RCBC v. Alfa RTW Manufacturing Corp., et al.

,
G.R. No. 133877
November 14, 2001

FACTS: Respondent applied for four Letters of Credit with petitioner to facilitate its purchase
of raw materials for its garments business. Upon said letters of credit, corresponding bill of
exchange of various amounts were drawn and charged to account of Alfa. Alfa had executed 4
Trust Receipts stipulating that it had received in trust for RCBC. When the obligations became
due, RCBC demanded payment citing 2 Comprehensive Surety Agreements allegedly executed
by the individual defendants. Under such surety agreement, it was essentially agreed that Alfa
and the signatory officers jointly guarantee the punctual payment of their obligation provided
that the liability of the individual defendants and Alfa shall not exceed the sum of P4 Million and
P7.5 Million and such interest as may accrue thereon and expenses as may be incurred by RCBC.
Upon default of payment, RCBC filed a civil case before RTC Makati for a sum of money
against Alfa and the individual defendants. The trial court ordered the defendants to pay RCBC
more than P18 Million inclusive of the interest and other legal fees. On appeal, CA affirmed the
decision of the trial court but modified the amount to only P3 Million inclusive of the stipulated
interest and other legal fees.

ISSUE: Whether or not the Court of Appeals erred in awarding to RCBC the minimal sum of P3
Million instead of P18 Million granted by the trial court

RULING: YES. The appellate court disregarded the parties’ stipulations in their contracts of
loan, specifically, those pertaining to the agreed interest rates, service charges and penalties in
case of any breach thereof. CA failed to apply the time-honored doctrine that which is agreed to
in a contract is the law between the parties. Thus, the obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. The
Court cannot vary the terms and conditions therein stipulated unless such stipulation is contrary
to law, morals, good customs, public order or public policy.

The present case involves an obligation arising from a letter of credit-trust receipt
transaction. Under this arrangement, a bank extends to a borrower a loan covered by the letter of
credit, with the trust receipt as security of the loan. In contracts contained in trust receipts, the
contracting parties may establish agreements, terms and conditions they may deem advisable,
provided they are not contrary to law, morals or public order. In the computation of interest, the
principal amount of loans corresponding to each trust receipt must earn an interest rate of 16%
per annum with the stipulated service charge of 2% per annum on the loan principal or the
outstanding balance thereof, from the date of execution until finality of court’s Decision. A
penalty of 6% per annum of the amount due and unpaid must also be imposed computed from
the date of demand until the finality of court’s Judgment. The interest of 16% per annum, as
long as unpaid, also earns interest which is computed from the date of filing of the complaint
until finality of the court’s decision. From such finality the total unpaid amount (principal +
interest + service charge + penalty + interest on the interest) computed shall earn interest of
12% per annum until satisfied.