petition for review seeks to partially set aside the July 26, 1993 Decision of respondent Court of Appeals in CA-G.R. 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 Resolution[2] 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 P1,068,150.00 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 P1,001,520.93 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 attachment[3] 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; 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 attorneys fees; and costs. Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorneys fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys fees and litigation expenses.
[1]

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 THE CENTRAL BANK. 4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT 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 courts 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., P563,070.13, 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, petitioners 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 interests 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 favor 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 installment/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. 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 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 Corporations Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982. [13] Further, 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 re-sale, contrary to the express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction project. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions. 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 petitioners 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? ATTY. RACHON: Objection already answered. COURT: Give time to the other counsel to object. ATTY. RACHON: He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already been answered. ATTY. BAAGA: That is why I made a follow up question asking ownership of the bunker fuel oil. COURT: Proceed. ATTY. BAAGA: Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.? A - Gregory Lim.[15] 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. Petitioners 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. CV No. 29950 is AFFIRMED. SO ORDERED.

YNARES-SANTIAGO, J.: Before us are consolidated petitions for review both filed by Philippine Bank of Communications; one against the May 24, 1994 Decision of respondent Court of Appeals in CAG.R. SP No. 32863[1] and the other against its March 31, 1995 Decision in CA-G.R. SP No. 32762.[2] Both Decisions set aside and nullified the August 11, 1993 Order [3] of the Regional Trial Court of Manila, Branch 7, granting the issuance of a writ of preliminary attachment in Civil Case No. 91-56711. The case commenced with the filing by petitioner, on April 8, 1991, of a Complaint against private respondent Bernardino Villanueva, private respondent Filipinas Textile Mills and one Sochi Villanueva (now deceased) before the Regional Trial Court of Manila. In the said Complaint, petitioner sought the payment of P2,244,926.30 representing the proceeds or value of various textile goods, the purchase of which was covered by irrevocable letters of credit and trust receipts executed by petitioner with private respondent Filipinas Textile Mills as obligor; which, in turn, were covered by surety agreements executed by private respondent Bernardino Villanueva and Sochi Villanueva. In their Answer, private respondents admitted the existence of the surety agreements and trust receipts but countered that they had already made payments on the amount demanded and that the interest and other charges imposed by petitioner were onerous. On May 31, 1993, petitioner filed a Motion for Attachment, [4] contending that violation of the trust receipts law constitutes estafa, thus providing ground for the issuance of a writ of preliminary attachment; specifically under paragraphs b and d, Section 1, Rule 57 of the Revised Rules of Court. Petitioner further claimed that attachment was necessary since private respondents were disposing of their properties to its detriment as a creditor. Finally, petitioner offered to post a bond for the issuance of such writ of attachment. The Motion was duly opposed by private respondents and, after the filing of a Reply thereto by petitioner, the lower court issued its August 11, 1993 Order for the issuance of a writ of preliminary attachment, conditioned upon the filing of an attachment bond. Following the denial of the Motion for Reconsideration filed by private respondent Filipinas Textile Mills, both private respondents filed separate petitions for certiorari before respondent Court assailing the order granting the writ of preliminary attachment. Both petitions were granted, albeit on different grounds. In CA-G.R. SP No. 32762, respondent Court of Appeals ruled that the lower court was guilty of grave abuse of discretion in not conducting a hearing on the application for a writ of preliminary attachment and not requiring petitioner to substantiate its allegations of fraud, embezzlement or misappropriation. On the other hand, in CA-G.R. SP No. 32863, respondent Court of Appeals found that the grounds cited by petitioner in its Motion do not provide sufficient basis for the issuance of a writ of preliminary attachment, they being mere general averments. Respondent Court of Appeals held that neither embezzlement, misappropriation nor incipient fraud may be presumed; they must be established in order for a writ of preliminary attachment to issue. Hence, the instant consolidated[5] petitions charging that respondent Court of Appeals erred in 1. Holding that there was no sufficient basis for the issuance of the writ of preliminary attachment in spite of the allegations of fraud, embezzlement and misappropriation of the proceeds or goods entrusted to the private respondents; 2. Disregarding the fact that that the failure of FTMI and Villanueva to remit the proceeds or return the goods entrusted, in violation of private respondents fiduciary duty as entrustee, constitute embezzlement or misappropriation which is a valid ground for the issuance of a writ of preliminary attachment.[6]

G.R. No. 115678. February 23, 2001 PHILIPPINE BANK OF COMMUNICATIONS vs. HON. COURT OF APPEALS and BERNARDINO VILLANUEVA G.R. No. 119723. February 23, 2001 PHILIPPINE BANK OF COMMUNICATIONS vs. HON. COURT OF APPEALS and FILIPINAS TEXTILE MILLS, INC. DECISION

We find no merit in the instant petitions. To begin with, we are in accord with respondent Court of Appeals in CA-G.R. SP No. 32863 that the Motion for Attachment filed by petitioner and its supporting affidavit did not sufficiently establish the grounds relied upon in applying for the writ of preliminary attachment. The Motion for Attachment of petitioner states that 1. The instant case is based on the failure of defendants as entrustee to pay or remit the proceeds of the goods entrusted by plaintiff to defendant as evidenced by the trust receipts (Annexes B, C and D of the complaint), nor to return the goods entrusted thereto, in violation of their fiduciary duty as agent or entrustee; 2. Under Section 13 of P.D. 115, as amended, violation of the trust receipt law constitute(s) estafa (fraud and/or deceit) punishable under Article 315 par. 1[b] of the Revised Penal Code; 3. On account of the foregoing, there exist(s) valid ground for the issuance of a writ of preliminary attachment under Section 1 of Rule 57 of the Revised Rules of Court particularly under sub-paragraphs b and d, i.e. for embezzlement or fraudulent misapplication or conversion of money (proceeds) or property (goods entrusted) by an agent (entrustee) in violation of his fiduciary duty as such, and against a party who has been guilty of fraud in contracting or incurring the debt or obligation; 4. The issuance of a writ of preliminary attachment is likewise urgently necessary as there exist(s) no sufficient security for the satisfaction of any judgment that may be rendered against the defendants as the latter appears to have disposed of their properties to the detriment of the creditors like the herein plaintiff; 5. Herein plaintiff is willing to post a bond in the amount fixed by this Honorable Court as a condition to the issuance of a writ of preliminary attachment against the properties of the defendants. Section 1(b) and (d), Rule 57 of the then controlling Revised Rules of Court, provides, to wit SECTION 1. Grounds upon which attachment may issue. A plaintiff or any proper party may, at the commencement of the action or at any time thereafter, have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in the following cases: xxx xxx xxx

xxx

xxx

xxx

While the Motion refers to the transaction complained of as involving trust receipts, the violation of the terms of which is qualified by law as constituting estafa, it does not follow that a writ of attachment can and should automatically issue. Petitioner cannot merely cite Section 1(b) and (d), Rule 57, of the Revised Rules of Court, as mere reproduction of the rules, without more, cannot serve as good ground for issuing a writ of attachment. An order of attachment cannot be issued on a general averment, such as one ceremoniously quoting from a pertinent rule.[7] The supporting Affidavit is even less instructive. It merely states, as follows -I, DOMINGO S. AURE, of legal age, married, with address at No. 214-216 Juan Luna Street, Binondo, Manila, after having been sworn in accordance with law, do hereby depose and say, THAT: 1. I am the Assistant Manager for Central Collection Units Acquired Assets Section of the plaintiff, Philippine Bank of Communications, and as such I have caused the preparation of the above motion for issuance of a writ of preliminary attachment; 2. I have read and understood its contents which are true and correct of my own knowledge; 3. There exist(s) sufficient cause of action against the defendants in the instant case; 4. The instant case is one of those mentioned in Section 1 of Rule 57 of the Revised Rules of Court wherein a writ of preliminary attachment may be issued against the defendants, particularly sub-paragraphs b and d of said section; 5. There is no other sufficient security for the claim sought to be enforced by the instant case and the amount due to herein plaintiff or the value of the property sought to be recovered is as much as the sum for which the order for attachment is granted, above all legal counterclaims. Again, it lacks particulars upon which the court can discern whether or not a writ of attachment should issue. Petitioner cannot insist that its allegation that private respondents failed to remit the proceeds of the sale of the entrusted goods nor to return the same is sufficient for attachment to issue. We note that petitioner anchors its application upon Section 1(d), Rule 57. This particular provision was adequately explained in Liberty Insurance Corporation v. Court of Appeals,[8] as follows To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt or incurring the obligation intended to defraud the creditor. The fraud must relate to the execution of the agreement and must have been the reason which induced the other party into giving consent which he would not have otherwise given. To constitute a ground for attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the obligation sued upon. A debt is fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case. Fraud is a state of mind and need not be proved by direct evidence but may be inferred from the circumstances attendant in each case (Republic v. Gonzales, 13 SCRA 633). (Emphasis ours) We find an absence of factual allegations as to how the fraud alleged by petitioner was committed. As correctly held by respondent Court of Appeals, such fraudulent intent not to

(b) In an action for money or property embezzled or fraudulently misapplied or converted to his use by a public officer, or an officer of a corporation, or an attorney, factor, broker, agent or clerk, in the course of his employment as such, or by any other person in a fiduciary capacity, or for a willful violation of duty; xxx xxx xxx

(d) In an action against a party who has been guilty of fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought;

honor the admitted obligation cannot be inferred from the debtors inability to pay or to comply with the obligations.[9] On the other hand, as stressed, above, fraud may be gleaned from a preconceived plan or intention not to pay. This does not appear to be so in the case at bar. In fact, it is alleged by private respondents that out of the total P419,613.96 covered by the subject trust receipts, the amount of P400,000.00 had already been paid, leaving only P19,613.96 as balance. Hence, regardless of the arguments regarding penalty and interest, it can hardly be said that private respondents harbored a preconceived plan or intention not to pay petitioner. The Court of Appeals was correct, therefore, in its finding in CA-G.R. SP No. 32863 that neither petitioners Motion or its supporting Affidavit provides sufficient basis for the issuance of the writ of attachment prayed for. We also agree with respondent Court of Appeals in CA-G.R. SP No. 32762 that the lower court should have conducted a hearing and required private petitioner to substantiate its allegations of fraud, embezzlement and misappropriation. To reiterate, petitioners Motion for Attachment fails to meet the standard set forth in D.P. Lub Oil Marketing Center, Inc. v. Nicolas ,[10] in applications for attachment. In the said case, this Court cautioned -The petitioners prayer for a writ of preliminary attachment hinges on the allegations in paragraph 16 of the complaint and paragraph 4 of the affidavit of Daniel Pe which are couched in general terms devoid of particulars of time, persons and places to support such a serious assertion that defendants are disposing of their properties in fraud of creditors. There is thus the necessity of giving to the private respondents an opportunity to ventilate their side in a hearing, in accordance with due process, in order to determine the truthfulness of the allegations. But no hearing was afforded to the private respondents the writ having been issued ex parte. A writ of attachment can only be granted on concrete and specific grounds and not on general averments merely quoting the words of the rules. As was frowned upon in D.P. Lub Oil Marketing Center, Inc.,[11] not only was petitioners application defective for having merely given general averments; what is worse, there was no hearing to afford private respondents an opportunity to ventilate their side, in accordance with due process, in order to determine the truthfulness of the allegations of petitioner. As already mentioned, private respondents claimed that substantial payments were made on the proceeds of the trust receipts sued upon. They also refuted the allegations of fraud, embezzlement and misappropriation by averring that private respondent Filipinas Textile Mills could not have done these as it had ceased its operations starting in June of 1984 due to workers strike. These are matters which should have been addressed in a preliminary hearing to guide the lower court to a judicious exercise of its discretion regarding the attachment prayed for. On this score, respondent Court of Appeals was correct in setting aside the issued writ of preliminary attachment. Time and again, we have held that the rules on the issuance of a writ of attachment must be construed strictly against the applicants. This stringency is required because the remedy of attachment is harsh, extraordinary and summary in nature. If all the requisites for the granting of the writ are not present, then the court which issues it acts in excess of its jurisdiction.[12] WHEREFORE, for the foregoing reasons, the instant petitions are DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 32863 and CA-G.R. SP No. 32762 are AFFIRMED. No pronouncement as to costs. 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 Amount Balance Due July 26, 1983 P 244,269.00 P 198,659.52 July 27, 1983 July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10 324,767.41 1,138,941.00 244,269.00 275,079.60 475,046.10

and the attorneys fees and costs of suit. SO ORDERED.[2] The Facts The facts, as found by the Court of Appeals, are as follows: 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, defendant-appellant 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: Date of Draft July 26, 1983 July 27, 1983 July 28, 1983 August 2, 1983 August 5, 1983 August 8, 1983 Amount P 244,269.00 967,765.50 1,138,941.00 244,269.00 275,079.00 475,046.10

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 plaintiffappellant 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-inintervention 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:

(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). 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 defendants-appellants 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 plaintiffappellant (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 latters liability;

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 attorneys fees and the costs of this suit; 8. Dismissing plaintiffs complaint against South City Homes, Aurelio Tablante, Joselito Baltazar, George Tan and Edgar Rodrigueza and the latters 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. 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 Courts 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 debtors 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 debtors 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 debtors 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] WHEREFORE, the appealed decision is hereby AFFIRMED. However, the award of attorneys fees is deleted. No costs. SO ORDERED.

SECOND DIVISION [G.R. NO. 117913. February 1, 2002] CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO,petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS [G.R. NO. 117914. February 1, 2002] MICO METALS CORPORATION, petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

DECISION DE LEON, JR., J: Before us is the joint and consolidated petition for review of the Decision [1] dated June 15, 1994 of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of Communications vs. Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, which reversed the decision of the Regional Trial Court (RTC) of Manila, Branch 55 dismissing the complaint for a sum of money filed by private respondent Philippine Bank of Communications against herein petitioners, Mico Metals Corporation (MICO, for brevity), Charles Lee, Chua Siok Suy,[2] Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co.[3] The dispositive portion of the said Decision of the Court of Appeals, reads: WHEREFORE, the decision of the Regional Trial Court is hereby reversed and in lieu thereof, a new one is entered: a) Ordering the defendants-appellees jointly and severally to pay plaintiff PBCom the sum of Five million four hundred fifty-one thousand six hundred sixty-three pesos and ninety centavos (P5,451,663.90) representing defendants-appellees unpaid obligations arising from ordinary loans granted by the plaintiff plus legal interest until fully paid. b) Ordering defendants-appellees jointly and severally to pay PBCom the sum of Four hundred sixty-one thousand six hundred pesos and sixty-six centavos (P46 1,600.66) representing defendants-appellees unpaid obligations arising from their letters of credit and trust receipt transactions with plaintiff PBCom plus legal interest until fully paid. c) Ordering defendants-appellees jointly and severally to pay PBCom the sum of P50,000.00 as attorneys fees. No pronouncement as to costs. The facts of the case are as follows: On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of carrying out MICOs line of business as well as to maintain its volume of business. On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts. In connection with the requests for discounting loan/credit lines, PBCom was furnished by MICO the following resolution which was adopted unanimously by MICOs Board of Directors: RESOLVED, that the President, Mr. Charles Lee, and the Vice-President and General Manager, Mr. Mariano A. Sio, singly or jointly, be and they are duly authorized and empowered for and in behalf of this Corporation to apply for, negotiate and secure the approval of commercial loans and other banking facilities and accommodations, such as, but not limited to discount loans, letters of credit, trust receipts, lines for marginal deposits on foreign and domestic letters of credit, negotiate out-of-town checks, etc. from the Philippine Bank of Communications, 216 Juan

Luna, Manila in such sums as they shall deem advantageous, the principal of all of which shall not exceed the total amount of TEN MILLION PESOS (P10,000,000.00), Philippine Currency, plus any interests that may be agreed upon with said Bank in such loans and other credit lines of the same kind and such further terms and conditions as may, upon granting of said loans and other banking facilities, be imposed by the Bank; and to make, execute, sign and deliver any contracts of mortgage, pledge or sale of one, some or all of the properties of the Company, or any other agreements or documents of whatever nature or kind, including the signing, indorsing, cashing, negotiation and execution of promissory notes, checks, money orders or other negotiable instruments, which may be necessary and proper in connection with said loans and other banking facilities, or with their amendments, renewals and extensions of payment of the whole or any part thereof.[4] On March 26, 1979, MICO availed of the first loan of One Million Pesos ( P1,000,000.00) from PBCom. Upon maturity of the loan, MICO caused the same to be renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No. 26218.[5] Another loan of One Million Pesos (P1,000,000.00) was availed of by MICO from PBCom which was likewise later on renewed, the last renewal of which was made on May 21, 1982 under Promissory Note BNA No. 26219. [6] To complete MICOs availment of Three Million Pesos (P3,000,000.00) discounting loan/credit line with PBCom, MICO availed of another loan from PBCom in the sum of One Million Pesos (P1,000,000.00) on May 24, 1979. As in previous loans, this was rolled over or renewed, the last renewal of which was made on May 25, 1982under Promissory Note BNA No. 26253.[7] As security for the loans, MICO through its Vice-President and General Manager, Mariano Sio, executed on May 16, 1979 a Deed of Real Estate Mortgage over its properties situated in Pasig, Metro Manila covered by Transfer Certificates of Title (TCT) Nos. 11248 and 11250. On March 26, 1979 Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap and Richard Velasco, in their personal capacities executed a Surety Agreement [8] in favor of PBCom whereby the petitioners jointly and severally, guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts, and other obligations of every kind and nature, for which MICO may be held accountable by PBCom. It was provided, however, that the liability of the sureties shall not at any one time exceed the principal amount of Three Million Pesos (P3,000,000.00) plus interest, costs, losses, charges and expenses including attorneys fees incurred by PBCom in connection therewith. On July 14, 1980, petitioner Charles Lee, in his capacity as president of MICO, wrote PBCom and applied for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The loan was intended for the expansion and modernization of the companys machineries. Upon approval of the said application for loan, MICO availed of the additional loan of Four Million Pesos (P4,000,000.00) as evidenced by Promissory Note TA No. 094.[9] As per agreement, the proceeds of all the loan availments were credited to MICOs current checking account with PBCom. To induce thePBCom to increase the credit line of MICO, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co (hereinafter referred to as petitioners-sureties), executed another surety agreement [10] in favor of PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBCom. It was provided, however, that their liability shall not at any one time exceed the sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) including interest, costs, charges, expenses and attorneys fees incurred by MICO in connection therewith.

On July 29, 1980, MICO furnished PBCom with a notarized certification issued by its corporate secretary, Atty. P.B. Barrera, that Chua SiokSuy was duly authorized by the Board of Directors to negotiate on behalf of MICO for loans and other credit availments from PBCom. Indicated in the certification was the following resolution unanimously approved by the Board of Directors: RESOLVED, AS IT IS HEREBY RESOLVED, That Mr. Chua Siok Suy be, as he is hereby authorized and empowered, on behalf of MICO METALS CORPORATION from time to time, to borrow money and obtain other credit facilities, with or without security, from the PHILIPPINE BANK OF COMMUNICATIONS in such amount(s) and under such terms and conditions as he may determine, with full power and authority to execute, sign and deliver such contracts, instruments and papers in connection therewith, including real estate and chattel mortgages, pledges and assignments over the properties of the Corporation; and to renew and/or extend and/or roll-over and/or reavail of the credit facilities granted thereunder, either for lesser or for greater amount(s), the intention being that such credit facilities and all securities of whatever kind given as collaterals therefor shall be a continuing security. RESOLVED FURTHER, That said bank is hereby authorized, empowered and directed to rely on the authority given hereunder, the same to continue in full force and effect until written notice of its revocation shall be received by said Bank.[11] On July 2, 1981, MICO filed with PBCom an application for a domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00).[12] The corresponding irrevocable letter of credit was approved and opened under LC No. L-16060.[13] Thereafter, the domestic letter of credit was negotiated and accepted by MICO as evidenced by the corresponding bank draft issued for the purpose.[14] After the supplier of the merchandise was paid, a trust receipt upon MICOs own initiative, was executed in favor of PBCom.[15] On September 14, 1981, MICO applied for another domestic letter of credit with PBCom in the sum of Two Hundred Ninety Thousand Pesos (P290,000.00).[16] The corresponding irrevocable letter of credit was issued on September 22, 1981 under LC No. L-16334.[17] After the beneficiary of the said letter of credit was paid by PBCom for the price of the merchandise, the goods were delivered to MICO which executed a corresponding trust receipt [18] in favor of PBCom. On November 10, 1981, MICO applied for authority to open a foreign letter of credit in favor of Ta Jih Enterprises Co., Ltd.,[19] and thus, the corresponding letter of credit[20] was then issued by PBCom with a cable sent to the beneficiary, Ta Jih Enterprises Co., Ltd. advising that said beneficiary may draw funds from the account of PBCom in its correspondent banks New York Office.[21] PBCom also informed its corresponding bank in Taiwan, the Irving Trust Company, of the approved letter of credit. The correspondent bank acknowledged PBComsadvice through a confirmation letter[22] and by debiting from PBComs account with the said correspondent bank the sum of Eleven Thousand Nine Hundred Sixty US Dollars ($11 ,960.00).[23] As in past transactions, MICO executed in favor of PBCom a corresponding trust receipt.[24] On January 4, 1982, MICO applied, for authority to open a foreign letter of credit in the sum of One Thousand Nine Hundred US Dollars ($1,900.00), with PBCom.[25] Upon approval, the corresponding letter of credit denominated as LC No. 62293 [26] was issued whereuponPBCom advised its correspondent bank and MICO[27] of the same. Negotiation and proper acceptance of the letter of credit were then made by MICO. Again, a corresponding trust receipt[28] was executed by MICO in favor of PBCom. In all the transactions involving foreign letters of credit, PBCom turned over to MICO the necessary documents such as the bills of lading and commercial invoices to enable the latter to withdraw the goods from the port of Manila.

On May 21, 1982 MICO obtained from PBCom another loan in the sum of Three Hundred Seventy-Seven Thousand Pesos (P377,000.00) covered by Promissory Note BA No. 7458.[29] Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment.[30] For failure of petitioner MICO to pay the obligations incurred despite repeated demands, private respondent PBCom extrajudicially foreclosed MICOs real estate mortgage and sold the said mortgaged properties in a public auction sale held on November 23, 1982. Private respondent PBCom which emerged as the highest bidder in the auction sale, applied the proceeds of the purchase price at public auction of Three Million Pesos (P3,000,000.00) to the expenses of the foreclosure, interest and charges and part of the principal of the loans, leaving an unpaid balance of Five Million Four Hundred Forty-One Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90) exclusive of penalty and interest charges. Aside from the unpaid balance of Five Million Four Hundred FortyOne Thousand Six Hundred Sixty-Three Pesos and Ninety Centavos (P5,441,663.90), MICO likewise had another standing obligation in the sum of Four Hundred Sixty-One Thousand Six Hundred Pesos and Six Centavos (P461,600.06) representing its trust receipts liabilities to private respondent. PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila, which was raffled to Branch 55, alleging that MICO was no longer in operation and had no properties to answer for its obligations. PBCom further alleged that petitioner Charles Lee has disposed or concealed his properties with intent to defraud his creditors. Except for MICO and Charles Lee, the sheriff of the RTC failed to serve the summons on herein petitioners-sureties since they were all reportedly abroad at the time. An alias summons was later issued but the sheriff was not able to serve the same to petitioners Alfonso Co and Chua Siok Suy who was already sickly at the time and reportedly in Taiwan where he later died. Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void. The trial court gave credence to the testimonies of herein petitioners and dismissed the complaint filed by PBCom. The trial court likewise declared the real estate mortgage and its foreclosure null and void. In ruling for herein petitioners, the trial court said that PBCom failed to adequately prove that the proceeds of the loans were ever delivered to MICO. The trial court pointed out, among others, that while PBComclaimed that the proceeds of the Four Million Pesos (P4,000,000.00) loan covered by promissory note TA 094 were deposited to the current account of petitioner MICO, PBCom failed to produce the ledger account showing such deposit. The trial court added that while PBCom may have loaned to MICO the other sums of Three Hundred Forty-Eight Thousand Pesos (P348,000.00) and Two Hundred Ninety Thousand Pesos (P290,000.00), no proof has been adduced as to the existence of the goods covered and paid by the said amounts. Hence, inasmuch as no consideration ever passed from PBCom to MICO, all the documents involved therein, such as the promissory notes, real estate mortgage including the surety agreements were all void or nonexistent for lack of cause or consideration. The trial court said that the lack of proof as regards the existence of the merchandise covered by the letters of credit bolstered the claim of herein petitioners that no purchases of the goods were really made and that the letters of credit transactions were simply resorted to by the PBCom and Chua Siok Suy to accommodate the latter in his financial requirements. The Court of Appeals reversed the ruling of the trial court, saying that the latter committed an erroneous application and appreciation of the rules governing the burden of proof. Citing Section 24 of the Negotiable Instruments Law which provides that Every negotiable

instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party thereto for value , the Court of Appeals said that while the subject promissory notes and letters of credit issued by thePBCom made no mention of delivery of cash, it is presumed that said negotiable instruments were issued for valuable consideration. The Court of Appeals also cited the case of Gatmaitan vs. Court of Appeals[31] which holds that "there is a presumption that an instrument sets out the true agreement of the parties thereto and that it was executed for valuable consideration. The appellate court noted and found that a notarized Certification was issued by MICOs corporate secretary, P.B. Barrera, that Chua Siok Suy, was duly authorized by the Board of Directors of MICO to borrow money and obtain credit facilities from PBCom. Petitioners filed a motion for reconsideration of the challenged decision of the Court of Appeals but this was denied in a Resolution datedNovember 7, 1994 issued by its Former Second Division. Petitioners-sureties then filed a petition for review on certiorari with this Court, docketed as G.R. No. 117913, assailing the decision of the Court of Appeals. MICO likewise filed a separate petition for review on certiorari, docketed as G.R. No. 117914, with this Court assailing the same decision rendered by the Court of Appeals. Upon motion filed by petitioners, the two (2) petitions were consolidated on January 11, 1995.[32] Petitioners contend that there was no proof that the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO. But the record shows otherwise. Petitioners-sureties further contend that assuming that there was delivery by PBCom of the proceeds of the loans and the goods, the contracts were executed by an unauthorized person, more specifically Chua Siok Suy who acted fraudulently and in collusion with PBCom to defraud MICO. The pertinent issues raised in the consolidated cases at bar are: a) whether or not the proceeds of the loans and letters of credit transactions were ever delivered to MICO, and b) whether or not the individual petitioners, as sureties, may be held liable under the two (2) Surety Agreements executed on March 26, 1979 and July 28, 1980. In civil cases, the party having the burden of proof must establish his case by preponderance of evidence.[33] Preponderance of evidence means evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. Petitioners contend that the alleged promissory notes, trust receipts and surety agreements attached to the complaint filed by PBCom did not ripen into valid and binding contracts inasmuch as there is no evidence of the delivery of money or loan proceeds to MICO or to any of the petitioners-sureties. Petitioners claim that under normal banking practice, borrowers are required to accomplish promissory notes in blank even before the grant of the loans applied for and such documents become valid written contracts only when the loans are actually released to the borrower. We are not convinced. During the trial of an action, the party who has the burden of proof upon an issue may be aided in establishing his claim or defense by the operation of a presumption, or, expressed differently, by the probative value which the law attaches to a specific state of facts. A presumption may operate against his adversary who has not introduced proof to rebut the presumption. The effect of a legal presumption upon a burden of proof is to create the necessity of presenting evidence to meet the legal presumption or the prima facie case created thereby, and which if no proof to the contrary is presented and offered, will prevail. The burden of proof remains where it is, but by the presumption the one who has that burden is relieved for the time being from introducing evidence in support of his averment, because the presumption stands in the place of evidence unless rebutted. Under Section 3, Rule 131 of the Rules of Court the following presumptions, among others, are satisfactory if uncontradicted: a) That there was a sufficient consideration for a contract and b) That a negotiable instrument was given or indorsed for sufficient consideration.

As observed by the Court of Appeals, a similar presumption is found in Section 24 of the Negotiable Instruments Law which provides that every negotiable instrument is deemed prima facie to have been issued for valuable consideration and every person whose signature appears thereon to have become a party for value. Negotiable instruments which are meant to be substitutes for money, must conform to the following requisites to be considered as such a) it must be in writing; b) it must be signed by the maker or drawer; c) it must contain an unconditional promise or order to pay a sum certain in money; d) it must be payable on demand or at a fixed or determinable future time; e) it must be payable to order or bearer; and f) where it is a bill of exchange, the drawee must be named or otherwise indicated with reasonable certainty. Negotiable instruments include promissory notes, bills of exchange and checks. Letters of credit and trust receipts are, however, not negotiable instruments. But drafts issued in connection with letters of credit are negotiable instruments. Private respondent PBCom presented the following documentary evidence to prove petitioners credit availments and liabilities: 1) Promissory Note No. BNA 26218 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom. 2) Promissory Note No. BNA 26219 dated May 21, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom. 3) Promissory Note No. BNA 26253 dated May 25, 1982 in the sum of P1,000,000.00 executed by MICO in favor of PBCom. 4) Promissory Note No. BNA 7458 dated May 21, 1982 in the sum of P377,000.00 executed by MICO in favor of PBCom. 5) Promissory Note No. TA 094 dated July 29, of P4,000.000.00 executed by MICO in favor of PBCom. 1980 in the sum

6) Irrevocable letter of credit No. L-16060 dated July 2,1981 issued in favor of Perez Battery Center for account of Mico Metals Corp. 7) Draft dated July 2, 1981 in the sum of P348,000.00 issued by Perez Battery Center, beneficiary of irrevocable Letter of Credit No. No. L-16060 and accepted by MICO Metals corporation. 8) Letter dated July 2, 1981 from Perez Battery Center addressed to private respondent PBCom showing that proceeds of the irrevocable letter of credit No. L16060 was received by Mr. Moises Rosete, representative of Perez Battery Center. 9) Trust receipt dated July 2, 1981 executed by MICO in favor of PBCom covering the merchandise purchased under Letter of Credit No. 16060. 10) 11) 12) Irrevocable letter of credit No. L-16334 dated September 22, 1981 issued in favor of Perez Battery Center for account of MICO Metals Corp. Draft dated September 22, 1981 in the sum of P290,000.00 issued by Perez Battery Center and accepted by MICO. Letter dated September 17, 1981 from Perez Battery addressed to PBCom showing that the proceeds of credit no. L-16344 was received by Mr. Moises Rosete, a representative of Perez Battery Center. Trust Receipt dated September 22, 1981 executed by MICO in favor of PBCom covering the merchandise under Letter of Credit No.L-16334.

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Irrevocable Letter of Credit no. 61873 dated November 10, 1981 for US$11,960.00 issued by PBCom in favor of TA JIH Enterprises Co. Ltd., through its correspondent bank, Irving Trust Company of Taipei, Taiwan. Trust Receipt dated December 15, 9181 executed by MICO in favor of PBCom showing that possession of the merchandise covered by Irrevocable Letter of Credit no. 61873 was released by PBCom to MICO. Letters dated March 2, 1979 from MICO signed by its president, Charles Lee, showing that MICO sought credit line from PBCom in the form of loans, letters of credit and trust receipt in the sum of P7,500,000.00. Letter dated July 14, 1980 from MICO signed by its president, Charles Lee, showing that MICO requested for additional financial assistance in the sum of P4,000,000.00. Board resolution dated March 6, 1979 of MICO authorizing Charles Lee and Mariano Sio singly or jointly to act and sign for and in behalf of MICO relative to the obtention of credit facilities from PBCom. Duly notarized Deed of Mortgage dated May 16, 1979 executed by MICO in favor of PBCom over MICO s real properties covered by TCT Nos. 11248 and 11250 located in Pasig. Duly notarized Surety Agreement dated March 26, 1979 executed by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom. Duly notarized Surety Agreement dated July 28, 1980 executed by herein petitioners Charles Lee, Mariano Sio, Alfonso Yap, Richard Velasco and Chua Siok Suy in favor of PBCom. Duly notarized certification dated July 28, 1980 issued by MICO s corporate secretary, Mr. P.B. Barrera, attesting to the adoption of a board resolution authorizing Chua Siok Suy to sign, for and in behalf of MICO, all the necessary documents including contracts, loan instruments and mortgages relative to the obtention of various credit facilities from PBCom.

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by Chua Siok Suy in representation of MICO were not allegedly authorized and hence, are not binding upon MICO. A perusal of the By-Laws of MICO, however, shows that the power to borrow money for the company and issue mortgages, bonds, deeds of trust and negotiable instruments or securities, secured by mortgages or pledges of property belonging to the company is not confined solely to the president of the corporation. The Board of Directors of MICO can also borrow money, arrange letters of credit, execute trust receipts and promissory notes on behalf of the corporation. [35] Significantly, this power of the Board of Directors according to the by-laws of MICO, may be delegated to any of its standing committee, officer or agent. [36] Hence, PBCom had every right to rely on the Certification issued by MICO's corporate secretary, P.B. Barrera, that Chua Siok Suy was duly authorized by its Board of Directors to borrow money and obtain credit facilities in behalf of MICO from PBCom. Petitioners-sureties also presented a letter of their counsel dated October 9, 1982, addressed to private respondent PBCom purportedly to show that PBCom knew that Chua Siok Suy allegedly used the credit and good names of the petitioner-sureties for his benefit, and that petitioner-sureties were made to sign blank documents and were furnished copies of the same. The letter, however, is in fact merely a reply of petitioners-sureties counsel to PBComs demand for payment of MICOs obligations, and appears to be an inconsequential piece of self-serving evidence. In addition to the foregoing, MICO and petitioners-sureties cited the decision of the trial court which stated that there was no proof that the proceeds of the loans were ever delivered to MICO. Although the private respondents witness, Mr. Gardiola, testified that the proceeds of the loans were deposited in MICOs current account with PBCom, his testimony was allegedly not supported by any bank record, note or memorandum. A careful scrutiny of the record including the transcript of stenographic notes reveals, however, that although private respondentPBCom was willing to produce the corresponding account ledger showing that the proceeds of the loans were credited to MICOs current account with PBCom, MICO in fact vigorously objected to the presentation of said document. That point is shown in the testimony of PBComswitness, Gardiola, thus: Q: Now, all of these promissory note Exhibits I and J which as you have said previously (sic) availed originally by defendant Mico Metals Corp. sometime in 1979, my question now is, do you know what happened to the proceeds of the original availment? A: Well, it was credited to the current account of Mico Metals Corp.

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21)

22)

The above-cited documents presented have not merely created a prima facie case but have actually proved the solidary obligation of MICO and the petitioners, as sureties of MICO, in favor of respondent PBCom. While the presumption found under the Negotiable Instruments Law may not necessarily be applicable to trust receipts and letters of credit, the presumption that the drafts drawn in connection with the letters of credit have sufficient consideration. Under Section 3(r), Rule 131 of the Rules of Court there is also a presumption that sufficient consideration was given in a contract. Hence, petitioners should have presented credible evidence to rebut that presumption as well as the evidence presented by private respondent PBCom. The letters of credit show that the pertinent materials/merchandise have been received by MICO. The drafts signed by the beneficiary/suppliers in connection with the corresponding letters of credit proved that said suppliers were paid by PBCom for the account of MICO. On the other hand, aside from their bare denials petitioners did not present sufficient and competent evidence to rebut the evidence of private respondent PBCom. Petitioner MICO did not proffer a single piece of evidence, apart from its bare denials, to support its allegation that the loan transactions, real estate mortgage, letters of credit and trust receipts were issued allegedly without any consideration. Petitioners-sureties, for their part, presented the By-Laws [34] of Mico Metals Corporation (MICO) to prove that only the president of MICO is authorized to borrow money, arrange letters of credit, execute trust receipts, and promissory notes and consequently, that the loan transactions, letters of credit, promissory notes and trust receipts, most of which were executed

Q: Why did it was credited to the proceeds to the account of Mico Metals Corp? (sic) A: Well, that is our understanding.

ATTY. DURAN: Your honor, may we be given a chance to object, the best evidence is the socalled current account... COURT: Can you produce the ledger account? A: Yes, Your Honor, I will bring.

COURT: The ledger or record of the current account of Mico Metals Corp. A: Yes, Your Honor.

ATTY. ACEJAS: Your Honor, these are a confidential record, and they might not be disclosed without the consent of the person concerned. (sic) ATTY. SANTOS: Well, you are the one who is asking that. ATTY. DURAN: Your Honor, Im precisely want to show for the ... (sic) COURT: But the amount covered by the current account of defendant Mico Metals Corp. is the subject matter of this case. xxx xxx Q: Are those availments were release? (sic) A: Yes, Your Honor, to the defendant corporation. xxx

Modern letters of credit are usually not made between natural persons. They involve bank to bank transactions. Historically, the letter of credit was developed to facilitate the sale of goods between, distant and unfamiliar buyers and sellers. It was an arrangement under which a bank, whose credit was acceptable to the seller, would at the instance of the buyer agree to pay drafts drawn on it by the seller, provided that certain documents are presented such as bills of lading accompanied the corresponding drafts. Expansion in the use of letters of credit was a natural development in commercial banking.[38] Parties to a commercial letter of credit include (a) the buyer or the importer, (b) the seller, also referred to as beneficiary, (c) the opening bank which is usually the buyers bank which actually issues the letter of credit, (d) the notifying bank which is the correspondent bank of the opening bank through which it advises the beneficiary of the letter of credit, (e) negotiating bank which is usually any bank in the city of the beneficiary. The services of the notifying bank must always be utilized if the letter of credit is to be advised to the beneficiary through cable, (f) the paying bank which buys or discounts the drafts contemplated by the letter of credit, if such draft is to be drawn on the opening bank or on another designated bank not in the city of the beneficiary. As a rule, whenever the facilities of the opening bank are used, the beneficiary is supposed to present his drafts to the notifying bank for negotiation and (g) the confirming bank which, upon the request of the beneficiary, confirms the letter of credit issued by the opening bank. From the foregoing, it is clear that letters of credit, being usually bank to bank transactions, involve more than just one bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank were not made payable to PBCom. As explained by respondent bank, a draft was drawn on the Bank of Taiwan by Ta Jih Enterprises Co., Ltd. of Taiwan, supplier of the goods covered by the foreign letter of credit. Having paid the supplier, the Bank of Taiwan then presented the bank draft for reimbursement by PBComscorrespondent bank in Taiwan, the Irving Trust Company which explains the reason why on its face, the draft was made payable to the Bank of Taiwan. Irving Trust Company accepted and endorsed the draft to PBCom. The draft was later transmitted to PBCom to support the latters claim for payment from MICO. MICO accepted the draft upon presentment and negotiated it to PBCom. Petitioners further aver that MICO never requested that legal possession of the merchandise be transferred to PBCom by way of trust receipts. Petitioners insist that assuming that MICO transferred possession of the merchandise to PBCom by way of trust receipts, the same would be illegal since PBCom, being a banking institution, is not authorized by law to engage in the business of importing and selling goods. A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased.[39] A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security interest in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness. Petitioners averments with regard to the second issue are no less incredulous. Petitioners contend that the letters of credit, surety agreements and loan transactions did not ripen into valid and binding contracts since no part of the proceeds of the loan transactions were delivered to MICO or to any of the petitioners-sureties. Petitioners-sureties allege that Chua Siok Suy was the beneficiary of the proceeds of the loans and that the latter made them sign the surety agreements in blank. Thus, they maintain that they should not be held accountable for any liability that might arise therefrom. It has not escaped our notice that it was petitioner-surety Charles Lee, as president of MICO Metals Corporation, who first requested for a discounting loan of Three Million Pesos (P3,000,000.00) from PBCom as evidenced by his letter dated March 2, 1979.[40] On the same

Q: By what means? A: By the credit to their current account.

ATTY. ACEJAS: We object to that, your Honor, because the disclose is the secrecy of the bank deposit. (sic) xxx xxx Q: Before the recess Mr. Gardiola, you stated that the proceeds of the three (3) promissory notes were credited to the accounts of Mico Metals Corporation, now do you know what kind of current account was that which you are referring to? ATTY. ACEJAS: Objection your Honor, that is the disclose of the deposit of defendant Mico Metals Corporation and it cannot disclosed without the authority of the depositor. (sic)[37] That proceeds of the loans which were originally availed of in 1979 were delivered to MICO is bolstered by the fact that more than a year later, specifically on July 14, 1980, MICO through its president, petitioner-surety Charles Lee, requested for an additional loan of Four Million Pesos (P4,000,000.00) from PBCom. The fact that MICO was requesting for an additional loan implied that it has already availed of earlier loans from PBCom. Petitioners allege that PBCom presented no evidence that it remitted payments to cover the domestic and foreign letters of credit. Petitioners placed much reliance on the erroneous decision of the trial court which stated that private respondent PBCom allegedly failed to prove that it actually made payments under the letters of credit since the bank drafts presented as evidence show that they were made in favor of the Bank of Taiwan and First Commercial Bank. Petitioners allegations are untenable. xxx

day, Charles Lee, as President of MICO, requested for a Letter of Credit and Trust Receipt line in the sum of Three Million Pesos (P3,000,000.00).[41]Still, on the same day, Charles Lee again as President of MICO, wrote another letter to PBCOM requesting for a financing line in the sum of One Million Five Hundred Thousand Pesos (P1,500,000.00) to be used exclusively as marginal deposit for the opening of MICOs foreign and local letters of credit with PBCom. [42] More than a year later, it was also Charles Lee, again in his capacity as president of MICO, who asked for an additional loan in the sum of Four Million Pesos (P4,000,000.00). The claim therefore of petitioners that it was Chua Siok Suy, in connivance with the respondent PBCom, who applied for and obtained the loan transactions and letters of credit strains credulity considering that even the Deed of the Real Estate Mortgage in favor of PBCom was executed by petitioner-surety Mariano Sio in his capacity as general manager of MICO[43] to secure the loan accommodations obtained by MICO from PBCom. Petitioners-sureties allege that they were made to sign the surety agreements in blank by Chua Siok Suy. Petitioner Alfonso Yap, the corporate treasurer, for his part testified that he signed booklets of checks, surety agreements and promissory notes in blank; that he signed the documents in blank despite his misgivings since Chua Siok Suy assured him that the transaction can easily be taken cared of since Chua SiokSuy personally knew the Chairman of the Board of PBCom; that he was not receiving salary as treasurer of Mico Metals and since Chua SiokSuy had a direct hand in the management of Malayan Sales Corporation, of which Yap is an employee, he (Yap) signed the documents in blank as consideration for his continued employment in Malayan Sales Corporation. Petitioner Antonio Co testified that he worked as office manager for MICO from 1978-1982. As office manager, he was the one in charge of transacting business like purchasing, selling and paying the salary of the employees. He was also in charge of the handling of documents pertaining to surety agreements, trust receipts and promissory notes;[44] that when he first joined MICO Metals Corporation, he was able to read the by-laws of the corporation and he came to know that only the chairman and the president can borrow money in behalf of the corporation; that Chua Siok Suy once called him up and told him to secure an invoice so that a credit line can be opened in the bank with a local letter of credit; that when the invoice was secured, he (Co) brought it together with the application for a credit line to Chua Siok Suy, and that he questioned the authority of Chua Siok Suy pointing out that he (Co) is not empowered to sign the document inasmuch as only the latter, as president, was authorized to do so. However, Chua Siok Suy allegedly just said that he had already talked with the Chairman of the Board of PBCom; and that Chua Siok Suy reportedly said that he needed the money to finance a project that he had with the Taipei government. Co also testified that he knew of the application for domestic letter of credit in the sum of Three Hundred Forty-Eight Thousand Pesos (P348,000.00); and that a certain Moises Rosete was authorized to claim the check covering the Three Hundred Forty-Eight Thousand Pesos (P348,000.00) from PBCom; and that after claiming the check Rosete brought it to Perez Battery Center forindorsement after which the same was deposited to the personal account of Chua Siok Suy.[45] We consider as incredible and unacceptable the claim of petitioners-sureties that the Board of Directors of MICO was so careless about the business affairs of MICO as well as about their own personal reputation and money that they simply relied on the say so of Chua Siok Suy on matters involving millions of pesos. Under Section 3 (d), Rule 131 of the Rules of Court, it is presumed that a person takes ordinary care of his concerns. Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. Said presumption acquires greater force in the case at bar where not only one but several documents were executed at different times and at different places by the petitioner sureties and Chua Siok Suy as president of MICO. MICO and herein petitioners-sureties insist that Chua Siok Suy was not duly authorized to negotiate for loans in behalf of MICO fromPBCom. Petitioners allegation, however, is belied by the July 28, 1980 Certification issued by the corporate secretary of PBCom, Atty. P.B. Barrera, that MICO's Board of Directors gave Chua Siok Suy full authority to negotiate for loans in behalf of MICO with PBCom. In fact, the Certification even provided that Chua Siok Suys authority continues until and unless PBCom is notified in writing of the withdrawal thereof by the said

Board. Notably, petitioners failed to contest the genuineness of the said Certification which is notarized and to show any written proof of any alleged withdrawal of the said authority given by the Board of Directors to Chua Siok Suy to negotiate for loans in behalf of MICO. There was no need for PBCom to personally inform the petitioners-sureties individually about the terms of the loans, letters of credit and other loan documents. The petitioners-sureties themselves happen to comprise the Board of Directors of MICO, which gave full authority to ChuaSiok Suy to negotiate for loans in behalf of MICO. Notice to MICOs authorized representative, Chua Siok Suy, was notice to MICO. The Certification issued by PBComs corporate secretary, Atty. P.B. Barrera, indicated that Chua Siok Suy had full authority to negotiate and sign the necessary documents, in behalf of MICO for loans from PBCom. Respondent PBCom therefore had the right to rely on the said notarized Certification of MICOs Corporate Secretary. Anent petitioners-sureties contention that they obtained no consideration whatsoever on the surety agreements, we need only point out that the consideration for the sureties is the very consideration for the principal obligor, MICO, in the contracts of loan. In the case of Willex Plastic Industries Corporation vs. Court of Appeals,[46] we ruled that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the parties thereto. It is not necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. Petitioners placed too much reliance on the rule in evidence that the burden of proof does not shift whereas the burden of going forward with the evidence does pass from party to party. It is true that said rule is not changed by the fact that the party having the burden of proof has introduced evidence which established prima facie his assertion because such evidence does not shift the burden of proof; it merely puts the adversary to the necessity of producing evidence to meet the prima facie case. Where the defendant merely denies, either generally or otherwise, the allegations of the plaintiffs pleadings, the burden of proof continues to rest on the plaintiff throughout the trial and does not shift to the defendant until the plaintiffs evidence has been presented and duly offered. The defendant has then no burden except to produce evidence sufficient to create a state of equipoise between his proof and that of the plaintiff to defeat the latter, whereas the plaintiff has the burden, as in the beginning, of establishing his case by a preponderance of evidence.[47] But where the defendant has failed to present and marshall evidencesufficient to create a state of equipoise between his proof and that of plaintiff, the prima facie case presented by the plaintiff will prevail. In the case at bar, respondent PBCom, as plaintiff in the trial court, has in fact presented sufficient documentary and testimonial evidence that proved by preponderance of evidence its subject collection case against the defendants who are the petitioners herein. In view of all the foregoing, the Court of Appeals committed no reversible error in its appealed Decision. WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 27480 entitled, Philippine Bank of Communications vs.Mico Metals Corporation, Charles Lee, Chua Siok Suy, Mariano Sio, Alfonso Yap, Richard Velasco and Alfonso Co, is AFFIRMED in toto. Costs against the petitioners. SO ORDERED.

THIRD DIVISION [G.R. No. 133176. August 8, 2002] PILIPINAS BANK vs. ALFREDO T. ONG and LEONCIA LIM SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari[1] of the Resolutions[2] dated January 9, 1998 and March 25, 1998 of the Court of Appeals in CA-G.R. SP No. 42005, "Pilipinas Bank vs. The Honorable Secretary of Justice, the City Prosecutor of Makati City, Alfredo T. Ong and Leoncia Lim,"reversing its Decision dated August 29, 1997. On April 1991, Baliwag Mahogany Corporation (BMC), through its president, respondent Alfredo T. Ong, applied for a domestic commercial letter of credit with petitioner Pilipinas Bank (hereinafter referred to as the bank) to finance the purchase of about 100,000 board feet of "Air Dried, Dark Red Lauan" sawn lumber. The bank approved the application and issued Letter of Credit No. 91/725-HO in the amount of P3,500,000.00. To secure payment of the amount, BMC, through respondent Ong, executed two (2) trust receipts [3] providing inter alia that it shall turn over the proceeds of the goods to the bank, if sold, or return the goods, if unsold, upon maturity on July 28, 1991 and August 4, 1991. On due dates, BMC failed to comply with the trust receipt agreement. On November 22, 1991, it filed with the Securities and Exchange Commission (SEC) a Petition for Rehabilitation and for a Declaration in a State of Suspension of Payments under Section 6 (c) of P.D. No. 902A,[4] as amended, docketed as SEC Case No. 4109. After BMC informed its creditors (including the bank) of the filing of the petition, a Creditors' Meeting was held to: (a) inform all creditor banks of the present status of BMC to avert any action which would affect the company's operations, and (b) reach an accord on a common course of action to restore the company to sound financial footing. On January 8, 1992, the SEC issued an order [5] creating a Management Committee wherein the bank is represented. The Committee shall, among others, undertake the management of BMC, take custody and control of all its existing assets and liabilities, study, review and evaluate its operation and/or the feasibility of its being restructured. On October 13, 1992, BMC and a consortium of 14 of its creditor banks entered into a Memorandum of Agreement[6] (MOA) rescheduling the payment of BMCs existing debts. On November 27, 1992, the SEC rendered a Decision[7] approving the Rehabilitation Plan of BMC as contained in the MOA and declaring it in a state of suspension of payments. However, BMC and respondent Ong defaulted in the payment of their obligations under the rescheduled payment scheme provided in the MOA. Thus, on April 1994, the bank filed with the Makati City Prosecutors Office a complaint [8] charging respondents Ong and Leoncia Lim (as president and treasurer of BMC, respectively) with violation of the Trust Receipts Law (PD No. 115), docketed as I.S. No. 94-3324. The bank alleged that both respondents failed to pay their obligations under the trust receipts despite demand.[9] On July 7, 1994, 3rd Assistant Prosecutor Edgardo E. Bautista issued a Resolution[10] recommending the dismissal of the complaint. On July 11, 1994, the Resolution was approved by Provincial Prosecutor of Rizal Herminio T. Ubana, Sr. [11] The bank filed a motion for reconsideration but was denied. Upon appeal by the bank, the Department of Justice (DOJ) rendered judgment the same for lack of merit. Its motion for reconsideration was likewise denied.[13]
[12]

"WHEREFORE, in view of all the foregoing, the assailed resolutions of the public respondents are hereby SET ASIDE and in lieu thereof a new one rendered directing the public respondents to file the appropriate criminal charges for violation of P.D. No. 115, otherwise known as The Trust Receipts Law, against private respondents. [15] However, upon respondents motion for reconsideration, the Court of Appeals reversed itself, holding that the execution of the MOA constitutes novation which "places petitioner Bank in estoppel to insist on the original trust relation and constitutes a bar to the filing of any criminal information for violation of the trust receipts law."[16] The bank filed a motion for reconsideration but was denied.[17] Hence this petition. Petitioner bank contends that the MOA did not novate, much less extinguish, the existing obligations of BMC under the trust receipt agreement. The bank, through the execution of the MOA, merely assisted BMC to settle its obligations by rescheduling the same. Hence, when BMC defaulted in its payment, all its rights, including the right to charge respondents for violation of the Trust Receipts Law, were revived. Respondents Ong and Lim maintain that the MOA, which has the effect of a compromise agreement, novated BMCs existing obligations under the trust receipt agreement. The novation converted the parties relationship into one of an ordinary creditor and debtor. Moreover, the execution of the MOA precludes any criminal liability on their part which may arise in case they violate any provision thereof. The only issue for our determination is whether respondents can be held liable for violation of the Trust Receipts Law. Section 4 of PD No. 115 (The Trust Receipts Law) defines a trust receipt as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the 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 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.[18] Failure of the entrustee to turn over the proceeds of the sale of the goods covered by a trust receipt to the entruster or to return the goods, if they were not disposed of, shall constitute the crime of estafa under Article 315, par. 1(b) of the Revised Penal Code. [19] If the violation or offense is committed by a corporation, the penalty 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. [20] It is on this premise that petitioner bank charged respondents with violation of the Trust Receipts Law. Mere failure to deliver the proceeds of the sale or the goods, if not sold, constitutes violation of PD No. 115.[21] However, what is being punished by the law is 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. [22] In this case, no dishonesty nor abuse of confidence can be attributed to respondents. Record shows that BMC failed to comply with its obligations upon maturity of the trust receipts due to serious liquidity problems, prompting it to file a Petition for Rehabilitation and Declaration in a State of Suspension of Payments. It bears emphasis that when petitioner bank made a demand upon BMC on February 11, 1994 to comply with its obligations under the trust receipts, the latter was already under the control of the Management Committee created by the SEC in its Order dated January 8, 1992.[23] The Management Committee took custody of all

denying

On July 5, 1996, the bank filed with this Court a petition for certiorari and mandamus seeking to annul the resolution of the DOJ. In a Resolution dated August 21, 1996, this Court referred the petition to the Court of Appeals for proper determination and disposition. [14] On August 29, 1997, the Court of Appeals rendered judgment, the dispositive portion of which reads:

BMCs assets and liabilities, including the red lauan lumber subject of the trust receipts, and authorized their use in the ordinary course of business operations. Clearly, it was the Management Committee which could settle BMCs obligations. Moreover, it has not escaped this Courts observation that respondent Ong paid P21,000,000.00 in compliance with the equity infusion required by the MOA. The mala prohibita nature of the offense notwithstanding, respondents intent to misuse or misappropriate the goods or their proceeds has not been established by the records.[24] Did the MOA novate the trust agreement between the parties? In Quinto vs. People,[25] this Court held that there are two ways which could indicate the presence of novation, thereby producing the effect of extinguishing an obligation by another which substitutes the same. The first is when novation has been stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of incompatibility is whether or not the two obligations can stand together. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal conditions, otherwise, the change is merely modificatory in nature and insufficient to extinguish the original obligation. Contrary to petitioner's contention, the MOA did not only reschedule BMCs debts, but more importantly, it provided principal conditions which are incompatible with the trust agreement. The undisputed points of incompatibility between the two agreements are: Points of incompatibility 1) Nature of contract 2) Juridical relationship 3) Status of obligation 4) Governing law 5) Security offered 6) Interest rate per annum 7) Default charges 8) No. of parties Trust Receipt Trust Receipt Trustor-Trustee Matured Criminal Trust Receipts (Unspecified) 24% 3 MOA Loan[26] Lender-Borrower Payable within 7 years[27] Civil & Commercial[28] Real estate/chattel mortgages[29] 14%[30] 14%[31] 16

"8.4 Termination. Any provision of this Agreement to the contrary notwithstanding, if the conditions for rescheduling specified in Section 7 shall not be complied with on such later date as the Qualified Majority Lenders in their sole and absolute discretion may agree in writing, then (i) the obligation of the Lenders to reschedule the Existing Credits as contemplated hereby shall automatically terminate on such date: (ii) the Existing Agreements shall continue in full force and effect on the remaining loan balances as if this Agreement had not been entered into; (iii) all the rights of the lenders against the borrower and Spouses Ong prior to the agreement shall revest to the lenders." Indeed, what is automatically terminated in case BMC failed to comply with the conditions under the MOA is not the MOA itself but merely the obligation of the lender (the bank) to reschedule the existing credits. Moreover, it is erroneous to assume that the revesting of "all the rights of lenders against the borrower" means that petitioner can charge respondents for violation of the Trust Receipts Law under the original trust receipt agreement. As explained earlier, the execution of the MOA extinguished respondents obligation under the trust receipts. Respondents liability, if any, would only be civil in nature since the trust receipts were transformed into mere loan documents after the execution of the MOA. This is reinforced by the fact that the mortgage contracts executed by the BMC survive despite its non-compliance with the conditions set forth in the MOA. All told, we find no reversible error committed by the Court of Appeals in rendering the assailed Resolutions. WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals dated January 9, 1998 and March 25, 1998 in CA-G.R. SP No. 42005 are hereby AFFIRMED. SO ORDERED.

SECOND DIVISION [G.R. No. 122502. December 27, 2002] LORENZO M. SARMIENTO, JR. and GREGORIO LIMPIN, JR vs. COURT OF APPEALS and ASSOCIATED BANKING CORP AUSTRIA-MARTINEZ, J.: Filed with this court is the petition for review under Rule 45 of the Rules of Court assailing the July 31, 1995 Decision [1] of the Court of Appeals in CA-G.R. CV No. 31568 which affirmed the Decision of the Regional Trial Court of Davao City dated August 1, 1990 in Civil Case No. 19,272-88; and the October 25, 1995 Resolution [2] denying petitioners Motion for Reconsideration. The dispositive portion of the trial courts decision reads as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered ordering defendants Lorenzo Sarmiento, Jr. and Gregorio Limpin, Jr. to pay jointly and severally, the plaintiff bank the principal sum of P495,000.00 plus interest thereon at the legal rate from December 6, 1978 until the full amount is paid; the sum of P49,500.00 as the agreed attorneys fees and the costs of suit.

Hence, applying the pronouncement in Quinto, we can safely conclude that the MOA novated and effectively extinguished BMC's obligations under the trust receipt agreement. Petitioner bank's argument that BMC's non-compliance with the MOA revived respondents original liabilities under the trust receipt agreement is completely misplaced. Section 8.4 of the MOA on termination reads:

Defendant Sarmientos counterclaim is DISMISSED. SO ORDERED.[3] The facts of the case as found by the trial court and affirmed by the Court of Appeals are as follows: On September 6, 1978, defendant Gregorio Limpin, Jr. and Antonio Apostol, doing business under the name and style of Davao Libra Industrial Sales, filed an application for an Irrevocable Domestic Letter of Credit with the plaintiff Bank for the amount of P495,000.00 in favor of LS Parts Hardware and Machine Shop (herein after referred to as LS Parts) for the purchase of assorted scrap irons. Said application was signed by defendant Limpin and Apostol (Exh. A). The aforesaid application was approved, and plaintiff Bank issued Domestic Letter of Credit No. DLC No. DVO-78-006 in favor of LS Parts for P495,000.00 (Exh. B). Thereafter, a Trust Receipt dated September 6, 1978, was executed by defendant Limpin and Antonio Apostol (Exh. C). In said Trust Receipt, the following stipulation, signed by defendant Lorenzo Sarmiento, Jr. appears: In consideration of the Associated Banking Corporation releasing to Gregorio Limpin and Antonio Apostol goods mentioned in the trust receipt, we hereby jointly and severally undertake and agree to pay, on demand, to the Associated Bank Corporation all sums and amount of money which said Associated Banking Corporation may call upon us to pay arising out of, pertaining to, and/or any manner connected with the trust receipt, WE FURTHER AGREE that our liability in this undertaking shall be direct and immediate and not contingent upon the pursuit by the Associated Banking Corporation of whatever remedies it may have against the aforesaid Gregorio Limpin and Antonio Apostol. SGD. T/LORENZO SARMIENTO, JR. Surety/Guarantor (Exh. C-1) Among others, the Trust Receipt (Exh. C) provided that: The defendants acknowledged to have received in trust from the plaintiff Bank the merchandise covered by the documents and agreed to hold said merchandise in storage as the property of the Bank, with liberty to sell the same for cash for its accounts provided the proceeds thereof are turned over in their entirety to the bank to be applied against acceptance and any other indebtedness of the defendants to the bank. (Exh. C-2) That the defendants shall immediately give notice to said Bank of any average damage, nonshipment, shortage, non-delivery or other happening not in the usual and ordinary course of business (Exh. C-3). That the due date of the Trust Receipt is December 5, 1978, (Exh. C-4). The defendants failed to comply with their undertaking under the Trust Receipt. Hence as early as March, 1980, demands were made for them to comply with their undertaking (Exhs. Q, R to R-2, S, T, D to D-1; F to F-2). However, defendants failed to pay their account. Legal action against the defendants was deferred due to the proposed settlement of the account (Exh U). However, no settlement was reached. Hence the bank, thru counsel, sent a final letter of demand on May 26, 1986 (Exh. E). On June 11, 1986, a complaint for Violation of the Trust

Receipt Law was filed against the defendants before the City Fiscals Office (Exh. L-3). Thereafter, the corresponding Information was filed against the defendants. Defendant Lorenzo Sarmiento, Jr. was, however, dropped from the Information while defendant Gregorio Limpin, Jr. was convicted (Exh. P to P-9). The defendants claim that they cannot be held liable as the 825 tons of assorted scrap iron, subject of the trust receipt agreement, were lost when the vessel transporting them sunk, and that said scrap iron were delivered to Davao Libra Industrial Sales, a business concern over which they had no interest whatsoever. They tried to show that the scrap irons were loaded on board Barge L-1853, owned and operated by Luzon Stevedoring, for shipment to Toledo Atlas Pier in Cebu (Exh. 1; that the said Barge capsized on October 4, 1978 while on its way to Toledo City, and a notice of Marine Protest was made by Capt. Jose C. Barrientos (Exh. 2); that Benigno Azarcon executed an affidavit attesting to the fact that Barge L-1853, capsized on October 4, 1978 and all its cargoes were washed away (Exh. 3); that Charlie Torregoza, a security guard of L.S. Sarmiento and Company, Inc., who was one of those assigned to escort Barge L-1853, prepared an Incident Report, showing that said Barge capsized on October 4, 1978 and that cargoes were washed away (Exhs. 4 and 4-A).[4] After trial, the lower court rendered judgment in favor of herein private respondent Associated Banking Corporation. On appeal by herein petitioners Sarmiento, Jr. and Limpin, Jr., the Court of Appeals affirmed the judgment of the trial court, and, denied the Motion for Reconsideration of herein petitioner. Hence, herein petition assigning the following errors: 1. THE RESPONDENT COURT OF APPEALS IN ITS AFOREQUOTED RULING HAD DEPARTED FROM THE APPLICABLE BASIC PRINCIPLE AND PROCEDURE TO THE INSTANT CIVIL CASE EMBODYING THE OFFENDED PARTYS (ASSOCIATED BANK) CLAIM FOR THE CIVIL LIABILITY OF P495,000.00, NOT HAVING BEEN EXPRESSLY RESERVED BY IT, HAS BEEN NOT ONLY IMPLIEDLY, BUT IN FACT EXPRESSLY INSTITUTED ALREADY IN CRIMINAL CASE NO. 14,126, THE INFORMATION FOR WHICH HAD BEEN FILED AHEAD AND THE PROCEEDINGS CONDUCTED PRIOR TO THE PRESENT CIVIL CASE BEFORE THE SAME REGIONAL TRIAL COURT OF DAVAO CITY IS PROCEDURALLY BARRED. 2. THE RESPONDENT COURT OF APPEALS HAD DISREGARDED BY JUDICIAL FIAT THAT THE RTC OF DAVAO CITY IN CRIMINAL CASE No. 14,126 HAD IN FACT ALREADY ADJUDGED CIVIL LIABILITY OF THE SAME CLAIM AS HEREIN IN FAVOR OF COMPLAINANT ASSOCIATED BANK AS AGAINST PETITIONER GREGORIO LIMPIN, JR. 3. THE RESPONDENT COURT OF APPEALS HAD IGNORED THE CLEAR ADMITTED FACT OF RECORD THAT FORMAL APPEARANCE OF COMPLAINANT BANKS COUNSEL HAD BEEN ENTERED IN CRIMINAL CASE NO. 14,126.[5] With respect to the second assigned error, we find no cogent reason to disturb the finding of the RTC of Davao City (Branch 12) in its Order dated December 16, 1988 [6] that the decision promulgated by the RTC of Davao City (Branch 15) in Criminal Case No. 14,126 did not contain an award of civil liability as it appears in the dispositive portion of the latter courts Decision dated July 14, 1988.[7]

Being interrelated, we shall discuss jointly the first and third assigned errors. At the outset, it should be stated that in the Amended Information, dated April 1, 1987, filed in Criminal Case No. 14,126, Lorenzo Sarmiento, Jr. was dropped as an accused. [8] Hence, with respect to Sarmiento Jr., Criminal Case No. 14,126 cannot, in any way, bar the filing by private respondent of the present civil action against him. With respect to Limpin, Jr., petitioners claim that private respondents right to institute separately the civil action for the recovery of civil liability is already barred on the ground that the same was not expressly reserved in the criminal action earlier filed against said respondent. Pertinent to this issue is the then prevailing Rule 111 of the 1985 Rules on Criminal Procedure. Section 1 thereof provides: Section 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action. Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused. A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation of the right to file, any of said civil actions separately waives the others. The reservation of the right to institute the separate civil actions shall be made before the prosecution starts to present its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation. x x x. Under the Revised Rules of Criminal Procedure, effective December 1, 2000, [9] the same Section of the same Rule provides: Section 1. Institution of criminal and civil actions. -- (a) When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action. The reservation of the right to institute separately the civil action shall be made before the prosecution starts presenting its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation. x x x. While a reading of the aforequoted provisions shows that the offended party is required to make a reservation of his right to institute a separate civil action, jurisprudence instructs that such reservation may not necessarily be express but may be implied [10] which may be inferred not only from the acts of the offended party but also from acts other than those of the latter.

Demonstrative of the principle of implied reservation of a separate civil action are the cases of Vintola vs. Insular Bank of Asia and America, [11] Bernaldes, Sr. vs. Bohol Land Transp., Inc.[12] and Jarantilla vs. Court of Appeals.[13] In the Vintola case, Insular Bank of Asia and America (IBAA, for brevity) charged spouses Tirso and Loreta Vintola with Estafa. The spouses were acquitted on the ground that the element of misappropriation or conversion was inexistent. Subsequently, IBAA filed a civil case to recover the value of the goods allegedly misappropriated or converted. The lower court initially dismissed the complaint holding that Vintolas acquittal in the criminal case barred the complaint, but on motion for reconsideration filed by IBAA the lower court ruled in favor of the latter. On appeal, the Vintolas contended that the civil action is already barred by the judgment in the criminal case because IBAA did not reserve in the criminal case its right to enforce separately the Vintolas civil liability. They claim that by actively intervening in the prosecution of the criminal case through a private prosecutor, IBAA had chosen to file the civil action impliedly with the criminal action, pursuant to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure. In ruling that the Estafa case is not a bar to the institution of a civil action for collection, this Court held that: [i]t is inaccurate for the VINTOLAS to claim that the judgment in the estafa case had declared that the facts from which the civil action might arise, did not exist, for it will be recalled that the decision of acquittal expressly declared that the remedy of the Bank is civil and not criminal in nature. This amounts to a reservation of the civil action in IBAAs favor for the Court would not have dwelt on a civil liability that it had intended to extinguish by the same decision. In the Bernaldes case, plaintiffs spouses Nicasio Bernaldes, Sr. and Perpetua Besas together with their minor son, Jovito, filed a complaint for damages against defendant Bohol Land Transportation Co. for the death of Jovitos brother Nicasio, Jr. and for serious physical injuries obtained by Jovito when the bus in which they were riding, fell off a deep precipice. Defendant bus company moved to dismiss the complaint on the ground that in the criminal case earlier filed against its bus driver, plaintiffs intervened through their counsel but did not reserve therein their right to file a separate action for damages. The lower court sustained defendants motion to dismiss. On appeal, this Court held that the dismissal was improper and ruled thus: True, appellants, through private prosecutors, were allowed to intervene whether properly or improperly we do not decide here in the criminal action against appellees driver, but if that amounted inferentially to submitting in said case their claim for civil indemnity, the claim could have been only against the driver but not against appellee who was not a party therein. As a matter of fact, however, inspite of appellees statements to the contrary in its brief, there is no showing in the record before Us that appellants made of record their claim for damages against the driver or his employer; much less does it appear that they had attempted to prove such damages. The failure of the court to make any pronouncement in its decision concerning the civil liability of the driver and/or of his employer must therefore be due to the fact that the criminal action did not involve at all any claim for civil indemnity.[14] (Emphasis supplied) Later, in Jarantilla, this Court ruled that the failure of the trial court to make any pronouncement, favorable or unfavorable, as to the civil liability of the accused amounts to a reservation of the right to have the civil liability litigated and determined in a separate action, for nowhere in the Rules of Court is it provided that if the court fails to determine the civil liability, it becomes no longer enforceable.[15] Nothing in the records at hand shows that private respondent ever attempted to enforce its right to recover civil liability during the prosecution of the criminal action against petitioners.

Petitioners correctly raised in their third assigned error that private respondents counsel made a formal entry of appearance in Criminal Case No. 14,126. [16] However, it is undisputed that in the early proceedings of the criminal action, private respondents counsel moved to withdraw his appearance. The trial court, in its Order dated September 4, 1987, granted such motion. [17] This Court has previously held that the appearance of the offended party in the criminal case through a private prosecutor may not per se be considered either as an implied election to have his claim for damages determined in said proceedings or a waiver of his right to have it determined separately.[18] He must actually or actively intervene in the criminal proceedings as to leave no doubt with respect to his intention to press a claim for damages in the same action.[19] In the present case, it can be said with reasonable certainty that by withdrawal of appearance of its counsel in the early stage of the criminal proceedings, the private respondent, indeed, had no intention of submitting its claim for civil liability against petitioners in the criminal action filed against the latter. Furthermore, private respondents right to file a separate complaint for a sum of money is governed by the provisions of Article 31 of the Civil Code, to wit: Article 31. When the civil action is based on an obligation not arising from the act or omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter. In the present case, private respondents complaint against petitioners was based on the failure of the latter to comply with their obligation as spelled out in the Trust Receipt executed by [20] them. This breach of obligation is separate and distinct from any criminal liability for misuse and/or misappropriation of goods or proceeds realized from the sale of goods, documents or instruments released under trust receipts, punishable under Section 13 of the Trust Receipts Law (P.D. 115) in relation to Article 315(1), (b) of the Revised Penal Code. Being based on an obligation ex contractu and not ex delicto, the civil action may proceed independently of the criminal proceedings instituted against petitioners regardless of the result of the latter.[21] WHEREFORE, the petition is denied and the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs. SO ORDERED.

and Manuel P. Lucente before the Regional Trial Court of Cebu City, Branch 19, docketed as Civil Case No. CEB-4895. Respondent alleged that petitioner corporation is engaged in the business of selling imported welding rods and alloys. On June 17, 1983, it opened Commercial Letter of Credit No. 4998 with respondent bank, in the amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at the time the transaction was consummated. The letter of credit was opened to purchase various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A., as evidenced by a Pro-Forma Invoice dated March 10, 1983. Petitioner corporation put up a marginal deposit of P50,414.00 from the proceeds of a separate clean loan. As an additional security, and as a condition for the approval of petitioner corporations application for the opening of the commercial letter of credit, respondent bank required petitioners Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement to the extent of P400,000.00, excluding interest, in favor of respondent bank. Petitioner Lucente also executed a Deed of Assignment in the amount of P35,000.00 in favor of respondent bank to cover the amount of petitioner corporations obligation to the bank. Upon compliance with these requisites, respondent bank opened an irrevocable letter of credit for the petitioner corporation. To secure the indebtedness of petitioner corporation, respondent bank required the execution of a Trust Receipt in an amount equivalent to the letter of credit, on the condition that petitioner corporation would hold the goods in trust for respondent bank, with the right to sell the goods and the obligation to turn over to respondent bank the proceeds of the sale, if any. If the goods remained unsold, petitioner corporation had the further obligation to return them to respondent bank on or before November 23, 1983. Upon arrival of the goods in the Philippines, petitioner corporation took possession and custody thereof. On November 23, 1983, the maturity date of the trust receipt, petitioner corporation defaulted in the payment of its obligation to respondent bank and failed to turn over the goods to the latter. On July 24, 1984, respondent bank demanded that petitioners, as entrustees, turn over the goods subject of the trust receipt. On September 24, 1984, petitioners turned over the subject goods to the respondent bank. On July 31, 1985, in the presence of representatives of the petitioners and respondent bank, the goods were sold at public auction. The goods were sold for P30,000.00 to respondent bank as the highest bidder. The proceeds of the auction sale were insufficient to completely satisfy petitioners outstanding obligation to respondent bank, notwithstanding the application of the time deposit account of petitioner Lucente. Accordingly, respondent bank demanded that petitioners pay the remaining balance of their obligation. After petitioners failed to do so, respondent bank instituted the instant case to collect the said deficiency. On March 31, 1997, after trial on the merits, the trial court rendered a decision, the dispositive portion of which reads: WHEREFORE, foregoing premises considered, Judgment is hereby rendered in favor of the plaintiff and against the defendant by (1) ordering the defendant to pay jointly and severally to the plaintiff the sum of P292,172.23 representing the defendants obligation, as of April 17, 1986; (2) to pay the interest at the rate of 19% per annum to be reckoned from April 18, 1986 until [the] obligation is fully paid; (3) to pay service charge at the rate of 2% per annum starting April 18, 1986; (4) to pay the sum equivalent to 10% per annum of the total amount due collectible by way of Attorneys Fees; (5) to pay Litigation Expenses of P3,000.00 and to pay the cost of the suit; and (6) to pay penalty charge of 12% per annum.

FIRST DIVISION [G.R. No. 159622. July 30, 2004] LANDL & COMPANY (PHIL.) INC., PERCIVAL G. LLABAN and MANUEL P. LUCENTE, petitioners, vs.METROPOLITAN BANK & TRUST COMPANY, respondent.

YNARES-SANTIAGO, J.: At issue in this petition for review on certiorari is whether or not, in a trust receipt transaction, an entruster which had taken actual and juridical possession of the goods covered by the trust receipt may subsequently avail of the right to demand from the entrustee the deficiency of the amount covered by the trust receipt. As correctly appreciated by the Court of Appeals, the undisputed facts of this case are as follows: Respondent Metropolitan Bank and Trust Company (Metrobank) filed a complaint for sum of money against Landl and Company (Phil.) Inc. (Landl) and its directors, Percival G. Llaban

SO ORDERED.[1] Petitioners appealed to the Court of Appeals, raising the issues of: (1) whether or not respondent bank has the right to recover any deficiency after it has retained possession of and subsequently effected a public auction sale of the goods covered by the trust receipt; (2) whether or not respondent bank is entitled to the amount of P3,000.00 as and for litigation expenses and costs of the suit; and (3) whether or not respondent bank is entitled to the award of attorneys fees. On February 13, 2003, the Court of Appeals rendered a decision affirming in toto the decision of the trial court.[2] Hence, this petition for review on the following assignment of errors: I. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURTS RULING THAT RESPONDENT HAD THE RIGHT TO CLAIM THE DEFICIENCY FROM PETITIONERS NOTWITHSTANDING THE FACT THAT THE GOODS COVERED BY THE TRUST RECEIPT WERE FULLY TURNED OVER TO RESPONDENT. II. THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN AFFIRMING THE TRIAL COURTS PATENTLY ERRONEOUS AWARD OF PRINCIPAL OBLIGATION, INTEREST, ATTORNEYS FEES, AND PENALTY AGAINST THE PETITIONERS. [3] The instant petition is partly meritorious. The resolution of the first assigned error hinges on the proper interpretation of Section 7 of Presidential Decree No. 115, or the Trust Receipts Law, which reads: Sec. 7. Rights of the entruster. - The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree. The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustees indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustee's last known business address.

There is no question that petitioners failed to pay their outstanding obligation to respondent bank. They contend, however, that when the entrustee fails to settle his principal loan, the entruster may choose between two separate and alternative remedies: (1) the return of the goods covered by the trust receipt, in which case, the entruster now acquires the ownership of the goods which the entrustee failed to sell; or (2) cancel the trust and take possession of the goods, for the purpose of selling the same at a private sale or at public auction. Petitioners assert that, under this second remedy, the entruster does not acquire ownership of the goods, in which case he is entitled to the deficiency. Petitioners argue that these two remedies are so distinct that the availment of one necessarily bars the availment of the other. Thus, when respondent bank availed of the remedy of demanding the return of the goods, the actual return of all the unsold goods completely extinguished petitioners liability. [4] Petitioners argument is bereft of merit. A trust receipt is inextricably linked with the primary agreement between the parties. Time and again, we have emphasized that a trust receipt agreement is merely a collateral agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of Appeals ,[5]we ruled: 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 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. x x x. 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.[6] The Trust Receipts Law was enacted to safeguard commercial transactions and to offer an additional layer of security to the lending bank. 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, 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 the Trust Receipts Law.[7] The second paragraph of Section 7 provides a statutory remedy available to an entruster in the event of default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee. More specifically, the entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time. The law further provides that the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustee's indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. The trust receipt between respondent bank and petitioner corporation contains the following relevant clauses:

The BANK/ENTRUSTER may, at any time, and only at its option, cancel this trust and take possession of the goods/documents/instruments subject hereof or of the proceeds realized therefrom wherever they may then be found, upon default or failure of the ENTRUSTEE to comply with any of the terms and conditions of this Trust Receipt or of any other agreement between the BANK/ENTRUSTER and the ENTRUSTEE; and the BANK/ENTRUSTER having taken repossession of the goods/documents/instruments object hereof may, on or after default, give at least five (5) days previous notice to the ENTRUSTEE of its intention to sell the goods/documents/instruments at public or private sale, at which public sale, it may become a purchaser; Provided, that the proceeds of any such sale, whether public or private, shall be applied: (a) to the payment of the expenses thereof; (b) to the payment of the expenses of retaking, keeping and storing the goods/documents/instruments; (c) to the satisfaction of all of the ENTRUSTEEs indebtedness to the BANK/ENTRUSTER; and Provided, further, that the ENTRUSTEE shall receive any surplus thereof but shall, in any case, be liable to the BANK/ENTRUSTER for any deficiency. x x x No act or omission on the part of the BANK/ENTRUSTER shall be deemed and considered a waiver of any of its rights hereunder or under any related letters of credit, drafts or other documents unless such waiver is expressly made in writing over the signature of the BANK/ENTRUSTER.[8] The afore-cited stipulations in the trust receipt are a near-exact reproduction of the second paragraph of Section 7 of the Trust Receipts Law. The right of repossession and subsequent sale at public auction which were availed of by respondent bank were rights available upon default, and which were conferred by statute and reinforced by the contract between the parties. The initial repossession by the bank of the goods subject of the trust receipt did not result in the full satisfaction of the petitioners loan obligation. Petitioners are apparently laboring under the mistaken impression that the full turn-over of the goods suffices to divest them of their obligation to repay the principal amount of their loan obligation. This is definitely not the case. In Philippine National Bank v. Hon. Gregorio G. Pineda and Tayabas Cement Company, Inc.,[9] we had occasion to rule: PNBs possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished. (Citations omitted, underscoring supplied)[10] Indeed, in the 1987 case of Vintola v. Insular Bank of Asia and America ,[11] we struck down the position of the petitioner-spouses that their obligation to the entruster bank had been extinguished when they relinquished possession of the goods in question. Thus:

A trust receipt 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 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. xxx xxx xxx

Contrary to the allegations 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. x x x 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. x x x 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 IBAAs right to recover the advances it had made under the Letter of Credit. (Citations omitted.)[12] Respondent banks repossession of the properties and subsequent sale of the goods were completely in accordance with its statutory and contractual rights upon default of petitioner corporation. The second paragraph of Section 7 expressly provides that the entrustee shall be liable to the entruster for any deficiency after the proceeds of the sale have been applied to the payment of the expenses of the sale, the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments, and the satisfaction of the entrustees indebtedness to the entruster. In the case at bar, the proceeds of the auction sale were insufficient to satisfy entirely petitioner corporations indebtedness to the respondent bank. Respondent bank was thus well within its rights to institute the instant case to collect the deficiency. We find, however, that there has been an error in the computation of the total amount of petitioners indebtedness to respondent bank. Although respondent bank contends that the error of computation is a question of fact which is beyond the power of this Court to review, [13]the total amount of petitioners indebtedness in this case is not a question of fact. Rather, it is a question of law, i.e., the application of legal principles for the computation of the amount owed to respondent bank, and is thus a matter properly brought for our determination.

The first issue involves the amount of indebtedness prior to the imposition of interest and penalty charges. The initial amount of the trust receipt of P218,733.92, was reduced to P192,265.92 as of June 14, 1984, as per respondents Statement of Past Due Trust Receipt dated December 1, 1993.[14] This amount presumably includes the application of P35,000.00, the amount of petitioner Lucentes Deed of Assignment, which amount was applied by respondent bank to petitioners obligation. No showing was made, however, that the P30,000.00 proceeds of the auction sale on July 31, 1985 was ever applied to the loan. Neither was the amount of P50,414.00, representing the marginal deposit made by petitioner corporation, deducted from the loan. Although respondent bank contends that the marginal deposit should not be deducted from the principal obligation, this is completely contrary to prevailing jurisprudence allowing the deduction of the marginal deposit, thus: 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. It is only fair then that the importers 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 place 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).[15] The net amount of the obligation, represented by respondent bank to be P292,172.23 as of April 17, 1986, would thus be P211,758.23. To this principal amount must be imposed the following charges: (1) 19% interest per annum, in keeping with the terms of the trust receipt; [16]and (2) 12% penalty per annum, collected based on the outstanding principal obligation plus unpaid interest, again in keeping with the wording of the trust receipt.[17] It appearing that petitioners have paid the interest and penalty charges until April 17, 1986, the reckoning date for the computation of the foregoing charges must be April 18, 1986. A perusal of the records reveals that the trial court and the Court of Appeals erred in imposing service charges upon the petitioners. No such stipulation is found in the trust receipt. Moreover, the trial court and the Court of Appeals erred in computing attorneys fees equivalent to 10% per annum, rather than 10% of the total amount due. There is no basis for compounding the interest annually, as the trial court and Court of Appeals have done. This amount would be unconscionable. Finally, Lucente and Llabans contention that they are not solidarily liable with petitioner corporation is untenable. As co-signatories of the Continuing Suretyship Agreement, they bound themselves, inter alia, to pay the principal sum in the amount of not more than P400,000.00; interest due on the principal obligation; attorneys fees; and expenses that may be incurred in collecting the credit. The amount owed to respondent bank is the amount of the principal, interest, attorneys fees, and expenses in collecting the principal amount. The Continuing Suretyship Agreement expressly states the nature of the liability of Lucente and Llaban:

The liability of the SURETY shall be solidary, direct and immediate and not contingent upon the banks pursuit of whatever remedies the BANK have [sic] against the Borrower or the securities or liens the BANK may possess and the SURETY will at any time, whether due or not due, pay to the BANK with or withour demand upon the Borrower, any of the instruments of indebtedness or other obligation hereby guaranteed by the SURETY.[18] Solidary liability is one of the primary characteristics of a surety contract, [19] and the Continuing Suretyship Agreement expressly stipulates the solidary nature of Lucente and Llabans liability. All three petitioners thus share the solidary obligation in favor of respondent bank, which is given the right, under the Civil Code, to proceed against any one of the solidary debtors or some or all of them simultaneously.[20] WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 58193 dated February 13, 2003 is AFFIRMED with MODIFICATIONS. Accordingly, petitioners are ordered to pay respondent bank the following: (1) P211,758.23 representing petitioners net obligation as of April 17, 1986; (2) interest at the rate of 19% per annum and penalty at the rate of 12% per annum reckoned from April 18, 1986; (3) attorneys fees equivalent to 10% of the total amount due and collectible; and (4) litigation expenses in the amount of P3,000.00. The service charge at the rate of 2% per annum beginning April 18, 1986 is deleted. Costs against petitioners. SO ORDERED. THIRD DIVISION [G.R. No. 137232. June 29, 2005] ROSARIO TEXTILE MILLS CORPORATION and EDILBERTO YUJUICO, petitioners, vs. HOME BANKERS SAVINGS AND TRUST COMPANY, respondent. SANDOVAL-GUTIERREZ, J.: For our resolution is the petition for review on certiorari assailing the Decision[1] of the Court of Appeals dated March 31, 1998 in CA-G.R. CV No. 48708 and its Resolution dated January 12, 1999. The facts of the case as found by the Court of Appeals are: Sometime in 1989, Rosario Textile Mills Corporation (RTMC) applied from Home Bankers Savings & Trust Co. for an Omnibus Credit Line for P10 million. The bank approved RTMCs credit line but for only P8 million. The bank notified RTMC of the grant of the said loan thru a letter dated March 2, 1989 which contains terms and conditions conformed by RTMC thru Edilberto V. Yujuico. On March 3, 1989, Yujuico signed a Surety Agreement in favor of the bank, in which he bound himself jointly and severally with RTMC for the payment of all RTMCs indebtedness to the bank from 1989 to 1990. RTMC availed of the credit line by making numerous drawdowns, each drawdown being covered by a separate promissory note and trust receipt. RTMC, represented by Yujuico, executed in favor of the bank a total of eleven (11) promissory notes. Despite the lapse of the respective due dates under the promissory notes and notwithstanding the banks demand letters, RTMC failed to pay its loans. Hence, on January 22, 1993, the bank filed a complaint for sum of money against RTMC and Yujuico before the Regional Trial Court, Br. 16, Manila. In their answer (OR, pp. 44-47), RTMC and Yujuico contend that they should be absolved from liability. They claimed that although the grant of the credit line and the execution of the suretyship agreement are admitted, the bank gave assurance that the suretyship agreement was merely a formality under which Yujuico will not be personally liable. They argue that the importation of raw materials under the credit line was with a grant of option to them to turn-over

to the bank the imported raw materials should these fail to meet their manufacturing requirements. RTMC offered to make such turn-over since the imported materials did not conform to the required specifications. However, the bank refused to accept the same, until the materials were destroyed by a fire which gutted down RTMCs premises. For failure of the parties to amicably settle the case, trial on the merits proceeded. After the trial, the Court a quo rendered a decision in favor of the bank, the decretal part of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff and against defendants who are ordered to pay jointly and severally in favor of plaintiff, inclusive of stipulated 30% per annum interest and penalty of 3% per month until fully paid, under the following promissory notes: 90-1116 90-1320 90-1334 90-1335 90-1347 90-1373 90-1397 90-1429 90-1540 90-1569 90-0922 6-20-90 7-13-90 7-17-90 7-17-90 7-18-90 7-20-90 7-27-90 7-26-90 8-7-90 8-9-90 5-28-90 P737,088.25 (maturity) P650,000.00 P422,500.00 P422,500.00 P795,000.00 P715,900.00 P773,500.00 P425,750.00 P720,984.00 P209,433.75 P747,780.00 9-18-90 10-11-90 10-15-90 10-15-90 10-16-90 10-18-90 10-20-90 10-24-90 11-5-90 11-8-90 8-26-90

TENDER OF THE DEFECTIVE RAW MATERIALS BY THE PETITIONERS-DEFENDANTS TO THE RESPONDENT-PLAINTIFF AND THE EXPRESS STIPULATION IN THEIR CONTRACT THAT OWNERSHIP OF THE GOODS REMAINS WITH THE RESPONDENT-PLAINTIFF. III THE HONORABLE COURT OF APPEALS VIOLATED ARTICLE 1370 OF THE CIVIL CODE AND THE LONG-STANDING JURISPRUDENCE THAT INTENTION OF THE PARTIES IS PRIMORDIAL IN ITS FAILURE TO UPHOLD THE INTENTION OF THE PARTIES THAT THE SURETY AGREEMENT WAS A MERE FORMALITY AND DID NOT INTEND TO HOLD PETITIONER YUJUICO LIABLE UNDER THE SAME SURETY AGREEMENT. IV ASSUMING ARGUENDO THAT THE SURETYSHIP AGREEMENT WAS VALID AND EFFECTIVE, THE HONORABLE COURT OF APPEALS VIOLATED THE BASIC LEGAL PRECEPT THAT A SURETY IS NOT LIABLE UNLESS THE DEBTOR IS HIMSELF LIABLE. V THE HONORABLE COURT OF APPEALS VIOLATED THE PURPOSE OF TRUST RECEIPT LAW IN HOLDING THE PETITIONERS LIABLE TO THE RESPONDENT. The above assigned errors boil down to the following issues: (1) whether the Court of Appeals erred in holding that petitioners are not relieved of their obligation to pay their loan after they tried to tender the goods to the bank which refused to accept the same, and which goods were subsequently lost in a fire; (2) whether the Court of Appeals erred when it ruled that petitioners are solidarily liable for the payment of their obligations to the bank; and (3) whether the Court of Appeals violated the Trust Receipts Law. On the first issue, petitioners theorize that when petitioner RTMC imported the raw materials needed for its manufacture, using the credit line, it was merely acting on behalf of the bank, the true owner of the goods by virtue of the trust receipts. Hence, under the doctrine of res perit domino, the bank took the risk of the loss of said raw materials. RTMCs role in the transaction was that of end user of the raw materials and when it did not accept those materials as they did not meet the manufacturing requirements, RTMC made a valid and effective tender of the goods to the bank. Since the bank refused to accept the raw materials, RTMC stored them in its warehouse. When the warehouse and its contents were gutted by fire, petitioners obligation to the bank was accordingly extinguished. Petitioners stance, however, conveniently ignores the true nature of its transaction with the bank. We recall that RTMC filed with the bank an application for a credit line in the amount of P10 million, but only P8 million was approved. RTMC then made withdrawals from this credit line and issued several promissory notes in favor of the bank. In banking and commerce, a credit line is that amount of money or merchandise which a banker, merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance. [3] It is the fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customers line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.[4] It is thus clear that the principal transaction between petitioner RTMC and the bank is a contract of loan. RTMC used the proceeds of this loan to purchase raw materials from a supplier abroad. In order to secure the payment of the loan, RTMC delivered the raw materials to the bank as collateral. Trust receipts were executed by the parties to evidence this security arrangement. Simply stated, the trust receipts were mere securities. In Samo vs. People,[5] we described a trust receipt as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. [6]

The counterclaims of defendants are hereby DISMISSED. SO ORDERED. (OR, p. 323; Rollo, p. 73).[2] Dissatisfied, RTMC and Yujuico, herein petitioners, appealed to the Court of Appeals, contending that under the trust receipt contracts between the parties, they merely held the goods described therein in trust for respondent Home Bankers Savings and Trust Company (the bank) which owns the same. Since the ownership of the goods remains with the bank, then it should bear the loss. With the destruction of the goods by fire, petitioners should have been relieved of any obligation to pay. The Court of Appeals, however, affirmed the trial courts judgment, holding that the bank is merely the holder of the security for its advance payments to petitioners; and that the goods they purchased, through the credit line extended by the bank, belong to them and hold said goods at their own risk. Petitioners then filed a motion for reconsideration but this was denied by the Appellate Court in its Resolution dated January 12, 1999. Hence, this petition for review on certiorari ascribing to the Court of Appeals the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ACTS OF THE PETITIONERS-DEFENDANTS WERE TANTAMOUNT TO A VALID AND EFFECTIVE TENDER OF THE GOODS TO THE RESPONDENT-PLAINTIFF. II THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF RES PERIT DOMINO IN THE CASE AT BAR CONSIDERING THE VALID AND EFFECTIVE

In Vintola vs. Insular Bank of Asia and America ,[7] we elucidated further that a trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a security interest in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. [8] Section 3 (h) of the Trust Receipts Law (P.D. No. 115) defines a security interest as follows: (h) Security Interest means a property interest in goods, documents, or instruments to secure performance of some obligation of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. Petitioners insistence that the ownership of the raw materials remained with the bank is untenable. In Sia vs. People,[9] Abad vs. Court of Appeals,[10] and PNB vs. Pineda,[11] we held that: If under the trust receipt, the bank is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof...[12] Thus, petitioners cannot be relieved of their obligation to pay their loan in favor of the bank. Anent the second issue, petitioner Yujuico contends that the suretyship agreement he signed does not bind him, the same being a mere formality. We reject petitioner Yujuicos contentions for two reasons. First, there is no record to support his allegation that the surety agreement is a mere formality; and Second, as correctly held by the Court of Appeals, the Suretyship Agreement signed by petitioner Yujuico binds him. The terms clearly show that he agreed to pay the bank jointly and severally with RTMC. The parole evidence rule under Section 9, Rule 130 of the Revised Rules of Court is in point, thus: SEC. 9. Evidence of written agreements. When the terms of an agreement have been reduced in writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement. However, a party may present evidence to modify, explain, or add to the terms of the written agreement if he puts in issue in his pleading: (a) (b) An intrinsic ambiguity, mistake, or imperfection in the written agreement; The failure of the written agreement to express the true intent and agreement of the parties thereto; The validity of the written agreement; or

(d)

The existence of other terms agreed to by the parties or their successors in interest after the execution of the written agreement. x x x.

Under this Rule, the terms of a contract are rendered conclusive upon the parties and evidence aliunde is not admissible to vary or contradict a complete and enforceable agreement embodied in a document.[13] We have carefully examined the Suretyship Agreement signed by Yujuico and found no ambiguity therein. Documents must be taken as explaining all the terms of the agreement between the parties when there appears to be no ambiguity in the language of said documents nor any failure to express the true intent and agreement of the parties.[14] As to the third and final issue At the risk of being repetitious, we stress that the contract between the parties is a loan. What respondent bank sought to collect as creditor was the loan it granted to petitioners. Petitioners recourse is to sue their supplier, if indeed the materials were defective. WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48708 are AFFIRMED IN TOTO. Costs against petitioners. SO ORDERED. FIRST DIVISION JOSE C. TUPAZ IV and G.R. No. 145578 PETRONILA C. TUPAZ vs CA November 18, 2005 CARPIO, J.: The Case This is a petition for review [1] of the Decision[2] of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals Resolution of 18 October 2000 denied petitioners motion for reconsideration. The Facts Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were Vice-President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract with the Philippine Army to supply the latter with survival bolos. To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands (respondent bank) for two commercial letters of credit. The letters of credit were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing Incorporated [3] (Tanchaoco Incorporated) and Maresco Rubber and Retreading Corporation[4] (Maresco Corporation). Respondent bank granted petitioners application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation.

(c)

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (petitioner Jose Tupaz) signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981. On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981. After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively. Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent banks counsel [5]and its representative[6] respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 (Section 13)[7] or Trust Receipts Law (PD 115). After preliminary investigation, the then Makati Fiscals Office found probable cause to indict petitioners. The Makati Fiscals Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court) on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases. The Ruling of the Trial Court On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporations principal debt under the trust receipts. The dispositive portion of the trial courts Decision provides: WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt. However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as attorneys fees; P5,000.00 as expenses of litigation; and costs of the suit.[8]

prosecution thereof was actively handled by the private prosecutor, the Court believes that the El Oro Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP and/or the Department of National Defense the proceeds of the sale of the delivered survival bolos manufactured from the raw materials covered by the trust receipt agreements is no valid defense to the civil claim of the said complainant and surely could not wipe out their civil obligation. After all, they are free to institute an action to collect the same.[9] Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal operates to extinguish [their] civil liability and (2) at any rate, they are not personally liable for El Oro Corporations debts. The Ruling of the Court of Appeals In its Decision of 7 September 2000, the Court of Appeals affirmed the trial courts ruling. The appellate court held: It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement is distinct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and America, our Supreme Court held that acquittal in the estafa case (P.D. 115) is no bar to the institution of a civil action for collection. This is because in such cases, the civil liability of the accused does not arise ex delicto but rather based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Thus, an independent civil action to enforce the civil liability may be filed against the corporation aside from the criminal action against the responsible officers or employees. xxx [W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate to extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which they dealt both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant and principal debtor. Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver Corporation, alleging that they executed the subject documents including the trust receipt agreements only in their capacity as such corporate officers. They said that these instruments are mere pro-forma and that they executed these instruments on the strength of a board resolution of said corporation authorizing them to apply for the opening of a letter of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish the same.

In holding petitioners civilly liable with El Oro Corporation, the trial court held: [S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal action, as in fact the Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in clear and unmistakable terms that the accused signed the same as surety for the corporation and

that they bound themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in] the following words: In consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and conditions on the reverse side hereof. xxx Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not, therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum, plus 10% of the total amount due as attorneys fees, P5,000.00 as expenses of litigation and costs of suit.[10]

(2) If so (a) whether petitioners liability is solidary with El Oro Corporation; and (b) whether petitioners acquittal of estafa under Section 13, PD 115 extinguished their civil liability. The Ruling of the Court The petition is partly meritorious. We affirm the Court of Appeals ruling with the modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporations debt under the trust receipt dated 30 September 1981.

On Petitioners Undertaking Under the Trust Receipts A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent. [12] As an exception, directors or officers are personally liable for the corporations debts only if they so contractually agree or stipulate.[13] Here, the dorsal side of the trust receipts contains the following stipulation:

Hence, this petition. Petitioners contend that: 1. 2. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;] GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE; GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS SURETY AS OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND]

To the Bank of the Philippine Islands In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . before making demand upon me/us. [14] (Capitalization in the original)

3.

4.

IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID.[11]

The Issues The petition raises these issues: (1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts;

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupazs signature are the words VicePresTreasurer and under petitioner Jose Tupazs signature are the words Vice-Pres Operations. By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporations obligation. In Ong v. Court of Appeals,[15] a corporate representative signed a solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the corporations debts, thus: [P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL CORPORATION found at the end of the solidary guarantee clause.

Evidently, petitioner did not undertake to guaranty personally the payment of the principal and interest of ARMAGRIs debt under the two trust receipts. Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not personally liable for El Oro Corporations obligation. For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt. The Nature of Petitioner Jose Tupazs Liability Under the Trust Receipt Dated 30 September 1981 As stated, the dorsal side of the trust receipt dated 30 September 1981 provides: To the Bank of the Philippine Islands In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . Before making demand upon me/us. (Underlining supplied; capitalization in the original) The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation for the latters debt under that trust receipt. This is error. In Prudential Bank v. Intermediate Appellate Court ,[16] the Court interpreted a substantially identical clause[17] in a trust receipt signed by a corporate officer who bound himself personally liable for the corporations obligation. The petitioner in that case contended that the stipulation we jointly and severally agree and undertake rendered the corporate officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one signatories to the trust receipt, the solidary liability would exist between the guarantors. We held: Petitioner [Prudential Bank] insists that by virtue of the clear wording of the xxx clause x x x we jointly and severally agree and undertake x x x, and the concluding sentence on exhaustion, [respondent] Chis liability therein is solidary. xxx Our xxx 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. xxx 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; Chis participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its preparation.[18] (Underlining supplied; italicization in the original)

However, respondent banks suit against petitioner Jose Tupaz stands despite the Courts finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been exhausted. [19] Second, the benefit of excussion may be waived. [20] Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx. The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981) provided for payment of attorneys fees equivalent to 10% of the total amount due and an interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until paid xxx. [21] In the applications for the letters of credit, the parties stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum.[22] The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust receipts is based on the drafts drawn under the letters of credit. Based on the guidelines laid down in Eastern Shipping Lines, Inc. v. Court of Appeals,[23] the accrued stipulated interest earns 12% interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision will earn interest at 18% per annum until fully paid since this was the stipulated rate in the applications for the letters of credit.[24] The accounting of El Oro Corporations debts as of 23 January 1992, which the trial court used, is no longer useful as it does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro

Corporations total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula:[25] TOTAL AMOUNT DUE = [principal + interest + interest on interest] partial payments made[26] Interest = principal x 18 % per annum x no. of years from due date[27] until finality of judgment Interest on interest = interest computed as of the filing of the complaint (17 January 1984) 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 18% per annum until fully paid. In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation[28] where we also ordered the trial court to compute the amount of obligation due based on a formula substantially similar to that indicated above: The total amount due xxx [under] the xxx contract[] xxx 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.

Petitioners raise for the first time in this appeal the contention that El Oro Corporations debts under the trust receipts are not yet due and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El Oro Corporations debts fell due on 29 December 1981 and 8 December 1981, respectively. Neither is there merit to petitioners claim that the trust receipts were simulated. During the trial, petitioners did not deny applying for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under the letters of credit. WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000 with the following MODIFICATIONS: 1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September 1981 and 9 October 1981, as computed by the Regional Trial Court, Makati, Branch 144, upon finality of this Decision, based on the formula provided above; Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporations total debt under the trust receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.

2)

3)

SO ORDERED. FIRST DIVISION G. R. No. 164317 February 6, 2006 ALFREDO CHING vs. THE SECRETARY OF JUSTICE CALLEJO, SR., J.: Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof. Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank) for the issuance of commercial letters of credit to finance its importation of assorted goods.3 Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as surety, acknowledging delivery of the following goods:

Petitioner Jose Tupazs Acquittal did not Extinguish his Civil Liability The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal [w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted xxx.[29] (Emphasis supplied) Here, respondent bank chose not to file a separate civil action [30] to recover payment under the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal capacity. On the other Matters Petitioners Raise

T/R Nos. 1845

Date Granted

Maturity Date

Principal

Description of Goods

12-05-80

03-05-81

P1,596,470.05

79.9425 M/T "SDK" Brand Synthetic Graphite Electrode

1853

12-08-80

03-06-81

P198,150.67

3,000 pcs. (15 bundles) Calorized Lance Pipes One Lot High Fired Refractory Tundish Bricks 5 cases spare parts for CCM 200 pcs. ingot moulds High Fired Refractory Nozzle Bricks Synthetic Graphite Electrode [with] tapered pitch filed nipples 3,000 pcs. (15 bundles calorized lance pipes [)] Spare parts for Spectrophotometer 50 pcs. Ingot moulds 50 pcs. Ingot moulds 8 pcs. Kubota Rolls for rolling mills Spare parts for Lacolaboratory Equipment5

filed against the petitioner before the Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of said court. Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations. This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24, 1988.9The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the material allegations therein did not amount to estafa. 10 In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez,11 holding that the penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay."12 On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614. Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause to charge petitioner with violating P.D. No. 115, as petitioners liability was only civil, not criminal, having signed the trust receipts as surety. 13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in ruling: 1. That there is no evidence to show that respondent participated in the misappropriation of the goods subject of the trust receipts; 2. That the respondent is a mere surety of the trust receipts; and 3. That the liability of the respondent is only civil in nature. 14 On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing the assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115. The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately destined for sale, as this issue had already been settled in Allied Banking Corporation v. Ordoez,16where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component of a product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the trust receipts." The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its

1824

11-28-80

02-26-81

P707,879.71

1798

11-21-80

02-19-81

P835,526.25

1808 2042

11-21-80 01-30-81

02-19-81 04-30-81

P370,332.52 P469,669.29

1801

11-21-80

02-19-81

P2,001,715.17

1857

12-09-80

03-09-81

P197,843.61

1895

12-17-80

03-17-81

P67,652.04

1911 2041 2099

12-22-80 01-30-81 02-10-81

03-20-81 04-30-81 05-11-81

P91,497.85 P91,456.97 P66,162.26

2100

02-10-81

05-12-81

P210,748.00

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank. In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification" were respondent banks property. When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa6 against petitioner in the Office of the City Prosecutor of Manila. After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the Trust Receipts Law. Thirteen (13) Informations were

decision in Rizal Commercial Banking Corporation v. Court of Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal liability of the accused under P.D. No. 115. Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of Justice denied in a Resolution18 dated January 17, 2000. Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the Secretary of Justice on the following grounds: 1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE ALLEGED TRANSACTIONS. 2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE. 3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19 In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such notice."20 In its Comment on the petition, the Office of the Solicitor General alleged that A. THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE. B. THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL. C.

THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE PRESENT PETITION MUST THEREFORE BE DISMISSED.21 On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and incorporated in the petition was defective for failure to comply with the first two of the three-fold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition and mandamus was not the proper remedy of the petitioner. On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly issued for the following reasons: (a) petitioner, being the Senior VicePresident of PBMI and the signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v. Ordoez;22 and (c) petitioner was estopped from raising the City Prosecutors delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ. Thus, petitioner filed the instant petition, alleging that: I THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE. II THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23 The Court will delve into and resolve the issues seriatim. The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the deficiency in his certification of nonforum shopping should not result in the dismissal of his petition. The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential facts about pending actions concerning similar issues and parties. It asserts that petitioners failure to comply with the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v. Court of Appeals.24

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition before the appellate court is defective. The certification reads: It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such notice.25 Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said Rules. The latter provision reads in part: SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall contain the full names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved, the factual background of the case and the grounds relied upon for the relief prayed for. xxx The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom. xxx Compliance with the certification against forum shopping is separate from and independent of the avoidance of forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise provided.26 Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible. Petitioner failed to certify that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3, Rule 46 of the Revised Rules of Court. We agree with petitioners contention that the certification is designed to promote and facilitate the orderly administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed of.27 However, there must be a special circumstance or compelling reason which makes the strict application of the requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus, the CA was not informed whether, aside from the petition

before it, petitioner had commenced any other action involving the same issues in other tribunals. On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court ratiocinated: Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz: "x x x it is apropos to quote section 13 of PD 115 which states in part, viz: xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. "There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD 115. "Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115 is not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a component or a product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts. "In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our penal law. "Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil liabilities arising from the criminal offense thus, the civil liability imposed on respondent in

RCBC vs. Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115."28 Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction between PBMI and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and used the same in operating its machineries and equipment and not for resale. The OSG, for its part, submits a contrary view, to wit: 34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit. 35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any liability. Petitioners responsibility as the corporate official of PBM who received the goods in trust is premised on Section 13 of P.D. No. 115, which provides: Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. (Emphasis supplied) 36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBMs violation of P.D. No. 115.29 The ruling of the CA is correct. In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c) when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused.31 The Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the absence of probable cause, such act may be nullified by a writ of certiorari.32

Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information shall be prepared by the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is filed against the respondent despite absence of evidence showing probable cause therefor.34 If the Secretary of Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be nullified in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure.35 A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the suspect.36 However, while probable cause should be determined in a summary manner, there is a need to examine the evidence with care to prevent material damage to a potential accuseds constitutional right to liberty and the guarantees of freedom and fair play37 and to protect the State from the burden of unnecessary expenses in prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges.38 In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence. Section 4 of P.D. No. 115 defines a trust receipt transaction, thus: Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following: 1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal; or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to effect their presentation, collection or renewal. The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree. An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust receipt not contrary to the provisions of the decree.40 The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt; provided, such are not contrary to the provisions of the document. 41 In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows: And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Banks account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise. I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said goods. In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of identification as property of the BANK.42 It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43 The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v. Ordoez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if not sold or otherwise not disposed of, violate the entrustees obligation to pay the amount or to return the goods to the entruster. In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trust receipt transaction. The first is covered by the provision which refers to money received under the obligation involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which refers to merchandise received under the obligation to return it (devolvera) to the owner.46 Thus, failure of the entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes prejudice, not only to another, but more to the public interest.47 The Court rules that although petitioner signed the trust receipts merely as Senior VicePresident of PBMI and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115. The penalty clause of the law, Section 13 of P.D. No. 115 reads: Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code.1wphi1 If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense. The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in said Article 315, which reads:

ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned hereinbelow shall be punished by: 1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty years. In such cases, and in connection with the accessory penalties which may be imposed and for the purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion temporal, as the case may be; 2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is over 6,000 pesos but does not exceed 12,000 pesos; 3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such amount is over 200 pesos but does not exceed 6,000 pesos; and 4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided that in the four cases mentioned, the fraud be committed by any of the following means; xxx Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such officers or employees are vested with the authority and responsibility to devise means necessary to ensure compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible share in the violations of the law.48 If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for a crime punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.50 A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees of such corporation or other persons responsible for the offense, only such individuals will suffer such penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime.52

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their relationship to the corporation, they had the power to prevent the act.53 Moreover, all parties active in promoting a crime, whether agents or not, are principals.54 Whether such officers or employees are benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact. In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself behind a corporation where he is the actual, present and efficient actor.55 IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner. SO ORDERED.